General Electric Company
Q2 2020 Earnings Call Transcript

Published: 29 Jul 2020

[Operator:]

Good day ladies and gentlemen and welcome to the General Electric Second Quarter 2020 Earnings Conference Call. My name is Brandon and I'll be your conference coordinator today. As a reminder this conference is being recorded. I would now like to turn the program over to your host for today's conference; Steve Winoker, Vice President of Investor Communications. Please proceed.

[Steve Winoker:]

Thanks Brandon. Good morning and welcome to GE's Second Quarter 2020 Earnings Call. I'm joined by our; Chairman and CEO Larry Culp; and CFO Carolina Dybeck Happe. Before we start I'd like to remind you that the press release and presentation are available on our website. Note that some of the statements we're making are forward-looking and are based on our best view of the world and our businesses as we see them today. As described in our SEC filings and on our website those elements can change as the world changes. With that I'll hand the call over to Larry.

[Larry Culp:]

Steve thanks. Good morning everyone. We hope you and your families are healthy and safe. We like many others had a challenging second quarter that the GE team met head-on executing well operationally, while we took actions to further derisk our company. I want to thank all of my GE colleagues who are working tirelessly to serve our customers our communities and our company. Now as we expected our financial performance declined across the board in the quarter. The sharp -- the deceleration caused by COVID-19 that we experienced in March continued through May. But we've started to see some early signs of improvement in June and July. Nonetheless, we remain cautious going into the second half given the uncertainty associated with the pandemic. Now taking our second quarter results by business. At Aviation and GECAS many of the drivers we saw in March airlines conserving cash not flying the planes they have limiting maintenance spend and deferring orders are still relevant today. We're aggressively managing these businesses with cost and cash actions and partnering closely with our customers on a daily basis. I'll provide more color on this shortly. In Healthcare, we continue to have elevated demand for COVID-19-related products. However procedure deferrals are still affecting other products including those in our high-margin Pharmaceutical Diagnostics business. Despite these volume and mix pressures, our team held margins flat in the quarter. In Power and Renewables, outages pushed from the first to the second half and field mobility constraints impacted projects. To offset those pressures we continue to improve the cost structures of these businesses. Carolina will discuss these segment results in detail later. With this backdrop we saw revenue down 20% organically due to lower volume across all businesses. Recall that some of our shorter-cycle higher-margin businesses like services in Aviation and Gas Power, as well as Healthcare are more heavily impacted by COVID-19. Combined their revenue was down 3x that of the rest of GE Industrial.

[Carolina Dybeck Happe:]

Thanks, Larry. Time flies and I'm heading into month six with GE. These are difficult times, but everyone is very focused on working as hard as humanly possible to make progress every day. Everything I've seen so far reinforces my conviction that we, as a team, can make GE stronger. I am an industrialist at heart. We operate in important spaces with a great team and leading technology. And we have many opportunities to improve

[Larry Culp:]

Carolina, thanks. In summary, this was without a doubt an exceedingly challenging quarter. But I hope when we look back on this quarter, we'll remember it as one where we rose to a challenge of historic uncertainty and difficulty to embrace our reality head on and drive better operational execution while taking actions to derisk the company. Better earnings and cash performance in the second half are achievable based on what we see today and the aggressive actions we've taken. As Carolina said, we do have work to do and the environment is still fluid. It remains a game of inches. I have no doubt we're accelerating GE's transformation for the long term though. We're increasing our focus on lean and taking action on the factors within our control. That coupled with our fundamental strengths, our exceptional team, our leading technologies and our global reach give us confidence in our ability to unlock the potential across GE today. So with that Steve, let's go to Q&A.

[Steve Winoker:]

Great. Thanks Larry, Carolina. Before we open the line. I’d ask everyone in the queue to consider your fellow analysts again and ask one question, there are quite a number of people today lined up and that way we can get to as many people as possible, Brandon. Can you please open the line?

[Operator:]

And from Wolfe Research we have Nigel Coe. Please go ahead.

[Nigel Coe:]

Yes, thanks. Good morning, everyone.

[Larry Culp:]

Good morning, Nigel

[Nigel Coe:]

Good morning, Larry.

[Carolina Dybeck Happe:]

Good morning.

