CAI International's (CAI) CEO Victor Garcia on Q4 2015 Results - Earnings Call Transcript

| About: CAI International, (CAI)

CAI International, Inc. (NYSE:CAI)

Q4 2015 Earnings Conference Call

February 16, 2016 05:00 PM ET

Executives

Victor Garcia - CEO

Timothy Page - CFO

Analysts

William Horner - BB&T Capital Markets

Robert Napoli - William Blair

Douglas Mewhirter - SunTrust Robinson Humphrey

Helane Becker - Cowen & Company

Operator

Good day, ladies and gentlemen, and welcome to the CAI International Fourth Quarter 2015 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 call is being recorded.

I’d now like to introduce your host for today's conference, Timothy Page, Chief Financial Officer. You may begin sir.

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 our current expectations including, but not limited to, economic conditions, expected results, customer demand, increased competition, and others.

We refer you to the documents to 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.

Finally, we remind you that the Company's views, expected results, plans, outlook, and strategies as detailed in this call might change subsequent to this discussion. If this happens, the Company is under no obligation to modify or update any of the statements that the Company made during this discussion regarding its views, estimates, plans, outlook, or strategies for the future.

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

Victor Garcia

Thank you, Tim. Good afternoon, and welcome to CAI’s fourth quarter and full-year 2015 conference call. During the fourth quarter, we faced difficult market conditions in our container business. However, we continue to make significant strides in diversifying our Company by focusing investment on our growing rail leasing and logistics operations.

For the fourth quarter, we reported a revenue increase of 12% from the fourth quarter of 2014 and lease related revenue increased over the same period by 1%. On a GAAP basis, we reported loss for the quarter of $12.6 million or $0.62 per fully diluted share compared to net income of $16.2 million or $0.76 per fully diluted share for the fourth quarter of 2014.

Included in the fourth quarter results was a $24.5 million noncash impairment charge related to our off lease container inventory. Excluding this noncash charge, we reported adjusted net income of $10.5 million or $0.52 per fully diluted share.

Leading into the quarter, we did not see a typical seasonal upturn in container demand as expected during the August to October time period. As a result, demand for containers was limited and we experience a typical fourth quarter seasonal downturn in demand, particularly in Asia.

We also have not witnessed an increase in demand leading into the Lunar New Year holiday, which ended last week. Most of the equipment that was redelivered was to Asia and was older equipment or equipment we purchased on a sale lease back basis, which we have targeted for sale.

As been -- as has been widely reported, steel prices have declined over the course of 2015 and as a result the price of new containers has decreased from this time last year. The decline in new container prices combined with the weak overall demand for containers, I previously mentioned, has resulted in a decrease in the price of used containers, particularly in Asia, where there has been a build up of available equipment.

In addition, the strong dollar has negatively impacted the dollar value of proceeds we received in a number of markets. As a result of this decline in container prices, we took a noncash pre-tax charge in the fourth quarter as I mentioned, to impair the value of standard dry van containers that we expect to sell rather than lease to reflect our view of the current price that these containers can achieve in the secondary market.

The units affected represent a significant portion of our off-hire equipment and approximately 10% of the TEUs in our standard own dry van fleet. We will continue to position equipment into markets where we believe we can achieve better sale prices for this equipment. The impaired equipment comprises the units most impacted by the current sales market.

We believe that the current market conditions are not reflective of the expected long-term realization on the sale of equipment. As such, we do not believe that a change in the residual value estimates of our container equipment is currently warranted.

As I mentioned, economic activity in 2015 was weaker than expected, particularly in China. Because of this weakness, utilization declined from an average of 92% during the third quarter to 91.1% in the fourth quarter. This was in line with past fourth quarter declines in utilization.

As we look into 2016, we’re encouraged by the limited ordering of equipment by shipping lines and lessors. We are also encouraged by the recent stability of steel prices and the ongoing disposition activity being conducted by shipping lines and container lessors.

We estimate factory inventory has remained fairly constant from where it was in the third quarter at around 800,000 TEUs. We, as a Company, have limited our dry van container investment in 2015. Our available equipment is low by historical standards and we expect to remain cautious in investment going into 2016.

