Q1 2020 Earnings Call
[music].
Good day, everyone welcome to todays G T X 2021st quarter conference call todays.
At this time I'd like to turn things over to make sure how women director of Investor Relations. Please go ahead.
Thanks.
Good morning, everyone and thank you for joining GHX, its 2021st quarter earnings call.
I'm joined today by Brian Kenney, President and CEO.
Alan Executive Vice President and CFO.
Please note that said with the information you'll hear during our discussion today will consist of forward looking fitness.
Actual results or trends could differ materially from those big lunch or forecast.
The long information, please refer to the risk factors, including R&D.
Discussing GHX its form 10-K for 29 chain.
<unk> assumes no obligation to update or revise any forward looking statements choice like subsequent events or circumstances.
I'll provide a quick overview of our 2021st quarter results and then I'll turn it over to Brian for additional commentary on the Cobot 19 comes out and GHG access decision to suspend guidance.
After that we'll open the call up for questions.
Earlier today GHX recorded 2021st quarter net income of 46.3 million or Dollarsthirty one per diluted share.
This compares to 29 during first quarter net income of 41.5 million or dollar <unk> per diluted share.
Now I'll briefly address each segment.
Well North America's first quarter results are consistent with our expectations coming onto the here.
Despite continuing weak market conditions.
North America fleet utilization remained high at 9% Guardians of the corridor and the renewal success rate was 74.6%.
The current lease rate environment remains challenging.
During the quarter the renewal rate change of GHX, This week and Dr. negative 11.6%.
With an average renewal term a 31 month.
We continue to successfully placed new railcars from our committed supply agreement with a diverse customer base.
Which puts all 8950 railcars <unk> 14 trade supply agreement.
And you really searching hundred railcars for each white 18, trendy supply agreement.
Additionally, we switch over 3100 railcars for much weight she'll bring buyer supply agreement.
Oh supply agreement deliveries for 2020 Haskins Leach.
Our early and available schedule delivery under supply agreements in the first quarter of 2021.
Hi, good morning active secondary market for railcars.
America generated first quarter remarketing income of $27 million.
Well, then well international the European railcar leasing market remained stable evidenced by GHX rail Europe fleet utilization of 98.5% at quarter end.
Well international investment volume with over $69 million during the first quarter, a G.H. rail Europe, and GHX rally continue to expand and diversify their fleet.
Portfolio management results in the quarter were primarily driven by the solid performance, well toys and partners finance a failure.
Like the unprecedented disruptions to commercial air travel and a lot of park water.
American Steamship company or a S C.
Started selling season in late March and it's currently operating seven vessels.
As noted in our earnings release are telling us eat expected to close it second quarter this year.
With that I'll now turn call over to Brian.
Thanks, Jerry So I'll take this opportunity to talk about our response to covert 19 crisis.
Oh, I think we're preparing us for and I'll add with why we decided to spend.
2020 earnings guidance, so I should start by saying that this management team. That's worked together for a long time, so number but work together during the last two crises that materially impacted our business. So the first was the aftermath of 911 back then we own the large aircraft leasing business and the second was obviously the great recession.
The point is we emerged from both those crises in good condition. In fact, I think we emerged from the great recession and stronger condition than what we got hurt and that was because of the acquisitions of troubled rail portfolios that were able to execute during that time.
So early in the onset of this covert 19 crisis, we deployed tactics and our rail business that we use in every economic crisis in the first one.
It's a lock down our liquidity and access to capital. So Fortunately, we're always focused on that subject.
So we entered the situation had very strong position.
In fact as of today GHX, it's sitting out over a billion dollars of cash of unused credit wise.
We haven't dose schedule debt maturities from writing a 2020.
And the as you know the debt capital markets have recently improved dramatically. So our ability to access capital is currently outstanding.
The second tactic, we get out in front of the customer released request that we barely versus even when the economy declined sharply.
We have to develop a specific game plan for how we handle these customer requests and again, we entered this crisis at a pretty strong position for both the rail customer relationship and credit perspective.
As well from the asset allocation perspective.
Couple of stats, we ever a thousand customers on our worldwide rail business.
And if you look at the top 50 customers worldwide, two thirds or investment grade rated and none of them.
On our credit watch list entering this crisis.
