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CAI International, Inc. (NYSE:CAP)

Q4 2011 Earnings Call

February 21, 2012 05:00 a.m. ET

Executives

Victor Garcia – President, CEO

Timothy Page – CFO, Investor Relations

Analysts

John Stilmar – SunTrust

Helane Becker – Dahlman Rose

Vitale Salvatore – Sterne Agee

Gregory Lewis – Gregory Lewis

John Mims – FBR Capital Markets

Operator

Good day, ladies and gentlemen, and welcome to your CAI International Q4, 2011 Earnings Conference Call. At this time, all participants will be in a listen-only mode. Later, we will conduct a question-and-answer session, which instructions will be given at that time. (Operator Instructions) And as a reminder, today’s conference is being recorded. And now, I would like to introduce your host for today, Timothy Page.

Timothy 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 and 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’ll now turn the call over to our President and Chief Executive Officer, Victor Garcia.

Victor Garcia

Thank you, Tim. Good afternoon. We are very pleased with our fourth quarter results with quarterly year-over-year revenue growth of 44% and earnings per fully diluted share up 16% to $0.66 per share.

For the full-year period, we reported year-over-year revenue growth of 61% and earnings per fully diluted share up 63% to $2.55 per share. Our results during the fourth quarter were driven by the continued strong utilization of our fleet and the new containers delivered from the factories to our customers during the quarter.

Utilization in the fourth quarter remained strong at approximately 97%, slightly below the 98% we reported in the third quarter of this year, but strong nonetheless. As we indicated in the conference call last quarter, we expected a seasonal decline in utilization, and the result was consistent with what we expected.

We expect utilization to decline slightly further in the first quarter of 2012. However, we are very optimistic about container demand beginning in the second quarter and expect our utilization of equipment to increase over the course of the final nine months of 2012. We believe that lease rates on equipment off-hired at depots would strengthen over the coming weeks as a result of increased demand from our customers as we approach the seasonally stronger part of the year.

Prices being quoted by manufacturers for new containers have recently risen compared to the end of 2011, and if that price trend continues, we would expect lease rates on in-fleet equipment to benefit, if lease rates on new boxes increase because of the new – because of the higher new box cost.

As I mentioned, we believe demand for containers will be strong in 2012. Our view is based on the current high utilization of the worldwide lease fleet, the limited capital budgets for purchase via shipping rights and the limited new container production since the second quarter of 2011. Those three factors along with an expected containerized trade growth of 8% core pass by Containerization International, supported by growing U.S. and Asian economies implied to us expected strong demand for containers and utilization.

During the quarter, we leased to customers 13,000 TEUs of new equipment and completed the sale leaseback of 26,000 TEUs of containers with one of our customers. We think that some shipping lines will continue to look to sell and leaseback some units over the course of 2012 and we’re very interested in those types of transactions where we believe we have purchased the assets at attractive prices.

Our results also continue to benefit from the secondary sales market, which has remained strong throughout the year. This quarter, we generated $3.2 million in income from the disposition of containers. Container prices have come down modestly in certain locations, but remained strong worldwide by historical standards.

During the fourth quarter of 2011, we sold 33% fewer TEU than in the fourth quarter of 2010, but we’re able to obtain a higher average gain per TEU. Compared to the third quarter of 2011, we often sold slightly fewer units than in the fourth quarter, but again, our average gain on sale was higher.

We believe that prices per the sale of used containers will remain strong in 2012 because of the expected high utilization of containers worldwide during the year and the relatively high price of new containers.

In summary, we have enjoyed spectacular revenue and earnings growth over the past year with a relatively tight supply of factory inventory, improved growth within the U.S. and European economies and continued strong trade amongst less developed regions, we are expecting ongoing growth of our business in 2012.

I’ll now turn over the call to Tim Page, our Chief Financial Officer to review the financial results for the quarter.

