CAI International, Inc.
Q4 2014 Earnings Call Transcript

Published: 11 Feb 2015

[Operator:]

Good day, ladies and gentlemen, and welcome to CAI International Fourth Quarter 2014 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will follow at that time. [Operator Instructions]. As a reminder, this conference call is being recorded. I would now like to introduce your host for today's conference, Tim Page, Chief Financial Officer. You may begin.

[Tim Page:]

Good afternoon and thank you for joining us today. Certain statements made during this conference call may be forward-looking and are made pursuant to the Safe Harbor provisions of Section 21E of the Securities Exchange Act of 1934, and involve risks and uncertainties that could cause actual results to differ materially from 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 fourth quarter and full-year 2014 conference call. This quarter, we reported a revenue increase of 8% from the fourth quarter of 2013, and rental revenue increased over the same period by 7.5%. I am pleased to report that for the quarter we reported $16.2 million of net income or $0.76 per fully diluted share compared to $15.6 million or $0.69 per fully diluted share during the fourth quarter of 2013. These are outstanding results for the quarter considering the overall market conditions. We have continued the positive momentum in our business. The fourth quarter is typically a weaker demand period resulting in a decline in utilization. However, we were able to increase our average utilization in the fourth quarter to 93.8% from 93% during the prior quarter. Utilization at the end of the year was 93.2%, but has increased to 93.5% at the end of January. We see continued demand coming from Asia for both depot and new equipment. We continue to focus on positioning our assets into higher demand location in order to increase our utilization, increase revenue, and reduce all higher cost. We are also making continued progress in our logistics effort, which we believe will be a long-term benefit to us. Overall we believe that 2015 will provide strong opportunities to grow the revenue and financial returns from our existing fleet as the utilization continues to improve. During the fourth quarter we acquired $36 million of containers or 26,000 CEU, and for the year we acquired approximately $244 million of containers and $17 million of railcars. The investment momentum had increased going into 2015, where we already have 223 of equipment committed to purchase, 70% of which is committed to long-term leases. Included in that figure is $80 million of new rail equipment that will be placed on lease during the course of the year. Although per diem rates on new containers remain competitive, by diversifying our investments across various equipment types, we believe we are able to grow our business profitability, while at the same time being selective. New container prices remain around $1,900 to $1,950 per twenty foot equivalent unit. We do not expect new container prices to increase sustainably unless commodity prices increase or there is a marked increase in demand for containers. Overall, we expect container demand in 2015 to be strong, as a result of the growing U.S. economy and the economic effect of the monetary stimulus in Europe and Asia, particularly in the second half of the year. We also believe that the ongoing labor disputes along the western U.S. ports are causing some logistics issues for the shipping lines, which in the short-to-medium-term should result in incremental container demand. In summary, we are very excited about direction and the momentum of our company. We have had a very strong start to the year, both in improved utilization and committed investment. We expect that there will be continued strong container demand over the course of 2015, and as a result, we expect continued expansion of our business. Further, our investment into rail has given us the opportunity to cross market our rail and intermodal marketing efforts, creating new opportunities for both business segments. We are continuing to invest in additional personnel to increase our logistics effort, which we believe, will further broaden our customer base and provide more value to our customers. I'll now turn the call over to Tim Page, our Chief Financial Officer, to review the financial results for the quarter in greater detail.

[Tim Page:]

