Q2 2020 Trinity Industries Inc Earnings Call

Before we get started let me remind you that today's conference call contains forward looking statements as defined by the private Securities Litigation Reform Act of 1995 and include statements is to estimates exceptions intentions and predictions of future financial performance.

Statements that are not historical facts of our four by fluffy.

Participants are directed to Trinity's form 10-K, and other S. E C filings for description of the certain of business issues and risks a change at any of which could cause actual results are outcomes to defer materially from those expressed in the word looking statements I would now I'd like to turn it over to Jessica Greiner Vice President of Investor Relations. Please go ahead.

Thank you very good morning, everyone I'm, Jessica Greiner, Vice President I've, Investor really who.

For Friday, we appreciate you joining us for the company and second order of 2020 banana.

Conference call.

Are prepared remarkable include comment from that's really Chief Executive Officer, and President Gene Savage and Eric Marquette, The company's financial Officer.

We will hold a Q&A session following prepared remarks from our leaders.

During the call today, we will refer to if you fly highlighting keep went to discuss.

[noise] supplemental materials ours basketball or I, our website at www Dot friends Dot net.

Do you fly it can be found him under the event and presentations portion of the site along with the second order earn his call evenly.

It is now my pleasure to turn the call over to drink.

Well, thank you Jessica and good morning, everyone.

The pandemic and economic events of the second quarter created a very challenging operating environment for Trinity.

Today I'd like to share with you turn these responses to these challenges and no longer term plans to become a return focus company.

And these difficult time, Frisbees leadership and employees remain focused on taking the right actions now the best position the company for future success.

Her first priority remains the health and safety of our people, including the protocols, we implemented tell prevent the spread of Kobe 19, and our production facilities and offices.

And the linemen with C. D C N W. H O guidance.

I Wanna, Thank the People's Trinity for their hard work and continued focus on safety.

[noise] together, we are ensuring pretty high quality railcars continue to deliver essential goods across North America and the world.

We experienced week railcar demand and the second quarter due to the economic ramifications of the pandemic and the major energy price and demand decline earlier in the year.

The major decline and crude oil prices led to a number of bankruptcies for fracs hand providers and the second quarter.

As a result Trinity reduce the carrying value of our small cube covered hopper fleet and or at least portfolio.

Terrible discuss more details about rebuilding actions we've taken in his prepared remarks.

What really carloadings have improved somewhat in recent weeks, increasing cobin 19 cases in the U S potentially threaten the research and economic and rail market activity.

We are closely monitoring our supply chain and engaging with our customers to keep our production plans and it'll be sweet operations.

Lined with a demand for railcars and related services.

Industry Metro to report that approximately 32% of the North American way with grilled <unk> Li is underutilize.

We expect the pricing environment, perrell equipment, new and existing to remain pressured as long as this number is elevated.

And this type of environment, our commercial focus is to maintain the utilization of our Lisa Lee and then meet demand for newly manufacturer grilled cars.

Oh preet for our customers.

Recently railcar inquiries from strategic buyers have increased relative to last quarter.

And I expect a number of these opportunities will convert to orders or lease contract soon.

I am proud of recent transactions in which we leverage the full breath of our platform.

And one case, we provided a strategic customer existing railcars within our lease portfolio.

Modification services.

In new rail equipment and one transaction.

This is carefully crafted solution created the differentiated experience the met the customers business needs and we'll create a longterm value for shareholders.

The best near term opportunity for demand improvement for new and existing equipment, we believe will be in the agricultural market.

Not only has agriculture task traffic experienced relatively fewer headwinds during the pandemic well a significant portion of the existing covered Hopper fleet for Green is reaching the end of the cheese for life.

We also see potential in large replacement needs in the box car and aggravates open hopper and gondola asleep in the coming years.

Managing through a cyclical downturn is very challenging.

Or leasing operations delivered a solid second quarter given the environment.

Declines in revenue from lease right and utilization pressure, we're all set by effective cost management among other items.

Our lease operations team has continued to experience high levels of customer satisfaction as we've invested in the state of the our tools and technology.

These tools aren't important element of our focus on customer experience.

As well as driving operating deficiencies, while maintaining the safe railcar fleet.

And our products group I also come in to a plan leadership and employees for their continued focused on safely meeting production requirement.

