Q3 2019 Earnings Call
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You're welcome along with the softening global economic conditions continue to challenge the overall market for container leasing.
Factory orders and leases had been modest throughout the year and we expect that trend will continue into the fourth quarter. We are however, please that we've been able to maintain a fleet utilization of 98.6% in our own fleet during the third quarter largely consistent with the 98.8% that we had reported.
During the second quarter we.
Utilization to remain strong over the coming quarters.
Our priority in the current slow growth environment is to maximize our cash flow by maintaining a high utilization and remaining disciplined in our investment decisions. During the quarter, we took delivery of $77 million of containers ordered earlier in the year, but we have not made.
We have not invested incrementally in standard drive and containers year to date, we have taken delivery of approximately $280 million of equipment of which approximately 115 million.
As new drive standard drive in containers, the remainder was in higher yielding specialized equipment and sale leaseback investments.
We remain disciplined with our investments focusing only on those transactions that meet our return expectations. We are prepared to not pursue transactions, where the pricing is below our expectations or transaction structures.
Our not acceptable to us.
New container pricing was relatively steady during the quarter inspite of the low demand and minimal production of new equipment.
Expect when demand for containers to increase to a more normal level that container prices will also increase closer to the historical average of approximately $2000.
Secondary price container pricing in most regions has remained strong and we expect this trend to continue assuming industrywide Youtube container utilization remains high and overall container availability is limited.
Managing to high utilization is one of our core strengths and we have implemented a focus strategy of selling idle assets to our broad network of customers keeping to strong contract terms and repositioning equipment to high demand locations.
This has helped us achieve a our high utilization rate and has contributed to this quarters 2.4 million gain on equipment sales an increase from the $1.6 million reported during the second quarter of 2019.
By carefully managing our utilization we are positioning positioned to be aggressive when markets are strong and maximize cash our cash flow during the week Martin weak markets.
We are cautiously optimistic about overall demand in 2020.
We estimate that replacement needs alone accounted for approximately 40% of overall container investment and that because of the limited production of new containers in 2018 that fleet replacement fell short of normal levels. Consequently.
In addition to container demand to satisfy moderate level of trade growth projected for 2020, we expect 2020 to be a catch up year for fleet replacement.
In addition, we believe that leasing will continue to represent an increasing proportion of the overall container market in 2020 as customers prioritize our capital for the delivery of new ships and modifications to the existing fleet to meet IMO 2020 regulations.
As we prepare for demand conditions to improve our primary focus is unchanged, we intend to maintain high utilization physician our equipment in high demand locations and continue to apply our disciplined approach of only investing when returns are attractive.
As we announced last quarter, we have been in discussions regarding the sale of our railcar business, while the could be no assurance, if or when the transaction to sell all or part of the fleet can be completed we are engaged in discussions with potential purchasers that have expressed interest in the portfolio at this point, we do not.
We expect to completed transaction by the end of the year.
That said, we are focused on achieving a strategic solutions that maximizes shareholder value.
In the interim.
Demand for our railcar fleet in the third quarter has been solid despite a weak overall rail environment, our priority remains increasing utilization in the fleet in order to reduce off higher costs and increased revenues. We successfully placed a number of railcars on lease during the quarter and averaged 85.3% utilization during the most recent quarter.
Yeah.
We are we're having discussions with several perspective customers on our available railcars and expect our utilization to increase over the coming months.
During the quarter, we expensed approximately 800000 of refurbishment costs to place equipment on lease which under prior accounting would it would largely be capitalized.
We have several increase for many of our railcars and our overall monthly lease rates have been steady for most equipment types.
Tank cars are an exception to this with some weakness resulting from limited exports of grain to China. We have approximately 240 cars that we expect to remarket over the coming months. However, our green car fleet is very young and we expect those cars to be preferred in the market. Despite the overall market segment weakness.
The restructuring efforts, we announced in our second quarter call drove improved third quarter results in our logistics segment. The segment continues to add new customers new customer accounts in each of the services, we offer and we expect continued improvement in the fourth quarter. We believe we can make logistic segment profitable by increasing the volume.
