CAI International, Inc. (CAI) on Q1 2021 Results - Earnings Call Transcript

Operator: Good day and thank you for standing by. Welcome to the CAI 2021 First Quarter Earnings Conference Call. Please be advised that today’s conference is being recorded. I would now like to hand the conference over to your speaker today, David Morris, Chief Accounting Officer. Please go ahead. David Morris: Thank you. Good afternoon and thank you for joining us today. Certain statements made during this conference call maybe forward-looking and are made pursuant to the Safe Harbor provisions of Section 21E of the Securities Exchange Act of 1934 and involve risks and uncertainties that could cause actual results to differ materially from our current expectations including, but not limited to, economic conditions, expected results, customer demand, increased competition and others. We refer you to the documents that CAI International has filed with the Securities and Exchange Commission, including its annual report on Form 10-K, its quarterly reports filed on Form 10-Q and its reports on Form 8-K. These documents contain additional important factors that could cause actual results to differ from current expectations and from forward-looking statements contained in this conference call. Tim Page: Thanks David. Good afternoon and welcome to CAI’s first quarter 2021 earnings conference call. We are very pleased with the exceptional performance CAI achieved in the first quarter. Net income from continuing operations was a record $32.5 million. Our book value per common share increased 6% during the quarter, and we achieved an exceptional return on common equity of 21.3%. David is going to provide some additional color on our performance during Q1. So I'm going to focus my comments on the current market and our expectations for the remainder of the year. Demand for containers continues to be exceptional, and there are no signs of abating. Drewry current forecast for container shipping growth in 2021 is 6%. That level of growth alone would be the highest level we have experienced in a number of years. But there are additional factors that have been contributing to increasing container demand as has been well documented in the press every aspect of the global supply chain is operating at capacity, shipping, rail, trucking, warehousing, any hiccup anywhere results in the shipping companies being forced to leave empty containers behind when they return to China resulting in a shortage in China and the need to lease new containers to replace that capacity. Capacity is under such pressure that a single ship grounding in the Suez Canal disrupted the China Europe trade lane to the extent that a number of shipping companies had to scramble to find containers deal with the extended transit time. Several of our major customers report that virtually every ship leaving China and other export areas is fully loaded up because of the tight failing schedules and the need to turn ships quickly they are unable to wait for all the empty containers and they leave with a 5% to 8% fewer containers on the outbound leg than they were there on the inbound leg. So clearly, besides strong trade growth supply chain and efficiencies are part of the story for container demand today, which leads to the obvious question what's going to happen when the inefficiencies begin to work their way out. David Morris: Thank you Tim and good afternoon everyone. We have enjoyed an exceptionally strong quarter with an increase in utilization, strong customer demand for both new and depot equipment and a significant increase in gain on sale of equipment. As a result, we recognized record net income from continuing operations for the quarter of $32.5 million or $1.85 per fully diluted share. As we mentioned in our earnings release, the run rate of our business exiting Q1 was robust, and we anticipate that our Q2 net income will be at or slightly above that of Q1. Total leasing revenue in Q1 was $80.8 million, slightly less than Q4, 2020 due to there being two less billing days in the quarter. Although we have invested nearly $130 million in the first quarter of 2021 we expect revenue in Q2 to only increase slightly. During Q1 we recognize several million of revenue from a customer that will not recur in Q2, partially offsetting some of the gains we expect to achieve from the increase in billing days and the new investment. It is also worth noting that about two thirds of the new leases we put in place in Q1 were financed. While we target the same bottom line returns for finance and operating leases finance lease revenue will typically only be about 70% of what a similar return operating lease would be. We currently have about 280 million of new leases booked for Q2 and we expect the proportion of finance leases to be similar in Q2 to Q1. Operator: Thank you. And your first question comes from the line of Michael Brown with KBW. Your line is open. Michael Brown: Thank you, operator. Tim I just wanted to start with your market commentary. I thought that was a really comprehensive overview of a lot of the tailwinds that are supporting the container leasing market. As I parse through what you're saying it sounds like there's just a lot of secular tailwind that can continue to play out over time. But, if you had to nail down how long the market can stay as tight and strong as it is currently, is it clear to expect that the market will stay relatively similar through the balance of 2021? Tim Page: I think at a minimum, it'll stay that way. There's no indication from manufacturers