During the second quarter Trinity delivered just under 3000 railcars and reported it 2% margin in the rail product segment.

Volume's, so quicker than our ability to reduce costs as we manage the impacts of the coronavirus.

The impact of having higher risk and potentially exposed employees shelter in place did have an impact on our ability to align some of the cost of the volume.

[noise] pricing was more aggressive also.

Since the beginning of the year, we reduced our manufacturing workforce by 35%, which has resulted in almost 40 million an overhead cost savings.

Additional efforts are underway to align our cost structure with production levels for the rest of 2020.

While we simultaneously work to move lower value added fabrication to the supply bass.

This will allow us to reduce our cyclical risk by reducing me internal labor required throw a cycle.

For the remainder of my remarks, I want to focus on additional actions pretty is taking to improve their performance of our platform going forward.

Our focus on cash flow and they encouraged environment.

Our optimization progress to accelerate the company's financial performance.

And are longer term strategic planning to continue creating shareholder value.

Trinity's your knee Crill platform strong balance sheet and cash flow generation enable us to manage through the coke with 90 pandemic from a position of strange.

The scale of our leaving business in the long term nature is Elise contract protect the company for a short term market disruptions and are critical cause the relatives to ability.

Right now we are highly focused on managing the effects of the corona virus to minimize a disruption of our business and maximize our cash flow.

Our financial position is sustained my committed shoot your lease payments 2 billion.

Our products backlog of one 3 billion.

Or solid liquidity and approximately one 6 billion of unencumbered rail asked us.

I'd also like the highlight our efforts to accelerate the company's longer term financial performance through platform optimization, which has been a key focus for management and the board and the last year.

We are addressing optimization in all areas of our organization, including our operations and our balance sheet.

Trinity's business leaders have made difficult people related decision in recent months.

Organizationally, we have restructure the company from Trinity former holding company model to a more effective and efficient operating model aligned around our customers and market.

When combined with our actions from the first quarter. The results of these efforts where you'll the total annualized cost savings Ah 30 million and S. C N a N cost a sales.

Which of cheese, a 25 to 30 million target, we said at the beginning of 2020.

Slide for the supplemental materials provide a few details of our cost activity.

As we work through the process clothes for various production in service functions with the implementation of our new organizational model <unk>.

We are establishing additional structural savings goal that won't be part of our near term focus.

The management teams are reviewing aspect of our business operations, including our supply chain cause.

Idaho facility carrying costs and various service fees.

Looking specifically at our balance sheet optimization effort. We didn't later plans to access the capital markets and the second quarter to allow the pandemic related volatility around interest rates spreads to slow.

Subsequent to quarter and we are pleased to complete the upsizing of TRL 2017, with an additional 225 million a problem theory noticed notes, which bear interest at liver plus one 5%.

We also maintained are dividend during the second quarter, highlighting our commitment to shareholder returns as part of our capital allocation strategy and our confidence and the strong cash flow generation capability of our platform.

In addition to the shorter term initiatives took tolerate our financial performance.

We're actively engaged in our longer term strategic planning process.

We are evaluating both further platform optimization initiatives as well as growth opportunities.

These efforts are aimed at.

Improving the performance of our lease sweet.

Reducing the cyclicality of our platform of businesses.

Continuing our operational improvements.

And evaluating growth into the rail transportation services space.

We believe trinity's position as a provider.

<unk>.

And the owner of railcar asset ideally position nose to engage with our customers on the innovative products services and solutions that increase the attractiveness of moving freight by rail.

Our analysis, it's ongoing and we look forward to sharing the results and decisions from this work at Trinity's Investor day in the near future.

We aim to be the premier provider, a rail products and services and are motivated to drive freight onto the North American rail network.

We see <unk> purpose is moving goods and commodities by rail for the good a ball and enter all part of our commitment to sustainability.

We have a strong financial position to whether the current economic storm and be opportunistic when attractive value propositions arrive.

Trinity's rail platform is built to deliver.

To deliver essential goods to society.

Deliver innovative solutions and high quality products to our customers.

And deliver high quality earnings and returns to shareholders through the railcar cycle.

Oh now I'll turn the call over to error to discuss specific financial details for the corner.