Although there is substantial depot equipment available, we do not believe the level of equipment available to be overly excessive and believe overall supply and demand to be in relative balance. We are anticipating some improvement in utilization as we approach the traditional seasonal upturn around May.

Per diem rates remained very competitive during the fourth quarter. Because of the limited amount of new container production over the past six months and the recent consolidation amongst container leasing companies, we expect per diem levels and returns on investments to improve over time. Also we expect CAI to benefit from the announced consolidation activity as pricing levels improve and customers look to diversify the high concentrations of business they’re doing with our competitors.

We are pleased to report that during the quarter, we continued with our rail equipment expansion. During the quarter, we purchased 1,168 rail cars, 951 of which are on lease to a class one railroad that will contribute to our results in 2016 and beyond.

During the quarter, we further committed to purchase 300 new dry freight railcars to be delivered during the second and third quarters of 2016. Our rail business contributed nearly 10% of revenue and 16% of adjusted pre-tax profits during the fourth quarter of 2015 and with further investment in equipment we expect it to contribute a greater share of our overall results in 2016.

We are also announcing today the acquisition of Challenger Overseas, a privately held non-vessel operating common carrier or NVOCC for $10.8 million, a portion of which is based on the future performance of the company. We are excited about this acquisition because Challenger complements and extends our logistics strategy and capabilities by bringing together an existing customer base that is shipping product internationally, has over 20 years of commercial relationships with the major shipping lines and a world-wide freight forwarding custom clearance and NVOCC agency network. We will look to utilize Challenger's capability to expand the international logistic services we offer to our customers.

Our Board of Directors has approved an increase in our share repurchase program from one million shares to two million shares. The recent weakness in our share price has provided us an attractive opportunity to repurchase shares. We believe that the repurchase of shares -- of our shares at current prices benefits our long-term stockholders.

To date we’ve completed the repurchase of 300,000 shares at an average price of $8.87. We expect to prioritize share repurchase given the current trading levels of our shares. We will continue to look for opportunities to build long-term stockholder value that strengthens our overall business.

We are working our way through the effects of a cyclically weak demand period in our container business during a weak global environment. However, we’re steadily making progress on creating a growing logistics franchise and an overall diversified business. We believe that the consolidation activity and high market share that has resulted from the announced mergers of container lessors will greatly benefit CAI in the future, and that our Company will emerge from the current market in a stronger position.

We believe container demand will improve over time and that the efforts we’re making in our rail and logistics businesses will continue to expand the overall intrinsic value of our company. We are excited about the direction of our efforts and are focused on achieving our strategic business plan.

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

Timothy Page

Earlier today, we reported our 2015 fourth quarter and 2015 full-year results. Lease related revenue in the quarter was $59.7 million, 1% higher than the fourth quarter of 2014 and 2% lower than the lease related revenue in the third quarter of 2015.

Rail revenue grew 109% as compared to Q4 of last year and was a 11% higher than Q3 of this year. Container related fourth quarter revenue declined 3.7% year-over-year and 2.9% versus Q3 of this year, primarily as a result of lower utilization.

Rail rental revenue accounted for 10% of our total rental revenue in the fourth quarter as compared to only 5% a year-ago. We expect a continuation of this trend of strong growth in rail revenue. Q4 2015 total revenue was $65.7 million, 12% higher than the fourth quarter of 2014 and basically flat with the total revenue in the third quarter of 2015.

Total revenue in the fourth quarter of this year included $6 million of logistics related revenue, which accounted for the majority of the year-over-year revenue growth most of which is related to our acquisition of ClearPointt in July of 2015.

For the full-year 2015, total revenue increased from $228 million to $250 million, an increase of 9.7%. Of the total year-over-year revenue increase of $11.5 million, 52% was related to -- of the total year-over-year revenue increase, a $11.5 million or 52% of that increase was related to logistics which didn’t generate any revenue in 2014. $7.1 million of the increase or 32% is related to rail. Rail grew a 109% this year.

Container related revenue grew $3.5 million compared to the prior year, a year-over-year growth rate of 1.6%. We recorded a net loss in the quarter of $12.6 million as we took a noncash pretax charge of $24.5 million to write down the value of certain containers we’ve targeted for sale. This represented an after tax charge of $23.1 million or a $1.14 per fully diluted share.

