CAI INTERNATIONAL, INC. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our audited consolidated financial statements and related notes thereto, included in our Annual Report on Form 10-K for the year endedDecember 31, 2020 filed with theSEC onMarch 1, 2021 . In addition to historical consolidated financial information, the following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results may differ materially from those contained in or implied by any forward-looking statements. The financial information included in this discussion and in our consolidated financial statements may not be indicative of our consolidated financial position, operating results, changes in equity and cash flows in the future. See "Special Note Regarding Forward-Looking Statements" included earlier in this Quarterly Report on Form 10-Q. Unless the context requires otherwise, references to "CAI," the "Company," "we," "us" or "our" in this Quarterly Report on Form 10-Q refer toCAI International, Inc. and its subsidiaries. Overview We are one of the world's leading transportation finance companies. We lease equipment, primarily intermodal shipping containers, to our customers. We also manage equipment for third-party investors. In operating our fleet, we lease, re-lease and dispose of equipment and contract for the repair, repositioning and storage of equipment. The following tables show the composition of our fleet as ofMarch 31, 2021 and 2020, and our average utilization for the three months endedMarch 31, 2021 and 2020: As of March 31, 2021 2020 Owned container fleet in TEUs 1,714,552 1,590,880 Managed container fleet in TEUs 55,226 66,721 Total container fleet in TEUs 1,769,778 1,657,601 Owned container fleet in CEUs 1,767,305 1,622,354 Managed container fleet in CEUs 70,255 82,705 Total container fleet in CEUs 1,837,560 1,705,059 Three Months Ended March 31, 2021 2020 Average container fleet utilization in CEUs 99.6% 98.2% Average owned container fleet utilization in CEUs
99.7% 98.4%
The intermodal marine container industry-standard measurement unit is the 20-foot equivalent unit (TEU), which compares the size of a container to a standard 20-foot container. For example, a 20-foot container is equivalent to one TEU and a 40-foot container is equivalent to two TEUs. Containers can also be measured in cost equivalent units (CEUs), whereby the cost of each type of container is expressed as a ratio relative to the cost of a standard 20-foot dry van container. For example, the CEU ratio for a standard 40-foot dry van container is 1.6, and a 40-foot high cube container is 1.7. Utilization of containers is computed by dividing the average total units on lease during the period in CEUs, by the average total CEUs in our container fleet during the period. The total fleet excludes new units not yet leased and off-hire units designated for sale.
COVID-19 Pandemic
The COVID-19 pandemic continues to have a meaningful impact on global trade and
our business. The pandemic and related work, travel, and social restrictions
resulted in a sharp decrease in global economic and trade activity during the
first half of 2020, resulting in weak container leasing demand. However, we have
seen a significant increase in leasing demand since the second half of 2020,
which we expect to continue through 2021. However, it is too early to tell
whether this rebound in demand will be sustained into 2022 and beyond.
We were initially concerned that the sharp decrease in global container volumes
early in 2020 would increase the financial challenges facing our customers and
lead to increased credit risk. While we are not yet through the pandemic,
container freight rates and the financial performance of our customers have
generally held up better than anticipated, with freight rates reaching record
levels. As the impact of the pandemic grew, all the major shipping lines have
taken aggressive actions to reduce their deployed vessel capacity, decreasing
their network expenses and mitigating rate pressure from reduced freight
volumes. The large decrease in bunker fuel prices has also been very helpful to
their financial performance. We continue to closely monitor our customers'
payment performance and expect the potential for elevated credit risk as along
as economic and trade disruptions persist.
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For additional information regarding the risk and uncertainties that we could encounter as a result of the COVID-19 pandemic and related global conditions, see "Business Risk - The continued spread of the COVID-19 pandemic may have a material adverse impact on our business, financial condition and results of operations" in Item 1A. "Risk Factors" in our Annual Report on Form 10-K for the year endedDecember 31, 2020 filed with theSEC onMarch 1, 2021 .
Disposal of Logistics and Rail Businesses
OnAugust 14, 2020 , we sold substantially all the assets of our logistics business to NFI, a North American logistics provider, for cash proceeds of$6.2 million . OnDecember 29, 2020 , we sold all our remaining railcar fleet to affiliates of Infinity Transportation for cash proceeds of$228.1 million . As a result, the operating results of the logistics and rail leasing businesses have been classified as discontinued operations in the unaudited consolidated financial statements in this Quarterly Report on Form 10-Q. All prior periods presented in the unaudited consolidated financial statements have been restated to reflect the reclassification of the logistics and railcar leasing businesses as discontinued operations. See Note 2 - Discontinued Operations to the consolidated financial statements in this Quarterly Report on Form 10-Q for more information.