[Nigel Coe:]

Good morning, Carolina. Steve, I'll keep this to just one question not one question with five parts. So just look, obviously Aviation it's a very fluid situation. But what's your perspective? Is 2Q the low point? Clearly the departure trend suggests that is – that's a very encouraging trend. But I'm curious if you could just give some perspective on the scope for USM spare parts, used spare parts to provide a headwind into the back half of the year. And what's the perspective on shop visits relative to the trend you saw in 2Q? Thank you.

[Larry Culp:]

Okay. Well, Nigel I think you touched on a number of the variables within the industry on top of those that are a function more directly from COVID-19 that make the first part of the question so challenging to answer and to work through of course inside the company and inside the industry. I think our view is that, we are encouraged by the sequential improvement we've seen broadly around the world but we're still down over 40% from a departures perspective. China being down high single-digits is encouraging. They were first in and first out. Perhaps that suggests some of the potential from here. But I think by no means are we suggesting that things get meaningfully easier from here at least in the short term. I think this is going to continue to be a challenging environment as governments and the public sort through how to react just broadly to the case trends. It will be a different dynamic country to country. But with respect to those things within our control, again we're trying to make sure that we continue to push safety first within our own operations doing what we can to help align the industry around a safe return to flight. Operationally, tremendous amount of focus, as you well know, on cost and cash preservation, all the while looking for those opportunities to quicken the cycle time within a shop visit to improve productivity. So, we're not only reacting to this unprecedented headwind, but they're working through the dynamics that will really dictate how well we perform in the second half in 2021 and beyond. You mentioned USM, clearly, as the carriers make decisions with respect to how they want to transition those planes that are parked in the retirement status, we saw some of that. I suspect we will see more of that over the next couple of years. We think we're well-positioned to participate given that USM is a source of material for our CSAs. It has been for many years. So, we'll have to see how all this plays out. Again, I don't think we're looking for anyone to do us any favors. I don't think we have a different posture than anyone else in the industry. These are difficult times in commercial aviation, but we'll work through that all the while doing what we can to continue to feed a strong and growing military aviation within our company.

[Operator:]

And from Barclays, we have Julian Mitchell. Please go ahead.

[Julian Mitchell:]

Hi. Good morning.

[Larry Culp:]

Good morning, Julian.

[Julian Mitchell:]

Good morning. My question will just be around the free cash flow. You talked about an improvement there in the second half, which I think you'd always see seasonally anyway. But maybe just if I could try and frame that scale of improvement, your first half free cash flow was down about $4.5 billion year-on-year. Second half of last year you did about $4.5 billion. So, if we take your comments on improvement in that base number of $4.5 billion, should we expect free cash flow to be positive then in the second half?

[Carolina Dybeck Happe:]

Hi, Carolina here. Yeah. We do have, as you point out, a seasonality in the second half of the year. So, that we expect to see as well. But it's a bit of a different year compared to, sort of, normal years for us. So, the second half, it will be a combination, obviously, of our cash earnings. But then, we also have the working capital dynamics that you sort of mentioned. If I look through that, I would say that on the receivables side, we expect to see improvements. We've put a lot of work into process and focus on this. We saw it help already in the second quarter, and we expect to see more of that in the second half. And we also have the Boeing MAX payments then. And we believe that monetization will be less of an impact. Talking about payables. Here to explain the story, so, basically by purchasing significantly lower volumes versus paying old purchases, you create like a hole in the working capital. So, that tailwind is, sort of, gradually gets better in the third quarter, and then we'll see -- sorry, gradually better in the third quarter. But in the fourth quarter, I would see that as a tailwind as the volume stabilizes. On inventories, we worked hard, but we need to do more. So, we believe we'll see better execution there. And here you do have, for example, the seasonality with Renewables, right? And then on the progress, we believe that we will see also a headwind in the second half, because that will mainly depend on the Aviation orders, right. And to our point that Larry mentioned earlier, our cash countermeasures, the $3 billion of cash with two-thirds of that we expect to come in the second half, which is sort of weaved into some of the comments that I had. And we also see continuous underlying improvements. So, that's our estimate for now. And we also believe, as we said that we'll come back to positive cash flow than -- in 2021 based on what we see today.

[Operator:]

And from JPMorgan, we have Steve Tusa. Please go ahead.

[Steve Tusa:]

Hey, guys. Good morning.