Excluding this noncash charge, adjusted net income would have been $10.5 million as compared to adjusted net income of $15.9 million in Q4 of 2014 and $13 million in Q3 of 2015.

The impairment charge which is reported in the financial statements as part of depreciation expense involved approximately 53,500 units or 90,200 TEU, all of which for standard 20 foot, 40 foot, and 40 foot high cube containers.

We made the decision to take this charge due to a number of factors. First, we’ve experienced falling secondary market prices over the past year. Second, because the vast majority of our container assets are dollar denominated, the strong dollar has put additional pressure on the dollar proceeds we receive and we sell a container.

Third, demand for containers from our leasing customers have been weak due to slow global GDP growth, resulting in a gradual decrease in utilization this year and consequently a larger quantity of containers to either store or sell. As a result of these factors, we’ve made the decision to aggressively accelerate the sale of our older equipment in order to reduce storage cost.

The average impairment on a TEU basis was $270 or about 27% of the pre-impaired net book value. The $24 million -- $24.5 million impairment charge represents only about 1.5% of the total book value of our container fleet.

As Victor mentioned, we’ve reviewed the book values of our remaining container assets and based on contractual and expected lease income and future sale proceeds, we don’t believe that it is necessary to impair any other container assets nor is it necessary to adjust any residual values at this time.

We view the current demand for containers to be particularly weak and not necessarily indicative of longer term demand for container sold in the market. There have been similar time period such as the 2008, 2009 global recession and in 2001 and 2002 post 9/11 when container utilization, new container prices and secondary market prices also fell to levels similar to what we’re experiencing today in each of those down cycle the container market recovered relatively quickly.

We reported a loss of $0.62 per fully diluted share in the quarter and earnings per fully diluted share for the full-year of $1.28. Adjusting for the impairment charge, earnings per fully diluted share in Q4 were $0.52 as compared to adjusted net income per fully diluted share of $0.75 in the fourth quarter of last year.

For 2015 earnings per fully diluted share adjusted for the impairment charge were $2.40 as compared to adjusted net income for fully diluted share of $2.79 for 2014, a decrease of 14%.

As of December year-end 2015, our total container fleet consisted of 1.2 million CEUs, a decrease of 0.004% compared to the third quarter and 2.7% greater than at the end of 2014. Our own container fleet is 1 million CEUs, 0.003% larger than at the end of Q3 of 2015 and 7% larger than at the end of 2014. Our own fleet now accounts for approximately 85% of our total fleet.

We ended the fourth quarter with approximately $1.6 billion of container revenue assets. Approximately $50 million or 3% less than Q3 of 2015 and 3% more than at the end of Q4 last year.

During the quarter, we invested only $18 million in container assets, almost all of which was refrigerated or specialty containers. As of today we’ve only approximately $15 million of commitments to purchase containers almost all of which is specialty refrigerated containers.

During the quarter, we sold approximately 14,000 CEU of containers or about $13 million in proceeds. For the full-year, we sold approximately 56,000 CEUs for $54 million in proceeds. In total for 2015, we invested approximately $239 million in new and used container assets, almost all of which are leased out, many of which were leased out on full life leases.

In spite of the difficult market conditions, we were able to achieve an average revenue over the asset price yield and all of the containers we leased out during 2015 in excess of 10% by focusing on specialty refrigerated and niche market opportunities. Our investment in rails assets continues to expand rapidly and we’re enjoying the benefit of increasing operating leverage along with that expansion.

As of the end of Q4, our rail assets had a net book value of $234 million, which now represents 13% of our total revenue earning assets, an increase of 33% as compared to the end -- as compared to the third quarter of this year and 179% when compared to the fourth quarter of last year.

During the quarter, we acquired a total of 1,168 rail cars, a 1,028 used and 140 new for approximately $54 million, bringing our total fleet to 5,096 cars. Additionally we’ve an active program to refurbish and upgrade some used cars we’ve previously acquired.

