CAI International, Inc.
Q3 2016 Earnings Call Transcript

Published: 2 Nov 2016

[Operator:]

Good day, ladies and gentlemen welcome to the CAI International Third Quarter 2016 Earnings Conference Call. At this time, all participant lines are in a listen-only mode to reduce background noise. But later we will be holding a question-and-answer session after the prepared remarks and instructions will follow at that time. [Operator Instructions] As a reminder, today’s conference call is being recorded. I would now like to introduce your first speaker for today Timothy Page, Chief Financial Officer for opening remarks. You have the floor, sir.

[Timothy Page:]

Good afternoon and thank you for joining us today. Certain statements made during this conference call maybe 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 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. 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 the company made during this discussion regarding its views, estimates, plans, outlook, or strategies for the future. I will 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 third quarter 2016 conference call. For the quarter, we reported a revenue increase of 19% from the third quarter of 2015 and lease related revenue declined 6% over the same period. During the quarter, we reported a net loss of $5.4 million or $0.28 per fully diluted share. Our financial results reflect the challenging environment we face during the quarter and low container sale prices. We also incurred discrete charges of $9.3 million during the quarter including $4.5 million related to the Hanjin bankruptcy that occurred on August 31. As was mentioned in our press release earlier today we had 15,000 owned containers on lease to Hanjin at the time of the bankruptcy representing $40 million of equipment. We believe that our insurance policy will be sufficient to cover additional default related charges beyond those charges taking those this quarter. We are recovering equipment on a daily basis and currently have recovered or cleared for redelivery approximately 44% of the containers that were all leased to Hanjin. We expect the vast majority of the remaining containers to be recovered. During the quarter we also made an adjustment to our estimate of residual values on our 40-foot High Cube containers from $1,650 to $1,400, resulting in an additional depreciation charge during the quarter of $3.4 million. The lower residual value will result in additional depreciation in future quarters. Although this will decline over time as older equipment reaches the lower residual level and equipment is sold in the market. The lower residual estimate on younger equipment has less of an impact on quarterly results due to the extended depreciation period. Though the quarter’s results are disappointing, there continues to be improvement in our operating statistics. We have reduced our total off-hire inventory from the peak in Q1 2016 by 27% through a combination of sale and leasing activity. This is part of our ongoing effort to reduce off-hire costs and provide a lower base line of operating expenses in the future, thereby enhancing our cash flow and return on our assets. Our primary focus remains optimizing the financial returns on our existing fleet. The fundamentals of the container business are improving. Demand for leased containers have continued to increase over the course of the quarter, and particularly after the market disruption caused by the Hanjin bankruptcy at the end of August. We have very limited inventory in China and are seeing expanded lease-out activity throughout Asia. We are repositioning equipment back to China to continue to meet the increasing demand. Although we will incur costs for positioning equipment, we expect those efforts to improve our utilization over the course of 2017. We are seeing that with the steady rise in the price of Chinese steel over the course of the last few months, new container prices are also increasing and are now closer to $1,550 per CEU and higher in locations were manufacturers have introduced waterborne paint into production. As a result, per diem rates on new and depot equipment have also increased. We expect that container prices will continue to rise if steel prices remain at the current levels. We have also begun to see improving secondary prices of containers in China as inventory levels available by lessors have reduced. We estimate that factory inventory at the end of October for new containers was approximately 400,000 TEUs which is the lowest it has been over the past five years. We believe this shows discipline in ordering equipment by lessors since demand from China has been strong in the last two months. We expect there to be additional improvement over the coming months due to all of these factors. There has been very limited ordering of new equipment by lessors, which should continue to help improve supply and demand balance for containers. Although, sale prices in the secondary market are improving, we expect to continue to report net losses on sale of equipment over the next couple of quarters. The rail market remains challenging, but we are seeing some fundamental improvements. We believe that the production capacity for new railcars is being reduced and that there is limited incremental ordering of equipment. As a result, we are finding an improving market for our equipment that is being delivered. During the quarter, we leased out 324 railcars at attractive rates and expect to have continued success marketing the remaining of our cars to be delivered in 2017. The utilization of our railcar fleet remained strong at 96.2% during the quarter and most of our equipment remained under long-term leases that should provide steady revenue and earnings over the coming quarters. During the quarter, our logistics business faced a challenging market environment due to the slow growth of the U.S. economy. As a result, the peak season freight demand has been limited and competition has remained strong. However, we continue to gain additional customers in our logistics business and are having success cross-marketing services to all our customers. We continue to see our logistics capability that’s providing us a competitive advantage in increasing our asset utilization and financial returns. Our priority during this weak economic period is to maximize the return on the capital we already have committed through higher utilization and the sale of low returning equipment. We have continued our share repurchase program, and have repurchased 1.1 million shares in the year-to-date period. Financial returns have begun to improve on new container investment. However, we do not currently believe that returns in general for new investment are attractive and we will continue to focus on reducing debt and additional opportunities to repurchase our shares. We think that the smallest size of our fleet and the diversification efforts benefits us as we position ourselves for 2017. I will now turn over the call to Tim Page, our Chief Financial Officer, to review the financial results for the quarter in greater detail.