Timothy Page

Thank you, Victor. Earlier today we reported 2011 fourth quarter net income attributed – attributable to common stockholders of 12.9 million, an increase of 23% compared to the fourth quarter of 2010, and as we indicated in our earnings release, a record result for the fourth quarter for CAI.

Net income per fully diluted share increased 16% to $0.66 per fully diluted share on an average share count of 19.6 million shares, a 6% higher share count as compared to the fourth quarter of 2010. In the fourth quarter, we took a net charge of approximately $0.5 million associated with the tax treatment of certain prior year inter-company transactions. Absent this charge, EPS for the quarter would have been $0.68.

For the 12 months ended December 31, 2011, net income attributable to common stockholders was $50.2 million compared to $28.4 million last year, an increase of 77%.

Earnings per fully diluted share increased from $1.56 per share in 2010 to $2.55 per fully diluted share in 2011, an increase of 63%. Total revenue in the fourth quarter was $36.2 million compared to $25.2 for the same period last year, an increase of 44%, and 10% higher than the third quarter of 2011.

Container rental revenue was $32 million this quarter compared to $21.4 million in the fourth quarter of last year, an increase of 50%. Overall, fleet utilization in the quarter decreased from 98% in the third quarter to 97% in the fourth quarter.

Total container revenue during the quarter increased 16% compared to the third quarter, as the average number of owned TEUs on lease increased 9% during the quarter and the average per diem rates increased 8% as a result of the impact of high lease rate refrigerated containers that were put on lease late in the third quarter and early in the fourth quarter.

Management fee income during the fourth quarter was $3.1 million, approximately the same as during the third quarter. Finance lease income was $1.1 million in the fourth quarter, a decrease of $0.5 million from the prior quarter. However, the prior quarter included the cumulative impact of the reclassification of an operating lease to a finance lease, and as such the $1.1 million fourth quarter finance lease revenue is a normalized result.

Total operating expense in the fourth quarter was $15.3 million compared to $10.7 million in the fourth quarter of last year, an increase of 44%. Almost all of which was due to increased depreciation expense directly tied to the 59% increase in container rental equipment assets on our balance sheet at the end of 2011, compared to the end of – compared to year-end 2010, as we invested over $400 million in assets during the past year.

As compared to the third quarter of 2011, total operating expenses increased $4.1 million from $11.3 million in the third quarter to $15.3 million during the fourth quarter. This $4.1 million increase in operating expense is primarily attributable to $2.4 million increase in depreciation expense, as a result of the increased investment in our owned fleet and $0.9 million increase in storage cost as a result of the decrease in average utilization that I mentioned previously. In a year in which we grew the top-line 61% and the bottom line 77%, total marketing, general and administrative expenses in 2011 were $21 million and were flat with last year.

We believe that we can continue to grow our container business with utmost modest incremental investment in MG&A. Interest expense in the quarter was $5.3 million, an increase of $1 million compared to the third quarter, and reflects the increased investment in own equipment discussed earlier.

We ended 2011 with a total fleet of 929,000 TEUs, an increase of 12% compared to 2010. During the year we added a net 122,000 TEUs to our own fleet, and as of the end of the year, our own fleet represents 51% of our total fleet as compared to 42% at the beginning of the year.

The average per diem rate for our owned fleet in the fourth quarter of 2011 was 19% higher than the same period last year and reflects not only the higher container prices and leased rates that were prevalent early in 2011, but also our focus on refrigerated containers as approximately 20% of our total investment this year was in refrigerated containers.

In conclusion, we are very pleased with our 2011 results particularly in light of the level of macroeconomic uncertainty we have faced with the second half of 2011. As Victor related, we are optimistic about the prospects for 2012 and expect continued opportunities for revenue and earnings growth.

With that, we will open up the call for questions.

Operator

Okay. (Operator Instructions) Okay and I am showing our first question coming from John Stilmar from SunTrust. Please go ahead, sir.

John Stilmar – SunTrust

Yes. Good evening gentlemen. How are you?