Results of Operations - Three Months Ended
The following table summarizes our results of operations for the three months
ended
Three Months Ended March 31, Change
2021 2020 Amount Percent
Total leasing revenue $ 80,800 $ 69,113 $ 11,687 17 %
Operating expenses 32,037 36,725 (4,688) (13) %
Total other expenses 11,582 18,520 (6,938) (37) %
Net income (loss) attributable to
CAI common stockholders 33,533 (3,537) 37,070 (1,048) %
The increase in total revenue for the three months endedMarch 31, 2021 compared to the three months endedMarch 31, 2020 , was attributable to a$9.2 million , or 17%, increase in operating lease revenue, a$1.7 million , or 14%, increase in finance lease revenue, and a$0.8 million , or 27%, increase in other lease revenue. The decrease in operating expenses for the three months endedMarch 31, 2021 compared to the three months endedMarch 31, 2020 , was the result of a$5.1 million , or 309%, increase in gain on sale of rental equipment and a$1.9 million , or 44%, decrease in storage, handling and other expenses, partially offset by a$1.5 million , or 6%, increase in depreciation expense and a$0.8 million , or 12%, increase in administrative expenses.
Total other expenses for the three months ended
The increase in revenue together with the decrease in operating expenses, total other expense and net loss from discontinued operations resulted in an increase in net income attributable to CAI common stockholders for the three months endedMarch 31, 2021 of$37.1 million compared to the three months endedMarch 31, 2020 . Total leasing revenue Three Months Ended March 31, Change ($ in thousand) 2021 2020 Amount Percent Total leasing revenue$ 80,800 $ 69,113 $ 11,687 17 % The increase in total leasing revenue for the three months endedMarch 31, 2021 compared to the three months endedMarch 31, 2020 was mainly attributable to a$6.6 million increase in rental revenue resulting from a 12% increase in the average number of CEUs of on-lease owned containers and a$5.4 million increase in rental revenue arising from payments made by a cash-based customer, partially offset by a$0.3 million decrease in other revenue such as drop-off and repair fees given the current high utilization rate.
Depreciation of rental equipment
Three Months Ended March 31 , Change
($ in thousand) 2021 2020
Amount Percent
Depreciation of rental equipment
The increase in depreciation expense for the three months endedMarch 31, 2021 compared to the three months endedMarch 31, 2020 was mainly attributable to a 5% increase in the average size of our owned container fleet subject to depreciation over the last twelve months. ? 22
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Storage, handling and other expenses
Three Months Ended March 31 , Change
($ in thousand) 2021 2020
Amount Percent
Storage, handling and other expenses
The decrease in storage, handling and other expenses for the three months endedMarch 31, 2021 compared to the three months endedMarch 31, 2020 was primarily attributable to a$1.1 million decrease in storage costs and a$0.5 million decrease in repair expenses due to a decrease in the average size of the off-lease fleet.
Gain on sale of rental equipment
Three Months Ended March 31 , Change
($ in thousand) 2021 2020
Amount Percent
Gain on sale of rental equipment
While there was a decrease of 19% in the number of CEUs of containers sold during the three months endedMarch 31, 2021 compared to the three months endedMarch 31, 2020 , there was a 29% increase in the average sale price per CEU, resulting in a 385% increase in gain per CEU, due to an increase in demand for equipment. Administrative expenses Three Months Ended March 31, Change ($ in thousand) 2021 2020 Amount Percent Administrative expenses$ 7,740 $ 6,895 $ 845 12 % The increase in administrative expenses for the three months endedMarch 31, 2021 compared to the three months endedMarch 31, 2020 was primarily attributable to a$0.7 million increase in payroll-related costs, largely due to increased incentive-based compensation. Other expense Three Months Ended March 31, Change ($ in thousand) 2021 2020 Amount Percent Net interest expense$ 11,172 $ 18,274 $ (7,102) (39) % Other expense 410 246 164 (67) %$ 11,582 $ 18,520 $ (6,938) (37) % Net interest expense The decrease in net interest expense for the three months endedMarch 31, 2021 compared to the three months endedMarch 31, 2020 was due primarily to a decrease in the average interest rate on our outstanding debt from approximately 3.3% as ofMarch 31, 2020 to 2.1% as ofMarch 31, 2021 , caused primarily by a decrease in LIBOR, as well as a decrease in our average loan principal balance between the two periods, mainly due to the paydown of debt with proceeds from the sale of our railcar portfolio in 2020.
