CAI International, Inc. Reports Results for the Third Quarter of 2019

CAI International, Inc. (CAI) (NYSE: CAI), one of the world’s leading transportation finance and logistics companies, today reported results for the third quarter of 2019.

Summary

• Net income from continuing operations attributable to CAI common stockholders for the third quarter of 2019 was $13.0 million, or $0.74 per fully diluted share, compared to $12.3 million, or $0.69 per fully diluted share, for the second quarter of 2019.
• As was previously announced, the company impaired its railcar fleet by $25.6 million, resulting in a $19.9 million loss for the quarter from discontinued operations. Overall, the company reported a loss of $7.0 million, or $0.40 per fully diluted share, for the third quarter of 2019.
• CAI is engaged in ongoing discussions with potential purchasers regarding the sale of its railcar fleet. As a result, the company continues to account for its railcar business as a discontinued operation.
• Container lease revenue for the third quarter of 2019 was $77.3 million, an increase of 2% compared to the second quarter of 2019.
• Logistics revenue for the third quarter of 2019 was $30.3 million, an increase of 2% compared to the second quarter of 2019.
• Average utilization for CAI’s owned container fleet during the third quarter of 2019 was 98.6% compared to 98.8% for the second quarter of 2019.

Additional information on CAI's results, as well as comments on market trends, is available in a presentation posted today on the "Investors" section of CAI's website, www.capps.com.

Victor Garcia, President and Chief Executive Officer of CAI, commented, “For the quarter, CAI reported modest year-over-year growth in revenue from continuing operations despite weak demand conditions that have persisted as a result of the ongoing trade disputes between the United States and China. These geopolitical dynamics and softening economic conditions continue to challenge the overall market for container leasing, impacting the demand for new containers and new factory equipment. We expect this demand profile to continue into the fourth quarter, which is typically a slower time of year. We are encouraged, however, that during the quarter we maintained utilization of 98.6% in our owned fleet.

“New container pricing was steady during the quarter in spite of low demand and minimal production of new equipment. Secondary container pricing in most regions has remained strong and we expect this trend to continue, assuming utilization continues to be high and overall container availability remains limited. We expect to see increased demand in the coming year as a result of higher anticipated container replacement and used container needs in 2020. We estimate that replacement needs alone account for approximately 40% of overall container investment. As we prepare for demand conditions to improve, our primary focus is unchanged – we intend to maintain high utilization rates, position our equipment in high-demand locations, and continue to apply our disciplined approach of only investing when returns are attractive.

“As we announced last quarter, we have been in discussions regarding the sale of our railcar business. While there can be no assurance if or when a transaction to sell all or part of the fleet can be completed, we are engaged in continued discussions with potential purchasers that have expressed interest in the portfolio. In the interim, demand for our railcar fleet in the third quarter has been solid. We continue to get inquiries for many of our railcars and overall monthly lease rates have been steady for most equipment types. For the quarter, the utilization of the railcar fleet was 85.3%.

“The improved results in the logistics segment are a reflection of our continued restructuring efforts initiated in the second quarter. Although the challenging global trade environment and other economic factors impacted demand for transportation services this year, we have continued to add new customer accounts in each of the services we offer and we expect further improvement in the fourth quarter.”

Mr. Garcia concluded, “As we look to the rest of 2019 and beyond, we are actively managing our businesses through the current economic and global trade environment, and taking decisive action to maximize shareholder returns. Above all, we are acting with urgency to achieve a strategic solution for the rail business, drive sustainable growth through considered investment and disciplined cost management across our core businesses, and create value for all stakeholders.”