Victor Garcia

Doing great. Hi, John.

John Stilmar – SunTrust

Good. First question has do with the utilization number. It went from – it was 97 for the quarter and I think you said the end of the year at 95. And I was just wondering if you could provide kind of a little bit of a – I mean you obviously guided in the first quarter to utilization potentially being down.

Is this just kind of a couple customers and sort of a period of transition? And how does the recent trends, at least in utilization affect your buying decisions currently kind of year-to-date? I was wondering if you could kind of give us a little bit more color on those two dynamics before thinking about it correctly?

Victor Garcia

I think what we saw was in general, a normal return of equipment. There wasn’t any one particular customer that accounted for the lion share what we have. It was kind of the normal expectation that we would see, as we get into November, December and it pretty much moderated somewhat most recently, particularly with regard to the Chinese New Year.

But we continue to see some returns and we did have opportunities to lease out equipment, and in certain decisions we’ve – certain cases we decided that it would be better for us to wait until the market gets a little bit stronger where we think we can get better lease rates instead of trying to keep equipment not on lease at reduced rates for a few weeks.

John Stilmar – SunTrust

Okay, that makes strong sense. And then just in terms of maybe a housekeeping items or two housekeeping items. The first is, I was just reading the jump in lease revenue was 13% quarter-over-quarter. But, there was a 25% increase in depreciation and amortization. Is there an accounting true-up that you may have had for inventory or what potentially could have accounted for that difference?

Timothy Page

Part of it could – is related to the fact that we put a lot of refrigerated containers on lease at the end of September and our depreciation methodology, that basically has a mid-month date if you will, so, if the asset is put in service after the – in the second half of a month, it basically goes in service the following month.

So that would have accounted for some other depreciation expense. And the results or equipment that we paid for that didn’t necessarily go on – no excuse me, that’s not correct.

I think that probably the main thing was the refrigerator containers that we put in place this quarter. There was nothing during the quarter that would have caused us to – that we ended up charging more depreciation in the quarter.

John Stilmar – SunTrust

Great. And then – and then, I guess I – I had missed up, I do have a strategic question, and then one more housekeeping. The strategic question is that, you guys have talked about moving, hiring a small team to go in to railcars. And I was wondering, if you’re seeing great strength, you obviously had a quarterly interest rates, it looks like north of 20% ROE business, and decent growth prospects outlining maybe what the rationale is for diversifying your company and seemingly taking a new path relative to the other company, public companies?

Victor Garcia

We did at the end of the year, form a new company called CAI Rail and with the intention of making some railcar investments, and I think when we look at the U.S. railcar market or the North America railcar market, there is a market size that’s comparable to the container market overall.

So there is $1.6 million railcars, and if you look at the value average it’s about the same as what the international container market is. And what we believe is in such a large market, with a focused strategy that we could find attractive opportunities to get long term leases on assets. And we’re primarily focusing on the used car side. So we’re trying to match customers and assets where we can get a predictable and attractive earnings stream.

And then we think in a market that size that we can get kind of the same kind of return expectation that we can get on the container side, while at the same time broadening our overall scope of business. It’s a different customer base, and different customers that we would have into the company, and we think long term, strategically as we grow the business that it makes some sense for us to continue to broaden our and try to get the highest return opportunities while the same time reducing the concentration if you will of our business with certain customers.

John Stilmar – SunTrust

Okay, great. And then Tim, housekeeping items, do you have total TEUs managed and owned that you might be able to give me on the call?

Timothy Page

Yes, total – no, I haven’t. Yes, total, at the end of the year, total managed TEUs 458,000, total owned 470,000.

John Stilmar – SunTrust

Great, thank you guys. Nice quarter.

Timothy Page

Thank you.

Operator

Okay, thank you sir. And we’ll take our next question from Helane Becker from Dahlman Rose. Please go ahead, ma’am.

