Market Overview

CAI International, Inc. Reports Results for the Second Quarter of 2018

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CAI International, Inc. (CAI) (NYSE:CAI), one of the world's leading
transportation finance and logistics companies, today reported results
for the second quarter of 2018.

Record lease revenue up 23% on strong container demand and
improved rail fundamentals

Record logistics revenues grew 44% on the heels of the rebranding
of CAI Logistics

Highlights

  • Net income attributable to CAI common stockholders for the second
    quarter of 2018 was $19.1 million, or $0.97 per fully diluted share,
    compared to $12.6 million, or $0.65 per fully diluted share, in the
    second quarter of 2017.
  • Net income attributable to CAI common stockholders for the second
    quarter of 2018 included a gain on insurance recovery of $1.4 million,
    or $0.07 per fully diluted share.
  • CAI reported record lease-related revenue for the second quarter of
    2018 of $77.5 million, an increase of 23% compared to the second
    quarter of 2017.
  • Average utilization for CAI's owned container fleet during the second
    quarter of 2018 was 99.3% compared to 97.2% for the second quarter of
    2017.
  • During the second quarter of 2018, CAI leased out $208 million of new
    container equipment and has customer lease commitments for an
    additional $290 million for delivery in the third quarter of 2018.
  • During the first half of 2018 CAI has invested or committed to invest
    $630 million in container equipment, the vast majority of which is on
    lease or committed to be leased.
  • During the second quarter of 2018, CAI had net lease outs of 316
    railcars, representing 18% of its off-hire fleet at the beginning of
    the quarter. CAI has commitments to lease an additional 746 cars in
    the remainder of 2018.
  • During the second quarter of 2018, CAI issued approximately 600,000
    shares of its 8.5% Series A fixed-to-floating rate cumulative
    redeemable perpetual preferred stock for net proceeds of $14.7 million.
  • Annualized return on average common equity for the second quarter was
    13.2%.

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,
"The strong momentum we experienced in the first quarter has continued
through the second quarter of this year. We reported record quarterly
revenue of $105.7 million and net income attributable to CAI common
stockholders for the quarter of $19.1 million, or $0.97 per fully
diluted share. We continue to operate near full utilization that
averaged 99.3% during the second quarter of this year. During the first
half of 2018 we have invested, or committed to invest, $630 million in
container equipment, of which $208 million was leased during the second
quarter and $290 million is due to be leased in the third quarter. The
average lease term of the container equipment we have invested this
year, including units to be delivered, is approximately nine years. As
our investment level indicates, demand for containers has remained very
strong as a result of the strong global economy and we expect that
demand to continue through the remainder of the year as we approach the
historically strong demand months. As a result of the high worldwide
utilization of equipment, we continue to benefit from strong secondary
prices of containers and this quarter reported a gain on sale of
equipment of $2.7 million. We expect continued strong secondary sales
prices through the rest of the year.

"The impact of the discussions regarding tariffs has not had an impact
on container demand to date but has created some uncertainty around
future global trade growth. If tariffs were to be permanently
implemented and overall tariff levels were to increase, we would expect
supply chain disruption as international companies adjust their supply
chains. Some level of export-oriented manufacturing would likely move to
other countries not affected by the tariffs such as countries in South
East Asia. These changes in supply chain are a positive for CAI as our
customers will need more equipment to adjust for the supply chain
inefficiencies created by sourcing changes. We believe that CAI remains
well positioned to operate during this time of uncertainty, with 91% of
our on-lease and committed owned container fleet being on long-term
leases with an average remaining lease term of 56 months. In addition,
we have worked with our customers over the past several years to improve
redelivery terms ensuring that equipment is returned to high demand
locations which will provide us with better opportunities to release the
units.

"Our rail segment continues to experience improved lease out activity,
and rental rates have significantly improved on most car types from the
levels of last year. During the second quarter of 2018, we had net lease
outs of 316 railcars and have commitments to lease out a further 746
cars to be delivered later in 2018. Our railcar utilization, including
new cars not yet leased out, has improved to 78% during the second
quarter, compared to 75% during the first quarter. We expect that our
utilization will increase to 90% by the end of the year. We will
continue to focus on increasing fleet utilization during the second half
of the year as well as seeking higher rates on new leases. Energy
related demand for rail cars, particularly tank cars, has improved
significantly with rental rates in many cases having doubled from prior
levels. We expect the strong demand to continue and particularly benefit
us on the remainder of the equipment we have to be delivered from the
manufacturers.