Other expense
Other expense, representing a loss on foreign exchange of$0.4 million for the three months endedMarch 31, 2021 , increased from a loss of$0.2 million for the three months endedMarch 31, 2020 , primarily as a result of movements in theU.S. Dollar exchange rate against the Euro. Income tax expense Three Months Ended March 31, Change ($ in thousand) 2021 2020 Amount Percent Income tax expense$ 2,504 $ 1,199 $ 1,305 109 % The increase in income tax expense for the three months endedMarch 31, 2021 compared to three months endedMarch 31, 2020 was mainly attributable to an increase in income before tax, partially offset by a decrease in the estimated effective tax rate. The full-year estimated effective tax rate before discrete items was 7.1% atMarch 31, 2021 , compared to an effective tax rate of 8.6% atMarch 31, 2020 . The decrease in the estimated full-year effective tax rate was primarily due to an increase in the proportion of pretax income generated in lower tax jurisdictions. ? 23
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Preferred stock dividends
Three Months Ended March 31 , Change
($ in thousand) 2021 2020 Amount
Percent
Preferred stock dividends$ 2,207 $ 2,207 $ -
- %
Preferred stock dividends for the three months ended
Income (loss) from discontinued operations
Three Months Ended March
31, Change
2021 2020 Amount Percent
($ in thousand)
Total revenue $ 293 $ 35,909 $ (35,616) (99) %
Operating expenses (324) 52,265 (52,589) (101) %
Interest expense - 2,102 (2,102) (100) %
Income tax benefit (446) (4,459) 4,013 (90) %
Net income (loss) from discontinued
operations 1,063 (13,999) 15,062 (108) %
Total revenue and operating expenses from discontinued operations for the three months endedMarch 31, 2021 were a result of immaterial differences in the actual transactions from the amounts accrued prior to the sale of the logistics and railcar businesses in 2020.
Liquidity and Capital Resources
As ofMarch 31, 2021 , we had cash and cash equivalents of$60.6 million , including$12.7 million of restricted cash, and$23.9 million of cash held by variable interest entities (VIEs). Our principal sources of liquidity are cash in-flows provided by operating activities, proceeds from the sale of rental equipment, borrowings from financial institutions, and equity and debt offerings. Our cash in-flows are used to finance capital expenditures and meet debt service requirements.
As of
Current Current
Amount Maximum
Outstanding Borrowing Level
Revolving credit facilities $ 815,519 $ 1,204,322
Term loans 176,800 176,800
Senior secured notes 43,610 43,610
Asset-backed notes 711,136 711,136
Collateralized financing obligations 61,628 61,628
Term loans held by VIE 29,884 29,884
1,838,577 2,227,380
Debt discount and debt issuance costs (11,820) -
Total $ 1,826,757 $ 2,227,380
As of March 31, 2021 , we had $388.7 million in availability under our revolving
credit facilities (net of $0.1 million in letters of credit), subject to our
ability to meet the collateral requirements under the agreements governing the
facilities. Based on the borrowing base and collateral requirements at March 31,
2021 , the borrowing availability under our revolving credit facilities was
$248.8 million , assuming no additional contributions of assets.
As of March 31, 2021 , we had a total of $1,431.3 million of debt in facilities
with fixed interest rates or floating interest rates that have been
synthetically fixed through interest rate swap agreements, which accounts for
78% of our total outstanding debt.
For further information on our debt instruments, see Note 6 to the consolidated
financial statements in this Quarterly Report on Form 10-Q and Note 7 to the
consolidated financial statements in our Annual Report on Form 10-K for the year
ended December 31, 2020 , filed with the SEC on March 1, 2021 .
We continue to monitor the COVID-19 pandemic and its impact on our overall
liquidity position and outlook. The ultimate impact that COVID-19 may have on
our operational and financial performance over the next 12 months is currently
uncertain and will depend on certain developments, including, among others, the
impact of COVID-19 on our customers, the magnitude and duration of the pandemic,
and the rollout and efficacy of vaccines. Assuming that our customers continue
to meet their contractual commitments, we currently believe that cash provided
by operating activities and existing cash, proceeds from the sale of rental
equipment, and borrowing availability under our debt facilities are sufficient
to meet our liquidity needs for at least the next twelve months.