Same an asset allocation. If you look at that we have a very well diversified fleet as you know from a car type of commodity perspective lots more diversified than our competitors.
So our strategy for handling these customer request has been proven over time, we want to be helpful to our customers, especially our best one obviously, but we only provide financial relief.
If GHX ends up in a neutral position or actually received sudden death benefit that could be commercially or economically. So an example wouldn't be providing an immediate lease rate relief to a customer in exchange for a higher payment later in the lease.
Or perhaps in exchange for the customer agreeing to a lease term extension on another car type at an attractive rate. So that strategy worked very well during the great recession or in the middle deploying it though.
A third topic, we've implemented a crisis of searching for opportunities to acquire assets, that's attractive valuations and that often materializes and our distressed rail market.
As you might know where we're very successful in that regard during the great recession, we added about 18000 attractively priced cars.
Right it over a billion dollars a child and managed fleet back then.
In the past couple of years I've been pretty vocal on these calls about new entrance into the railcar leasing market that may be regretting their decision.
And looking to exit the market got more difficult and it got more difficult prior to this crisis. So we are in constant talks with the market to let people know we're interested in being helpful in that regard.
So those are three elements of our usual strategy and economic crisis, I would say that difference between.
The usual crisis in the current covert 19 situation is we need to further prioritize a different tactic above the other three and that's protecting the health of our employees. So as you know safety is always the number one priority Ajay Jackson, our safety record as one of the reasons, we've moved aggressively move to pair volume into our own maintenance that work over the last few years.
But it's just never been it's difficult to ensure the health of our employees obviously as it is right now so.
Fortunately rail has been deemed an essential industry, we're still operating our office employees are working working well remotely and the maintenance network. Its remains functioning thus far during the cold at 19 crisis.
We have closed a number of maintenance facilities for short periods of time.
That's more of an abundance of caution if we thought there was a perpetual infection, where somebody had contact with somebody affected.
We're exceeding all the CDC guidelines for protecting our employees were doing health checks.
Obviously, social dispensing separating shifts regulate disinfecting our facilities, we said people how long paid leave.
They feel sick or if it not exposed up quite a work to an individual is positive. So we've been a really fortunate thus far that we only have three GHS employees across the globe lift tested positive for cobot 19.
And I'm really happy to report that all three of recovered and they're back to work today.
So we know this could change in a hurry we need to remain vigilant, we're definitely learning as we go not taking the success for granted.
Do you want to publicly recognized our railcar maintenance employees, both shop management and the employees on the floor, they've really kept our business running what their commitment their hard work and their safety in their dedication to safety they they've really been outstanding.
So that describes how we're responding to the covert 19 crisis, thus far in our rail business that's been challenging.
But the challenges that away more severe for those serving the global aviation industry and that's also true for Rpfs or 50% joint venture with Rolls Royce and the spare aircraft or spare engine leasing business. So as many of you know.
The performance of that joint ventures really been remarkable over the last 22 years from both the growth and profitability perspective.
But there's been a dramatic reduction or worldwide air travel and has reduced engine demand and so RPF is also dealing with an increasing number of lease modification requests from their airline customer. So similar to the tactics were using in rail RPF is trying to assess their customers lot of case by case basis.
As well is working to maintain strong liquidity during this unprecedented disruption air travel.
As Sheri indicated as indicated our earnings release overnight team did not have a direct negative impact on our financial results in the first quarter.
And as far as today I believe we're currently functioning very well given the severity of this crisis our.
Our worldwide railcar fleet utilization metrics remains extremely high.
Customers largely continued ever do their railcar leases.
We're actually placing new health car deliveries for example, we placed all our 2020 new car deliveries in North America in India.
We have excellent liquidity and access to capital as I said.
The sale of American Steamship is on track for me.
And and customer lease modification request, thus far are pretty manageable. So.
We're optimistic also that investment opportunities will materialize across our businesses. So so far so good but having said that.
Yeah, the excellent customer base the assets the contracted revenue can only answer let us for so long so the longer the global economy shut down obviously, the more materially affect will be our GHX is businesses.
I'll talk shutdown will eventually decrease that customer renewal success fleet utilization revenue.
Hopefully, we'll have the opposite effect on investment opportunities, but also could increase our maintenance expense. If cars that are the network to prepare them for placements in the next customer. So since no. One yet has that answer as to went over 19 subsides and the economy gets restarting an artist.