From our core customers, while leveraging our existing infrastructure to generate additional revenue.
We are entering the traditional annual bid season and for many accounts. We are now on our second year, we believe the having haven't proven our commitment to service, we will be able to expand many of our accounts in tandem we're managing our costs closely across the services. We offer in this segment to ensure the positive trends reserve.
And from our restructuring efforts continue.
We are looking to grow and improve results despite headwinds in the us transportation logistics marketplace slowing us economic growth.
And ongoing trade disputes continue to challenge overall demand for transportation transportation services.
We are continuing to take steps to manage our business through this macro environment and remain focused on core strategic customers in each of our logistic services that will form a basis for our of our future ongoing demand.
We believe that logistic capabilities provide greater integration of our core shipping line customers and create new sources of demand for our existing container assets in summary.
We are focused on positioning the company for the future and deploying our capital to increase shareholder value. We continue to seek strategic solution for our rail business and our manager existing container portfolio in anticipation of an improved demand environment.
With that I'll now turn it over to Tim page, our Chief Financial Officer to review the financial results for the quarter in greater detail.
Thank you vector good afternoon, everyone.
My comments, some less I know, what otherwise we'll focus on our continuing operations.
Total revenue in the third quarter was 108 million an increase of 1.9% versus Q2.
Year to date total revenue was 316 million as compared to $290 million for a year to date Q3.
For a year to date Q3, 218, an increase of 9.3%.
Container lease revenue in the third quarter was 77.3 million, 2% greater than Q2 of this year and 2.6% greater than Q3 of the lack of last year.
This sequential and year over year increase in container revenue reflects the positive in pack that are focused on optimizing container utilization has had even in the face of sluggish global GDP growth and tariff uncertainty.
Year to date container container revenue is 9.7% higher than the same period last year, which primarily reflects the run rate impact of the strong lease market. We experienced in the first three quarters of 2018.
Logistics revenue in Q3 was 30.3 million versus 29.8 million in Q2, an increase of 1.6%.
Year to date logistics revenue is up 8% versus last year.
Given that there was a significant restructuring and reduction in staff in our logistics business at the end of Q2. We are encouraged that Q3 logistics revenue increased modestly versus Q2.
Depreciation expense in Q3 was basically flat with Q2, we would expect depreciation expense in Q4 to be flat to slightly higher than what it was in Q3.
Storage handling and other related expense in Q3 are all container related and were 4.7 million as compared to 4.1 million in Q2 of this year, an increase of point 6 million most of which was related to increased storage costs. We don't expect a significant decrease in contain.
Interview utilization in Q4, but we would expect a similar increase and storage costs in Q4.
As the normal Q4 seasonal pattern for container demand would suggest some increase in container turns.
Logistics cost of sales increased from 26.1 million in Q2 to 27 million in Q3, an increase of point 9 million or 3.6%.
Logistic gross margin in Q3 was 3.2 million as compared to 3.7 million in Q2, a decrease of point $5 million or 12.9% growth.
Gross margin percent in Q3 was 10.7% compared to 12.5% in Q2 Q2.
The decrease in gross margin dollars and gross margin percent was primarily a function of a higher mix of lower margin intermodal rail business versus truck brokerage and freight forwarding business and a very competitive truck brokerage market in Q3.
EBITDA for the logistics business increased point 9 million in Q3 as compared to Q2.
It went from a loss of 1.2 million in Q2, two or 3.3 to 8.3 million loss in Q3.
We continue to focus on revenue growth and margin expansion, while at the same time, maintaining a laser focused on cost control.
We expect to continue to make improvements in the business, but based on normal seasonality Q4, as a week quarter concept. Consequently, we expect that overall profitability in the logistics in Q4 will be in the same general range as Q3.
Gain on sale of used container rental equipment in in the quarter increase from $1.6 million in Q2 to 2.4 million in Q3 due to a 27% increase in the volume of containers sold and a 7% increase in the average selling price.