During the quarter, we invested approximately $2 million in car refurbishments. All of the cars we acquired or refurbished during the fourth quarter have committed leases associated with them. As I mentioned earlier, rail revenue increased 11% in Q4 versus Q3 and 109% versus Q4 of 2014.

The operating margin, excluding gains on sale increased to 47% during the fourth quarter versus 45% in Q3 of this year. We expect continued revenue growth and margin expansion in the next several quarters as we take delivery of more new real -- more new railcars that already have committed leases associated with them.

In addition to the $40 million acquisition of 950 rail -- 951 rail cars that we closed at the end of December, all of which are on lease, we currently have commitments to purchase $139 million of new rail cars in 2016. Additionally, we will continue to preserve -- pursue acquisitions of used rail car portfolios.

We expect that our rail assets which represent over 20% of revenue earning assets by the end of 2016. The overall utilization of our rail car fleet remains approximately 98%. Average total container fleet CEU utilization was 91.1% for the fourth quarter compared to 93.8% for the fourth quarter of 2014 and 92% for the third quarter of 2015.

Our average owned fleet CEU utilization in the quarter was 91.9% as compared to 92.9% for the third quarter of 2015 and 94.7% for the same period last year. Storage, handling and maintenance expense was $8.4 million for the quarter, approximately $0.2 million greater than Q3 of 2015 and $1.6 million greater than Q4 of 2014, primarily due to additional container storage from lower utilization. Year-over-year $1.3 million of the $1.6 million total increase in storage and maintenance expense is container related. Our priority remains to reduce our off-hire fleet.

MG&A expense in the quarter was $6.1 million, which is $0.4 million less than last year and $1.2 million less than Q3, reflecting a significant reversal of previously accrued incentive compensation. With the July addition of ClearPointt and the recent addition of Challenger Overseas, we would expect that quarterly G&A expense will run in the $7.5 million to $7.8 million range.

Interest expense was $9.2 million in the quarter, in line with our expectations. On a year-to-date basis, our effective tax rate is 13.6%, somewhat higher than in previous quarters and reflects the impact of the U.S sourced income being a higher percentage of overall income due to the container related impairment charge and rail becoming a larger percentage of pre-tax income. On a go forward basis, we would expect an effective rate of approximately 11% for next year.

2015 total investment was $396 million, of which $158 million was for rail, $36 million for used containers, $198 million was for new containers and $4 million was for the acquisition of ClearPointt. The majority of our 2015 new container investment was largely committed to in early 2015 and very little was invested after the first quarter.

At the end of the fourth quarter of 2015, we had total funded debt of $1.4 billion. From a liquidity perspective, we’re in a very strong position with cash flow and committed credit facilities that allow us the ability to repurchase shares, delever or invested further in the business. Based on the commitment amounts of our rail and container based revolving credit facilities, we had $618 million of undrawn credit line capacity at the end of Q4.

During 2015, we generated net cash flow from operations that is operating cash flow after paying cash interest and cash tax expense of $146 million. In addition to that, we received $88 million in cash receipts from the normal course of business sale of containers and principal payments we received on finance leases, bringing total net cash inflow to $234 million.

Mandatory credit facility principal payments in 2015 were $108 million, the net cash flow amount or free cash flow was $126 million. Our net funded debt to tangible net worth leverage ratio calculated based on the definitions governing our revolving credit facilities was 3.05.

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

Question-and-Answer Session

Operator

Thank you. [Operator Instructions] And our first question comes from the line of Kevin Sterling from BB&T Capital Markets. Your line is now open.

William Horner

Good evening, gentlemen. It’s actually William Horner on for Kevin.

Victor Garcia

Hi, William.

William Horner

Hey, Tim or Victor, sticking on the kind of supply and demand outlook for a moment, you mentioned factory inventory levels pretty manageable around 800,000 TEUs. Demand is weak and obviously you’re looking to aggressively sell some older equipment as you mentioned with very limited commitments, I think you said the number was around $15 million for this year. So when we look at your container count as we look through 2016, how should we think about that trend throughout the year? Should we expect it to remain relatively flat or should we look to maybe for that actually trend down as you sell some containers and take one relatively new equipment?