We just can't estimate how material it will be on the metrics I mentioned or really on the financial performance Rolls Royce and partner so.
We've decided to spend our 2020 earnings guidance for the time being but we will revisit that decision next quarter and perhaps the picture will become clear enough to give me an estimate of work 2020 earnings will show up.
That time.
So taking a step back rail remains an essential industry.
It's generally the greatest some lowest cost method of moving freight long distances, it's vital to the world economy, and it's got to be instrumental to the natural economic recovery. So I remain confident and GHX is full service leasing business model, and especially our employees ability to execute an amount that will enable us to come out of this cobot Nike.
Crisis at an even stronger competitive position.
So that's where we are today, let's go to keep today operator.
Thank you at this time, if you do have a question. Please send off by pressing star one again that won't be star one for questions.
We'll hear first today from Allison Poliniak with Wells Fargo.
Hi, guys good morning.
Oh, thanks for the color animals raise JV and obviously, we're we're still quite in the midst of that but some of the more drastic concerns is that about profit of that TV will go to zero you know any color that you can provide that can help but I guess gauge the performance not in the near term.
Right one cure.
Yep.
Allison This is Tom and first of all our one thing to remind everybody as far as the Rolls Royce Ching joint venture is half of the revenue the lease revenue from the joint venture is back to Rolls Royce for use in there and their own preventative maintenance program and of course roles.
Prices in investment grade credit the other half goes to a variety of airline customers that obviously have a variety of credit profiles.
As you would expect given what's going on in global aviation.
That business has received deferral requests from customers, but these deferral requests typically ask for somewhere between three and six months friends deferral and there to be paid back within one year.
Obviously.
Nobody knows exactly how long that cobot crisis will last and what the shape of the recovery will be but it's important to note that when when prior crises has occurred the global airline industry eventually recovered and got back to its growth trajectory of doubling our passenger miles doubling every shift.
Teen years.
Similar to our rail business.
Rpfs contracts do not allow for cancellations when they get a Rick <unk> restructuring request. They look at amount of case by case basis, taking full advantage of contractual rights and looking for opportunities to enhance the customer relationship without lots of economics out here.
Thanks, that's helpful and then on the rail side in North America, Europe, how should we think about maintenance expense in this environment our people accelerating some maybe larger overhauls already that we kept pushing it aside just given the lack of utilization any color around that.
Sure I'll start with North America, and then what Brian comments on a international so the been good friends when you get into a more challenging.
Commercial environment for maintenance is looking at that renewal success percentage when the real success percentage goes down you send it tend to see a little bit more maintenance because cars often have to visit a shop before going between from one customer to another customer and in the quarter. We saw the renewal success percentage.
Get down to 75% again, it will be it's hard to say what that number will do going forward.
For context in the great recession. It got as low is the mid Fiftys. The good news is one of the things that we've seen so far even through.
The month and a half or so the cobot crisis is that customers are continuing to renew cars that at relatively high rates, but that's the piece that you'd look for as far as a.
Change in maintenance is that renewal success percentage dipping.
It would be the same store in Europe, and probably the thing to add there's we only have I think now less than 1800 cars up for renewal in Europe for the remainder of the year, so not as exposed but generally it's the same equation.
And just to add the same number for North America, It's about 13500 remaining for the rest of year.
Great. Thanks, so much I'll pass it along.
Well hear next from Justin long with Stephens.
Thanks, and good morning.
So I was wondering if you could provide some color on a sequential trend been lease rates may be for both tank and freight and maybe some color quarter to date as well just given how quickly the macro environment is changing.
Sure so market lease rates as you know very by car type. So we always have to be careful not to over generalize.
Having having said that lease rates for most tank car types are down about 10% to 25% since the start of year.
Most of that coming in the last month or so.
Lease rates for most freight car types, which had been more challenge, it's coming into the Kogan crisis are down materially less anywhere between about flat and 10% since the start of the quarter.
As you would expect.
Lease rates are moving downward because of the cold, but it's too early to tell how Logan might go as North American scrapping activity continues it should help move the supply and demand equation back into balance a little bit more we entered a oversupplied more so in freight and then a non energy tank.