that they're going to increase container production. There's no indication from the shipping companies that they expect to see any easing of the tightness of supply that they're dealing with and as I said, I think that as the economy's open up, it's only logical that you're going to see some level of increasing consumer spend and business spend. There is huge sections of the world economy that are still effectively shut down right now. So I think we have to step back and remember a lot of global trade moves in places other than just the U.S. and Europe. So our expectation is that the horizon looks pretty good to us over the next like I said, at a minimum through the end of this year and likely well beyond that. Michael Brown: Yes. That's helpful. Thank you. So you've got CapEx of 350 million. It sounded like through with some mortgage dipping into the third quarter if you had to take a stab at the full year, where do you think CapEx could ultimately go or is it just something that you really can't nail down just given the fact that it's really limited by what the factory production ultimately is? Tim Page: 350 isn't the CapEx. That's just what we have least we have CapEx beyond that. I would say that our expectation is that we'll have a record year in terms of investment. So more than what we did in 2018. But that's not all committed to yet and a lot of its just has to do with how the manufacturers play out and how they ultimately handle allocating production capacity to various container leftovers and shipping companies. Michael Brown: And then, just to change gears a little bit, to get your thoughts on the very clear difference between the fundamental outlook that you've been talking about and that your results show and really the way the stock has performed kind of recently and again I would say just the more recent periods but the stocks just trading at 1.3 times book value, a little bit over book value here, but you just put up 21% ROEs and just a very favorable outlook from here which would certainly argue for a much stronger valuation. So just curious what's your thoughts on that and obviously today like today, where the stocks down there's just a little bit perplexing and just interested to hear your thoughts on the stock and if it kind of gets you a little bit more attracted to ramping up buybacks if possible? Tim Page: Well, I mean it's perplexing to us as well. But, we recognize also that our sector is pretty, our container leasing us and on the other public companies are pretty small drop in the pool of investor interest in the world and in the grand scheme of things we're all pretty small amount of volume that trades. So there is obviously relatively few people can deciding to take profits or whatever. It can have an impact on the price and but I think generally we think that the stocks has great value, and we think the long term prospects are very good and we'll continue as we have, we'll continue to evaluate whether the best use of our capital at any point in time is to repurchase shares or invest in containers and they're not necessarily mutually exclusive. So, we'll just do the math and figure out what makes the most sense at any point in time. We've said a number of times we're committed to using all the levers we have to increase shareholder returns and that includes dividends, stock buybacks and investment, and we'll continue to have that philosophy. Michael Brown: Thanks Tim, I will leave it there. Thanks for taking my questions. Operator: And your next question comes from the line of Bob Napoli with William Blair. Your line is open. Bob Napoli: Thank you guys for the questions. So I mean having watched this industry for a long time, there have been times when the industry was healthy, and it lasted for several years, and then there are times when somebody decides they want to go for market share and takes the pricing. Are you seeing any signs Tim of maybe a market share or irrational competition? Or what do you think no, other than a reversal when the macro could change the outlook for your business for the negative? Tim Page: I'm not really seeing any of that. I mean the returns that are available, and given that everyone is dealing with restricted supply. There is really no reason to go crazy and then you can basically lease pretty much whatever you get at very attractive returns. So there is no pressure to do anything different. And the determination of who, oftentimes of who wins a particular transaction has more to do with do you have the equipment available rather than what's your price is because the returns are good as we've seen from one of our peers announcing today they're generating very-very high returns as we are and really everybody in the industry is. So absent a complete shift in behavior from the container manufacturers which no one seems to think that's likely, it would take them for willing to produce containers, it would take them going after market share to produce containers well in excess of the demand for there even to be an opportunity for somebody to have an excess of containers and just want to push the market on price. Bob Napoli: Thank you and what are the current lease rates? What is the gap versus the leases that are running off today? Tim Page: Well it mean the gaps are pretty significant. But as all things oftentimes just like in maybe in real estate, you just because of the lease rate that runs out, you don't necessarily always get all the way back to what market is if you're walking in leasing spaces brand new. There is amend and extend and