Q4, as traditionally a moderately slower quarter for container sales and we expect that gains on sale in Q4 will be in the $1.5 million to $2 million range.
General and admitted and administrative expense in Q3 was $12.7 million as compared to 12.3 million in Q2, a decrease of point 4 million.
The 12.7 million total container related Gionee was 8.7 million in Q3 versus 7 million in Q2, an increase of 1.7 million professional fees increased point 4 million as compared to Q2. In addition, there were several nonrecurring charges.
Bad debt expense in the quarter increased 1.1 million versus Q2.
Point 8 million of the increase was related to it to a charge to write off receivables related to a small European lessee and Q2 had a point 2 million credit to bad debt expense.
Additionally, there was a charge at point 3 million related to true up of international payroll taxes.
We would expect overall gionee to be in the 11.7 to 12.2 million range in Q4.
Interest and other expense increased from 20.1 million in Q2 to 20.5 million in Q3, an increase of point 4 million.
Point 3 million of the increases FX expense related to a weaker pound in euro in the quarter. The remaining point 1 million increase is due to a higher average debt balance offset by a small decrease in our average borrowing costs.
As for Q4 absent the nonrecurring charge at the nonrecurring charge I will cover in a minute, we expect interest expense to be approximately equal to what it was in Q3.
We are focused on reducing our overall interest cost interest expense has been one of our most significant cost increases in 2019, and we're taking steps to reduce these financing financing costs.
We reduced our rail revolver commitment in October from 550 million to 250 million since we no longer anticipate a need for the higher commitment.
As a result, we expect to save approximately 200000 per quarter in reduced financing costs, though we will have though we will incur a noncash charge of approximately 1 million in the fourth quarter to write off deferred financing costs related to the reduced commitment.
In 2020, we expect to refinance to ABS transactions that were completed in 2018 at significantly higher interest rates than our available in that market today if rates in the ABS market remain at their current levels, we expect our funding costs for those facilities to today.
Greece, approximately 50 to 75 basis points on approximately 600 million of ABS debt.
Resulting in potential annual savings of three to four and a half million dollars.
Those facilities are able to be refinanced in March in September of 2020.
The weighted average interest rate on our funded debt at the end of Q3 was 3.73% 15 basis points lower than the than the 3.88% rate at the end of Q2, we are expecting a similar reduction in the average rate in Q4 as the fed is expected to continue to reduce the fed funds rate.
Income tax expense in Q3 was 1.2 million as compared to 1.3 million in Q2, a decrease of point 2 million.
Effective tax rate in Q3 was 7% as compared to 8.4% in Q2 year to date, our effective tax rate was 6.1%. We expect the effective tax rate in the coming quarters to be in this 6.1% range.
Net income from continuing operations in the quarter was $13 million for 74 cents per fully diluted share as compared to $12.3 million or 69 cents per share an increase of point $7 million or five cents per share.
While we expect our utilization to remain strong and that we will benefit from decreasing LIBOR. In Q4, we expect Q4 net income to be marginally softer than Q3 due to the normal seasonal cadence of the shipping industry.
Our own container fleet was 1.6 million CVU as of the end of Q3 flat with what it was at the end of Q2.
Our average utilization in the quarter remained near its historically high level and was 98.6% as of today utilization stands at 98.4%.
The total book value of our container revenue, earning assets at the end of Q2 Q3 was 2.5 billion flat with Q2.
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 $2.1 billion flat with Q2.
Rail related debt accounts for approximately 250 million, we expect that all the rail related debt would be retired upon consummation of the sale of our rail assets.
Funded debt in Q3 net of cash related to continuing operations was 1.87 billion as compared to one point.
5 billion at the end of Q2.
We would expect the funded debt balance to remain in this range to slightly decrease in the coming quarters.
I.
What is our comments operator, please open the call for questions.
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Withdraw your question press the pound key please stand by what we compile the kewaunee roster.
Our first question comes from Brian Hogan with William Blair. Your line is open.
