CAI International's CEO Discusses Q1 2014 Results - Earnings Call Transcript

Apr.29.14 | About: CAI International, (CAI)

CAI International Inc (CAP) Q1 2014 Results Earnings Conference Call April 28, 2014 5:00 PM ET

Executives

Tim Page - Chief Financial Officer, Senior Vice President

Victor Garcia - President, Chief Executive Officer, Director

Analysts

Gregory Lewis - Credit Suisse

Bob Napoli - William Blair

Doug Mewhirter - SunTrust

Helane Becker - Cowen & Company

Steven Kwok - KBW

Sal Vitale - Sterne, Agee

John Mims - FBR Capital Markets

Operator

Good day, ladies and gentlemen, and welcome to CAI International first quarter 2014 earnings conference call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time. (Operator Instructions). As a reminder this conference call is being recorded.

I would now introduce your host for today's conference, Tim Page, Chief Financial Officer. You may begin.

Tim Page

Good afternoon, and thank you for joining us today. Certain statements made during this conference call may be 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 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.

I will now turn the call over to our President and Chief Executive Officer, Victor Garcia.

Victor Garcia

Good afternoon and welcome to CAI's first quarter 2014 conference call. This quarter we reported $54.3 million of revenue, an increase of 6.5% from the first quarter of 2013 and rental revenue increased over the same period by 8.7%. This growth reflects the ongoing investment in our fleet over the past year. For the quarter, we reported $14.3 million of net income attributable to CAI common shareholders for $0.63 per fully diluted share.

After a strong month of January, when we experienced increased lease out activity prior to the Lunar New Year holiday, lease out activity returned to a more normal pace for the remainder of the first quarter. As we indicated in our last conference call, as expected, our overall utilization for the first quarter declined to 91%, from 92% in the fourth quarter of 2013.

However, in our opinion, the level of turn-in activity was relatively modest which we believe reflects the fairly balanced supply and demand situation in the market place. Many of the units we have of hire are older assets that are targeted for sale and many of our newer assets remain on lease.

Our profits this quarter are lower than the same period last year due primarily to lower gain on sale of equipment and higher storage and handling costs. The storage and handling costs are higher because we are operating a larger owned fleet and have a utilization rate approximately two percentage points lower this quarter as compared to the same period in 2013.

As I have discussed the last couple of quarters, we are focused on improving our results by repositioning equipment to demand locations or selling units if repositioning them is not economical. We have made steady progress over the past two quarters in selling more assets to reduce storage costs and redeploying the capital.

We have increased our equipment sales, in CEU terms, by 66% this quarter as compared to the first quarter of 2013 and by 75% as compared to the third quarter of 2013, the period at which we started aggressively focusing on implementing the actions I described above. We are encouraged by these results and will continue in that effort over the coming months. Our gain on sale of used equipment was lower this quarter as compared to the first quarter of 2013 but we increased our gain on sale from the fourth quarter of 2013.

Secondary sale prices have come down in some markets due to additional equipment being available for sale. However, we expect secondary sale prices to be at or slightly above current levels over the remainder of the year as we expect demand for leasing containers to improve and inventory levels of off hire containers to reduce.

In April, requests have increased for both new and depot equipment. Many customers have already expressed the need for additional equipment over the coming months as they are beginning to be more confident in the improved trade growth this year over last year's level. To-date stronger lease out activity has been in Northern Europe and Asia, including China and we expect that trend to broaden to other regions as we are approaching the stronger months of the year.

Clarkson Research is expecting trade growth in 2014 to increase to 5.8% from approximately 4.7% last year. The additional growth should support container demand. In addition, new container inventory levels are modest, by our estimation, which we believe should help to keep supply and demand relatively in balance this year.

Despite the relative supply and demand balance of containers, pricing levels on new leases by leasing companies remains very aggressive and we believe that barring a significant increase in customer demand returns on new investment will remain a challenge for the remainder of the year. Our intent is to be selective in new container investments and to scale back investment as necessary. Our priority is a proper return on our capital and managing our capital appropriately.