Thanks, Victor. Earlier today we reported our 2014 fourth quarter results. For the 19th quarter in a row we achieved record quarterly adjusted lease related revenue. Lease related revenue in the quarter was $57 million. During the quarter we received a $0.6 million settlement from a customer related to lease obligations going back a number of years. Adjusting for this settlement, lease related revenue was 7% higher than the fourth quarter of 2013, and 1% higher than the adjusted lease related revenue in the third quarter of 2014. The increase in lease related revenue was driven by strong new equipment leasing activity in the quarter and by an increase in our overall utilization rate during the quarter. In the quarter, total revenue was $59 million and adjusted total revenue was $58 million with adjusted total revenue being 7% higher than the fourth quarter of 2013, and 2% higher than the third quarter of 2014. Net income attributable to CAI common stockholders in the fourth quarter of 2014 was $16.2 million. Adjusting for the customer settlement I just mentioned, and the write-off of deferred financing cost in the quarter, net income in the fourth quarter was $15.9 million, 2% better than the adjusted net income for the fourth quarter of 2013, and 8% better than the third quarter of 2014. As of December 31, 2014, our total container fleet consisted of approximately $1.2 million CEUs, an increase of 1% as compared to December 31, 2013. Our own fleet is now $1 million CEUs 6% greater than last year and comprises 82% of our total fleet. We ended the fourth quarter of 2014 with approximately $1.6 billion of container revenue assets and approximately $84 million of railcar assets. Normally, our fourth and first quarters of the year are seasonally the most challenging quarters of the year from both the revenue growth and a cost perspective. As a result, we would not generally expect to see much top-line revenue or earnings growth from Q4 to Q1. Storage and handling expense in the fourth quarter decreased slightly as compared to the third quarter, reflecting the improvement in average utilization in the quarter. The decrease in storage costs was somewhat offset by higher handling, maintenance, and repositioning cost, as we continue to focus on selling idle assets or repositioning them for more favorable lease locations. We expect to continue with this strategy. Consequently we expect that the run rate for total storage and handling costs should be similar to what we had in the first quarter, should be similar to what we have experienced in the past two quarters. Gains on disposition of used equipment in the quarter was $2 million, $0.7 million more than the third quarter of 2014. The gain on sale in the quarter included a $1.1 million pre-tax and a $0.7 million after tax gain from large sale transaction that will not be repeated in the future quarters. Excluding this one large sale, our gain on sale during the quarter was about $0.9 million, as average selling prices decreased slightly from Q3, and the average gain on sales also decreased slightly. For Q1 of 2015 we would expect gains on sale to be at or slightly less than the normalized Q4 gains. We believe sales volumes and average selling prices will remain around the same to slightly lower than what we experienced in Q4. MG&A expense in the quarter was $6.4 million and included some end of year accrual adjustments. On a run rate basis, MG&A in 2015 will be approximately $7 million per quarter. However we expect first quarter to be $0.3 million to $0.4 million higher, as we normally see higher cost related to year-end audit and professional fees in the first quarter of the year. Interest expense was $8.7 million in the quarter and included a $0.3 million write-off of deferred financing costs. Our effective interest rate in Q1 will be above the same as it was in Q4. As of today about 43% of our debt is fixed. As we progress during the year, we expect to shift more of our debt to fixed rate funding. During the fourth quarter, capital expenses were $80 million -- excuse me capital expenditures were $80 million. Capital expenditures for the full-year were $307 million which compares to $312 million in 2013. As Victor mentioned, we were off to a quick start in 2015, as we've already have made commitments to acquire $230 million of equipment, a good portion of which is already on committed long-term leases. At the end of fourth quarter of 2014, we had total funded debt of $1.3 billion and approximately $580 million of availability in various credit facilities. Our funded debt to tangible net worth balance at the end of the quarter was 2.86. On January 30, we closed an amendment to our container revolving credit facility that increased the funded amount to -- the committed amount to $775 million, extended the term five years, and effective mid second quarter of 2015 decreased our interest cost by 25 basis points. In conclusion, while the container per diem rate environment remains challenging, we believe that the level of investment we have already committed to this year for both containers and rail, the level of committed leases we already have in place for this investment, the continued inquiries we're receiving from our customers for additional equipment, and the continued focus we are placing on reducing cost by maximizing asset turn and utilization, will lead to positive trends in revenue and earnings as we move beyond Q1 of 2015. We are looking forward to a strong 2015 for CAI. That concludes our comments. Operator, please open the call for questions.

[Operator:]

Thank you. [Operator Instructions]. Our first question comes from the line of Gregory Lewis of Credit Suisse. Your line is open.

[Gregory Lewis:]

Victor, I mean you clearly sound a little bit more bullish today than you have over the last few quarters in your comments. Could you just provide may be some high level background and what's going on with your customer base, I mean clearly customers seem more willing to lock up equipment for 2015 than may be they were in 2014, is that what's happening? Or is there have been some sort of change in the overall competitive landscape, it doesn't really sound like that's the case.