Good afternoon.
Hey, Brian .
Hey.
Quick question on your ROE outlook.
What was the container business, our OE in the quarter and then.
What do you believe you can do double digit or are we in the business going forward I mean, what a returns obviously is not a lot of investment today, some but I can you.
Continue to generate double digit earlier, maybe what's your outlook for a number that.
Well actually we did generated double digit are we when we look at that capital that was in.
And in the container segment.
I think.
We expect that as we as when the market turns back up and we have a better opportunity to put new equipment on lease that the returns will increase.
Because we in certain ways are under leveraged on our container segment.
So we do expect to continue to see improvement in terms of.
The returns on the on the contained portfolio, but we are generating double digit our lease.
Alright.
Thank you each shift to like the comp competitive environment.
Any pricing pressures anybody acting irrationally from from your perspective.
And just pretty.
Stable.
I'd say the way we look at the market environment. It is very competitive but its competitive because of just a lack of opportunities at similar to what we would normally see.
The first quarter, where theres, just a number of small opportunities and as a lot of players looking at the same kind of investment and given that the investments.
Had been fairly small people tend to be more aggressive the normal I would expect.
When demand picks up.
We will see better route better and more disciplined.
Marketplace.
And I think just the fact that what we've seen as people cutting back on.
Investment during this year, it's something that we didnt seem prior weak markets.
Bodes well for a more disciplined approach once the market and market turns up.
Alright, and then one last one from me at the moment.
Logistics business I appreciate the detail in your prepared remarks there.
Can you give a little more color on.
How do you expect to get the profitability backup.
Is it really the function of just market demand and obviously, taking some strategic directions, just kind of go anymore.
Color on what you're doing that.
Sure well first of all we're dealing in a pretty tough transportation market right now.
We're not seeing.
Strong a peak season across the board as as we've seen in prior years and I think there's a lot of transportation and logistics companies that are are struggling right now, but that being said given our operation well we did in the second quarter was we.
Tried to rightsize the cost structure and put in place.
As an infrastructure, where we could leverage off of the same cost base more volume everything that we are.
Focused on is having more volume with the same cost base and with.
Some increasing volume with steady business that we're getting from customers.
We expect that we'll be able to use that operating leverage to turning to profitability. We've made progress in the third quarter. It was inline with our expectations.
We expect to continue to make.
Improvements in to reach profitability in that in that segment.
And it's we've put the pieces in place to do that.
And does it require more investment in technology or is it truly just right. So our technology our technology is actually very.
Very good I mean, we are using technology that a lot of other companies use where we are looking at ways of increasing.
People's productivity.
And Thats, an ongoing process and we continue to do that but did the step change. If you will in the logistics segment is really on the customer selection.
The lanes that we choose to that the margins that were willing to compete on.
Incident in certain ways very similar to what we do on the container leasing segment.
It's you know we there's a lot of business that gets done on an annual bid cycle.
Is that bid cycle typically starts around this time of year. So it's hard to make those big step changes until you get an opportunity to get into the bid cycle and we're now going into our second year with many customers. We've proven that we have a very good service offering.
And so we expect that we'll be able to.
So when more of the lanes that we would want in our segments.
And so as we go.
And get awards on these bids we expected to continue to improve in terms of volume and margin.
Thank you.
Thank you.
Thank you. Our next question comes from Mike Webber with level Research. Your line is open.
Hi, Good afternoon, guys how are you.
It.
Victor just wanted to dilute back on I guess, maybe kind of coming out returns, but more from just kind of a granular level if I think about.
Well first of all mix, where new box prices now.
We've gotten some color from some other calls but more importantly, when you think about.
Where youre.
Where does collateral values would be kind of today versus the next 12 months.
Given what we've seen.
Well you guys are saying, what we've seen from the global economy is it reasonable to think that new box prices App in 2020, probably average at a level that's inside of where we were for 28 GGR, where we are currently.
I don't think so I think.
I think there's been a lot of.
Pushback on lowering price as much from where they are in tax your question its bumped around.