We are enthusiastic about our development in the railcar business. Our fleet is fully utilized and all of our lease renewals have been completed at the same or better rental rate. Based on our success to-date and our outlook for railcar demand, we are looking to significantly add to our fleet over the coming quarters and are hiring additional marketing and operational staff to handle the growth in the fleet.

We will continue to look into diversified groups of railcars that could either be on an existing lease or which are off hire at the time of purchase. We have already been successful in purchasing some off hire equipment and placing it on attractive new leases.

I will now turn over the call to Tim Page, our Chief Financial Officer to review the financial results for the quarter in greater detail.

Tim Page

Thank you, Victor. For the 16th quarter in a row, we reported record quarterly total lease tax related revenue. Total lease related revenue in the quarter was $53 million 8% higher than the first quarter of 2013 and slightly higher than the fourth quarter of 2013. Total revenue in the quarter was $54 million, 6.5% higher than the first quarter of 2013 and $200,000 lower than the fourth quarter of 2013. A flat revenue between the fourth quarter of 2013 and the first quarter of 2014 was a result of slightly lower seasonal utilization the first quarter, which we had anticipated, and the fact that we didn't see much incremental revenue from the relatively low levels of investment we made not only in this quarter but than last quarter as well.

Net income attributable to CAI common stockholders in the first quarter of 2014 was $14 million, $1.8 million were 11% less than the first quarter of 2013 and 8.5% less than the fourth quarter of 2013. As compared to the first quarter of last year, the decline in net income can primarily be attributed to four factors.

First, the two percentage point drop in our own fleet utilization impact to net income by about $1.5 million from a combination of decrease revenue and an increase in storage costs.

Second, the very competitive market has resulted in lower average rental rates for new fleet additions leading to depreciation expense being a higher percentage of revenue in the first quarter of 2014 than it was in the first quarter of last year. We estimate the impact of his factor of net income to be approximately $400,000 to $500,000.

Third, gains on sale of used equipment decreased by $800,000 as compared to Q1 of last year, as average selling prices have decreased in a more competitive market and we are selling newer equipment, which is a higher average net book value than what we were selling at this time last year.

Finally, MG&A expense was $6.7 million in this quarter, which while in line with the run rate guidance we provided during our last call, increased by $500,000 as compared to the first quarter of last year.

In total, lease factors amount to roughly $3.3 million of negative net income variance as compared to last year's first quarter. These negative factors were offset by the positive net earnings contribution we received as a result of revenue growth attributable to our larger owned fleet which grew 11% year-over-year.

Our average overall total fleet utilization during the first quarter of 2014 on a CEU basis was 91% as compared to 93.2% for the first quarter of last year. As of today, our utilization is 90.7%, a rate that has remained relatively stable over the last four weeks as we have began to see some signs of pickups of depot equipment as well as inquiries for new equipment.

Our effective tax rate in Q1 was 9% as compared to our full year 2000 effective tax rate of 9.9%. We expect our overall tax rate for the remainder of the year to remain at about 9% and expect it will slightly decrease in subsequent years.

As of March 31, 2014, our total container fleet consisted of approximately $1.2 million CEU, an increase of approximately 6% as compared to the first quarter of 2013 and 1% more than the fourth quarter of 2013. CAI's own fleet is now $0.9 million CEUs comprising 78% of our total fleet. Our own fleet grew 11% over the past year and 2% as compared to the fourth quarter of 2013.

We ended the first quarter of 2014 with approximately $1.5 billion of container assets and approximately $80 million of railcar assets. First quarter of this year, total capital expenditures were approximately $73 million of which approximately $20 million was payment of equipment that have been delivered in 2013. Railcar acquisitions accounted for roughly 10% of our equipment purchases in the quarter.

At the end of the first quarter of 2013, we had total funded debt of $1.2 billion and approximately $500 million of availability in various credit facilities. Our debt to tangible net worth leverage ratio was 2.75% at the end of quarter. Our overall weighted average cost of debt decreased 2.6% from 2.7% at the end of Q4 2014 and is 22 basis points lower than during the first quarter of 2013. We continue to pursue opportunities to further lower our cost of debt funding and expect a further reduction in our overall average borrowing cost in he coming quarters.