Thank you James and good morning, everyone.

<unk> performance in a second quarter reflects the steps we are taking to create liquidity in the mirror, while improving are returned for discipline capital allocation.

We're not providing specific financial gardens, given Kurt uncertainty.

We believe the company will continue to generate significant cash flow due to the resiliency of our platform businesses.

<unk> parents financial synergies.

Referring to page five those supplemental material.

We're focused on maximizing the cash flow of the businesses and maintaining they're strong level of liquidity.

Oh, so the end of the second quarter, the company had liquidity merely $710 million.

Our liquidity position is further enhanced by the recent $225 million financing noted in our press release.

We continue to expect over $300 million of Caspary funds of prior your tax losses by your M, resulting from tax provisions in Arizona.

Our June 30th balance sheet also reflects our expectation for an additional $150 million of cash tax refund soobee receive in 2021 associated with our 2020 tax here.

Demonstrating the value enhancing tax attribute of our platform.

Furthermore, training has unencumbered assets were approximately one 6 billion.

It is dry powder.

Would you be available for monetization through additional leverage let's decorate market transactions.

We believe our balance sheet and financial strength enables Bernie to navigate the cove at 19 pandemic and capitalize on opportunities that may have or merge for value creation.

We work diligently to maintain a diversified portfolio railcars.

Manage the credit profile of our customers and stagger our portfolio explorations to maximize risk adjusted returns.

On our last call we referenced challenges faced by many of our Frack Sam customers as a result of the one two punch from the structural changes within the Frack, Sam supply chain and the drastic fall of energy prices.

<unk> increased pressure related to cope with 19 pandemic.

We have been closely monitoring the structural changes in a fraction market and working aggressively with our customers is appropriate.

To restructure lease arrangements to maintain assessed associated cash flows and keep these assets utilized.

Ultimately and the second quarter for <unk>, San customers filed for bankruptcy, while others remain financially vulnerable.

Changing the expected recoverability of cash flows from a lease contracts for this railcar type.

As a result these filings necessitated the company estimate the fair value of these railcars.

Alright analysis concluded with a $369 million pretax non-cash charge against the small cube favorite Hopper fleet within <unk> railcar portfolio.

Which reflects our estimates of the fair value of your assets based on the cash flows that I've been stress, but continued pressure on a leash contracts.

And the future salvage value of the assets.

This impairments charge does not impact.

It does not have an impact on our liquidity position.

Nor doesn't affect our compliance with a debt covenants within our rail securitisations.

A portion of impairment charge effected railcars and are partially owned portfolios and thus there's been a portion to the noncontrolling interest on our balance sheet.

Following the impairment charge are small cube covered copper fleet represents 3% of the netbook value of our own and partially owned portfolio.

During the second quarter, we sold a portfolio railcars to one of our Avi partners.

The total proceeds with a portfolio where $74 million with the game of 6%.

These high quality lower yielding assets, we're good risk adjusted fit for our partners portfolio.

This allowed furniture to deploy capital to hire you leave investments, while we continue to earn fee income by managing assets.

This sale highlights our ability to leverage our platform.

Great mutually beneficial transactions for ourselves and our partners.

As well as a renewed focus on a disciplined capital allocation framework to drive long term value creation.

As we evaluate the future growth or at least fleet were highly focused on the returns with the portfolio as part of our plan to drive performance of the company to a mid teens pretax or are we.

We believe we are taking the necessary reactions to position the company for accelerated performance has the market recovers with frightened focus on the levers within our control.

Turning to page six of the supplemental materials.

In lieu of guidance last quarter, we presented base space and stress case scenarios is guideposts that manager would use an a terminal our actions and capital allocation considerations.

While the market uncertainty continues to cloud our ability to predict the timing of a rail recovery our actions and our performance from the second quarter have approved improved upon some of the assumptions and the scenarios we provided.

The 2020 production plan is especially sold was approximately 41% of our backlog valued delivered by Europe.

Given the North American railcar loading trends in our success and renewing railcars in the quarter.

Expect our lease utilization or main above 90% and a downside case.

Prior stress assumption, we're limited railcar sales would also improved following the small portfolio style and the second quarter.

Anymore, we have additional on a site on potential smaller railcar portfolio sales and the balance of the year.