There's been very few transactions.
And Eric.
Manufacturers are trying to push a price so they they increase the price and then they bring it back down but it's averaged in the low 16 hundreds to about.
As high as 17, hundreds the kind of the quoted price, but I would say it's 16 hundreds is probably on average where thing a lot of things are getting done.
But it's really a lot of people competing around that price for for orders I think the manufacturers are likely to cut production.
On and instead of trying to lower prices any further and I do think.
They're they're all.
Looking for any kind of uptick in demand to try to increased price because the margins are pretty tight right now for the manufacturers.
Yes, if and then this might be a difficult point in time to say.
Do you the basis, I guess, but if I think about the dynamics that go into play in terms of whereas in terms of those box prices right, you're going to its going to be underpinned by steel and interest rates to a degree because also demand component to that so I guess in terms of how you would think about new box prices for next year flattish relative to what we saw for 2019 is that.
Fair characterization of where you where you guys I think would be.
I would think that we're going to start off in the first quarter flattish, we're where we are.
And as we get into the demand season, if we get any kind of uptick it'll quickly probably move up closer to a $2000 level.
Okay.
Inc. any pickup in demand.
We will cause the main factors to try and bring it back to what has historically been to normal range and where a profit margin is adequate for them.
Got you. Okay. That's helpful. You mentioned something in your prepared remarks.
Around.
The space, playing a bit of catch up I.
I think it was around retirements and new boxes, or I'm, sorry, I've used containers.
And I want I wanted to make sure I heard that was in the context, but I guess.
It is what you're saying that there is a larger chunk of containers to get aged out and the implication is that we could see a slightly heavier capex cycle in 2020 than we would then kind of the underlying business would have typically would typically support that.
Just have all you're saying you're trying to get across there.
Yeah, I think when you look at the overall container production. This year, it's below normal and Utilizations have been high so customers are stretching out their use of of equipment.
We normally get anywhere from 4% to 5% attrition in the fleet as just a normal replacement.
Annual replacement.
So thats a significant amount if you look at the total sizably, that's a significant amount of capex need just too to replace retirement equipment and it's been estimated our estimate is about 40% of all container production.
Those towards replacement. So we've had less replacement. This year, we have moderate trade growth next year and just knowing how the industry typically operates when we get a slower market like this there tends to be extra more equipment being sold out of the market.
Then.
And is retained so those factors would lead me to believe that if we have a.
A more normalized a year that we'll actually see a pretty pretty strong overall year because of the replacement cycle.
Okay.
And just on the competitive balance.
I want to beat a dead horse, but in terms of some of the larger Chinese.
Players in the market the might have been absent for the balance of 18 and part of 19 or you are are you seeing benefited the there's original players is kind of everybody back on the floor at this point are there still.
Feedback or.
Cosco backs entities that are not that you're not bumping into in terms of competing for new business.
Some players.
Our in the market.
For certain types of transactions.
We haven't seen aggressiveness from all the players and we've seen some players still be relatively speaking outside of the market and not not competing for a lot of transactions.
I think the biggest factor this year has been just the lack of opportunities which brings into play.
A lot of smaller players that might not be there for some larger transactions and is kind of created more of a competitive dynamics, but I would say.
If we had a normalized year I would say returns would would probably be much better and we feel pretty good about the the state of the industry.
Okay.
All right I'll stop there and turn it over thanks for the time guys. Thank you.
Thank you once again, ladies gentlemen, if you wish that's a question at this time. Please press Star then one are you touched on telephone.
Our next question comes from Helane Becker with Cowen Your line is open.
Hey, guys, it's actually counterfeiting I'm I'm sure Helene just maybe follow up on Michael's question just in terms of.
The demand environment, you talked about potentially coming back into Q2 2020.
Trying to get a sense for or.
What you need to seeing the global economy. So you can see just above replacement level. Capex next year is is it really just a function of overall glide global trade meeting to improve from here.
To get above that level.
Well, we've been we've been going through a phase of the last couple of quarters of of the softening market.