And that's one of the things we might look for as a the cobot situation continues.
Thanks.
Helpful and as we think about that side of the equation is there a way back yeah look back at the last recession, and say where tank car lease rates are today versus bad prior trough and any structural reason why we should or shouldn't get back to that low end downturn.
Yes, just looking at the absolute lease rates between then and now probably isn't very instructive, but but what I would say is if you look at where they are versus.
The those those long term averages.
The place that tank car lease rates are today versus then.
They are probably a little bit higher still today, but it wouldnt in order to do on a proportional basis being the same place it wouldn't take that much more of a decline.
Okay helpful and.
On remarketing income I know, that's something that's already.
Pretty challenging and model in a normal environment, but are there any kind of high level thoughts you could share on remarketing provoke the rail business in the Rolls Royce JV. This year I mean is the assumption that we go close to zero in the near term or do you think we got some contribution in the quarters ahead.
Yes, so so first of all in the rail business.
It is the first quarter was a good quarter for remarketing activity and there's been very little activity since the cobot crisis began.
We we really have are taking a wait and see attitude as far as what will happen going forward.
We certainly would expect at some point that market will will come back people will continue to trade assets in the secondary market, but there has been a bit of a pause just.
Just like activity in general.
When the the Cobot crisis began people were just adjusting to working from home.
The mechanics of being in a different environment, but the last couple of weeks you starting to see more regular activity occur and I would anticipate ultimately the same kind of thing would happen on the railcar side.
As far as on the.
Rolls Royce side, we would expect to continue to see remarketing activity.
Going forward.
Those are particularly the RPF engines are on long term leases and that that type of activity you would expect to continue.
Okay, and lastly on our yeah.
Is there a way to kind of look back at the last recession and share.
What you saw in terms of the downside in that in that business and is that a decent proxy needed to be thinking about for this downturn as well.
Yeah, so that the hard thing to say is.
How long it'll last so.
If you're comparing this to so 911, Oh I'm sorry to the great recession. You you certainly saw a decrease in air traffic activity and we certainly are seeing that now.
Our air traffic down considerably as far as what it will mean compared to the great recession, It's really just too early to tell.
Yeah, just there was no concern about the business model back during the great recession, and you see all kinds of people talking about has it changed permanently and the aviation industry. So.
You know airlines might be requiring massive spacing passengers out now, but does that economically viable in the long term I don't I don't think so so really depends on how quickly the public regains confidence.
It doesn't think the risking their health, where they climb on an airplane. So if it causes a long term disruption or reduction in air travel that obviously, you need less spare engines, but.
The other view is there's a huge pent up demand for air travel building and once this crisis was over people develop amnesia and come back and honestly. It's just too early to tell how quickly that is going to happen.
Understood it's complicated but I appreciate the time this morning.
Well hear next from Bascome majors.
Yeah.
Hey, Thanks for taking my questions here I.
I was curious because this incident boost engine to assist in guidance if you could.
Maybe frame.
The highest dollar impacts with the widest range of what uncertainty for the business as a whole I don't know if it's.
Good news in aviation or or music lease rates, just or even the remarketing just not coming back to levels you Paul but if you could just trying to think about levels into reality that pad.
I guess wages, but bottom line outcomes around that that would be helpful. Thank you.
Well as always the biggest upside and downside the guidance is that the utilization of your lease fleet.
By far and I would add over the last few years, we've had very high remarketing gains so obviously thats.
It's a factor too so I would say those are the two biggest ups and downs in our guidance.
If we think about where you're better position than others and where that may create some opportunity can you talk about some of the stress you expect to see some of your use any of your business feel a little tougher than gtx and.
Maybe somebody opportunity that could create can you guys like you said earlier to emerge stronger than you entered this.
Yeah, So the biggest actually let Tom.
Expand on this but the biggest differences were not as weighted in the energy sector in North America.
Yeah, Brian hinted on that had is the diversity of our fleet really provides a lot of protection. For example, if you look at our total crude oil exposure, it's only 1500 cars well under 2% of the fleet. If you look at cars in sand.
Service.
Have about 2300 cars and that service in both cases very low exploration profiles over the next couple of years as well.
Under 100 cars and.
Sand and in crude oil I'm, sorry in crude oil under 100 cars and sand under 300.