Victor Garcia

I’d say just based on where we’re today that probably we’d see the container portfolio shrink. When we look at the number of TEUs just by the math of the pace where we will be selling and our cautious view in terms of investment, we don’t -- I would expect that we will have an overall decline in the fleet over the course of the year unless things change over the course of the summer.

William Horner

That’s fair. And if I could just follow-up with that, should we expect that maybe in the 10% range what’s being held for sale or is it just maybe you don’t want to get that granular with it just yet?

Victor Garcia

I’d say that that’s probably over statement. I’d think it’s in the low single digits.

William Horner

Okay. Thank you.

Victor Garcia

1% to 3%.

William Horner

Okay, great. That’s very helpful. And then going back to your prepared remarks regarding the recent M&A activity in the leasing space, I was hoping you could expand upon your thoughts there. I know you mentioned there are some potential for more rational pricing with the consolidation in the market, and obviously also some opportunity to pickup demand as customers look to diversify. So, directionally have you started to see some of the benefits of that yet? I know that, that particular merger hasn’t closed quite yet. But is there any sort of chatter in the industry about that happening? Are you seeing it yet?

Victor Garcia

Well, just to put clarity on it, there’s been three separate transactions that have - one, that’s already occurred, another one is -- and two other ones that are in the process. So I think that’s significant consolidation because all of the entities involved were pretty large container leasing companies. So there has been a fair amount of consolidation.

We have had some customers already express that, they feel like they’re overly exposed to a particular leasing company. Does that drive their decision today? Probably not. But I think over time it’s just the natural thing. No leasing company has been able to over the history of this business to be able to maintain market shares approaching 20%. So it’s just the nature of the way the market goes. Our belief is that -- our strong belief is that we will be able to pick up market share. We’re very comfortable that we’re not in any kind of cost disadvantage. The primary costs are the equipment and the funding costs and every incremental dollar that we all have the same cost. So, we have the same customers. We have the same cost structure. We actually think that the efforts that we’re making in terms of our logistics presence will give us a competitive edge. So we actually, once we get through this, there are a number of things we’re doing to our company that we think strengthens us. But I would say a happy occurrence from our side has been the recent consolidation because we think that, that will greatly benefit us in the future.

William Horner

Okay, that’s helpful. And then to your point about logistics competitive edge, congrats on the Challenger Overseas acquisition. And if I could have just one more, and then I’ll turn it over. Regarding the buy-back, it’s good to see that you upped your authorization at 2 million shares and just -- and I know you said you’re going to look to make that a focus going forward. But just given the 300,000 shares that have been repurchased to date, is there anything preventing you from making a larger repurchase or is it simply just a limited open window for repurchases given the timing of the announcement back in December?

Victor Garcia

It was more the timing of the announcement in, December.

William Horner

Okay.

Victor Garcia

And our view is, this is -- the Board takes a look at the conditions and sets a buy-back program that we’ll continue to -- we plan on moving forward with the buy-back program, and then we’ll see where the market is if we conclude it.

William Horner

Okay, great. Thanks for the time.

Victor Garcia

Sure.

Operator

And our next question comes from the line of Bob Napoli from William Blair. Your line is now open.

Robert Napoli

Good afternoon. I guess, just curious with where your stock is, the acquisition you made you could have bought back the Challenger acquisition, you could have bought back 10% -- more than 10% of the company with that $11 million. So why make that acquisition at this point in time?

Victor Garcia

Because we have a long-term strategic plan about what we believe our company to be, and we need to have certain tools in place in order to execute it. The acquisition that we made is a very small acquisition that we can pay for with cash. It does not in any way prohibit us from being able to execute on any consideration we have on repurchasing our shares. We don’t have any issue with capital or liquidity and so we’re both building the company for the long-term as well as just taking it -- looking at the current valuation and again repurchasing shares that we believe will be adding an attractive value.

Robert Napoli

And just I guess given some of the guidance that you gave on tax rate et cetera. It makes it sound like you feel like you have pretty decent visibility into this year’s earnings like such that you don’t expect, if conditions were to stay like they are, do you -- would you -- wouldn’t you expect to have additional impairments as railcars came off lease or things like that? What are your thoughts on visibility into earnings next year given the current -- assuming the environment stays the way it is and the likelihood of additional impairments?