Helane Becker – Dahlman Rose

Thanks operator, hi, gentlemen, just a couple of questions. One, on that 0.5, is it million charge. Is that in the tax expense line? I am not sure where that showed up.

Timothy Page

Yes, it’s in the tax expense line.

Helane Becker – Dahlman Rose

Okay. So what would your tax rate have been then? Can we just – I mean just subtract it after the – for the go-forward tax rate and not the 17% that you are reported then?

Timothy Page

Yeah, that would be a fair assumption to make.

Helane Becker – Dahlman Rose

Okay. And then, can you say what – what we were hearing actually was that the manufacturers were actually not back up and running quite yet. And can you say if they are back now, if you are seeing that this week or what you’re seeing A) Are manufacturing and B) Can you speak to what you are thinking on your CapEx is going to be for 2012?

Victor Garcia

Sure. I think broadly speaking the factories that are shut down are still- are still to be up and running and most of the expectation is that they will be up and running in March.

Helane Becker – Dahlman Rose

Okay.

Victor Garcia

So, but you have to order ahead of time for delivery in March. So the factories are largely still closed, at least so that have been closed. But we do expect that the factory still open up in March and they are now quoting of March production.

Helane Becker – Dahlman Rose

Okay. So when we’re thinking about your CapEx, are we thinking more at this point whatever you would have spent would have been in January and very little in February and then maybe some things small in March and then divest, kind of the rest of the year?

Victor Garcia

I – well, think in general, when you look at the full year, the majority of our investment in a typical year will be starting in the second quarter and beyond in terms of when we actually would move equipment.

So, the first part is what you lease for but that being said we’re into new production. There are number of opportunities that have been in the marketplace, whether they’d be sale leaseback transactions or other things, those are not in-line with the seasonal patterns small win when you negotiate that with customers.

So we do have set a number of investment opportunities already in place that we’re working on. We’re not in a position to disclose that at this point, but, we are actually relatively speaking even to – to last year where we had a – we had a pretty good pace.

Helane Becker – Dahlman Rose

Okay. So, if you did 400 million last year, would we be thinking you should do the same amount or more this year?

Victor Garcia

Really depends on how the year plays out, but I think when we take a set back and we look at the potential opportunity in the marketplace, we expect that there is a potential in 2012 for demand to be strong enough to do something like that. But what we actually will do is really have to be looking at a month-to-month basis on what the return opportunities are, not only what the demand is but what the – what kind of returns we can get on the investment.

Helane Becker – Dahlman Rose

Okay. And then, – and recognizing the railcar subsidiary, is there a tiny right now will that – how will that change the CapEx pattern for the company?

Victor Garcia

I don’t think it will change the CapEx pattern overall very much. I think our approach on the railcar that is to take a slow and gradual approach. We have a very small team that is focused on that. Our – we do not have outsider’s expectations in terms of investment this year. Where our focus is, is to take advantage of the market opportunity on the intermodal container side and fully develop what will initially be a small railcar portfolio.

Helane Becker – Dahlman Rose

Okay. So, so we’re not – we don’t have to think that changes your seasonality at all?

Victor Garcia

No not at this point. Not, not...

Helane Becker – Dahlman Rose

Okay.

Victor Garcia

Certainly not for this year.

Helane Becker – Dahlman Rose

Okay. I think those are all my questions, actually. Thank you very much.

Victor Garcia

Thank you.

Operator

Okay, thank you. And we’ll take our next question from Salvatore from Sterne Agee. Please go ahead.

Vitale Salvatore – Sterne Agee

Thank you. Just a quick question on the railcar side. I guess first question is, how should we think about on the – the incremental expense coming from that? How does that layer on? Can you give us any color on that?

Timothy Page

I think overall, we’re looking at an overhead budget of somewhere around $1 million of – as the overhead that we’re going to be bringing on this year.

Vitale Salvatore – Sterne Agee

Right.