That concludes our comments. Operator, please open the call for questions. Hello, operator?

Question-and-Answer Session

Operator

(Operator Instructions) Our first question comes from via Gregory Lewis of Credit Suisse. Your line is now open.

Gregory Lewis - Credit Suisse

Yes. Thank you. Can you hear me?

Tim Page

Yes.

Gregory Lewis - Credit Suisse

Okay. Hi. Good afternoon. I think I was having some technical issues there. So, Tim, you did a good job of walking through the cost of financing and the benefits that you as well as some of your competitors have obviously got. Victor, I guess my question in relation to that is, so we are seeing pressure on per diem rates or seeing pressure on margins, cash on cash return. How much of that pressure do you think is attributed to the fact that just the cost of funding has gone down and there is just a natural spread convergence related to that funding versus how much of its related just on other competitors pushing down lease rates?

Victor Garcia

I think it's a combination of both. Just a lot of liquidity out there. Most people have access to debt financing at competitive rates. But at the same time, container demand on new investment has been more muted than it has been in more traditional times. You can tell because if you see the level of production in the factories working at lower levels than they would have been in prior year. So it's a combination of the lot of financing being available and container demand not being as strong as otherwise would be where there would be a lot more places to make investment at attractive returns.

Gregory Lewis - Credit Suisse

Okay. Thank you for that. Then my other question is related to, I believe you announced that last quarter or might have been the quarter before that, that the been the focus was going to be on repositioning boxes and getting them into areas where they need to be and selling equipment that needs to be moved out of the fleet for whatever reason. I guess, could you provide some update on how that transition is going? Did we get a lot of it done in the first quarter? Or is this something that we should expect to play out over the next couple quarters, which has the potential to provide a nice tailwind to utilization?

Victor Garcia

It's kind of mentioned both in the press release and in today's call that we have actually increase in number of units that we have been selling significantly over the last couple of quarters and we are going to continue to do that. And part of the reason why we have been able to keep utilization somewhat in check is because we have been also selling units.

We are going to continue to do that more to make sure we have the fleet in the right position, but as we now start getting into the summer months, we would expect that just demand for containers in general should start improving and that will help utilization. But certainly our efforts to move the logistics of the assets is an ongoing process. But really, when you are in the weak part of the year which was the first quarter, you have the seasonal pattern working against you.

Gregory Lewis - Credit Suisse

Okay. So when I think about this, it almost sounds like we are still in early innings of this transition.

Victor Garcia

Yes, it's just an ongoing process. We have hired additional staff to look at repositioning assets to higher demand locations and looking at really developing that further and that's just if going to be an ongoing process.

Gregory Lewis - Credit Suisse

Okay, and then just one final one for me. In terms of storage cost rates, are we seeing any upward pressure on storage cost rates for boxes? Or is that sort of been trending sideways?

Victor Garcia

It is pretty much trending sideways. There is always spot locations where there might be an increase but generally speaking, that's been relatively stable. But what we are mostly focused on is doing what we can to change our utilization and get units out of storage and every one percentage point change in our utilization will have about it at $0.10 a share impact. So it's a significant impact on an annual basis, getting units out of the system and in to generating revenue.

Gregory Lewis - Credit Suisse

Okay, perfect. Thank you very much, guys.

Victor Garcia

Thanks

Operator

Thank you, and our next question comes from the line of Bob Napoli of William Blair. Your line is now open.

Bob Napoli - William Blair

Victor, just wondered if you could maybe, your major utilization rate is 91% versus TAL for example, higher level. What is the biggest difference? And do you think in this environment with a relatively tight supply and demand, do you expect to be able to get that utilization rate up to the 93% level by year end? Or what time frame? What's the biggest reason for the difference versus competitors and what time frame do you think you will materially narrow the gap?

Victor Garcia

Well, I can't comments on what a competitor's utilization is other than the fact that we do note with they indicate their utilization to be. We spent a lot of time on every contract, making sure that we can limit redeliveries to locations that are our higher demand locations or higher sale locations because there is a cost associated with that, but it's a very competitive environment and many times, we actually lose transactions because competitors are going to be more flexible. So I can't give you, per se, a significant reason for the difference.