Victor Garcia

Well we’re not expecting any impairments on our railcar assets. Those are 40 plus year assets. So, and the value of rail equipment has not declined in the same kind of direction that containers have. We try to provide some viewpoint into the future. We could say nothing about what we expect for the future, but we thought that people would have to have our best estimate. We don’t provide formal guidance but we do think that as people are looking at the company they need to have a reasonable expectation of where certain metrics are going to be particularly when you have a quarter like we just had that has altered the percentages and provide a little bit more uncertainty. We think we’ve added something to our analyst community by providing some of these details.

Robert Napoli

Right. But I guess your thoughts on current, on additional impairments of containers if conditions stay the way they are?

Victor Garcia

We took the action of what we believed was necessary at current prices and the off-lease equipment. I can't give you any certainty that there won't be any additional charges. But what I will say is that this was a significant charge for us, and I would not expect that we would have similar charges, but it depends really on where the -- how the market evolves if container prices continue to get -- go lower and our off leasing equipment continues to increase, we’ll have to assess it. But we believe that, this is significant for us.

Robert Napoli

Thanks. And what was your book value per share at the end of the quarter?

Timothy Page

I don’t have the number.

Victor Garcia

Around 20 or so.

Timothy Page

Yes, but I …

Robert Napoli

Around $22, sort of. Okay, so you’re selling at a pretty good discount and you’re suggesting that you might, you could -- you believe you’re going to be able to protect book value.

Victor Garcia

We think that our shares at this point are attractive of that investment. Clearly it’s trading at the whole sector and particularly our company is trading at a very significant discount to book value. So what I -- we make our own assessment. We’ve increased our approved share buyback program and that’s all I can say about it.

Robert Napoli

Thank you.

Operator

And our next question today comes from the line of Doug Mewhirter from SunTrust. Your line is now open.

Douglas Mewhirter

Hi, good evening or good afternoon in San Francisco. Just going back to the impairment charge, maybe asking it in a more technical way and contrasting it with containers announced impairment charge, they sort of imply that this would be more of an on going thing. But I know that that’s the way you all the lessors account for the way you impair and depreciate containers differently. So, is your confidence in this not recurring because of the way you’ve always accounted for impaired hold for sale containers because logically you would think well if you’re impairing your held for sale book, you’re always getting more containers coming into the hold for sale books, so why wouldn’t you continually have impairments if they carried at a certain book value? I guess, hopefully that wasn’t too confusing. Do you understand what I’m asking?

Victor Garcia

I guess the way I would describe it is, we’ve taken a significant impairment charge on the majority of our off lease equipment, particularly equipment that is older that we would be designated because [ph] that is a significant portion there. As we move forward into each, the succeeding quarters, what we’re going to be facing with is, we’re going to get units in, we’re going to sell them during the quarter, we’ll sell them -- we may take a loss on some of those units. We will then have some units at the end of the quarter that we’ll have to look and see as the carrying value appropriate. So we’ll have maybe some additional depreciation there. So there’ll be some charges there. We’re facing a significant reduction in the value of this existing off lease equipment. We’re going to have less depreciation associated with those units. We’re going to continue to position some of those units into markets that we think can get a better price. We may even report a gain on some of those. And when I put all that into the mix, I think that plus or minus it would be at a low washout. Could the market decrease markedly from where we are here? Sure, but that’s not our expectation right now.

Douglas Mewhirter

Okay, that’s helpful. And second, Tim, could you just remind me of approximately the percentage of your container fleet that expires in 2016 -- in 2017, if you have that in round numbers its fine.

Timothy Page

Well, on a long-term leases from a -- on a premium basis, what expires in the next 12 months is 13%.

Douglas Mewhirter

Okay, thanks for that. And my last question …

Timothy Page

That’s just long-term leases. So I think we have finance leases, we have long term leases and then we have MLAs, which by their nature are basically almost always expired. So, long-term leases account for 78% of our -- or 72% of our premium.

Douglas Mewhirter

Okay, thanks. That’s helpful. And my last question, what were the annualized revenues of this logistics company, the Challenger?

Timothy Page

Challenger runs around $9 million of revenue.