Timothy Page

As we look at the results from there – this year because of the startup nature of it probably won’t contribute to earnings this year, but we would look sometime next year to – for it to be a contributor.

Vitale Salvatore – Sterne Agee

Okay and so do you – so you expect some revenue generation through railcar say, well in the second half for the year?

Victor Garcia

We will probably expect more of an effect in the second half for the year, but again it will be modest and it will have – but we could start seeing something in as early as the second quarter.

Vitale Salvatore – Sterne Agee

Okay any particular set class of the railcars, would it be tank cars in particular or covered hopper or any color you can provide there?

Victor Garcia

Diversified portfolio is what we’re seeking, but within that we will be largely not looking to invest in hazardous cargo rail tank cars.

Vitale Salvatore – Sterne Agee

Okay

Victor Garcia

That’s the different specialties so – but other than that, most of the car types we would be interested in looking at it.

Vitale Salvatore – Sterne Agee

Okay. If I could just switch back to container side, so based on year-to-date, you ordered $415 million of equipment – that was what was delivered by the end of the year. So how much was ordered in 4Q, but not delivered?

Victor Garcia

I don’t think we have very much at all delivered – ordered in the fourth not delivered. I think our – as things slowdown, we didn’t see a lot of incremental demand and we’ve bought. Where we actually made investments were related to as I mentioned in the sale leaseback transaction that we did about that as far as new production we didn’t really, I don’t recall as putting an order in that went over the fourth quarter.

Vitale Salvatore – Sterne Agee

So the sale leaseback occurred in 4Q?

Victor Garcia

Yes.

Vitale Salvatore – Sterne Agee

And that was the – that I – that was up 36,000 TEUs?

Victor Garcia

That’s 26,000 TEUs.

Vitale Salvatore – Sterne Agee

26,000, sorry. 26,000 TEUs and I wondered that happened towards the beginning of the quarter or sort of first half of the quarter?

Victor Garcia

Towards the end of the quarter.

Vitale Salvatore – Sterne Agee

Okay. Towards the end of the quarter. I’m just trying to get a sense for what that 3Q on sequential revenue growth can be. And then the TEUs that were delivered during 4Q outside of the sale leaseback, would you say that they were more back-end loaded or front-end loaded?

Victor Garcia

More front-end loaded.

Vitale Salvatore – Sterne Agee

More front, okay. Okay, you mentioned earlier that the – since the end of the year you’ve seen the new box prices start to inch up – creep up again. Can you give any color as to where you think they are right now, say as of last week or...

Victor Garcia

I think manufactures are quoting, up about a $100 from where they were quoted before. So they’re around $2,400 on a 20-foot or less.

Vitale Salvatore – Sterne Agee

Okay. 24 unparallel, 20 foot. And then you said that, I guess part of the reason that the utilization was a little lower in 4Q, was that you may have been holding back some equipment just waiting for better pricing. I guess how many percentage points worth of the lower utilization, how many basis points I guess was due to that in your opinion?

Victor Garcia

Hey, it’s hard to say, it depends – it all depends on what we would have agreed to our great, so we have some large customers that have on-going demand and we could have leased out in those boxes. But it would have been a situation where once we put them on our lease at a reduced rate, they probably wouldn’t come back, and so it didn’t make sense for us.

So it’s hard to quantify exactly what would be, I would say in general, we would have seen a decline in utilization. This quarter was not an unusual quarter, and actually I would say when you consider it over a longer period of time the amount of seasonality that was in this quarter was actually less than we would – you would normally expected.

It’s around where we expected, but we’ve seen the years where seasonality was much more pronounced and part of the reason is that Chinese New Year is now a bigger factor in – during the slow season and so that allows for some ongoing demand during this period of time where in the western world we might not have this much demand.

Vitale Salvatore – Sterne Agee

Okay. And then just one last question just looking at utilization quarter-to-date, did you mentioned what it’s averaging so far this quarter?