Our cost initiatives, we will also yields savings achieving or target set for the year with more actions to come.

Of the $70 million, an annualized savings actions year to date that gene mentioned.

$30 million is structural.

The result in decreases and SG&A and over and other overhead related items in the future.

Regarding capital allocation.

Our net investment and lease sleep, well now now likely fall between 350 and $450 million as a result of <unk> of secondary market activity.

We are also deferred some manufacturing capex projects. However, we do still plan to complete the expansion project for a new maintenance facility in Iowa.

Our expectations for the year now include approximately 92 $100 million of manufacturing Capex for the year.

We did not repurchased any shares during the quarter in order to preserve our liquidity and bolster our financial position with this tool is available as we continue to optimize our balance sheet.

And May the company announced R 225th consecutive dividend.

Maintaining the dividend at 19 per sure for an annualized yield approximately three 5% is the closed the market yesterday.

Truly is in the middle of a very exciting transpiration.

While combating the economic ramifications of the pandemic, we're putting the building blocks in place for the Trinity of Tomorrow.

We expect to share specific insights into our operational strategy and long term performance expectations and an investor day in the week following our third quarter conference call.

We will ask that you stay tuned for further details as we look forward to sharing these plans with you very soon.

And closing.

Management is a line and our expectation that the financial and commercial synergies of the rail platform enable both meaningful investment in the business and substantial return of capital to shareholders.

We are demonstrating these results even in a sharp economic downturn.

We believe our platform is the ability to generate positive cash flow, even though down cycles.

A bank submitted to invest it in our railcar least sleep through to cycle with a focus on returns for the portfolio.

As we may have mustard kober 19 environment, we are committed to a prudent capital allocation strategy and strong liquidity to maintain our position of strength.

Through at all we believe Trinity rails platform is built to deliver.

Operator, you can know take take us in the Q&A.

At this time, if you'd like to ask a question. Please press star and one on your Touchtone phone.

You may withdraw yourself from the question Q by pressing the pound key again that is star and one more pause a brief moment to a lot of questions to Q.

And will go first to Steve Barger with Keybank capital.

Hey, good morning, everybody.

Good morning.

So first I just want a big picture question one of your leasing competitors talked about how just years a strong deliveries of resulted in overbilled, that's going to take a while to unwind by building below replacement. So first can you tell us how you think about that.

Both in the context of your position as a leading OEM and then from your perspective as a lessor.

This is Jean I'll go ahead and starts to you. Thanks for the question.

When you look at it it's really going to vary by the different market.

That you're looking at and different car types. They go into those so on some of the car topics car types, who are already seen pick up and momentum there agriculture is one of those flatcars.

And also vehicular flat.

And box cars are already seen the upswing and you don't have as much of the newer speed and there are over supplied Navy.

Absorb.

You look at some of the harder hit areas.

Say energy right now.

They will be absorbed it may be a little bit slower to them absorption to happen, but over time, you'll see some of those cars start to AGL and leave your replacement or you will see them go out because of H M 251, or other requirements to upgrade that car type.

Alright.

And so I guess to that point about the various car types, you mentioned and you're prepared remarks that you have inquiries that you expect to convert to orders at least contracts can you talk about the size of any of that in terms of units.

So I can't talk about the size that I will tell you they are stances well above what we had in the last quarter.

Okay.

So.

And you said that slots in the back half of basically sold out is the <unk> run right a reasonable way to think about production for the back have just for our models.

So coming out of Q2, we are holding some people for the opportunities other in front of us if those do close.

Shortly we will have to start production in the third and fourth quarters.

To be able to meet the delivery timeframe for those those.

Orders that are out there.

So I would say that if those don't come to fruition, we will have additional downsizing and the third and fourth quarter.

Steve This is Eric I just added my comments I mentioned that 41% of our backlog value, we expect to deliver by the end of the year. So that'll give you a little more inside and run rates.

Perfect and just one more and I'll get back in line just similar question on revenue per cars. The mix that you expect in the back half <unk>.

Similar to what you saw in <unk> in terms of revenue per car.

Yeah, our mix is going to continue to change as it slows down so I'm not sure it'll be at that exact one for one.

Just as the mix.

It'll become a little less tanker.