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In addition to customary events of default, the agreements governing our indebtedness contain restrictive covenants, including limitations on certain liens, indebtedness and investments. In addition, the agreements governing our indebtedness contain various restrictive financial and other covenants. The financial covenants in the agreements governing our indebtedness require us to maintain: (1) a consolidated funded debt to consolidated tangible net worth ratio, in the case of our debt facilities, of no more than 3.75:1.00, and in the case of our asset-backed notes, of no more than 4.50:1.00; and (2) a fixed charge coverage ratio, in the case of our debt facilities, of at least 1.20:1.00, and in the case of our asset-backed notes, of at least 2.50:1.00. As ofMarch 31, 2021 , we were in compliance with all of our financial and other covenants and we expect to remain in compliance for at least the next twelve months. Cash Flows
The following table sets forth certain cash flow information for the three
months ended
Three Months Ended March 31,
2021 2020
Net income $ 35,740 $ (1,330) Net income from continuing operations adjusted for non-cash items
57,485 35,328
Changes in working capital 20,481
21,213
Net cash provided by operating activities of continuing operations
77,966 56,541
Net cash used in investing activities of continuing operations
(145,393) (2,951) Net cash provided by financing activities of continuing operations
62,425 5,225
Net cash used in (provided by) discontinued operations (892) 2,565 Effect on cash of foreign currency translation (8) (77) Net (decrease) increase in cash and restricted cash (5,902) 61,303 Cash and restricted cash at beginning of period 66,502
73,239
Cash and restricted cash at end of period $ 60,600
Cash Flows from Continuing Operations
Operating Activities
Net cash provided by operating activities of continuing operations was$78.0 million for the three months endedMarch 31, 2021 , an increase of$21.4 million compared to$56.5 million for the three months endedMarch 31, 2020 . The increase was due to a$22.2 million increase in income from continuing operations as adjusted for depreciation, impairment and other non-cash items, partially offset by a$0.7 million decrease in our net working capital adjustments. The increase of$22.2 million in income from continuing operations as adjusted for non-cash items was primarily attributable to an increase of$22.0 million in income from continuing operations, an increase of$2.6 million in deferred tax liabilities due to discrete tax benefits recognized in the prior year, an increase of$1.5 million in depreciation expense, and a decrease of$1.3 million in bad debt recovery due to cash receipts from a cash-based customer in the prior year, partially offset by an increase of$5.1 million in gain on sale of rental equipment, mainly due to an increase in container prices as a result of high demand. Net working capital provided by operating activities of$20.5 million in the three months endedMarch 31, 2021 , was due to a$21.6 million decrease in net investment in finance leases, representing the receipt of principal payments and a$1.2 million decrease in prepaid expenses and other assets, partially offset by a$2.8 million decrease in accounts payable, accrued expenses and other liabilities, primarily caused by the timing of cash receipts. Net working capital provided by operating activities of$21.2 million in the three months endedMarch 31, 2020 was due to a$17.1 million decrease in net investment in finance leases, representing the receipt of principal payments and a$3.8 million decrease in accounts receivable, primarily caused by the timing of cash receipts from customers. Investing Activities Net cash used in investing activities of continuing operations was$145.4 million for the three months endedMarch 31, 2021 , an increase of$142.4 million compared to net cash used in investing activities of$3.0 million for the three months endedMarch 31, 2020 . The increase in cash used was attributable to a$144.1 million increase in purchase of rental equipment and a$5.2 million increase in purchase of financing receivable, partially offset by$4.2 million increase in proceeds from sale of rental equipment and a$2.3 million increase in receipt of principal payments from financing receivables. ? 25
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Table of Contents Financing Activities Net cash provided by financing activities of continuing operations was$62.4 million for the three months endedMarch 31, 2021 , an increase of$57.2 million compared to net cash provided by financing activities of$5.2 million for the three months endedMarch 31, 2020 . During the three months endedMarch 31, 2021 , our net cash inflow from borrowings was$81.1 million compared to$7.3 million for the three months endedMarch 31, 2020 . The increase in net cash inflow from borrowings was partially offset by an increase of$12.8 million for the repurchase of common stock and an increase of$5.2 million in dividends paid to common stockholders.
Cash Flows from Discontinued Operations
Net cash used in discontinued operations was$0.9 million for the three months endedMarch 31, 2021 , a decrease of$3.5 million compared to net cash provided by discontinued operations of$2.6 million for the three months endedMarch 31, 2020 . The change between the two periods was due to revenue and expenses resulting from immaterial differences in the actual transactions from the amounts accrued prior to the sale of the logistics and railcar business in 2020. Equity Transactions Stock Repurchase Plan InOctober 2018 , we announced that our Board of Directors approved the repurchase of up to three million shares of our outstanding common stock. InFebruary 2021 , our Board of Directors increased the share repurchase plan by an additional 2.0 million shares. The number, price, structure and timing of the repurchases, if any, will be at our sole discretion and will be evaluated by us depending on prevailing market conditions, corporate needs, and other factors. The stock repurchases may be made in the open market, block trades or privately negotiated transactions. This stock repurchase program replaces any available prior share repurchase authorization and may be discontinued at any time. During the three months endedMarch 31, 2021 , we repurchased 0.4 million shares of our common stock under this repurchase plan, at a cost of approximately$12.8 million . As ofMarch 31, 2021 , approximately 2.4 million shares remained available for repurchase under our share repurchase program.