Victor Garcia

No, we just said at the end of the year, it was around 95%, 95.3% to be exact. It has come down through FIN but the pace at which its coming down has been more moderate.

Vitale Salvatore – Sterne Agee

Okay. Thank you.

Victor Garcia

Thank you.

Operator

Okay, thank you. And our next question is coming from Gregory Lewis from Credit Suisse. Gregory, please go ahead.

Gregory Lewis – Gregory Lewis

Thank you and good afternoon. Is it there – we touched on the railcar leasing a bit. Going forward, how should we – I mean it doesn’t sound like it’s really going to impact much in the first half of the year, maybe a little bit in the back half of the year. How is that going to impact taxes?

Victor Garcia

Well, it’s U.S. business, so it’s at the U.S. – full U.S. tax rate, so that internal rule will keep the tax rate up. I would say though that, the investment that we’re still going to be making much more investment in our container business, which will outpace the investment that we have there. So it will moderate some of the decline in our tax rate that we’ve seen over the last few years. But, it – we still should expect over the next two to three years to see our tax rate decline further, given the pace of investment that we have in overseas.

Gregory Lewis – Gregory Lewis

Okay. And then I mean – and are those taxes are they cash taxes that are going to be paid out?

Victor Garcia

No. No, we’ll have substantial depreciation on the assets that we buy, which will be more of an accrued tax expenses as oppose to a cash tax expense.

Gregory Lewis – Gregory Lewis

Okay. Okay, great. And then just real quick, I know you touched on it also, in terms of thinking about opportunities and you have mentioned there is going to be purchase leaseback opportunities. Who are the primary sellers of assets? Is this – are these KG funds or are these shipping customers is it sort of a mix of both? I mean, in other words who are the primary sellers, if you could provide any color on that?

Victor Garcia

Yeah, the sale leaseback that we are taking about are – are clearly with the shipping rights. So it’s – they are purchasing the asset they currently own and then leasing them back to them. We’ve done a number of those transactions in the past; we know our competitors have done similar transactions. So it’s pretty straightforward.

Usually it tends to be older assets, older meaning, probably assets already halfway through their lives or older, but you get a medium term lease associated with it and we’ve found that the returns have been attractive. We do – because we have a large installed base of managed containers, we always get opportunities to purchase some of those portfolios, because some of the funds come near their – the end of their lives and they’re looking for a way to monetize the remaining investment. And when those opportunities come, we usually, were in the best position to try and provide them the best price for those assets.

Gregory Lewis – Gregory Lewis

Okay, great. And then just real quick one last question on the managed fleet, I mean clearly you’ve sort of have had a tremendous two years or is it really boosting your ownership fleet. In terms of thinking about the managed portfolio, is there something where you think it’s going to sort of trend sideways, is it going to trend slightly up or is it going trend slightly down, you sort of have any visibility on what you are hearing from your customers on the managed side in terms of what they are seeing for – and thinking about in terms of CapEx?

Timothy Page

I think when we look at where the state of the – in best market is we think that we’ll continue to be investing at a faster pace then what our managed portfolio will grow. But we do have a focus on increasing our managed portfolio, and we’re working on different strategy in terms of trying to find the right opportunities to bring new investors into – into assets that we’ll be managing.

And we’ve had actually great success in Asia over the last – during the last two years of having new investors come in. And so our Asian presence has steadily grown every year, in terms of the percentage that – of the assets are managed by us for Asian customers. So we’re looking to continue to build upon that, then we’ll be doing that over the course of this year.

Gregory Lewis – Gregory Lewis

Okay, perfect. Thank you for the time gentlemen.

Victor Garcia

Thank you, Greg.

Operator

Okay, thank you. (Operator Instructions) At this time and I’m showing just one final question at the moment coming from John Mims from FBR Capital Markets. Please go ahead, sir.

John Mims – FBR Capital Markets

Thanks. Good afternoon, guys, sorry, I’m sort of losing my voice. Tim, would you mind going back over this $0.5 million charge, I just missed your comments sort of the beginning of the details on that?