Waited as we move on so that'll have a bit of impact on AOSP.

Perfect. Thanks.

<unk>.

Thank you go next to Matt Alcott with Cohen.

Good morning, Thank you.

Can you guys talk about your.

Manufacturing margin of luck in both the base case scenario.

Scenario, just trying to gauge how much more operating manufacturing margin pressure, we could see.

Why we deal with this environment.

Sure Matt This is Jane I'll take that one so as we look at the year as I just mentioned with a deals that we're currently negotiating we are holding onto some headcounts to make sure that we can meet that production if necessary.

Do not happen when we have additional.

Optimization rationalization that we have to do.

We also have some work to do where will be taking out some of our higher cost footprints.

We're going to be reducing our manufacturing support functions and administrative overhead costs.

As you work through that you're going to have a few bumps and bruises along the way and that transformation to get you to the point, where you need to be long term. So I would expect that as we finalize those you may have some pressure, but if we close those deals you may have some tailwind coming in.

Okay, that's how I lost and.

Jean you mentioned.

Potentially.

Looking at some high cost manufacturing footprint to rationalize or.

Ginsberg Gatewood all.

I think historically and the last several years you guys have manufacturer most of your cars in Mexico.

First of all how has the split between Mexico in the U S.

This year during the pandemic.

And would the facilities that could be.

Eliminated what maybe in Mexico or in the U S.

So when you look at it we have manufacturing from new cars in both the U S. Sam Mexico.

And we see ourselves continuing to have both of those.

One area that we have recently closed is our wheel shops that was here in the U S.

And outsource that product.

We're also looking at outsourcing some additional fabrications that are lower value for us that will give us one the ability not to have to have as many people.

To produce car and to to look for some opportunities to reduces overall cost so.

That's the direction that we're heading.

Okay, and just one more follow up on the uptake in an order is a question.

I think I think you mentioned and updated inquiry.

As oblivious.

Can you give us an idea on.

How much of that is.

Financial buyers looking for cars road.

Attached to deploy capital to how much of it is.

Shippers with underlying.

Right needs looking to lease cars or potentially shippers looking to buy cars that are.

<unk>.

So I'm going to start and then let Eric jumping on this one.

We really seen the opportunistic buyers come out.

Downcycle right now pricing is getting aggressive and those who have some aging fleets I want to replace them or have some additional demand are coming out and looking for those opportunities. So that's where we're seen it happen and Eric if you want to add to that sure.

When we're talking about.

Converted inquiries orders, we're not talking about.

Folios railcar leases, we're talking about users of the railcar equipment that have demand.

As we mentioned earlier replacement is.

Still a big driver and I think that'll replacement demand will be a larger driver rather than growth demand over the next several quarters and that's where we're seeing opportunities as users of rail equivalent to have some discrete.

Replacement opportunities that are looking to take advantage of the current market.

Oh.

That makes sense. So it's just a quick follow up on the order or question I think you guys got 40% or just over 40% of the orders.

It'd be industry orders this quarter.

Q.

Slightly above meaningfully above what you've done and the last several quarter is worth seeing like your.

Less aggressive with orders.

Is there any.

Reading too much into this is there any change a strategy are you willing to take more.

60 orders here 50 orders there during the downturn or is it just.

Normally.

Yeah, Matt So those numbers just came out as we were preparing to kick off the call. So I haven't had a chance to look at a lot of them. When you looked at when you're talking about quarter orders for the industry of 900.

<unk>.

Probably two small number to really get a lot of friends from.

I would say that the orders that we took in the quarter. We're a little more leasing waited. Then then we had been running and they're more specialty railcar related.

The nice thing about especially railcars they tend to have a little higher margins and some of the other railcars. There were were real happy with the level of orders that we took.

The fact that it was 44% of the market is more of an outcome I wouldn't say it was there anything deliberate on our part in terms of.

That.

Great. Thank you very much.

So next to Gordon Johnson with G O J research.

Hey, guys the streams radetzky and for Gordon sticking my questions.

Just had a question on your capital allocation.

Now your head you guys didn't have any stock buybacks last quarter.

I'm in a while.

No I know that you have a lot of liquidity on hand, but your relatives price to book value.

Is now currently above.

Above your peers C groups.

So.