"Our logistics business is gaining momentum and a growing customer
portfolio has led to record logistics revenue this quarter for our
company. During the quarter we reported logistics revenue of $28.3
million, an increase of 31% compared to the first quarter of 2018 and a
44% increase compared to the second quarter of last year. Similarly,
gross margin in logistics has increased 32% during the second quarter,
compared to the first quarter of 2018. The overall domestic logistics
market remains very strong with high demand relative to available
equipment capacity. We expect that strong demand to continue through the
remainder of the year due to the strong US economy. Specifically, we are
gaining significant customer wins in our truck brokerage and intermodal
services. We have recently consolidated all of our services under the
CAI Logistics brand which we expect will create more customer awareness
of our logistics capabilities and allow us to continue to recruit
personnel to maintain the momentum we have reported."

Mr. Garcia, continued, "During the second quarter we successfully issued
0.6 million shares of our Series A perpetual preferred stock for net
proceeds of $14.7 million. During the first half of 2018 we have raised
$53 million from the sale of our Series A perpetual preferred stock
which has enabled us to repurchase 1.2 million shares of our outstanding
common stock and continue record levels of investment in equipment."

Mr. Garcia, concluded, "The momentum in our business remains very strong
with each of our segments showing improved results. We have achieved 23%
revenue growth in our container business so far this year and have made
record container investment of $630 million, representing 34% of our
container assets at the beginning of the year. The vast majority of this
investment is already on lease or committed to be leased in the third
quarter, with average lease terms of nine years. Rail utilization is
increasing and lease rates are improving. Our logistics segment is
experiencing very strong quarterly momentum and we expect continued
double digit year over year growth in revenue and gross margin from the
segment."

   
CAI International, Inc.
Consolidated Balance Sheets
(In thousands, except share information)
(UNAUDITED)
 
June 30, December 31,
2018 2017
Assets
Current assets
Cash $ 16,462 $ 14,735
Cash held by variable interest entities 24,348 20,685

Accounts receivable, net of allowance for doubtful accounts of
$2,110 and $1,440 at June 30, 2018 and December 31, 2017,
respectively

83,279 68,324
Current portion of net investment in direct finance leases 53,961 30,063
Prepaid expenses and other current assets   2,540     4,258  
Total current assets 180,590 138,065
Restricted cash 21,066 11,789

Rental equipment, net of accumulated depreciation of $550,426 and
$505,546 at June 30, 2018 and December 31, 2017, respectively

2,218,212 2,004,961
Net investment in direct finance leases 275,826 246,450
Goodwill 15,794 15,794

Intangible assets, net of accumulated amortization of $4,493 and
$3,407 at June 30, 2018 and December 31, 2017, respectively

6,635 7,723

Furniture, fixtures and equipment, net of accumulated depreciation
of $3,265 and $3,201 at June 30, 2018 and December 31, 2017,
respectively

464 338
Other non-current assets   1,871     3,008  

Total assets

$ 2,720,458   $ 2,428,128  
 
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable $ 6,530 $ 7,831
Accrued expenses and other current liabilities 17,206 15,706
Due to container investors - 1,845
Unearned revenue 7,526 7,811
Current portion of debt 159,599 132,049
Rental equipment payable   184,258     92,415  
Total current liabilities 375,119 257,657
Debt 1,679,492 1,570,773
Deferred income tax liability   37,099     35,853  
Total liabilities   2,091,710     1,864,283  
 
Stockholders' equity

Preferred stock, par value $.0001 per share; authorized 10,000,000
and 5,000,000 at June 30, 2018 and December 31, 2017,
respectively; 8.50% Series A fixed-to-floating rate cumulative
redeemable, issued and outstanding 2,199,610 and 0 shares at June
30, 2018 and December 31, 2017, respectively, at liquidation
preference

54,990 -

Common stock: par value $.0001 per share; authorized 84,000,000
shares; issued and outstanding 19,306,377 and 20,390,622 shares at
June 30, 2018 and December 31, 2017, respectively

2 2
Additional paid-in capital 146,210 172,325
Accumulated other comprehensive loss (6,360 ) (6,122 )
Retained earnings   433,906     397,640  
Total stockholders' equity   628,748     563,845  
Total liabilities and stockholders' equity $ 2,720,458   $ 2,428,128  
 

CAI International, Inc.
Consolidated Statements of Income
(In thousands, except per share data)
(UNAUDITED)
       
Three Months Ended Six Months Ended
June 30, June 30,
2018 2017 2018 2017
Revenue
Container lease revenue $ 68,333 $ 54,960 $ 132,967 $ 107,914
Rail lease revenue 9,119 8,127 18,223 16,180
Logistics revenue   28,253     19,605     49,889     40,104  
Total revenue   105,705     82,692     201,079     164,198  
 
Operating expenses
Depreciation of rental equipment 29,402 27,054 58,249 55,026
Storage, handling and other expenses 2,613 6,192 6,713 13,145
Logistics transportation costs 24,330 16,682 42,995 33,753
Gain on sale of used rental equipment (2,719 ) (1,749 ) (4,914 ) (876 )
Administrative expenses   12,160     9,745     23,401     20,431  
Total operating expenses   65,786     57,924     126,444     121,479  
 