What we do know is when we do measure, there is a lot of different asset components that different competitors have in their fleet mix that could affect their utilization. So it's not necessarily an apples-to-apples. We are primarily a dry box lessor, where other people have more specialized assets that might have a higher utilization associated with it. But what I am focused on is, regardless of where somebody else is, we are focused on how do we optimize the investment we already have in our fleet and get the maximum return to our equity base. So that's where we are focused on.

As far as 93% utilization, I would expect if this is as we expect this to be a fairly good year for demand that we should be expecting utilization to start trending upwards in the second and third quarter. Traditionally that's what's been the case, and given the outlook for the business and the demand, we should expect utilization to be trending upwards.

Bob Napoli - William Blair

And then just on the railcar business, trying to understand, it sounds like that you are seeing returns in the railcar business that are higher than the container business. So at this point time, we should expect relatively little investment in containers and a lot more in railcars what it sounds like. Can you give me any quantification of that? You have $77 million, I think it was of railcar assets. Do you expect that to triple over the course of the year? I mean, it's a relatively small portfolio. So maybe just talk about that, the relative returns and then the growth expectations on potential for rail versus containers.

Victor Garcia

Relatively speaking, I would say that we find that the returns on the railcar side, particularly on a pretax basis, are more attractive than the returns on the container side right now. So we are focusing more on the railcar market in terms of getting more investment. Now we tend to buy in the railcar market more secondary equipment.

So it's really a process of looking at what's available and a lot of the equipment is on lease and utilizing. Maybe not as many people want to see. But we are finding opportunity. We are looking to grow it. Generally speaking, we are looking to increase the pace of investment in the railcar side.

I wouldn't say that we are going to be primarily investing in railcars this year because I just don't think that the opportunities will be there. But we are going to be looking more closely at how to increase our exposure there given the current situation.

Bob Napoli - William Blair

Okay, and then last question. Your return on equity this quarter is below where you want it to be, and I know this is the slowest quarter of the year, but it doesn't seem like the trends are -- I don't feel the upward pressure or at least not that much at this point. You do have a buyback. I think you expanded the buyback. Doesn't it make sense to be consistently, I don't think you bought back any stock. To be buying back some stock on a steady, consistent basis to get, your return on equities and I know, not where you need it to be, I think you have some room on the leverage side to be able to buy back some stock versus investments that are below where you would like them to be, returns on containers. Why not buyback some stock as opposed to buying containers.

Tim Page

I don't disagree with you. We are looking at, we announced the stock buyback program. We have had discussions with the Board about that. We do expect to be repurchasing some shares given where the share price is. So I am not disagreeing with you in that effort we did announce today. I didn't comment on it in the prepared remarks, but we announced a shelf offering today, but that's really more procedural. We have no intent right now of issuing any equity. And so that, in case anybody had a question related to that, but we are looking at that right now, given the returns on new investment, repurchasing our shares appears to be a more attractive opportunity.

Bob Napoli - William Blair

Thank you.

Tim Page

Sure.

Operator

Thank you. Our next question comes via John Mewhirter of SunTrust. Your line is now open.

Doug Mewhirter - SunTrust

Hi. Good evening. This is Doug. A couple of quick, very quick questions. Most of them have been answered. Firstly, if you could refresh my memory on how you feel SG&A is going to be going? Do you expect it to continue to pick up a little bit every quarter as you make investments in your railcar infrastructure and your, I guess I would call it fleet management infrastructure?

Victor Garcia

First quarter typically is one of the quarters we have some higher SG&A because we have some front-end loaded auditing and other kind of expenses, professional expenses that come in, in the first quarter. With that being said, we have hired some additional staff. So I would say, roughly speaking, where our SG&A level is now, which is around $6.7 million to $6.8 million would be what we would expect that trend to be over the remaining quarters.