Effectively one of your charges reached another target you guys had more internally of course is your leverage targets I believe it was between 16, 65% load to value.

So.

Quarter at 57, one it should be a bit higher with the 225 million facilities just closed correct.

So that said you know even closer to 60% to 65% target. So question is.

Should we expect the lack of <unk> stopped by back to be the new normal.

Or are you raising your leverage targets.

So I'm going to say that and then last quarter. The reason we weren't in the market actively buying was we had stated that we wanted to ensure that are liquidity in cash we're good.

Still trying to see what was playing out with cover 19, and what that meant for the market and for the future.

What was going to happen. So that was the pause Eric mentioned in his script that we still have $90 million available.

To us for stock sure repurchases and that will go into our future thinking for the capital allocation.

Yeah, James I'll, just add that refinancing that we just did doesn't necessarily isn't that sir just additive to leverage some of that will sort of those proceeds will be used to pay down a revolver in our wearhouse was Jean we look at from our capital allocation, we're going to still generate a significant amount of cash flow.

Sure repurchases or one of the things that will look at in terms of what to do with that cash that we're going to generate.

Generic. Thank you that is very helpful and I just have a real quick follow up.

Yeah, I thought I show that you guys saw $70 million mentioned in the press release that you have any cost savings currently underway just quickly how much of that is cyclical or variable versus fixed and how is that allocated amongst segments. Thank you.

So <unk> one thing is chi look at slide for it does talk about executed year to date, we got $58 million total identified $70 million.

Can you look at cyclical, it's showing 38 million executed and $40 million identified for one thing that I want to draw your attention to is the fact that we are looking at.

Outsourcing some of the lower value fabrication items, which will also change some of that cyclical reduction to a more permanent status. So when you were asking for the percentages I'm going to try that the Eric I I've not looked at it that way and I don't know that we have that I think that's I think that's enough Yeah me too.

Okay. Thank you very much appreciate it.

And long with Stevens.

Please go ahead.

Thanks, and good morning.

So I wanted to ask about the secondary railcar market and what you're seeing out there how does that market progressed.

<unk> and I guess quarter to date as well and maybe you could speak about both the level of activity and what you're seeing in terms of competition on any deals that are out there today.

Well I'll start and let Eric jump in.

So just in right now the secondary market is still open it's available.

Not as deep as it was last year, but the buyers are out there looking for some good deals and we're also out there and we can be out there is a buyer order seller, depending on what we see available and how good deals are Eric I don't know Teaneck.

Discovery, just it's not as they are still deals if there's a few participants that would've been participating in the last couple of years, maybe on the sideline.

But for the most part the market is still there and you're able to get deals deals transacted, either buying or selling.

Okay, Great and then on the lease Ray trends I was wondering if you could come in on how you've seen lease rates progress here over the last few months and I know, it's going to vary significantly by by car tie, but but just from a high level would love to understand how much.

Ah pullback we've seen as you think about the market going forward with rail volumes getting a little bit better sequentially. Do you think there's an opportunity for the lease right environment to bottom at some point later this year or do you think it's going to take longer than that.

Okay, just and I'll start with that one if you look at least right. We have seen the market get more aggressive there.

If you're comparing us with the LTI than others talk about we not nearly seen the reduction in rates that they have but we are still seeing that headwind come in.

When we look at what's going on with new cars going into our sweet we typically have a higher lease right. There. So even though we're seeing some headwinds it's not been significant for as overall as far as when we would see them going back up.

We would helped her to be very soon but with cover 19, we're really not sure what to expect on that but you hit the right metric is carloadings continued to go up we would expect to see the lease right starting to rise.

Okay, Great and last question just quickly.

Jean It sounds like we're going to hear more about the strategic plan you know after the third quarter, but I didn't want to ask just from a high level. If you could speak to your commitment to continue operating and integrated platform is that something that still has a support management.

And the board or is there any openness to evaluating strategic alternatives on that front.

Okay sure well, just and I'll talk to that so the board and management are aligned on the platform that we are operating in we believe we can bring the best value.

To the company into our shareholders with a rail platform.

Some of the benefits of that as the cost advantage railcar equipment sourcing tax advantage leash fleet investments offsetting.

Manufacturing taxable income and then the lower relative admin costs.