increase and extend type things that go on all the time or trade this for different, doing something different on a different lease. So renewal rates are obviously better than they would have been a year or two ago, but they're not at the same level as brand new rates. And I'd rather not get into specifics because it's very customer specific as to what goes on. Bob Napoli: Thank you. That makes sense. And then I'm sorry, I missed the very beginning what were the average term? What are the average length of the leases that you're putting on currently? Tim Page: Though in the second quarter was a little less than 10 years. Bob Napoli: So the visibility to your earnings obviously that increases the quality of earnings and the visibility of earnings over the next couple years of higher earnings is relatively locked in somewhat locked in, I guess, is that a fair --? Tim Page: Relatively locked in, particularly when you put into context, that in 2017 and 18 we put billion one of new leases in place that at that time had roughly nine year average lease terms. So we're building on top of that. Everything we did the second half of last year and this year is building on top of that. So we have a huge percentage of our lease portfolio that has very long term lease rates, very long lease terms associated with it. Bob Napoli: Just given that why not like double your dividend? I mean it seems like the dividend relative to be locked in earnings power is pretty small. Tim Page: It's a certainly that's been a topic of conversation and that's something that I wouldn't necessarily rule that out in the future. We just didn't do it this quarter. So as I said, it comes down to our evaluating what's the best use of the capital and what do we think we're going to need in the way of capital equity capital for investment. Bob Napoli: For growth, yes. Thank you. Good times in the leasing industry, appreciate it. Nice execution. Tim Page: Thank you. Operator: And your next question comes from the line of Dan Day with B. Riley Securities. Your line is open. Dan Day: Afternoon guys. Thanks for taking my question. Just first of all, maybe, if you could just provide a little commentary on the rationale for concentrating so heavily in finance leases as opposed to operating leases? Thanks. Tim Page: Well part of it is just responding to the customer's desire to lock in containers for a long period of time. A number of the leases that get categorized as finance leases are actually operating leases that become finance leases because of gap rules, not because of the customer. So we have leases that are operating leases that are 13-14 years in duration where we will own the container at the end the life. But because of gas because of either triggering the 75% or 90% rules relative to life of container and total value of the lease payments they become finance leases. So there is a part of that finance lease portfolio is true. Finance leases where the customer owns a container at end of the term and part of that finance lease portfolio is very long term operating leases. Dan Day: Got it. Tim Page: It's all in response to what the customer wants. We're not, well we do have an interest in having as long a lease term as possible, given the container prices today. But it's really customer driven at the end of the day. Dan Day: Got it. Thanks. And then just on the balance sheet, you started to mention it towards the end of the last question, how do you kind of think about where you're at on a leverage situation right now we're using maybe more in the preferred market, etc, etc, just thinking about there? Thanks. Tim Page: Well, we're well below 3x times levered and at the present time we don't need any excess capital or additional capital. So I don't see us going into the preferred market anytime soon as a result of that. So we're generating cash that's sufficient to meet our investment needs and cover what the amounts of capital we think we'll be returning to shareholders over the next 12 to 18 months. Dan Day: Got it. Thanks and then just one last one on the new box prices, it seems we're kind of stuck at this 3,500 level, given your outlook that doesn't seem like things are going to get better for all this year. Is there a situation where that takes another leg up to 4,000 or we kind of capped out on the rise in new container prices? Tim Page: Well, it's hard to say. I mean demand stays really strong, there is inflationary pressure in China. Steel costs have gone up. Those haven't really been passed through because they have the price, container price that the manufacturers are getting was already pretty lofty. And their returns have been very good. But depending on what happens with inflation, it's not inconceivable that container prices could go up. And in the grand scheme of things rising asset prices are always good for an asset owner. So it's to be seen whether or not there will be any upward pressure on container prices. Dan Day: Got it. Thanks Tim. Really appreciate. Appreciate all the color here and best of luck. Tim Page: Thank you. Operator: Thank you, speakers. I am showing no further questions at this time. I will now hand it back over to Timothy Page, Interim President and Chief Executive Officer for the closing remarks. Tim Page: We just like to thank everybody for their continuing interest and we look forward to speaking with you again next quarter. Bye. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
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CAI International, Inc. Goes Public and Caris Life Sciences' Stock Surges