Doug Mewhirter - SunTrust

Okay. Thanks for that. Second, in terms of, you gave some really good color relating to the competitive environment with other leasing companies. I wonder how are the shipping lines acting in terms of being in the market? Do they see the relatively low box prices as attractive and they seem to be maybe taking some incremental share? Or they are, sort of, sitting back and waiting and letting the leasing companies buy share? And this is, I guess would be Chinese New Year period rather than the first part of the quarter.

Victor Garcia

I think, generally speaking, I would say, I don't think shipping lines look at container purchases in terms of market share, worry themselves too much about whether or not the leasing companies have a larger market share versus ownership. That's more for our business as opposed to their business. Generally speaking, I would say that the shipping lines look at it and say, they view a market opportunity right now. They view the rates that leasing companies are willing to offer as unusually aggressive. I think a few of our customers have commented on it. They are surprised by the aggressiveness of the leasing companies but are pleased with it and we will, for a lack of better term, take advantage of it by leasing more containers.

Doug Mewhirter - SunTrust

Okay. Thanks. That's all my questions.

Operator

Thank you. Our next question comes from the line of Helane Becker of Cowen & Company. Your line is now open.

Helane Becker - Cowen & Company

Thank you very much, operator. Hi, guys. Thanks for the time. So as I think about the SG&A line, well actually not that, marketing, general and administrative, should I think that there is some percentage of that, that's kind of productivity hit from having hired people who may not be generating the revenue yet. Is there some mismatch there? Or how should we think about productivity going forward?

Victor Garcia

Well, we hired some additional staff. Most of that happened and the cost associated with that probably happened in the last more in the last month, any of the prior months. I wouldn't say lack of productivity or anything like that. We are incrementally adding to our staff. I don't think in the grand scheme of our results, it has a big impact. That's why we kind of guided on this call that somewhere around the $6.7 million, $6.8 million is probably going to be the tread line of that cost. Where we expect efficiencies is, we are looking for improvement in the bigger cost element where we would like to control, which is the operating expenses of storage and handling, and that's where we looking to gain our efficiencies.

Helane Becker - Cowen & Company

Okay, great. That's all I had. Thank you very much.

Operator

Thank you. Our next question comes from Steven Kwok with KBW. Your line is now open.

Steven Kwok - KBW

Hi. Thanks for taking my question. Just to touch upon the storage handling and other expense line. How should we think about that as we go through the year? It picked up a little bit in the first quarter. I was just wondering how we should think about that?

Tim Page

Well, there is two components to it. One is as utilization increases or decreases, that cost, storage component of that cost line will go up or down. And as the fleet increases, even if utilization stayed the same, if the fleet increases, you will have, in absolute terms, there will be more containers off lease. So you will have fun increase related to that.

The other piece is that our rail business has a higher percentage of maintenance related type costs. So as we drove the rail fleet, you will see, all things being equal, you will see that line item increase. So some of its utilization related. Some of it's related to the pace of growth of the rail fleet.

Victor Garcia

Yes, and just for a perspective. So a lot of the railcar leases are full service leases. So we build into the lease rate an estimated ongoing maintenance expense. So in the first quarter, roughly speaking, there was about $0.5 million worth of maintenance related expense on the railcar fleet. That's just a difference in the business model where we gross up the lease rates to reflect the operating expenses.

Steven Kwok - KBW

Got it, and then just addition terms of thinking about the railcar business. How big is it as a percentage of revenues and how big you think you can get over time?

Victor Garcia

Well, today it represent roughly about 5% of our revenue, our leasing revenue and you know we would like to bring it up to a more significant piece but I would say, we would like to see it become, say, 20% of our business. But that's going to be dependent on what the opportunities are and if the opportunities are there we would like to increase it above that. We do think that the long-term outlook for the business is attractive.

Steven Kwok - KBW

Great. Thanks for taking my questions.

Operator

Thank you. Our next question comes from Sal Vitale of Sterne, Agee. Your line is now open.

Sal Vitale - Sterne, Agee

Good afternoon, gentlemen. Do you hear me?

Victor Garcia

Yes.

Sal Vitale - Sterne, Agee

So just the first question on the G&A line. I was just looking at my notes from the last conference call and I thought you had mentioned a run rate of about $6 million per quarter. So I was just curious so was there is an uptick in your forecast going forward for G&A expense? And was part of the increase potentially from the railcar business?