[Timothy Page:]

Thank you, Victor. Good afternoon everyone. Earlier today, we reported our 2016 third quarter results. Container lease revenue in the quarter was $49.2 million, $2 million or 3.8% lower as compared to $51.2 million in the second quarter of 2016. $1.8 million of the $2 million difference represents revenue build to Hanjin in Q2 that was not built in Q3. Rail lease revenue of $7.6 million in the quarter was basically flat with Q2 and 49% greater than Q3 of last year. Our rail lease revenue accounted for 13% of our total lease revenue in the quarter compared to only 9% in Q3 of last year. We continue to focus on diversification and expect rail to continue to increase its share of our overall rental asset investment and revenue in the coming quarters. During the third quarter, operating margins in our rail business were 43%, pretax rail margins in the quarter were 19%. Rail generated an after-tax income of $0.9 million in the quarter. Total revenue in the quarter was $78.5 million, 10% higher than the second quarter. The increase resulted primarily from the full quarter impact of our June 1 acquisition of Hybrid Logistics which we own for only one-month during the second quarter. The incremental revenue from that acquisition was offset to some extent by the loss of the Hanjin revenue I mentioned earlier. As disclosed in our earnings release, there are a number of discrete items in the quarter. Please refer to the net income reconciliation we provided in our earnings release. I’ll explain these discrete items in more detail. We took net charges of $4.5 million related to Hanjin’s August 31 bankruptcy filing. This charge consisted of the following two items. First, $2.5 million of the pre-filing accounts receivable that we do not expect to recover were fully reserved. This charge was recorded as part of the administrative expenses in our profit and loss statement. The second Hanjin related charge was a net $2 million impairment charge which represents the estimated value of containers that we do not expect to recover. This impairment charge is reflected in the depreciation line of our income statement. As of the date of default, Hanjin had approximately $40 million of CAI’s own containers in its possession. We expect to recover over 90% of those containers and have recovered approximately 44% to date. As required by GAAP based on historical loss experience, we made an estimate of the dollar value of the equipment we might not recover and evaluated the level of that loss compared to our expected insurance recovery. Our estimate for uncovered containers was $3.2 million, approximately 8% of our total exposure. Our insurance policy covers losses due to customer insolvency for the value of containers not recovered, costs related to the recovery of the containers, contractual damage claims, legal fees and the like are deductible related to this policy is $2 million. Consequently, we took a $2 million net impairment charge in Q3. $3.2 million of estimated container losses impairment offset by a $1.2 million estimated insurance recovery receivable. Other than the $2 million deductible and the $2.5 million receivable write-off I mentioned previously, we believe any additional loss is related to Hanjin are fully insured. Therefore, we do not expect any further P&L impact from Hanjin related losses in the coming quarters. There were several other discrete items in the quarter. In the quarter after an extensive review of use container sales trends as well as current and projected new container prices that made the determination that it was appropriate to reduce the residual value we use for depreciation purposes as it relates to 40-foot high cube containers. We reduced that residual value from $1,650 to $1,400 per container. We determined that the residual values for other types of containers that we own continue to be appropriate. As a result of this change of residual values, we estimate that the depreciation expense incurred in the third quarter was approximately $3.4 million higher than it would have been had we not made this adjustment. While it’s difficult to predict with certainty because of new container additions as well as container sales and possible impairments, we estimate that Q4 depreciation expense will be in the range of $27 million. There will be further disclosure regarding this residual change in our Q3 10-Q. Also in the quarter, we reduced our contingent purchase consideration resulting in a pretax decrease of administrative expenses in the quarter of $1 million. Net income in the quarter was also impacted by the Company’s determination that foreign tax credit arising from the sale of a subsidiary would not be utilized resulting in a non-cash tax charge of $1.4 million in the quarter. Now some comments on a few of the other major expense items in our financial statements. Total storage handling and maintenance expense in the quarter was $8.8 million, $0.5 million less than Q2. Most of that reduction is related to reduce storage