Our our competitors are gonna be off in much more weighted and car types that really were strong in the energy in the energy boom most recently.
Crude oil in sand and that that is going to cause some pressure on those fleets as Brian mentioned in great recession, we certainly had the opportunity to.
Acquire some cars from people, who decided to exit the industry will be looking for opportunities like that going forward.
Now in Europe, because people will differently.
In Europe, the little different story that.
Well, it's almost a vast majority is tank cars and we do have over half the fleet in the mineral oil market or petroleum market.
But we've been for the oil price drops before in Europe, I mean, certainly not to the extent of a collapse to zero and it has suddenly as recently, but from June 14 to.
Yes every year and a it really for a couple of years price dropped from 113 done to mid Twentys and it was pretty low for a while.
And if you look at Jerry's utilization back that it dropped to point.
It's been an extremely stable business over time.
Theres really a couple of factors that drive that it doesn't carry any crude really it's very little at all and refine products.
And there's been a shortage of cars in Europe I I had said on other calls I don't remember our more positive rail market in Europe and that entering this crisis. So.
There's a shortage of cars with people tend to hang onto them.
Actually the longer this last and it's going to be under pressure, but.
Right now right now Europe's doing pretty well.
Thank you for that.
Later on in both regions, if I could just ask one more before passing it on B you gave some color about kind of deferral type request, you're getting from airlines could you asset over to the kinda deferral requests in the markets.
In terms, you're hearing in rail I think that would be helpful. Thank you.
Sure. So you know, we're receiving lease modification requests across the geography is really but it's very minor to this point. So you look at rail North America. I think we received about 30 35 requests that's enough customer base of over 850.
Generally people are asking for extension of lease payment terms, maybe reduce lease rate.
So far we grant just a handful of those requests and that's a really an insignificant amount of revenue at this point.
The real international like GHX rail Europe.
I think they've received requests from around 20 customers as you would expect the majority of those customers seeking early for mineral customers. Once again, the same kind of request rate reduction temporary red holidays or deferrals, they've also grad less than 10 requests and again the cash revenue affected at minimal.
And in India, they receive less than 10 request that I'm not aware of them granting any yet, but there are likely to.
So so far I would say they affect spend minor, but you've got a caveat all that by saying we are less than two months ended this thing.
And the longer at last more likely rogerson lease modification requests and it could become significant but so far its.
It's relatively minor and manageable.
Thank you goes on.
And from Cowen we'll hear next from Matt O'connor.
Thank you aren't good morning.
A quick follow up on the last question.
Did mention the loss of substrate as a good gauge how things will called.
He lives in the sense of the.
HM directional magnitude that last week.
Has taken so far this quarter.
Yeah.
Matt I just want to be sure I heard you correctly, because you're breaking up little where are you asking about what renewal success has done so far this quarter.
Yes.
Yep.
As I mentioned, we continue to renew it successfully at a pretty high rate.
Those numbers are still coming in but I would say even since the covert crisis began were north of 60%, which if you. If you look historically, it's pretty good number over a long term we county generally average between two thirds in three quarters of the cars going Nonrenewal and importantly, the one.
To that are not be renewed our going back out with customers. We're continuing to maintain that very high utilization and a related question. You Didnt ask is just what has happened to utilization overtime and since this current management team has been in place we.
Which is going back to 2005, we've never had a year, where the utilization dropped by more than 2% dropped by 2% and the great recession.
Year after came back by 1.4%.
And again, we're entering this at 99% utilization so as Brian said, it's very early but if you want to look for some of the encouraging signs cars are getting renewed and we're doing a good job of placing the ones that are not renewed.
Got it it's very helpful. I Hope My my line is better now but.
On the investment opportunities I think you said that you know in a bounce or you guys typically look for a potential investment opportunities.
You know given me a renewed focus on liquidity in and where we are in the economy.
Do you have an internal a limit what size opportunity you would consider in the foreseeable future or are you flexible to.
Pull the trigger on some potentially sizable investment opportunities, yes, there compelling enough.
Yeah. It's a good questions. There we don't have any limit on what we look at if we if the opportunity was right. We'd go out raise the capital we need I think theres plenty of that.
So.
I think it's going to be very rough for competitors.