Tim Page

Like I said, the first quarter, typically we have higher expenses, more for professional fees, auditing related fees, things like that. I would say, we did you did at some people. So there is some effect there in the first quarter, but this is all on the margin. Also, from the fourth quarter, we had a much lower level because we had some year-end adjustments to employee related costs and stuff like that. So it's not necessarily compatible but I think, as I said, around $6.7 million per quarter plus or minus, would be my range of expectation going forward.

Sal Vitale - Sterne, Agee

Okay, and I guess you know that run rate, should we assume that carries over into 2015 as well, or you do you expect some step down at that point?

Tim Page

I can't really tell you now, because we may be continuing to develop our business and growing, additional staff for good opportunity. So it's hard for me to tell you today where our SG&A is going to be 2015.

Sal Vitale - Sterne, Agee

Okay. The other thing you have just mentioned, I think, what $0.5 million of maintenance expense from your railcar business that was embedded in the storage expense for the quarter. Correct?

Tim Page

Correct.

Sal Vitale - Sterne, Agee

And so, is this given that you only recently got into the railcar business, is this the first quarter where you saw a significant expense item there?

Tim Page

No, we have always had expenses built into that. As I said, a lot of the leases are full service leases which have embedded in them in the rail rate an expectation of a certain amount of operating expense. So it just shows if we did it on a net basis, we have little bit less revenue and we show no expense.

Sal Vitale - Sterne, Agee

Okay. Then the other question is on the utilization. So, if I look at, you mentioned that your current utilization is 90.7% and has been so for the last few weeks.

Victor Garcia

That's correct.

Sal Vitale - Sterne, Agee

Okay, and that's on a CEU basis. So that compares to your 91% in 1Q?

Victor Garcia

Yes.

Sal Vitale - Sterne, Agee

Okay. So how do I think about that because it typically doesn't April increase sequentially from the first quarter and then I guess the question is, do you expect --

Victor Garcia

That number, the Q1 numbers that you quoted is the average utilization during the quarter for Q1. So it ended the quarter at about 90.7%, and it stayed about that level since the end of the quarter.

Sal Vitale - Sterne, Agee

Okay, understood. So it's pretty flat since the end of the quarter and typically you start to see that utilization pop in May and June. Is that correct?

Victor Garcia

We would expect, traditionally, May and June to start seeing some improvement. As I said, we have already started seeing some increase particularly on the 20 foot container side. We started to see some improvement there on utilization. It's really, everything should be lining up for our utilization to increase. That's our expectation but I wouldn't say that we are and in an abnormal period, where a lot of customer demand is coming in. It's trending in the right direction, but I wouldn't say it's anything that we would want to remark that we were absolutely certain its going to be much higher.

Sal Vitale - Sterne, Agee

Okay, and then the last question just is on the CapEx side. You said, so first quarter, you did $73 million of CapEx of which $20 million was from prior orders. So that's roughly $50 million of CapEx plus $4million for the year. When do you expect your CapEx to be higher? Would it be second quarter, rather than third quarter? How do you think about that going forward?

Victor Garcia

I really think it depends on where the returns are. The returns on the investment are very marginal. And so we are being very cautious on investment. And as I mentioned earlier in this call, we have alternative uses, including repurchasing our shares where we think it will provide us more economic benefit. So I don't know how much we are going to truly invest. I think demand will be there based on what I am hearing from shipping lines, but I don't have a good picture of where people are, where the competitive situation will be with lease rates. And that's probably the bigger driver for me right now.

Sal Vitale - Sterne, Agee

Okay, that's helpful. And then just a last question on the CapEx question is really, what do you estimate your replacement CapEx to be?

Victor Garcia

I will probably have to get back to you on that.

Sal Vitale - Sterne, Agee

Okay.

Victor Garcia

Because the fleet has gotten bigger, but in the short-term, it's almost zero. We don't really need to do much to replace units that are coming in. But on the longer term, I think we have to, because the fleets grow and we have to look at what the number is

Sal Vitale - Sterne, Agee

Okay. Thank you very much.