expenses for containers. Since February of this year, as a result of the aggressive sales of containers and lease-out of depth of the equipment container storage expense has then reduced by about $500,000 per month. We expect additional reductions in storage expense based on the current pace of container sales and a relatively good market for the lease-out of depth of the equipment. Administrative expense in the quarter was $11.1 million and included the $2.5 million Hanjin receivable write-off and the $1 million reduction and contingent consideration both of which I mentioned earlier. Also included in Q3 were three months of G&A related expenses for our Hybrid Logistics acquisition as compared to just one-month in Q2. Adjusting for these items administrative expense in the quarter was basically flat with that of Q2. Interest expense in the quarter was $10.9 million, $0.4 million higher than in Q2 and reflects an increase of 25 basis points in our revolving credit facility spread. In Q3 versus Q2 for one of our credit facilities and an increase in LIBOR over the past several months as well as the conversion of $50 million of our debt from floating to fixed rate. On a year-to-date basis our effective tax rate is 37% an increase from our Q2 rate of 12%. As I mentioned earlier the tax rate was impact by the Company’s termination of foreign tax credits arising from the sale of a subsidiary could not be utilized resulting in a non-cash tax charge of $1.4 million in the quarter. In addition the increase in proportion of U.S. income compared to international sourced income has led to an increase in the effective tax rate. The net loss in the quarter was $5.4 million or $0.28 per fully diluted share as compared to net income of $3.8 million in Q2. The $9.2 million reduction in net income is primarily the result of the $4.5 million of charges of Hanjin related charges the $1.8 million of lost revenue related to Hanjin, $3.4 million of incremental depreciation and the $1 million credit offset by the $1 million credit I described above. As reflected in the net income reconciliation provided with the earnings release excluding these discrete items adjusted net income in the quarter would have been $3 million compared to $3.8 million in Q2. Although Q2 included $1.8 million of Hanjin revenue, on a like to like comparative basis Q3 net income was approximately 25% higher than Q2 which reflects not withstanding Hanjin, the gradual improvement in the container market. At quarter end our total container fleet consisted of $1.2 million CEUs, 1.3% lower than the end of the second quarter and 3.8% less than Q3 of last year. Our own container fleet was $1 million CEU is at the end of the quarter, 0.9% lower than at the end of Q2 and 1.6 lower than Q3 of last year. We expect that the size of our container fleet will continue to decrease over the coming quarters due to the combination of limited investment and continued focus on aggressively selling older and/or damaged off lease equipment. The average total container fleet CEU utilization was 93.3% in the quarter, as compared to 92.8% for the second quarter and 92% in Q3 of 2015. Our average own fleet CEU utilization for the quarter was 94% as compared to 93.6% in Q2 of 2016 and 92.9% in Q3 of last year. We ended the third quarter with approximately 1.6 billion of container revenue assets 2% less than at Q2 and 7% less than Q3 of last year. During the quarter we sold $16 million worth of our owned containers slightly below the record level sold in Q2 of this year. In the coming months our priority will be to continue to focus on leasing and selling existing depot inventories. In Q4 sales are on pace to exceed Q2 and Q3 levels. We invested a total of $24 million in our rail fleet in Q3 of which $21 million was for the purchase of 200 new rail cars. These 200 cars were acquired under purchase obligations that had been committed to in mid-2015. Our rail fleet now consists of a diversified portfolio of 6,136 rail cars with a net book value of 336 million. This is a year-over-year increase from more than 90%. Rail now represents 18% of our total revenue earning lease assets. We have commitments to acquire approximately 44 million of new rail cars during the fourth quarter of this year and have 157 million additional new car commitments spread over 2017 and 2018. The average utilization of our rail car fleet was 96.2% during the third quarter. During the quarter we repurchased 261,000 shares at an average price of $7.88 per share. At the end of the third quarter we had total funded debt net of restricted cash and cash held in variable interest entities of approximately $1.4 billion, a decrease of $13 million in the quarter as we have a limited our investment to primarily contractual commitments and focused on selling idle assets. The amount of our undrawn rail and container revolving credit facilities at the end of Q3 was approximately $592 million. That concludes our comments. Operator, please open the call for questions.