[Victor Garcia:]

Greg, it's on two fronts. One is the base line underlying demand is strong. So we're seeing demand for containers in all the regions. So we're seeing demand for depot and new equipment out of Asia, we're seeing demand coming out of the U.S. Europe is a little bit slower, but we're seeing some demand there. So in general particularly in this time of year we wouldn't expect and what we're hearing from our customers is that they're expecting 2015 to be strong and are expecting to need more equipment. So generally speaking from a pure demand side, we're feeling like it's going to be a good year. And then you look from the supply side, inventory levels are pretty low, both factory inventory levels, and the amount of equipment available at depots. So the supply/demand side we think the demand is going to be strong. And then, really we're pretty excited about what we're doing as a company. When we look at our branching out into rail that's starting to add, going to start adding incremental revenue and profits to our business, and then what we're doing in terms of increasing our own utilization, regardless of where the market is in terms of moving equipment around the higher demand locations, earnings more on that equipment. We think we've got some good momentum going in our business.

[Gregory Lewis:]

Okay, great. And then just shifting gears looking a little bit to the balance sheet, it looks like, as I look at debt to assets, which I believe is an important metrics for you guys. That kind of moved higher in the fourth quarter, is that more of -- is that a function of timing, why that went up? I'm just trying to get a handle on why we saw that sequential move higher in the debt to asset mix?

[Tim Page:]

When we ended the third quarter we had a fair amount of rental equipment payable. So we actually paid for it in the fourth quarter and that moves up the debt number. So there really shouldn't have been, if you normalize for that rental equipment payable there really shouldn't have been much significant change in that ratio.

[Gregory Lewis:]

Okay, great. And then, Tim, you mentioned on the $7 million in SG&A run rate, that's a little bit higher. Is that simply a function of setting up the infrastructure for continued growth in the railcar venture or are you actually seeing I guess cost escalation elsewhere?

[Tim Page:]

Well we were at $6.7 million in the third quarter and we've had a little bit of additional cost in the rail infrastructure, plus a little bit of additional cost related to trying to reduce storage costs and improve our asset turns. So I think it's just in line with that. As I said, in Q4, we had some year-end accrual adjustments. So that was just kind of an unusually low quarter.

[Gregory Lewis:]

Okay, guys. Thank you very much for the time. It sounds like it's going to be a good year.

[Victor Garcia:]

Thanks, Greg.

[Operator:]

Thank you. Our next question comes from the line of Michael Webber of Wells Fargo. Your line is now open.

[Michael Webber:]

I wanted to I guess start-off around your facility that you guys explained you mentioned on the 30 of January, you expanded that looks like the interest rate came down a term about five years and then amount of value went up. I'm just curious, you mentioned that the asset value there somewhere between kind of $1,900 to $1,950 per TEU, how are your lenders thinking about those softer collateral values. And in terms of the, I guess the relative leverage mix within that new facility, has that changed at all, given that we're kind of looking at a period where asset values are lower where they have been in the past couple of years and it could be down here for a while?

[Victor Garcia:]

I think generally speaking, historically, we've had periods of time where we've had asset values higher, asset values down at this level, and they tend to average out over time and because we're always buying equipment. So I think our lenders, I would say to the industry, generally speaking would know that we're going to average into whatever the industry is doing, as well as the fact that they really, security is one thing and the collateral. But really what they're banking on is the strength of the corporate credit and the underlying customer contracts that we have, and I think certainly we have got plenty of support from our existing lenders on this facility. As you mentioned the extension of the turn, lower interest rate, and actually an increase in the facility. So I think we're getting good strong support from our banking partners.

[Michael Webber:]

Great. And just relative to that, if I were to look at kind of the underlying, I guess unit of collateral, the overall gearing on that collateral changed the new facility, is there a change in -- I guess the relative leverage within that facility or is it just purely cheaper and longer?

[Victor Garcia:]

The advance rates stays the same, it didn't change.