And then commercially it gives us dressed engagements for the customers over multiple touch points.

We get actionable rail intelligence through this and valuable sales channels.

So with all of that said.

Move forward is looking at the platform and total, but as always as a board and as a company.

When new things arrive, who will take a look and see if we still have the right.

Perspective, or if we need to reevaluate.

Okay, Great I appreciate the time.

Just think.

Yeah I'll go next to Allison Pollock with Wells Fargo.

Hi, guys good morning.

I wanted to go first to the round products profitability just go back to that question to make sure I understand it.

Two pieces to it.

It does sound like you're hanging onto some incremental capacity based on the order activity you're seeing in the market I guess with that.

Could we assume maybe some level of increased pressure into Q3, depending on timing of those orders and I guess how quick.

Conversion might be from orders to production and the second part of that profitability question would be around Cove. It I think you mentioned some cause that sound like they could be more one quarter in nature hopefully.

Assuming we're getting out of that was that impactful or I was sitting material to the quarter in terms of the headwind.

I'll start with the code and then move on Allison Silver for the Coven 19. My estimates are between four to 6 million impact in operations.

For the quarter and that was related to not only additional cleaning that we had to do it was also related to employees that were high risk sheltering at home or those that were exposed and had to shelter at home until we were sure they were not affected by this.

Do I think that will be as high in the future if the cover 19.

Positivity rate goes down no, but it's really going to depend on what happens with Covid 19, we do have a lot of our management's time in the facility spent ensuring people are following the rules that they're working safely and that takes a toll overtime. So.

We are hopeful that that will go down, but can't say absolutely that it will.

For the third and fourth quarter as far as the production.

We will know we think shortly if those orders will close.

And we would be able to convert and start producing those very quickly and the third quarter.

So we are holding for a short amount of time say clothes, who will start that operation like I said and have some <unk>.

Tailwind for us if they don't close we'll take the appropriate actions and make the reaction zone needed.

Great and then I just wanted to go back to the commentary around the order is trying to reconcile orders with storage that's out there.

It sounds like there's clearly some verticals that are interesting, which makes sense and then you certainly have a level replacement needs over the year.

If we look at that storage number and I know, it's Melissa question in terms of what's normalized storage here, but it sounds like most of these are either storage in different meaning in just a vertical or is just equipment that wasn't going to come back anyway. You know any color that you can provide around that.

So when you look at the 32% storage I can't give you a lot of details, but there are two major.

Markets.

Neither driving.

Storage.

And Eric if you want to add more color so Allison.

Certainly the small cube covered hopper fleet related to the Frack San Felipe.

Is adding a lot of cars and storage I'd say, that's 55 to 60000 cars are that note of that total number and then.

You got.

Open covered offers caulkers when they're still some state cars and that number.

As well when you look at the opportunities are out there.

One.

The number you called the digital it is elusive.

Yeah, you can still get demand and those categories because the market <unk>.

Completely efficient.

But as I mentioned replacement demand will still drive that.

Is going to drive a lot of order activity in the next few quarters and then there are still pockets of growth in the petrochemical space, we're still seem growth there.

That you're gonna have so there's not one railcar market there's markets are railcars and you're going to continue to see pockets of demand, even and when the macro numbers look like there shouldn't be.

Great. Thanks, so much for the color Yep.

Well go next to Bascom majors with Susquehanna.

Please go ahead.

Hello out of NASA.

Hey, Eric how can you hear me yes.

Okay. Thank you, Sir but that was.

It's unusual to see an asset write down.

We're operating lessor, particularly mid year, but.

What's happened in the fraction industry with the speed of bankruptcy filings in distress and all that is also quite unusual years. So.

I was hoping you could give us a little color.

After the right down of the covered Hopper Felipe how much work value remains on the books for Trinity.

And whether this assessment that you guys did on impaired or not until the was specific to that sweet or if you also considered other pockets were there are some sizes distress just not is necessarily as a cute here. Thank you sure sure bathroom.

The impairment charged that we took his complicated about a refer you to page five and 14 of our press release to see how some of the mechanics.

Go through.

How they flow through our financials.

In terms of other car types were always monitoring our fleet.

For those.

For those situations.

So it's not just an annual thing that we're doing we look at that all the time in terms of monitoring our fleets.