[Operator:]

[Operator Instructions] Our first question for the day comes from the line of Michael Webber from Wells Fargo. Your line is open.

[Michael Webber:]

Hey. Good morning, guys. How are you?

[Victor Garcia:]

Hey, Michael.

[Michael Webber:]

Victor, just a handful of questions, I guess the first one we can start off with Hanjin has been obviously rolling theme for the space for the fall. You quantified it $40 million of exposure and kind of walk through your insolvency insurance. I’m curious within that $40 million of exposure, how much of that is concentrated within any specific ABS collateral pool. And is there any issue you guys are working towards from a collateral perspective or maybe a loan to value covenant got tripped and I know that’s an issue I think within some of the smaller private players in the space, so just curious whether you guys have – if that a Hanjin exposure is heavier, more heavily weighted towards any one specific ABS issuance?

[Victor Garcia:]

It spread across a number of our debt facilities none of which are – and all significant nor does it create any issue any facilities

[Michael Webber:]

Okay. That’s helpful. I guess transitioning to rail. Just curious around the fact that returns seem like they’re underperforming maybe where you thoughts they would be – we’ve seen others push back CapEx commitments, push back orders. I get the idea of not necessarily deploying in excess new capital towards new equipment. But is there the possibility of actually delaying existing CapEx and/or canceling orders if returns are not where you thought they would be?

[Victor Garcia:]

We actually have adjusted our delivery schedule with the manufacturer as part of an effort to – we have to reprice the equipment, we have an annual repricing for every year delivery and we use, we discuss with them, a change in delivery schedule that would work for them as well as for us. So we have delayed some of our 2017 deliveries

[Michael Webber:]

So do you have a big timetable on that?

[Victor Garcia:]

So I have a what?

[Michael Webber:]

A timetable on that.

[Victor Garcia:]

It’s already closed.

[Michael Webber:]

Okay.

[Victor Garcia:]

We already closed. So we closed it during the last few weeks and push off some of the deliveries to the latter half of 2017 and most people did that, because, as we look, we see the opportunity for a much better market in the second half of 2017 than the first half. So it works really to our advantage to delay some of that coming. And we actually think that the fact that we have equipment being delivered when production capacity is being decreased and we’ve been in a downturn for the past over a year. If you look at historical trends, we would expect that delivery timeframe is actually going to be a very strategic timeframe for us. So we’re actually very excited about what we have being scheduled to come in.

[Michael Webber:]

Got it. Okay. And then in terms of deploying new capital beyond what you guys are pushing around what is standard reason that we’d need to get that environment before we started deploying, we started deploying more capital towards that space.

[Victor Garcia:]

As far as the rail face.

[Michael Webber:]

Yes.

[Victor Garcia:]

I think we have - if there’s a really attractive small opportunity we’ll look at it, but we have a full load of – obviously, say our focus is really continuing to market what we’ve already committed to.

[Michael Webber:]

Okay. That makes sense. And then just housekeeping that [believe at] $40 million of CapEx in the quarter. What percentage of that was rail and what was container? You might have noted it already and I just missed it.

[Victor Garcia:]

Let’s say roughly half was the rail, half was container, but I’ll just caution one thing, we lump in container. There are a number of asset types that go into container. We have not invested in any drive-in or refill containers during the quarter. We had some very specialized equipment where we get very attractive returns that we continue to invest in within that container budget.

[Michael Webber:]

Fair enough. Just one more for me and I’ll turn it over. Just maybe kind of moving back to Hanjin, but also just around I guess yields in asset pricing, the box prices you might there are $50 to $100. Just curious one how much of that is an actual uptick in commodity prices kind of flowing to the box and how much of that is just kind of waterborne paint requirements? And then maybe kind of tied to that from our yield perspective, have we seen yields actually increase along with that uptick in box prices kind of against the grain with what we’ve seen so far?

[Victor Garcia:]

Okay. I think there’s three questions in that, so let me make sure I get it all.

[Michael Webber:]

Yes. A lot of questions, sorry.