Well, it's very rough for everybody, but particularly rough if you had a very focused fleet in the energy sector. During this downturn like they like to in North America.
Some of these people are struggling before this even started so.
Would this be the impetus for them to try to get out I don't know I was last time and the great recession will see about this time and.
For the right opportunity, we'll do what we need to raise the capital.
Got it and then you've done.
This home prices does it change at all your.
No longer term strategic investment priorities, I think youre really happy with.
How things looked in India and in Europe, and I think you or you had the planning to ramp up the investment there.
And then you may have also been looking at some on.
Railcar.
Additional non railcar investment while the current price change any of those are DDIC.
Objectives.
No not really I don't think theres any impact on our rail business model you know as I said in my opening its in a sexual industry. Its operating it's probably very important to the recovery.
You know, whether cobot 19 changes any national or global trade patterns or or affect certain types of cars are customers. It's too early to tell but I believe our full service railcar leasing business model is as important as ever during this crisis. So no I think we still invest like we have before where the right opportunity.
So.
Great. Thanks Bye.
Well hear next from Steve O'hara, with Sidoti and company.
Hi, good morning.
Thanks, Good morning.
I'm, just curious are going back to Rps I'm talking about the.
In general the exposure to Pago versus passenger Airlines and then maybe you know if you know is there going to think about no. The number of spares that are needed or a you know global capacity of action or something like that I mean, you can listen to some of the U.S. Airlines, obviously, you know demand hasn't.
Come back very quickly.
And I'm just wondering if there's a way to think about what the need for spares might be if we assume no capacity is you know maybe 10%.
You know off of what it.
It was kind of expected to be this year next year or something like that thank you.
Yep.
So the roles Rolls Royce aircraft spare engines.
Serve the passenger markets. So on your first question.
As far as.
The way spares work, depending on aircraft type.
The recommendation is to have between eight and 15% of the engines on weighing available as spares.
As far as what that's likely to look like in when the total demand for spares will be the same as it was pretty cold that it's just too early to to make that.
That prediction at this point in time again, ultimately, we expect the demand to be there as air traffic recovers, but it's a question of how long it takes.
But again the the amount of spares is.
Between eight and 15% of engines on wing, Yeah, I'd say most engine types were.
Balance I'd say in the markets. So I don't think you need to do any algebra there. If it was a 10% reduction and that is required you could probably assume the same thing the interesting part about this.
At least early in this downturn as you had some airlines reaching out.
For sale leaseback opportunities.
But you have to be careful bought that because if it's just sort of liquidity.
You got to you know you go and just extend credit so.
Maybe opportunities for investment have not gone away I'd, just say, we're going to be more careful about how we think about it.
And just following up on that it's worth noting that since we began the joint venture 1998 at that time airlines leased about 10% of their spares.
Today that number is closer to 50% and to Bryan's point.
That trend would be expected to continue and may even accelerate.
Okay. That's that's helpful. I make sense and then you know when you talked about the energy sector.
And potential deals there I guess I mean do you think the fact that you know the credit markets are operating seem to be operating a pretty well you guys. Your portfolio performance has been pretty good. It sounds like does that lead me to worry that deals may not become ads.
<unk>.
And then you know if you look at 'em, we would you'd be willing to kinda overweight one sector.
Or you know you're looking to continue to kind of maintain a balanced portfolio. Thank you.
Yes, so as far as a.
Railcars coming available we would we would expect that they would what we would always primarily be interested in is maintaining a diverse.
Mix of cars overall on a given transaction.
We certainly have some flexibility to to pursue what becomes available what will often happened though.
And what happened back in the great recession is even if a few car types are what's leading to the pressure on a given portfolio that doesn't necessarily mean that goes with our the car types that will be sold and there's certainly an opportunity to.
In situations like that to pick up attractive targets.
Okay. Thank you very much.
Well her now from Justin Bergner with GE research.
Good morning, Brian Good morning, Tom.
<unk>.
I wanted to start off by asking about the A.S.C. transaction.
The expected time to close is that primarily for regulatory.
At this point are there any outs and how we think about deploying those cash proceeds for what activity or activities.
Yeah sure we actually received regulatory approval just about two weeks ago. So there's there's no obstacle there and we're on schedule for a close in the next couple of weeks as far as they used the proceeds.