You mentioned.

Some of the unusual changes in extraordinary changes that we had this quarter.

Really made us the trigger that impairment.

Around the bankruptcies.

And around our outlook that those cars.

We're going to remain overbuilt that industry has.

125000, small cube covered hoppers.

As I mentioned earlier, I think 55 to 60.

<unk>.

With our outlook for domestic drilling and specifically, Wisconsin White, Sam being used in the Permian, We don't think that's going to.

Come back to the degree that it was.

And so we really looked at it in the change of the committed cash flows because of the bankruptcies trigger that impairment.

And so.

Other car types I believe that the credit profile of the rest of our portfolio was significantly better than the credit profile of our of our Sam customers and therefore, those committed cash flows have a have a much higher likelihood to be converted the cash.

And that really.

The.

Looking at the apparent we don't see it at this time anywhere else.

Thank you for that.

Can you add.

How much book value Hello, Yes, yes, I'm, sorry, and I think I mentioned.

About three.

After the right down.

The book value of our small cube covered Hopper fleet, which is not just our sand. Please it's the whole it's our small cucumber hopper, which would cover other commodities is about 3% of the that book value of our fleet at the end of the court.

I believe we address this at least directionally last quarter, but could you remind everyone.

He was trying to really assess the book value and what to pay for that how much books are you might be left in some of the larger tank cars exposed to crude oil and or the cole market and that's all for me. Thank you.

So I would refer you to our investor that that has those breakouts. Unfortunately, when you get into the crude oil that tank cargos.

Let's go have crude oil tankers, we have tankers that carry crude along with other commodities.

Markets are able to move for example.

We just had a large deal where we converted crude oil to other refined products.

That that we just closed at the end of the quarter there was all for existing railcars.

But I would refer you to our investor deck, we will be updating that in the next in the days to come as well, which will have the updated.

And that book value percentages, and the breakout and all the different categories that they have.

Thank you for that I'll refer back North said that was the last one but Eric I thought of one more like you were giving me that again, Sir no problem.

Yeah, you said in the slide deck, and I know there'll be more disclosure on this and they can Q in itself, but you said that you have one 6 billion of unencumbered railcars.

It looks like that went out for 100, and 850 million quarter over quarter.

But that has been with those $370 million right down and you guys adding.

$225 million and that after quarter inch T V.

How did the Unpledged collateral go up if you just help us unscramble that and and whether or not that's that's pro forma or not for the day you added after quarter and thank you. It does not include the that we added after afterwards and we can get into all the mechanics on a follow up but effectively the changes would be the ads to our fleet.

There were no financings.

That would have affected that and the quarter and the.

And then the Smalls cars that we sold in the quarter.

So those are the ins and outs and we'll be happy to walk you through it.

Thank you.

Thank you.

So next to Bury homes with CH asset management.

Please go ahead.

Hi, Thanks for taking my question.

I had a question related to the $350 million to $400 million.

Investment in the least sweet.

Any feel for how much of that.

In effect as replacements, so keeping the fleet sliced constant but.

Certain cars that you need to scrap versus how much of it is actually increase in the fleet in terms of new units. Thanks.

Sure. Thank you bird so what's the average age of our fleet of nine years, we don't have a lot of attrition and our fleet of 100.

30000 railcars, so really when you when you think about our adds to our fleet that'd be additive.

To our fleet there's not.

Much in the way a replacement.

And when we talk about those.

Numbers.

That's not have any railcars.

Or any assets, we sell for the year and they're also all on firm submitted.

Leases with customers. So those there there's no specular a as in that and those numbers as well.

That makes sense.

But I just want to file a quick follow up sure nine years as the average age, but if you look at.

What's the oldest tranche how old are the the relatively oldest cars on the list sleep.

So.

With without getting into handfuls of cars are really most of our lease fleet.

Has been originated.

Since 1979, and when we started and so our oldest cars are generally there's there's still some of those that are in there. We don't have much in a way of.

No I think it's about a half percent that's old over over 35 years of age. So it's a very small number it's definitely skewed to the to the lower end of the range.

Alright. Thanks, so much appreciate the help.

Thank you.

And there are no further questions at this time I'll turn it back to Jessica for any closing remarks.

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