[Victor Garcia:]

Okay. The 1,550 price is not talking about anything related to waterborne paint and another [$150] on top of that for waterborne paint. There has been a steady movement up in the price of containers. I actually believe that if demand ordering activity was more normalized than it’s been. At the current steel price, we would expect that container prices would be closer to 1,700, maybe a little bit north of that. I think the margins that the manufacturers are working with are low and I think if you look at the financial results for some of the manufacturers they’ve been losing money. So I think there’s some subsidizing of container prices just to keep the factories open as they try to stretch their production. Initially as we saw demand increasing and container price is going up and I said the yield, investment yield was not improving, but I would say over the course of the last three weeks to month. Not only as the premium rate been improving, but the yield compared to asset price has been improving. And I would say it’s been moving at a faster pace as equipment has been tightening.

[Michael Webber:]

Gotcha. Okay. That’s helpful. I’ll turn it over and let somebody else hop in. Thanks guys.

[Victor Garcia:]

Sure.

[Operator:]

Thank you. Our next question comes from the line of Doug Mewhirter from SunTrust. Your line is open.

[Douglas Mewhirter:]

Hi, good evening. First question, you talked about I guess a lost revenue from Hanjin and I want to just make sure I understand what sort of in and out of the whole insurance settlement. So you talked about your impairments in your charge-offs that are covered by insurance and that was pretty clear. You also talked about some lost revenue and I wasn’t sure whether lost revenue is an insurable or lost revenue after the event was insurable? And if it isn’t, how that shows up because your utilization actually held up pretty well, it just looks like you hit the yield, so do you still consider the Hanjin boxes utilized, but not booking revenue or your utilization have been actually in the mid-90s if Hanjin would have still generating revenues?

[Timothy Page:]

It’s not as clear cut an answer is some might think. The way I think we’ve outlined this in our release and our prior release. We continue to generate revenue from the equipment at the lease rate that they were on lease 200 up until the equipment is redelivered. And that is a reimbursable amount from the insurance company. However, we do not recognize that revenue until we have an insurance settlement with the insurance company. So although, we expect to continue to earn some revenue until the box the returned is going to take a while for us to actually settle with the insurance company and then get that money. For those boxes that have come in, we have to release them. And until we release them, we’re not going to get any additional income from the insurance company and we do have to – so we do direct interchange with some lines equipment and we continue to do some of that. I think you’ll see that Hyundai is probably the one most active in that to that effort. So I think a number of the leasing companies likely have been directed to changing some equipment to Hyundai. That’s a renegotiated lease rate with Hyundai. It’s not at the preset lease rates. Let me add a little clarification, the billing, what we can bill is the lessor of 180 days post filing or until the container is returned so whatever the lessor is and will we wouldn’t recognize that revenue until we file - actually file the insurance claim which maybe a year from now. So while we accrue it we don’t actually recognize it in the P&L.

[Douglas Mewhirter:]

Okay. That makes sense and I suspect that there is going to be some timing issues with the insurance. And so if and when you do receive a insurance settlement will you see those numbers come back on the revenue line or in a reversal of credit loss line.

[Timothy Page:]

It would be in the revenue line.

[Douglas Mewhirter:]

Okay. Thanks my second question deals more on the capital management side or CapEx side and you said you sort of have deleveraging as a goal? Is there any sort of target that you would want to drift down to in terms of debt to equity or debt to container assets, knowing that there’s not a lot of CapEx opportunities.

[Victor Garcia:]

I think what we really weigh is. Again we said that our priority is making sure that we’re getting as much of a return as possible on the assets we’re already have. Meeting demand by supplying, buying new equipment and continuing to do it at depressed rates is going to counter to what we believe is fundamentally needed in the industry. So our priority again is to get our assets back out of lease. And until we find that rates are high enough that it makes sense. We have to look at alternative uses and paying down debt is a factor, but it’s not because we feel like we really need to deleverage. We have an opportunity to continue to repurchase shares and what we believe is a very attractive opportunity. So we have alternative investments and I think we’re comfortable being disciplined about where returns are in the market until it really becomes clear that there are really attractive opportunities to invest.

[Douglas Mewhirter:]

Okay. And then two as one other strategic question then a quick numbers question. The strategic question is has the softness in the logistics business has that changed your view on the pace in which you are diversifying into logistics in terms of looking at future targets or investing within your existing logistics subsidiary?

[Victor Garcia:]

No. I think it has more to do with just – again part of the same we were talking about in the previous question. We think there are a number of still good opportunities out there on the logistics space. We are very excited about the direction we’re going on the logistics space. However, when we’re looking at the timing of aggressively pursuing those kind of opportunities, we don’t think the returns and the timing is right to pursue generally speaking. And so it goes back to that same question about where do you want to put your capital? And I think I answered that in the last question.