CAI International, Inc.
Consolidated Balance Sheets
(In thousands, except share information)
(UNAUDITED)
		September 30,				December 31,
		2019				2018
Assets
Current assets
Cash		$	21,503			$	20,104
Cash held by variable interest entities			26,772				25,211
Accounts receivable, net of allowance for doubtful accounts of $3,626 and $2,042 at September 30, 2019 and December 31, 2018, respectively			93,142				95,942
Current portion of net investment in sales-type and direct finance leases			66,977				75,975
Assets held for sale			284,791				449,730
Prepaid expenses and other current assets			6,394				1,525
Total current assets			499,579				668,487
Restricted cash			27,755				30,668
Rental equipment, net of accumulated depreciation of $598,545 and $557,559 at September 30, 2019 and December 31, 2018, respectively			1,889,266				1,816,794
Net investment in sales-type and direct finance leases			472,790				473,792
Financing receivable			31,661				-
Goodwill			15,794				15,794
Intangible assets, net of accumulated amortization of $6,605 and $5,397 at September 30, 2019 and December 31, 2018, respectively			4,525				5,733
Other non-current assets			9,364				1,349
Total assets		$	2,950,734			$	3,012,617
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable		$	10,668			$	7,371
Accrued expenses and other current liabilities			25,981				25,069
Unearned revenue			6,355				7,573
Current portion of debt			309,500				311,381
Rental equipment payable			54,202				74,139
Total current liabilities			406,706				425,533
Debt			1,819,649				1,847,633
Deferred income tax liability			33,054				38,319
Other non-current liabilities			5,333				-
Total liabilities			2,264,742				2,311,485
Stockholders' equity
Preferred stock, par value $.0001 per share; authorized 10,000,000
8.50% Series A fixed-to-floating rate cumulative redeemable perpetual preferred stock, issued and outstanding 2,199,610 shares, at liquidation preference			54,990				54,990
8.50% Series B fixed-to-floating rate cumulative redeemable perpetual preferred stock, issued and outstanding 1,955,000 shares, at liquidation preference			48,875				48,875
Common stock: par value $.0001 per share; authorized 84,000,000 shares; issued and outstanding 17,425,754 and 18,764,459 shares at September 30, 2019 and December 31, 2018, respectively			2				2
Additional paid-in capital			101,317				132,666
Accumulated other comprehensive loss			(6,845	)			(6,513	)
Retained earnings			487,653				471,112
Total stockholders' equity			685,992				701,132
Total liabilities and stockholders' equity		$	2,950,734			$	3,012,617

CAI International, Inc.
Consolidated Statements of Operations
(In thousands, except per share data)
(UNAUDITED)
		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2019				2018				2019				2018
Revenue
Container lease revenue		$	77,300			$	75,331			$	228,585			$	208,298
Logistics revenue			30,270				31,362				87,788				81,251
Total revenue			107,570				106,693				316,373				289,549
Operating expenses
Depreciation of rental equipment			28,750				27,735				85,819				79,016
Storage, handling and other expenses			4,672				2,506				12,631				5,803
Logistics transportation costs			27,037				27,541				77,647				70,536
Gain on sale of used rental equipment			(2,411	)			(2,633	)			(5,436	)			(7,530	)
Administrative expenses			12,702				11,895				38,110				33,445
Total operating expenses			70,750				67,044				208,771				181,270
Operating income			36,820				39,649				107,602				108,279
Other expenses
Net interest expense			20,123				15,811				60,049				43,758
Other expense			380				116				537				510
Total other expenses			20,503				15,927				60,586				44,268
Income before income taxes			16,317				23,722				47,016				64,011
Income tax expense			1,152				1,403				2,871				3,197
Income from continuing operations			15,165				22,319				44,145				60,814
Loss from discontinued operations, net of income taxes			(19,912	)			(565	)			(20,983	)			(1,625	)
Net (loss) income			(4,747	)			21,754				23,162				59,189
Preferred stock dividends			2,207				1,748				6,621				2,917
Net (loss) income attributable to CAI common stockholders		$	(6,954	)		$	20,006			$	16,541			$	56,272
Amounts attributable to CAI common stockholders
Net income from continuing operations		$	12,958			$	20,571			$	37,524			$	57,897
Net loss from discontinued operations			(19,912	)			(565	)			(20,983	)			(1,625	)
Net (loss) income attributable to CAI common stockholders		$	(6,954	)		$	20,006			$	16,541			$	56,272
Net (loss) income per common share attributable to CAI common stockholders
Basic
Continuing operations		$	0.75			$	1.07			$	2.10			$	2.93
Discontinued operations			(1.15	)			(0.03	)			(1.17	)			(0.08	)
Total basic		$	(0.40	)		$	1.04			$	0.93			$	2.85
Diluted
Continuing operations		$	0.74			$	1.06			$	2.07			$	2.90
Discontinued operations			(1.14	)			(0.03	)			(1.16	)			(0.09	)
Total diluted		$	(0.40	)		$	1.03			$	0.91			$	2.81
Weighted average shares outstanding
Basic			17,330				19,214				17,850				19,741
Diluted			17,525				19,492				18,122				19,997