[Michael Webber:]

Okay, that's helpful. Wanted to shift gears just quickly to I think Gregory touched on the railcars but obviously return on the dry side are still pretty narrow. I'm just curious, I guess year-to-date, and I guess through the fourth quarter, where and I guess net spreads and may be even on a relative basis were for railcars versus dry vans in terms of when you evaluate those investment possibilities, how wide is that return gap right now, I guess may be on a basis point level and how is it trended?

[Victor Garcia:]

I'd say probably on a pre-tax basis we're 150 basis point to 200 basis points difference on return from what we see the container to the rail side so that kind of measure. But the other thing I'd say on the container side, the pricing of our environment got very competitive, really beginning with the refrigerated segment -- dry van segment started to get very competitive. We've actually seen over the last several weeks that the pricing environment on the refrigerated segment has improved slightly.

[Michael Webber:]

Okay.

[Victor Garcia:]

So that to us is promising. I think there is a smaller subset of companies that are focused on the refrigerated segment. So I think that that gives a little bit more room for people to make investments there. And it goes part of our whole basis is to have more equipment types and product offerings that we can offer to customers to find the best risk return. So right now we're seeing a little bit better return on the refrigerated side. So we've made a little bit more investment there, and we'll continue to follow where the returns are.

[Michael Webber:]

In terms of that 150 rough kind of basis point delta in terms of the returns between dry and the rail, how is that trended I guess since the beginning of the fourth quarter, has it gotten wider or narrower?

[Victor Garcia:]

We haven't made I would say a significant amount of investment over the last three months on rail, the stuff that's coming on and stuff that we committed to in the third quarter. So I can't give you kind of real time but what I'll tell you is that, the rail market in U.S. continues to be pretty tight. The energy, the cars serving the energy market is probably going to loosen up a little bit, but other car types remain pretty strong and certainly anything that's in the fleet today is still commanding potentially improved returns with lease renewals.

[Michael Webber:]

Okay, that's helpful. Just one more from me and its high level before turn it over, the rail car numbers are a bit bigger than we expect for the fourth quarter. But just in general when you think about your overall portfolio of assets kind of through 2015 and into 2016, how bigger of your overall portfolio you think that railcars could make up and is there a limit at which -- a level at which you start taking a harder look at may be redistributing or pivoting to another asset class?

[Victor Garcia:]

I think, well, we're not looking at another asset class other than the rail and containers right now. We have plenty of work to do on both of those segments; we have plenty of opportunity in both of those segments. I would say the difference in rail and containers; we have a fairly steady investment plan on the container side. So we buy equipment throughout the year. On the rail side, we really try to be opportunistic. We're very focused on equipment type and price. And so I would describe that investment over time to be more solitude. We might have a quarter where we have significantly more investment and then in another quarter where we don't have any investment, but really because we're buying assets that have 40-year lives to them. Buying an asset at a good price or buying the right type of asset is extremely important. So we're willing to be more patient there.

[Michael Webber:]

Got you. Great. All right, thanks for time guys. I appreciate it.

[Victor Garcia:]

Thank you.

[Operator:]

Thank you. Our next question comes from the line of Brian Hogan of William and Blair. Your line is now open.

[Brian Hogan:]

First question is around utilization, nice steady utilization in a seasonally tough quarter there, but obviously some of your peers are comfortably higher than you are today. What is and you would obviously have a lot of initiatives to get it up higher and obviously some demand coming through, but how fast can you think you can get it up to 97-ish range, but that's obviously very meaningful to both revenues, and with the expenses?

[Victor Garcia:]

True. It's going to be somewhat dependent on just how strong the seasonal market is. We would expect the season really to pickup in the second half of the second quarter, so from late April onwards. So if the market is strong and we have reasons to be optimistic about demand overall because of the things I mentioned, a strong U.S. economy, a lot of stimulus coming into some of the overseas markets, and we think that will have some -- should have some economic event. So if those things come together and where we go, as you mentioned, some of our peers are already at 97%, 98% utilization. So there is a lot of equipment available there. So if there is a good amount of demand we should be able to improve it, it's hard for me to predict exactly where it will be by June. But I do expect that it will rise over the course of the year.