[Douglas Mewhirter:]

Okay. And just last quick question. I noticed your ending railcar utilization is much lower than the average railcar utilization. But it sounded like you had some opportunities to deploy more equipment. Couldn’t you see that bouncing through the fourth quarter and the average for the fourth quarter may end up higher than where it’s sitting now it’s just under 93%.

[Victor Garcia:]

Yeah. I think some of it is we did have some equipment coming back in some specific sectors that we have purchased a few years ago. We have a number of opportunities to redeploy that equipment. And so we are working on it. So whether or not the utilization will increase, it will be more of a factor most likely from the additions that we put in from the new deliveries that we have and the equipments that we have coming back.

[Douglas Mewhirter:]

Okay, thanks. That’s all my questions.

[Victor Garcia:]

Thank you.

[Operator:]

Thank you. [Operator Instructions] Our next question comes from the line of Helane Becker from Cowen. Your line is open.

[Helane Becker:]

Thanks, operator. Hi, guys. So most of my question have actually been asked and answered. But I do not understand one thing in the numbers and why a significant tax expenses as opposed to attract credit for the quarter?

[Victor Garcia:]

You mean the $1.5 million charge?

[Helane Becker:]

No, the $1.8 million tax expense on the income statement.

[Victor Garcia:]

Because $1.4 million of that was a discrete item that’s a GAAP tax charge and it’s an expense item, so that contributed to the – and we do incur taxes and GAAP taxes in the rail business. So that’s the rest of it is, is really the U.S. GAAP tax income even though we lost money on the container side. There’s a rate differential. We made money on a tax basis on the rail side. So that’s 400,000 of that number. The rest of it is the discrete $1.4 million tax charge that we had to take.

[Victor Garcia:]

And just to provide a little bit of clarity on the $1.4 million tax charge. Earlier in the year we sold our Japanese subsidiaries that was focused on putting packages together for Japanese investors. We sold that. We thought it made more sense to focus on some of the things that we’re focusing on and pursue. We had paid taxes locally for that which we normally would get a tax credit for it, but it’s our view because of the shelter that we’re going to have from the investment that we have on the U.S. rail side. For that period of time that is relevant for making these judgments that we were not going to be able to utilize that credit that we had to pay for the Japanese taxes. So because we couldn’t take that credit, we ended up having to take the charge this quarter to unwind it.

[Helane Becker:]

Okay and thank you. That’s all I had everything else that asked and answered.

[Victor Garcia:]

Great.

[Operator:]

Thank you. We have one other question in the queue at this time from the line of Tyras Bookman from Park West. Your line is open.

[Tyras Bookman:]

Hi, Victor.

[Victor Garcia:]

Hi, Tyras.

[Tyras Bookman:]

Doug asked the question, but it didn’t seem like a clear answer or maybe I missed it, but you guys did the deleveraging was a priority and I’m wondering how much gross debt should investors expected to pay down if the environments stays the same over the next 12 months?

[Victor Garcia:]

Tyras, it’s a hard thing to quantify because we have a number of committed investments that are coming through and then a large part is also how quickly we sell equipment and what the utilization is.

[Tyras Bookman:]

Seems to be everything stays the same.

[Victor Garcia:]

I can’t give you a number.

[Tyras Bookman:]

Ensure just the math, right.

[Victor Garcia:]

Well, I mean I know that we go over numbers all the time, so I think you can look at what our earnings cash flow rate is what we have – let’s say we have invested, so but we do generate a significant amount of excess cash flow and we would be able to pay that, but I don’t want to put a forecasted number for 2017 as to what that number is going to be.

[Tyras Bookman:]

Okay. I think investors would love to see what the number is? So maybe by the time you guys do fourth quarter, you can have some sort of range that you can even talk about if the environment stays the same. What the understanding that if things change or if you guys see different opportunities it will change too.

[Victor Garcia:]

Understood.

[Tyras Bookman:]

Thanks.

[Victor Garcia:]

Sure. End of Q&A

[Operator:]

Thank you, ladies and gentlemen. I see no other questioners in the queue at this time. So I’d like to turn the call back over to Victor Garcia for closing remarks.

[Victor Garcia:]

Thank you everybody for participating in the call. We look forward to following up on the fourth quarter results in a few months. Thank you.

[Operator:]

Ladies and gentlemen, thank you again for your participation in today’s conference. This now concludes the program and you may all disconnect at this time. Everyone have a great day.