  • CAI International, Inc. is preparing to go public on the NASDAQ, offering 16.8 million shares at $21 each.
  • Caris Life Sciences, trading under the symbol CAI on Nasdaq, saw its stock price surge over 32% post-IPO.
  • The broader market shows resilience with significant movements in stocks like Hasbro, Circle, and Amazon amidst geopolitical tensions and economic decisions.

CAI International, Inc. is preparing to go public on the NASDAQ, offering 16.8 million shares at $21 each. This move marks a significant step for the company as it enters the public market. CAI International is a global transportation finance company, specializing in leasing and managing shipping containers and railcars. The company competes with other major players in the logistics and transportation sector.

Caris Life Sciences, trading under the symbol CAI on Nasdaq, recently made a notable debut in the stock market. The company's initial public offering was priced at $21 per share, and it quickly rose over 32% to reach $27.85 per share. This surge highlights investor confidence in Caris Life Sciences' innovative approach to medical technology, particularly its use of AI algorithms in blood tests for early disease detection.

In the broader market, other companies are also experiencing significant movements. Hasbro's shares increased by 1.3% as the company undergoes restructuring, including laying off 3% of its workforce due to tariff impacts. Meanwhile, Circle's stock surged 16% following the passage of stablecoin-friendly legislation in Congress, and Amazon's shares rose by 0.88% after CEO Andy Jassy emphasized the transformative potential of artificial intelligence.

Despite geopolitical tensions in the Middle East and the anticipation of the Federal Reserve's interest rate decision, the markets remain stable. The price of oil has climbed above $73 per barrel, and the S&P 500 is nearing its all-time high, with the SPDR S&P 500 ETF (SPY) up 0.32%. The expectation is that the Federal Reserve will maintain current interest rates, despite President Trump's preferences.

CAI's stock is currently priced at $27.70, reflecting an increase of approximately 6.78% from the previous trading session. The stock has fluctuated between a low of $26.45 and a high of $28.11 during the day. Over the past year, CAI has reached a high of $30.70 and a low of $25.56. The company's market capitalization is approximately $7.85 billion, with a trading volume of 1,727,255 shares on the NYSE:CAI.

CAI International, Inc. Set to Debut on NASDAQ

  • CAI International, Inc. (NYSE:CAI) is transitioning from the NYSE to NASDAQ, offering around 23.5 million shares with a market capitalization of approximately $1.32 billion.
  • The IPO market in June 2025 is anticipated to be vibrant, influenced by the success of companies like CoreWeave (NASDAQ:CRWV) which saw a 275% increase since its debut.
  • Despite the excitement, the IPO market's volatility is a reminder for investors to proceed with caution, especially with IPOs receiving significant initial hype.

CAI International, Inc. is set to make its debut on the NASDAQ, offering around 23.5 million shares. The company, currently trading on the NYSE under the symbol CAI, is involved in the leasing and management of shipping containers and railcars. With a market capitalization of approximately $1.32 billion, CAI is a significant player in the logistics industry.

The IPO market in June 2025 is expected to be vibrant, with several companies, including CAI, making their public market debut. This excitement is partly due to the impressive performance of CoreWeave (NASDAQ:CRWV), which has seen its shares surge by 275% since its Nasdaq debut in March. Such performance indicates a strong demand for new stock issues, which could benefit CAI's upcoming IPO.

Despite the positive outlook, the IPO market is known for its volatility. While some IPOs, like CoreWeave, achieve significant gains quickly, others may not perform as well. This highlights the importance of caution for investors, especially with IPOs that receive substantial hype in their initial trading days. CAI's current stock price on the NYSE is $56, with a slight increase of 1.79% today, reflecting some investor interest.

CAI's stock has experienced a range of prices over the past year, with a high of $56.215 and a low of $30.04. This fluctuation underscores the unpredictable nature of stock investments, particularly in the context of IPOs. As CAI prepares to go public on the NASDAQ, investors will be closely watching its performance, considering its current trading volume of 207,723 shares.

As the IPO market heats up, CAI's move to the NASDAQ is a significant event for the company and its investors. The decision on whether to invest in CAI's IPO will depend on various factors, including market conditions and investor sentiment. With the logistics industry playing a crucial role in global trade, CAI's performance on the NASDAQ will be closely monitored by market participants.