CAI International, Inc.
Consolidated Statements of Cash Flows
(In thousands, except per share data)
(UNAUDITED)
		Nine Months Ended September 30,
		2019				2018
Cash flows from operating activities
Net income		$	23,162			$	59,189
Loss from discontinued operations, net of income taxes			(20,983	)			(1,625	)
Income from continuing operations			44,145				60,814
Adjustments to reconcile income from continuing operations to net cash provided by operating activities:
Depreciation			85,988				79,128
Amortization of debt issuance costs			3,005				2,648
Amortization of intangible assets			1,208				1,538
Stock-based compensation expense			2,142				1,888
Unrealized loss on foreign exchange			345				317
Gain on sale of rental equipment			(5,436	)			(7,530	)
Deferred income taxes			1,260				2,424
Bad debt expense (recovery)			1,224				(149	)
Changes in other operating assets and liabilities:
Accounts receivable			2,556				(6,889	)
Prepaid expenses and other assets			398				(1,611	)
Net investment in sales-type and direct finance leases			45,400				-
Accounts payable, accrued expenses and other current liabilities			4,057				(477	)
Unearned revenue			(151	)			(86	)
Net cash provided by operating activities of continuing operations			186,141				132,015
Net cash provided by operating activities of discontinued operations			2,016				7,572
Net cash provided by operating activities			188,157				139,587
Cash flows from investing activities
Purchase of rental equipment			(256,469	)			(477,703	)
Purchase of financing receivable			(37,139	)			-
Proceeds from sale of rental equipment			56,422				43,645
Purchase of furniture, fixtures and equipment			(1,720	)			(393	)
Receipt of principal payments from financing receivable			1,825				-
Receipt of principal payments from sales-type and direct finance leases			-				26,982
Net cash used in investing activities of continuing operations			(237,081	)			(407,469	)
Net cash provided by (used in) investing activities of discontinued operations			123,199				(50,800	)
Net cash used in investing activities			(113,882	)			(458,269	)
Cash flows from financing activities
Proceeds from debt			500,582				1,227,412
Principal payments on debt			(419,908	)			(981,465	)
Debt issuance costs			(724	)			(9,882	)
Proceeds from issuance of common and preferred stock			-				103,681
Repurchase of common stock			(34,118	)			(27,946	)
Dividends paid to preferred stockholders			(6,620	)			(1,376	)
Exercise of stock options			532				24
Net cash provided by financing activities of continuing operations			39,744				310,448
Net cash (used in) provided by financing activities of discontinued operations			(113,098	)			31,011
Net cash (used in) provided by financing activities			(73,354	)			341,459
Effect on cash of foreign currency translation			(874	)			(23	)
Net increase in cash and restricted cash			47				22,754
Cash and restricted cash at beginning of the period			75,983				47,209
Cash and restricted cash at end of the period		$	76,030			$	69,963