[Brian Hogan:]

Sure. Next question, kind of centers around the drop in the price of oil, obviously, the high price of oil led to a lot of low steaming, which increased the use of demand for boxes. It also took the shipping lines that of may be buying containers but now that the price of oil has dropped and so may be less of a cost for the shipping lines. Have you seen any change in their competiveness from the may be faster ships or and so less demand for containers or just them being able to buy more because the fuels are less for their bottom-line?

[Victor Garcia:]

Yes, that's certainly could be the case, but they could buy. But I would say what I would -- I think we've actually gotten from a lot of customers as there they found that the leasing rates are being at such competitive level that leasing is more attractive than ownership. So I think there's still largely speaking leasing they are taking the fact that they can get effective per diem rates and going to leasing. What I would say though and we didn't really talk about this. But I would think that decline that we've seen in oil prices over the course of the last three months is so significant that that's got to have in my estimation a simulative effect worldwide. And that's also a reason why we're optimistic about the overall demand. There could be some slow steaming and things like that. But I would think that the just a similar factor of low oil prices and that what that means to consumers wallet. I think that's down that should provide incremental demand for us.

[Brian Hogan:]

Okay. And then one last question is you expired your share repurchase program I believe in early fourth quarter, may be late third quarter, do you have intentions of putting another one back out there?

[Victor Garcia:]

We are always we are looking at it. We have discussions with the board about that. We feel like at any point in time we could initiate it. We are really looking at some of the opportunities that are before us and the board has decided not to move forward with the share repurchase program right now. But we will continue to evaluate over the course of the year. We definitely are going to look at what the best return opportunities are, for not only the short-term but the long-term.

[Brian Hogan:]

Okay. Thank you.

[Victor Garcia:]

Thank you.

[Operator:]

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

[Steven Kwok:]

Hi, thanks for taking my question. Great quarter, guys.

[Victor Garcia:]

Thank you, Steven.

[Steven Kwok:]

Just wanted to get sense of are there any impacts that we should think about from lower oil prices? How is that impacting your customers along with the industry?

[Victor Garcia:]

I kind of address that a little bit on the last question, but I will say there is clearly bunker prices are down, so our customers, we expect our customer's balance sheets or profit statements to improve. So they'll better profits and that could mean that they decide to make some more investment in containers. But that's -- that's only part of the equation. I think the -- when you look economically what lower oil prices does around the world, I think that will have a simulative effect for consumers goods, not just here in the United States, not just in Europe, but throughout Asia. And I think that is probably the opportunity where we could see more demand and I think it's probably some of the opportunities that some of our customers are talking about when they look at their optimism in terms of volume demand. They see that this could result in more demand for cargo and more demand for containers.

[Steven Kwok:]

Got it. And then in terms of the -- if you could remind us about the exploration schedule for the 2010 and 2011 vintages in both this year and next year?

[Tim Page:]

It's not a big number, it's in the -- a second I can look it up.

[Victor Garcia:]

While he's looking for the exact number, I would just say, in 2010 we focused a lot as much as we could of our investment to be in A+ year leases. So the market opportunity was there to do that and so we try to do as much of that. So we really don't have very much --

[Tim Page:]

4% of our long-term leases, are 2010/2012 vintage containers that expire this year. And then there is another 8% next year, not a big number.

[Victor Garcia:]

So re-pricing issues and things like that are not done, are not a significant concern over the course of this year.

[Steven Kwok:]

Great. Thanks for taking my questions.

[Victor Garcia:]

Thank you.

[Operator:]

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

[Conor Cunningham:]

Hey, guys, this is actually Conor Cunningham calling in for Helane. Can you just provide some color around what you're seeing in terms of the impact of the later Lunar New Year this year?

[Victor Garcia:]

Well what I could say is that leading up to the Lunar New Year we've seen ongoing incremental demand. So our customers told us that they were going to need containers leaving up to it and we've seen a steady pickup not only in depot equipments but with a lot of carriers, but new equipment being picked up at the same time. So there is always a lead in, Lunar New Year is becoming a more and more important part of the seasonal part of the year. It used to be that the first quarter was significantly lower in terms of demand, now with the Lunar New Year, and the expansion of Asia, its becoming almost a demand season. So we are seeing an effect of that and what I'd say this year is we're seeing good demand. We have -- what we have seen is we've seen a steady overall demand coming out of China and we read some recent articles about slowing of the Chinese economy, but we really hadn't seen the effect of that in our business.