Operating income   39,919     24,768     74,635     42,719  
 
Other expenses
Net interest expense 18,440 12,285 35,339 23,957
Other expense (income)   429     (112 )   394     202  
Total other expenses   18,869     12,173     35,733     24,159  
 
Income before income taxes 21,050 12,595 38,902 18,560
Income tax expense (benefit)   753     (43 )   1,467     650  
 
Net income 20,297 12,638 37,435 17,910
Preferred stock dividends   1,148     -     1,169     -  

Net income attributable to CAI common stockholders

$ 19,149   $ 12,638   $ 36,266   $ 17,910  
 
 

Net income per share attributable to CAI common stockholders

Basic $ 0.98 $ 0.66 $ 1.81 $ 0.94
Diluted $ 0.97 $ 0.65 $ 1.79 $ 0.93
 
Weighted average shares outstanding
Basic 19,613 19,131 20,013 19,071
Diluted 19,843 19,419 20,259 19,332
 

CAI International, Inc.
Consolidated Statements of Cash Flows
(In thousands, except per share data)
(UNAUDITED)
   

Six Months Ended
June 30,

2018 2017
Cash flows from operating activities
Net income $ 37,435 $ 17,910
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation 58,319 55,211
Amortization of debt issuance costs 2,158 1,498
Amortization of intangible assets 1,087 1,102
Stock-based compensation expense 1,350 995
Reduction in contingent consideration - (631 )
Unrealized loss on foreign exchange 266 109
Gain on sale of used rental equipment (4,914 ) (876 )
Deferred income taxes 1,248 411
Bad debt expense (recovery) 317 (12 )
Changes in other operating assets and liabilities:
Accounts receivable (14,211 ) (5,627 )
Prepaid expenses and other assets (2,096 ) (1,807 )
Accounts payable, accrued expenses and other current liabilities (1,931 ) (3,613 )
Due to container investors (540 ) 72
Unearned revenue   (76 )   (1,696 )
Net cash provided by operating activities   78,412     63,046  
Cash flows from investing activities
Purchase of rental equipment (271,961 ) (128,593 )
Proceeds from sale of used rental equipment 25,458 35,660
Purchase of furniture, fixtures and equipment (196 ) (85 )
Receipt of principal payments from direct finance leases   19,046     8,942  
Net cash used in investing activities   (227,653 )   (84,076 )
Cash flows from financing activities
Proceeds from debt 708,289 155,131
Principal payments on debt (566,937 ) (156,036 )
Debt issuance costs (6,201 ) (463 )
Proceeds from issuance of stock 56,699 -
Repurchase of common stock (27,946 ) -
Exercise of stock options   24     1,215  
Net cash provided by (used in) financing activities   163,928     (153 )
Effect on cash of foreign currency translation   (20 )   35  
Net increase (decrease) in cash 14,667 (21,148 )
Cash and restricted cash at beginning of the period   47,209     52,326  
Cash and restricted cash at end of the period $ 61,876   $ 31,178  
 

CAI International, Inc.
Fleet Data
(UNAUDITED)
       
As of June 30,

2018

2017
 
Owned container fleet in TEUs 1,293,361 962,111
Managed container fleet in TEUs 77,680 149,218
Total container fleet in TEUs 1,371,041 1,111,329
 
Owned container fleet in CEUs 1,344,842 1,049,057
Managed container fleet in CEUs 70,772 134,400
Total container fleet in CEUs 1,415,614 1,183,457
 
Owned railcar fleet in units 7,430 6,560
 
 
Three Months Ended Six Months Ended
June 30, June 30,
2018 2017 2018 2017
Average Utilization
Container fleet utilization in CEUs 99.3% 97.1% 99.3% 96.3%
Owned container fleet utilization in CEUs 99.3% 97.2% 99.3% 96.5%
Railcar fleet utilization in units - excluding new units not yet
leased
87.2% 91.0% 87.6% 91.8%
Railcar fleet utilization in units - including new units not yet
leased
77.9% 80.4% 76.6% 81.1%
 
As of June 30,
2018 2017
Period Ending Utilization
Container fleet utilization in CEUs 99.2% 97.6%
Owned container fleet utilization in CEUs 99.2% 97.7%
Railcar fleet utilization in units - excluding new units not yet
leased
87.8% 90.5%
Railcar fleet utilization in units - including new units not yet
leased
79.4% 80.1%
   
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 second
quarter of 2018 will be held on Tuesday, July 31, 2018 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 "Q2 2018 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 second quarter 2018 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 June 30, 2018, CAI operated a worldwide fleet of
approximately 1.4 million CEUs of containers, and owned a fleet of 7,430
railcars that it leases within North America. CAI operates through 24
offices located in 14 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 management's business outlook on the container
leasing business, management's outlook for growth of CAI's leasing
investments and the outlook of its logistics business. 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, 2017, 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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