Contractual Obligations and Commercial Commitments
The following table sets forth our contractual obligations and commercial
commitments by due date as of
Payments Due by Period
Less than 1-2 2-3 3-4 4-5 More than
Total 1 year years years years years 5 years
Total debt obligations:
Revolving credit facilities $ 815,519 $ - $ - $ 815,519 $ - $ - $ -
Term loans 176,800 74,550 7,800 94,450 - - -
Senior secured notes 43,610 6,110 37,500 - - - -
Asset-backed notes 711,136 63,130 63,130 63,130 64,058 64,986 392,702
Collateralized financing
obligations 61,628 37,852 6,292 - - 17,484 -
Term loans held by VIE 29,884 5,540 5,780 6,034 6,287 6,243 -
Interest on debt and
capital lease obligations
(1) 128,608 36,142 32,196 18,375 11,602 15,316 14,977
Rental equipment payable 61,582 61,582 - - - - -
Rent, office facilities and
equipment 3,793 2,402 993 288 110 - -
Equipment purchase
commitments 312,668 312,668 - - - - -
Total contractual
obligations $ 2,345,228 $ 599,976 $ 153,691 $ 997,796 $ 82,057 $ 104,029 $ 407,679
(1)Our estimate of interest expense commitment includes $10.2 million relating
to our revolving credit facilities subject to variable interest rates, $17.2
million relating to our revolving credit facilities subject to fixed interest
rates, $10.7 million relating to our term loans, $3.0 million relating to our
senior secured notes, $77.9 million relating to our asset-back notes,
$6.1 million relating to our collateralized financing obligations, and
$3.4 million relating to our term loans held by VIE. The calculation of interest
commitment related to our debt assumes the following weighted-average interest
rates as of March 31, 2021 : variable-rate revolving credit facilities,
1.4%; fixed-rate revolving credit facilities, 1.5%; term loans, 3.2%; senior
secured notes, 4.9%; asset-backed notes, 2.3%; collateralized financing
obligations, 1.8%; and term loans held by VIE, 4.2%. These calculations assume
that weighted-average interest rates will remain at the same level over the next
five years. We expect that interest rates will vary over time based upon
fluctuations in the underlying indexes upon which these rates are based,
including the potential discontinuation of LIBOR after 2021.
Off-Balance Sheet Arrangements
As ofMarch 31, 2021 , we had no material off-balance sheet arrangements or obligations that have or are reasonably likely to have a current or future effect on our financial condition, change in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources that are material to investors. 26
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Critical Accounting Policies and Estimates
There have been no changes to our critical accounting policies during the three months endedMarch 31, 2021 . See Critical Accounting Policies and Estimates in our Annual Report on Form 10-K for the year endedDecember 31, 2020 , filed with theSEC onMarch 1, 2021 .
Recent Accounting Pronouncements
InMarch 2020 , theFinancial Accounting Standards Board (FASB) issued Accounting Standards Update 2020-04 (ASU 2020-04), which adds ASC Topic 848, Reference Rate Reform: Facilitation of the Effects of Reference Rate Reform on Financial Reporting. ASU 2020-04 provides temporary optional expedients and exceptions to ease financial reporting burdens related to applying current GAAP to modifications of contracts, hedging relationships and other transactions in connection with the transition from the London Interbank Offered Rate (LIBOR) and other interbank offered rates to alternative reference rates. InJanuary 2021 , the FASB issued ASU 2021-01 to clarify that certain optional expedients and exceptions apply to modifications of derivative contracts and certain hedging relationships affected by changes in the interest rates used for discounting cash flows, computing variation margin settlements, and for calculating price alignment interest. ASU 2020-04 is effective beginning onMarch 12, 2020 and may be applied prospectively to such transactions throughDecember 31, 2022 and ASU 2021-01 is effective beginning onJanuary 7, 2021 and may be applied retrospectively or prospectively to such transactions throughDecember 31, 2022 . We will apply ASU 2020-04 and 2021-01 prospectively as and when we enter into transactions to which these updates apply.
Except as described above, there are no other recent accounting pronouncement that are relevant to our business.
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