[Conor Cunningham:]

And then I just had a question about the committed CapEx you got for this year. How do you expect that to kind of flow through the P&L this year, like what percentage are you expecting to be picked up in the first quarter, second quarter, and so on?

[Victor Garcia:]

I would say of the container investment we have because most of it is already committed, we expect most of it to come in over the course of the first quarter and the first part of the second quarter, so over the next six to eight weeks.

[Conor Cunningham:]

Perfect. That's all from us.

[Operator:]

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

[Sal Vitale:]

Good afternoon. So couple of quick questions. First, Tim, just a clarification on so you mentioned that the 2010/2011 vintage leases sort of 12% expiring in 2015 and was it 11% expiring in 2016?

[Tim Page:]

8%.

[Sal Vitale:]

8%.

[Tim Page:]

And that percent of our long-term lease fleet.

[Sal Vitale:]

Got it. Okay, that's helpful. And can you provide the railcar revenue for the quarter?

[Tim Page:]

Let me look that up. Let me just clarify something on the CapEx that Victor just talked about. Out of the $230 million that we said is committed $80 million of that is rail. Rest of the rail comes online in the second and third quarters. The container investment comes online at the end of the first and the beginning of the second quarter.

[Sal Vitale:]

That's very helpful. So the rail comes on in 2Q and 3Q. And on the topic the railcar, Victor, you said earlier that you really haven't done any railcar around CapEx over the last three to four months is that correct?

[Victor Garcia:]

Right. I mean we've had some steady amounts coming in. But we have a lot more that was committed to that's coming in over 2018 -- 2015. Just to give you the number by the way, our railcar revenue for the fourth quarter was $2.7 million.

[Sal Vitale:]

$2.7 million, okay that's helpful. And then, if I just think big picture, so this is very typical to have this much container CapEx committed that so early in the year is that right?

[Victor Garcia:]

That's right. But we spoke to some customers and we're able to get the production space and we got some commitments from them some long dated commitments from them and we were comfortable making those investments early.

[Sal Vitale:]

Right. And so how do we think about this and look I understand it's early in the year and you see how it plays out. But it sounds like what you're saying is on your $80 million of railcar investment thus far you probably don't increase that too much more. And then on the container side, how should I think what the upside to that is over the course of the year?

[Victor Garcia:]

I think there will be plenty of opportunity for incremental investment. The question is returns and we're going to continue to be selective about picking and choosing, which deals to do. And so we've been pleased with the progress to-date and it potentially could be a significant investment year for us. But we're really going to try to be as disciplined as we can be on getting incremental returns and working customer selection, working with customers where we feel it makes sense to put up more equipment with.

[Sal Vitale:]

Okay. And then just the last question. I remember on the last conference call, you outlined I think you gave some color around how the railcar investment would deliver over the course of 2015 and 2016. So you talked about what delivers in 2015, can you give some color on what delivers in 2016?

[Tim Page:]

In 2016, we have roughly speaking about $25 million of equipment to be delivered.

[Sal Vitale:]

Okay. So just to be clear -- go ahead I'm sorry.

[Tim Page:]

That's -- that's new railcars.

[Sal Vitale:]

So $25 million deliveries in 2016 and again is that the $80 million minus $25 million, so $55 million that delivers in 2015 is that the way you think about?

[Tim Page:]

Right. It's an addition to it.

[Sal Vitale:]

It's an addition to it.

[Tim Page:]

Yes.

[Sal Vitale:]

So $80 million delivers in 2015, $25 million in 2016. And then just the last question is on the $0.7 million after tax gain on sale that you singled out, is that something that happens very infrequently?

[Victor Garcia:]

Yes, I mean we felt -- the reason why we noted it was a significant sale for, to one of our customers. So that's another -- we occasionally have those situations but given where it was, it was significant, but it happens occasionally.