Timothy Page

Yeah, we took – in the quarter we took $0.5 million charge, which is roughly $0.02 a share of EPS. And it relates to how we handle or how we account for the – or excuse me, how the – what the tax treatment is for certain intercompany transactions that took place in prior years.

John Mims – FBR Capital Markets

Okay. Okay, now thanks it’s helpful. On the – we are talking about the boxes sold and the number of TEUs versus the price. When you look at 2012, is there a seasonality pattern that we should think about as far as, you know is – your secondary market sales would be stronger in the first and the second half, or do you use the weakness in the first quarter to dump some boxes?

Victor Garcia

I don’t think there’s that kind of seasonality. I – obviously if the utilization rate has to come down more significantly, you know more boxes there will – probably would had a bigger impact on secondary values, but when I look at the way things are shaped – shaping up in terms of new box prices going up, utilization is still in the high-90s amongst all of the leasing companies at least the ones that have publicly.

Really it’s hard to see a situation where box prices will be coming down. They are pretty strong even currently, so it’s how much more price appreciation that could be hard to know, but certainly the demand will be there for these boxes and we think that we should continue to show pretty healthy returns on the sale of boxes.

John Mims – FBR Capital Markets

What’s the – do you, generally speaking, is there a – can you point to a delta between new box prices and used box prices now, I mean my sense is, they are pretty close.

Victor Garcia

They are pretty close in terms of price a little bit. There is still a significant discount for a used box versus a new box. New box today is going for $2,400 if that’s the price that manufacturers want, that’s still a 30%, 35% premium from where used car -a used boxe is.

John Mims – FBR Capital Markets

Great but I mean on a relative basis what does that premium – is that premium much smaller now than it was in U.S. prior, I mean before this?

Victor Garcia

I think if you look over a longer period of time, you would have expected after 12 to 20 years when the box comes back that you might get 40% of the asset backed as a residual, I mean what a new box would be? Today we’re probably closer to 60%.

John Mims – FBR Capital Markets

Sorry, 50% or 60%?

Victor Garcia

60%. So it shows you the degree to which the box price, secondary box price – secondary box prices have gone up.

John Mims – FBR Capital Markets

Okay, that’s helpful. Just one last one, on the reefer purchases, what maybe overall owned fleet now, what percentage of your fleet is reefers?

Victor Garcia

On a unit basis, it’s pretty small, but on a value basis, I think it’s probably somewhere closer to 20% of the value that we have in our fleet in terms of owned fleet.

John Mims – FBR Capital Markets

I know you’re seeing as you’re kind of looking out at – demand and pricing and what not looking at 2012, is there any dramatic difference as far as where you can get per diem leverage if there’s better pricing opportunities reefers versus drives now or is that, because it seems like everyone is talking about reefers and it’s getting to be a lot more competitive?

Victor Garcia

It definitely has gotten more competitive. I think the normal season we’re in the midst of it, so I think water and equipment, now you’d be getting equipment towards the end of the season. So we would expect most of the investment – what people are focusing more on will be to drive that business as that season is just beginning.

And the return – we will continue to invest both in reefers and dry vans. We think over the medium to long term the returns will be comparable, but we think that there are diversification in terms of some of the customers who had to – want to buy the reefers, and the long term leases that we can get on reefers make it an attractive opportunity for us. But we still will be primarily a dry van company as opposed to a reefer company.

John Mims – FBR Capital Markets

All right, okay, great. That’s all helpful. Thank you for the time and a great quarter.

Victor Garcia

Thank you.

Operator

Thank you. And I’m showing no further questions in the queue at this time. I would like to turn the conference back to your host.

Victor Garcia

Great, well we appreciate everyone being on the call today. We look forward to everyone coming on the next earnings call. Thank you very much.

Operator

Okay, ladies and gentlemen, this does conclude your conference. You may now disconnect and have a great day.

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