Douglas Mewhirter

Okay, thanks. That’s all my questions.

Timothy Page

Thanks.

Operator

[Operator Instructions] And our next question comes from the line of Helane Becker from Cowen & Company. Your line is now open.

Helane Becker

Thanks, operator. Hi, gentlemen. Thank you very much for the time. Just are you seeing any issues with your banks and access to capital from their perspective. Any concerns that maybe they are taking big write-downs in other industry groups and are kind of tightening that?

Victor Garcia

I’ll make two points related to that, Helane. We have committed facilities in place that meet all our needs over the next 12, 24 months without having to raise any funding. So just a committed credit facilities for ongoing investments and like we always do, so we don’t have to go to the markets for capital to meet our business plan. Beyond that I would say, the general reception that we’ve had and we’ve had number of bankers come through here is that, direct -- these are, many of these bankers are very familiar with this market, have been players and long standing lenders not only to us, but to a number of other containers list source, the perception and my expectation is that they continue to be supportive and will continue to be supportive of us. And in particular on the railcar side we’ll continue to be very aggressive in considering new financing.

Helane Becker

Great, okay. Thank you. And then with respect to the railcars as you increase your investment there which in this market obviously makes sense. How should we think about yet growing, because initially it wasn’t going to be such a huge percentage of total revenue, but now it looks like it has the potential to really grow to somewhere in the maybe 20% to 50% revenue. I think, Tim, said it was 10% of total revenue for 2015. So how should we start to think about that going forward?

Victor Garcia

Well if you look at, I think we’ve disclosed we have $140 million of -- just under $140 million of equipment coming to be delivered this year. So, it gives you -- we have -- at the end of the year we had $230 million …

Timothy Page

$230 million at the end of the year, and so $140 million is going to add another 60% or something like to the total asset base.

Victor Garcia

But it comes in over time.

Timothy Page

Yes.

Victor Garcia

But there will be a steady progression of increased revenue and increased cash flow coming from that. And we would expect to be able -- all marketing conditions being equal to continue to invest at that kind of pace assuming the returns are appropriate. The thing about the rail market and particularly since we’re relatively a small player is, there’s not one uniform rail market. There are a number of car types, a number of sub industries, a number of customers that we can go to. And our increase in terms of focus and investment is one prioritization of diversification. But also, our name is out there. We’re a recognized player, we continue to see opportunities, we’re growing our customer base, we’re doing a lot of good things and customers are coming to us and wanting to work with us. So we’re continuing to serve those customers, and so we’re really building a great franchise in the rail sector.

Helane Becker

Is that -- I know most of the revenue -- all the revenue from that is domestic. Is there an international opportunity in that business at all?

Victor Garcia

The European rail market is about 10% the size of the U.S. market. So there is a market there just to point to one area. There are other international markets, but they’re all relatively small in comparison to the United States. Our focus will be, as far as rail is at right now, is just to remain in the U.S. where it’s a very large market for us. We really haven’t scratched the surface of what potentially we can do there.

Helane Becker

Got you. And my last question is just, with respect to the ship owning companies. Are you seeing them buy more of their own containers given how cheap they are rather than lease or is leasing still 40’ish percent of total?

Victor Garcia

Most NVOCCs, I would say are asset like companies. So they really don’t own their own containers, they use the shipping line boxes. We would expect to grow as a traditional NVOCCs. When it comes to the shipping lines themselves, its been about 50-50 and the ship -- but right now, I would say both shipping lines and leasing companies despite the low container prices have really not from what we can tell in the marketplace have really not invested heavily in new containers which is for us heartening, that people are not just speculating on new containers for the sake of a low price, but are looking at the available equipment that’s out there.

Helane Becker

Right. Okay, thanks Victor. I appreciate your time.

Victor Garcia

Sure.

Operator

And I’m not showing any further questions. I would now like to turn the call back to Victor Garcia for any further remarks.

Victor Garcia

Great. I appreciate everybody being on the call today. We look forward to reporting for our first quarter call, then in the coming couple of months. Thank you for your time.

Operator

Ladies and gentlemen, thank you for participating in today's conference. This concludes the program. You may now all disconnect. Everyone have a great day.

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