[Tim Page:]

It was a significant sale of some very old equipment that have relatively, relatively speaking lower net book value, so it disproportionately influenced the gain.

[Sal Vitale:]

Right. So the actual sale price or sort of the sale proceeds on those, I guess the sale price per container on those containers, was that materially different than your other sales?

[Tim Page:]

No, I mean the price was in line.

[Victor Garcia:]

Yes, it was in line, it was pretty close to the average, but the cost basis was much lower.

[Sal Vitale:]

Okay. Understood. Thank you very much. Thanks for your time.

[Victor Garcia:]

Thank you.

[Operator:]

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

[Doug Mewhirter:]

Hi, good afternoon. Most of my questions have been answered. I guess I just have one may be broad pricing question. And I guess there is a couple of different ways to look at pricing. So there obviously the per diem rate which it sounds like from the context of your answer at least in dry containers, is flat to down or may be still hanging on because that kind of tracks the new box prices. But if you take at one level more knowing that box prices are lower has the -- that sort of yield equation improved at all or is it still roughly flat that sort of cash on cash? And then if you take it one level further with looking your funding cost improving, has that sort of pre-tax yield or pre-tax spread over funding cost improves at all may be over the past three to six months?

[Victor Garcia:]

Okay. Well I would say that, generally speaking as the price of containers come down the per diem has come down to reflect it so that you're still talking about the same kind of revenue yields that were before. And from our -- that perspective we still find it that the market is overly competitive on those deals and that's why we're been selective on those. The incremental benefit of lower funding cost is marginally beneficial but it's not significant enough for us to really justify some of the rates that are out there so. And we are spending, we talk a lot about rates, but we are being very disciplined about the overall deal structure. So rates are part of it, term is part of it, but it's also looking at the contractual redelivery terms, we're very focused on managing that process. So there is less margin for error with the current price environment. So we're trying to be disciplined not just on per diem but we're also on the contract terms. And so any investment we do, we have to really feel comfortable that, that it's a good investment.

[Doug Mewhirter:]

Are you shortening up the term on your leases or is it more terms of return provisions and other non-financial terms and conditions which you're tightening up?

[Victor Garcia:]

I would say we would rather -- generally speaking we would rather have longer leases and shorter leases, even with the yields they are, we just think that having we're in the leasing business and not the asset speculation business. So we rather, when we look at, we're looking at the long-term return of the assets and having adequate return on that and if we can get that with the longer-term that to us is preferable.

[Doug Mewhirter:]

Great. And my last question, numbers question, Tim, could you just -- I got bits and pieces of it, I didn't get the whole picture, I apologize. The CapEx for fourth quarter so the total CapEx spend in equipment in the fourth quarter and then the total CapEx that you actually disposed I guess the CapEx out -- in the --?

[Tim Page:]

Well the total capital expenditures that flows through the cash flow statement was $80 million.

[Doug Mewhirter:]

Okay.

[Tim Page:]

Out of that $45 million roughly I think it was $45 million of it was equipment that we had picked up or accepted delivery of in the third quarter. So we ended the quarter with a rental equipment payable and then we paid it during the fourth quarter. We ended the year with only $8 million of that rental equipment payable. So most of the equipment was acquired in the third quarter rather than the fourth quarter.

[Doug Mewhirter:]

And what was, I'm sorry -- what was the value of the equipment you disposed?

[Tim Page:]

The value of the equipment we disposed of in total was roughly, I'll have to get back to you; I don't have that right in front of me.

[Doug Mewhirter:]

Okay. Thanks. That's all my questions.

[Victor Garcia:]

Okay. Thank you.

[Operator:]

Thank you. [Operator Instructions]. I'm showing no further questions at this time. I'd like to hand the call back over to Victor Garcia for any closing remarks.

[Victor Garcia:]

Thank you, operator. Well we're very pleased with our results for the quarter and that we're very optimistic about the opportunity we have going forward to 2015. I appreciate everyone listening on the call and we look forward to updating everyone on our first quarter earnings call. Thank you.

[Operator:]

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