Immediately it will be used for debt pay down or avoiding some debt, but obviously the longer longer term it gets redeployed to your other businesses.
Okay. That's helpful.
Moving on to.
Portfolio management in the Rolls Royce joint venture.
A question was asked about the profitability of that a joint venture in 2020, but perhaps could you talk about the cash needs will there be.
Increase needs relative to prior years.
Cash into that business.
Or to the extent the cash flows are negative is that something that the debt markets carriage.
Yes, so so the key cash need for that business has been it's been a high growth business. The past couple of years.
The JV has invested nearly a building around a billion dollars a year each of the past two years the cash needs to be on that are on an operating basis are relatively more modest first of all on the capex side. Unlike our rail business that has committed supply agreements.
The our joint venture does not work that way those are spot transactions.
It's a relatively low number of employees the leases or net leases. So the operating cash demands are relatively modest what will what will flex is a capex opportunities I'm coming into this year, we expected that there would this would be another year, where they'd be around $2 billion of cap.
Thanks opportunities.
It's safe to say that those opportunities will be less.
But exactly how much is it's too early to tell.
Okay. Thank you for that clarity and then maybe lastly, I'd just as it relates to the quarter just complete it seemed like there was a meaningful.
George in a real international five point.
Hi.
[noise], sorry, I'm, just trying to find the number here.
Yes, it's about 5 million bought the $5 million adjusted I know you're talking about so.
Our international segment recognized about a 5 million dollar loss caused by the weakening of the Polish lobby.
Okay, that's pretty straight forward.
That would be non cash or cash.
That's not how noncash.
Okay.
Thank you.
I'm Sage asset management will hear next from Barry Haimes.
Thanks, very much I appreciate all the car on the call had one follow up on the energy market talk about your exposure being relatively low but could you talk a little bit more in terms of the within the tank car market North America in terms of the what percent of that.
Yes, its energy broadly defined were beyond crude returned about refine products ethanol etcetera, and then those car types.
Within tank cars, you know how many of them are just relegated in effect to carrying energy products versus can some of those go over to carry chemicals or other non energy types of looked good. Thanks, so much.
Sure. So a lot to that question sort of.
Parse it out a little bit so first of all for cars in ethanol service. We have about 2800 cars in ethanol service, so relatively modest amount less than 3% of the fleet.
And again I've been prep, providing some statistics on explorations about 700 of those expire before the end of 2021, so pretty manageable exposure there.
Our petroleum products.
Our mostly refined petroleum products, but between crude and refined petroleum products, it's a little over 20% of our portfolio.
The those refined products continue to see pretty steady demand and as far as what the cars can carry it varies by car type, but the vast majority of cars carrying refined petroleum products can carry a wide variety of products.
And in many cases. In addition, we've been able to carry the car type in addition to being able to carry petroleum can carry.
Variety of chemical products as well so there's a lot of the ability and flexibility in that and non crude part of the portfolio to chase demand in a variety of areas.
Right and then again you've been greatly given your own exposure, but if you had to take a shot at.
What percent of in Latin America tanker market.
Is energy broadly defined.
That being in that Phil.
You know I I don't want to and I've a number in front of me. So I I don't want to get a wrong, but what I would say as the majority of growth in tank car a in in the past few years has been energy market related for the industry not for GHX.
Got it thanks, so much appreciate though.
Well here now from Mario Gabelli with Gabelli and company.
I've just been gravy on lots on May repeat what was discussed.
Such as life out.
In the past, we've talked about raising pools of capital from third parties. For example is negative carry in the Japanese market.
And they like infrastructure and then you.
Economically by.
Someone's fleet and manage it but no capital in New York Pardon me.
Stays in this cycle does that become more interesting.
I know you already having discussions along those lines.
Great question and the answer is yes that I think theres a considerable amount of capital that were in contact with that would that is searching for opportunities in this down market. So yeah. I mean, we've talked about in the past and I would say that's a to the extent a sizable opportunity comes up that's a real possibility mark.
Thank you I'm going to carry on.
If I could say, they keep calm and do it.
And at this time I would like to turn things back to management for any closing remarks.
I'd like to thank everyone for their participation on the call today. Please reach out to me with any follow up question. Thank you.
[noise] that does conclude today's conference again, thank you all for joining us today.
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