Operator

Thank you. (Operator Instructions). Our next question comes from the line of John Mims of FBR Capital Markets. Your line is now open.

John Mims - FBR Capital Markets

Hi. Good evening, guys. Thanks for taking my question. Let me go back to the buyback, Victor. I know you said you are evaluating stuff and you have to go to the Board, but I would have thought, you would have seen more impact in first quarter from the buyback on share count. It didn't happen. But as we look going forward, is there any sense that maybe you can help with as far as procedural things you have to go through if there is windows that you can buy a stock, if there is any kind a lag or what sort of magnitude we could likely see in the next couple quarters in terms of share count step down?

Victor Garcia

It's really hard for me to tell you what it is because it is going to be dependent. I mean as far as windows of opportunity to purchase, we set up a 10b5-1 program to be able to trade in closed periods. We continue to have that in place and we have an ongoing discussion with the Board about what we are seeing in the marketplace for investment opportunities, where we think our capital investment is going to be for the year, where we are seeing the stock price. So it's a very fluid discussion. It's an active discussion. And I really can't get ahead of my Board in terms of those discussions by trying to lay out a game plan as to how many shares we are going to purchase in the coming quarter and the timing of all that. Suffice it to say, that we certainly are looking at what makes the most sense with the capital we have and the capital that we are regenerating and that goes to buying back stock as well as any investment that we are making.

John Mims - FBR Capital Markets

So, I mean the authorization was put in place, but to kind of trigger that or to put it into motion you need to go back to the Board. I guess that's where I am struggling to figure out how much the Board is controlling the situation?

Victor Garcia

I didn't say that we have a program in place to be able to buy back shares under certain parameters. Any changes to that will be in discussions with the Board. We have ongoing dialogue with the Board.

John Mims - FBR Capital Markets

Okay, fair enough. Then if I could just get a little more detail on just industry trends. I know you had said there were some pockets of demand strength that were picking up. Maybe elaborate on where you are seeing that? Where you expect it to strengthen over the next couple of quarters?

Victor Garcia

Well, China. We are starting to see demand picking up in China. Particularly in Central China there seems to be a lot more demand as well as some in Southern China. I mentioned Northern Europe. We are starting to see some demand pick up there. There are other pockets elsewhere in Southeast Asia where we are starting to see. Generally I would say the trend is that we are seeing fewer levels of turn-ins and more inquiries for lease outs.

John Mims - FBR Capital Markets

Do you have a sense of current inventory levels as far as depot and just on the ground boxes?

Victor Garcia

We have certainly a view on our position and what we see from others. I would say, generally speaking, it looks like there is a pretty strong, pretty good supply demand mix right now, particularly when you are looking at this being the low part of the season, any kind of upward surprise in demand would have a very material affect on particularly our utilization because it doesn't appear to be a lot of extra containers lying around.

John Mims - FBR Capital Markets

Okay, yes, that's fair, and then in terms of your new box prices and lead times. To what extent you are buying them? Can you comment on where the industry is trending right now?

Victor Garcia

I think factory inventory is relatively low for this time of year. I think it's probably a reflection of people being cautious because of the lease rate environment. I think the lead times are fairly short. I think we can get delivery of equipment within the next couple of months. Prices stepped down a little bit. They were trending in around the $2,250 level for a 20 foot container. It's probably $100 or a maybe a little bit more lower than that today, which is also reflective of the more tepid desire for people to purchase containers.

John Mims - FBR Capital Markets

Sure, okay. All right. I think that's all I have got right now. Thanks again for the time.

Victor Garcia

Thank you.

Operator

Thank you. I am showing no further questions at this time. I will be handing the call back over to Victor Garcia, President and CEO for any closing remarks.

Victor Garcia

Great. Thank you for joining our call. We look forward to following up with you in three months on our second quarter results.

Operator

Ladies and gentlemen, thank you for participating in today's conference. This does conclude today's program. You may all disconnect. Have a great day, everyone.

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CAI International, Inc. (CAP): Q1 EPS of $0.63 misses by $0.02. Revenue of $54.3M (+6.6% Y/Y) misses by $0.51M.