And I talk about economic environment, we know that.
Has been slow down in Asia is slow down in Europe .
Modest slowdown in the United States.
We would expect unless we're going to go into a more pronounced slowdown that there will be a general improvement that so or at least stability and with that with expectations of a normal.
We're going to have a normal trade growth.
That with the replacement needs that are there, we expect more shipping lines to be coming back to market. When you couple that with.
The fact that the capital investments that that some of our customers are making.
Container ownership on their side is less of a priority and we've seen that and it's become more pronounced with many shipping lines. So we would expect that they'll come back to the leasing market more often and when they're not planning on big Capex budgets for their own account.
The only marketplace that is available to have equipment ready and waiting is the the container lessors. That's the value that the industry provides is having equipment available when customers need it and they usually needed on short term. So if there is a market change and we.
And we started seeing improvement in demand.
We would expect a larger share that improvement would be benefited two to all the the leasing companies and we've been in I would say now going.
A full four quarters into a soft market.
Typically 18 months is.
Well, we would normally see as a soft market. So you could argue maybe it's a little bit beyond that but it would fit in nicely with an expectation of a normal seasonal uptick in the second quarter.
On that makes sense and then on on the container our utilization rate, obviously pretty impressive.
And you mentioned that your active sellers of idle containers on how much equipment is actually supposed to come off lease for the remainder of this year and then next year, just trying to get a sense for potential gains on sale. After the environment doesn't improve or are there isn't like a whole lot of releasing that's kind of occurring at that point.
I don't have an exact number of product that I can give you right now, but I would just say generally speaking because in 2000 and.
17 and 18.
Put on almost 1.3 billion of container assets.
Our family the amount of equipment that we have available to come off hire is actually proportionately much less than it used to be.
So we have a lot of equipment that goes on for multi years from here and we've also structured a lot of leases so that.
They stay on lease for.
With customers over the full life of there.
The economic but the asset so the number I would say is probably somewhere less than.
20%, maybe close somewhere between 15 and 20%.
But thats a normal.
I would expect many of those to continue to be.
Extended and release and customers hold onto equipment are longer than the expiration of the lease.
And then on the buyback I was little surprised cannot see much done in the corner.
It seems like you are more committed over the last couple of cornerstone could be more aggressive there is it really just a function of you meeting to be wanting to be out of the railcar fleet before you get more aggressive there or is it just like you're trying to way potential growth capex in the coming quarters versus a buyback now.
Thanks, Nigel I think with a significant asset sale that we have.
We want to to make sure we have a good a good idea where that transaction is.
We continue to look at the possibility of buying back shares, but right now I think as we're looking at it that is one of the factors that we're considering is.
We are where are we going to be with that so.
Okay, great. Thanks for the time.
Right.
Thank you. Our next question comes from Michael Brown with KBW. Your line is open.
Hi, good afternoon guys.
Hi, Mike.
So I wanted to start with the kind of a clarification first.
Can you share with the after tax impact of that impairment charge was this quarter not sure. If I just missed it but just trying to get at kind of the underlying performance of the railcar business within discontinued ops.
Yes, it was 19 almost $20 million.
So that would imply the railcar business was essentially breakeven.
Yes railcar business lost about 900000.
Okay, and 800000 of that was as Victor mentioned capital expenses that we and if the business with an ongoing business, we would have capitalized labor improvements to railcars.
Refurbishment expenses, so absent that it was basically breakeven.
Okay. Thank you for that.
I guess once that business is sold on how much capital would you expect this kind of freed up and then it sounds like it.
Probably be returned to shareholders through buybacks and then.
Given the low liquidity in the stock how quickly do you think you could do that and would you maybe consider doing something like a Dutch tender offer.
I think we could we can consider a number of different things.
As a buyback is one way to do it a tender is another way to do it.
I think we can we can look at all those options.
You know I think.
We deal with the with the impairment we have.
And net equity position in and of the rail business of approximately $50 million.
So.
Depending on how what sale price we have goals.