CAI International, Inc.
Fleet Data
(UNAUDITED)
						As of September 30,
						2019		2018
Owned container fleet in TEUs						1,623,588		1,435,516
Managed container fleet in TEUs						72,462		75,872
Total container fleet in TEUs						1,696,050		1,511,388
Owned container fleet in CEUs						1,649,465		1,475,142
Managed container fleet in CEUs						88,493		69,134
Total container fleet in CEUs						1,737,958		1,544,276
Owned railcar fleet in units						5,504		7,489
		Three Months Ended				Nine Months Ended
		September 30,				September 30,
		2019		2018		2019		2018
Average Utilization
Container fleet utilization in CEUs		98.4%		99.2%		98.7%		99.2%
Owned container fleet utilization in CEUs		98.6%		99.2%		98.7%		99.2%
Railcar fleet utilization in units - excluding new units not yet leased		85.3%		89.0%		88.1%		88.1%
Railcar fleet utilization in units - including new units not yet leased		82.1%		84.0%		84.6%		79.1%
						As of September 30,
						2019		2018
Period Ending Utilization
Container fleet utilization in CEUs						98.4%		99.3%
Owned container fleet utilization in CEUs						98.5%		99.3%
Railcar fleet utilization in units - excluding new units not yet leased						85.3%		90.0%
Railcar fleet utilization in units - including new units not yet leased						82.1%		86.6%

Utilization of containers is computed by dividing the total units on lease in CEUs (cost equivalent units), by the total units in our fleet in CEUs.
The total container fleet excludes new units not yet leased and off-hire units designated for sale.
Utilization of railcars is computed by dividing the total number of railcars on lease by the total number of railcars in our fleet.
The impact on utilization of including new units not yet leased in the total railcar fleet has been included in the table above.
CEU is a ratio used to convert the actual number of containers in our fleet to a figure based on the relative purchase prices of our various equipment types to that of a standard 20 foot dry van container. For example, the CEU ratio for a standard 40 foot dry van container is 1.6, and a 40 foot high cube container is 1.7.

Conference Call

A conference call to discuss the financial results for the third quarter of 2019 will be held on Tuesday, October 29, 2019 at 5:00 p.m. ET. The dial-in number for the teleconference is 1-888-398-8098; outside of the U.S., call 1-707-287-9363. The call may be accessed live over the internet (listen only) under the “Investors” section of CAI’s website, www.capps.com, by selecting “Q3 2019 Earnings Conference Call.” A webcast replay will be available for 30 days on the “Investors” section of our website.

Earnings Presentation

A presentation summarizing our third quarter 2019 results is available on the “Investors” section of our website, www.capps.com.

About CAI International, Inc.

CAI is one of the world’s leading transportation finance and logistics companies. As of September 30, 2019, CAI operated a worldwide fleet of approximately 1.7 million CEUs of containers, and owned a fleet of 5,504 railcars that it leases within North America. CAI operates through 21 offices located in 12 countries including the United States.

Forward-Looking Statements

This press release contains forward-looking statements regarding future events and the future performance of CAI, including but not limited to: the statements regarding CAI’s intention to sell its remaining railcar fleet, management’s business outlook on the container leasing business and management's outlook for growth of CAI’s leasing investments. These statements and others herein are forward-looking statements within the meaning of the safe harbor provisions of Section 21E of the Securities Exchange Act of 1934 and involve risks and uncertainties that could cause actual results of operations and other performance measures to differ materially from current expectations including, but not limited to: utilization rates, expected economic conditions, expected growth of international trade, availability of credit on commercially favorable terms or at all, customer demand, container investment levels, container prices, lease rates, increased competition, volatility in exchange rates, growth in world trade and world container trade, the ability of CAI to convert letters of intent with its customers to binding contracts, potential to sell CAI’s securities to the public and others.

CAI refers you to the documents that it has filed with the Securities and Exchange Commission, including its Annual Report on Form 10-K for the year ended December 31, 2018, its Quarterly Reports on Form 10-Q and its Current 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 press release. Furthermore, CAI is under no obligation to (and expressly disclaims any such obligation to) update or alter any of the forward-looking statements contained in this press release whether as a result of new information, future events or otherwise, unless required by law.

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