We'll be able to see what we can do.
Okay and then.
Obviously during the quarter, we saw the 13 de filing from from an investor that is encouraging on strategic review, including a potential sale of the company.
And just wanted to hear your thoughts on that we've gotten some questions from investors that down.
I thought that was kind of an interesting.
Yes thesis for the company. So wanted to hear your thoughts on a potential on sales that would be something that.
You talked about with the board.
Mike as you probably expect I can make a comment on on an item like that I will say, we have dialogue with.
All shareholders, who want to talk to us and we have productive dialogues with all our shareholders.
I think the basic thesis is that the shares.
Should be at valued higher.
So we don't have a great but that we think the company has very strong cash flows.
We are container business is performing really well we're looking to.
You know streamline overall operation with the sale of the railcar business.
We are doing all things to increase shareholder value, but we agree that that the company's shares.
I would be valued higher and we're focused on them.
Okay I appreciate the color.
Just one last one.
Clearly given logistics business was always rate was helpful.
I appreciate the time background on the bidding process. There do you think that next quarter you could share with us when you would expect that business to turn profitable because it sounds like at that point.
Better view on kind of the outlook for next year.
Yeah, I mean, let's say that most of the loss that we're reporting.
Relates to intangible asset so its noncash charges were actually approaching cash flow breakeven.
Pretty quickly I.
I would say you know we that's our first order, but I'd say we're targeting.
Provided specific guidance, but certainly we're putting a lot of effort to as quickly as possible turned the corner. There in terms of bottom line profit, but I do want to emphasize again.
One of things, we're very focused on we don't want to burn cash.
We want to profitable operation.
So.
The first thing is making sure that where it is throwing off cash and not consuming cash and we're going to we're going to hit that milestone hopefully very soon.
And and then we'll focus on on overall profitability, but again the emphasis is if you really look at.
The cash the non and amortized or the the noncash charges. It's a big part of where were still not meeting our profitability.
Okay. Thank you for taking my questions.
Thank you. Our next question is follow some Brian Hogan with William Blair. Your line is open.
Yes. Thanks can you discuss your customer conversations I mean, what are the what's their sentiment are they cautiously optimistic on next year as well or.
Are they looking to do some more sale leaseback transactions as you mentioned in the UK did in the quarter.
And also.
As a kind of a follow up to that.
Near term basis are you seem to me.
Change in behavior from IMO 2020.
Okay.
I would say customers.
Our cautious about the outlook.
You know I think to say, they're optimistic is probably an over semantic they just cautious.
Our cautiously optimistic.
As far as sale leasebacks concern those have more time as much timing about when they have equipment that becomes unencumbered that they owned and finance and now we're looking to be able to sell the equipment to to a third party so that.
Now that it doesn't have a lean on it so it doesn't it's not as predictable.
As ongoing demand is although I will say.
You know our ability to market assets for sale and being able to find customers in.
Geographic locations throughout the globe.
Makes us a preferred party to to do sale leasebacks, because it gives them a lot more optionality as to where too.
As to where they can redeliver equipment, which is a significant consideration for many of the shipping lines.
Alright, and then the IMO 2020, I am all 2020, you know I think its been predicted.
For a while everybody's planning for it.
I would suspect that they'll be some adjustments as we get into 2020 in terms of costs were record recoupment.
What I'd really don't think.
I don't think it'll be a major event I think on shippers are expecting that there will be an increase shipping lines or our focus that they can absorb that.
If anything maybe theres going to be a tightening up with the market to make sure that cost pass through.
And so.
We're not expecting anything.
That would be a.
Caused the credit concern from our standpoint at this point.
Alright, thank you.
Yes.
Thank you and I'm currently showing no further questions at this time I turn the call back over to Victor Garcia President CEO for closing remarks I.
I appreciate everybody coming on the call and listening into our results. We look forward to reporting our yearend results.
In the next call. Thank you everyone.
Ladies and gentlemen. This concludes today's conference call. Thank you go participating you may now disconnect.