[Larry Culp:]

Hey, Steve, good morning.

[Carolina Dybeck Happe:]

Good morning.

[Steve Tusa:]

Maybe just asking that question in a bit of a different way. You mentioned, the $500 million of, I think, deferred discount payments in the quarter that would have gone out the door, I guess was the comment. Can you maybe give clarity on that account? I think other cash flow was relatively strong. And then, just all-in, when you kind of mix all this stuff in all these dynamics, I think you also had a $700 million early defense payment. I don't know how that kind of trends in the second half that helped progress. Can you get to positive in total in the second half? I think that was Julian's question all-in.

[Carolina Dybeck Happe:]

All-in. Well, on the D&A, yeah, it was a $500 million in the second quarter. You can think about that dynamic basically that -- basically as the aircraft are shipped, you pay out the discounts, right. So, it will depend on how the aircrafts are delivered. And then, you also asked about the progress payments on -- from the military. Yeah. We did get progress payments from military. We got, I would say, a bit earlier than expected, because also part of the comments that we had between our estimate and where we landed. But overall, the comments that I made on the working capital are, what they are and also the comment on the results so that still stands.

[Larry Culp:]

Yeah, Steve I think Carolina has laid it out. We've got work to do. Again I think what we're saying this morning is that, we came in better than we thought in the second quarter obviously a lot of good work. We certainly had a benefit from the lower production schedules with the airframers. But I think as we look at the second half, we're going to drive sequential improvement. We're going to do the best we possibly can and we'll see where we end up at the end of the year.

[Operator:]

From Bank of America, we have Andrew Obin. Please go ahead.

[Andrew Obin:]

Hi, yes, good morning.

[Larry Culp:]

Good morning, Andrew.

[Andrew Obin:]

The July comment on Aviation on trends are based on unit volumes, but I think there are some factors that might hurt pricing as well. I think Honeywell highlighted used materials, competition on shop visits et cetera. So would you expect a meaningful difference between volume declines and revenue decline in the second half in Aviation once you put all these factors together?

[Larry Culp:]

Andrew, I'm not sure that we would go there today. I think what we're focused on clearly is the trajectory around shop visits. We've got better visibility today in the third than we do in the fourth with respect to our own shops. As you know when we talk about shop visits some of that activity is performed within our own facilities, but there's other volume that we support through material supply into third parties that do similar work. So there are a raft of factors in play here. But again I think given what we see today, we continue to believe the principal pressure that we're all under is how the carriers are going to operate and maintain the existing fleet. There are other dynamics that we haven't talked about such as green time that are realities that we need to embrace realities we need to help our customers manage. So it's going to -- again I think it's going to be challenging for us and for really everybody in the industry until we have better visibility on a sustained trajectory. That said, we continue to take the actions internally, not only on the cost and cash front, but also operationally to drive the lean implementation so that we're producing cycle time and reducing delinquencies and past dues to make the most of this COVID period.

[Operator:]

From UBS, we have Markus Mittermaier. Please go ahead.

[Markus Mittermaier:]

Yes. Hi, good morning everyone.

[Larry Culp:]

Morning.

[Carolina Dybeck Happe:]

Good morning, Markus.

[Markus Mittermaier:]

Morning. On the $1.5 billion to $2 billion structure cash out that you've referred to in the prepared remarks, would you say they're structural obviously at the 2020, sort of, volumes? Or there I say as we work ourselves back to like maybe 2019 volumes at some point, how should we think about that? And then how would you model the net benefits of all this over the next couple of quarters?

[Carolina Dybeck Happe:]

Yes Markus, you're raising an important area for us and this is the cost and the cash actions. So with our cost and cash actions with a $2 billion of cost and $3 billion of cash actions in the year, right, 2020, and basically the $2 billion of cost flows through to cash and then there's additional cash actions like CapEx and other working capital parts. Now that we have worked through, sort of, where we are now what we can say is that one-third to half of those $2 billion are structural cost out. And that actually annualizes to $1.5 billion to $2 billion. And we do see, of course, the biggest chunk of that is in Aviation, but also in big parts in the other parts of the businesses and we see that as true structural cost out. And it's basically changing the way we do things. And if you think about it part of the whole lean transformation is to change the way we do things so that we do them in a better way, and therefore, also have a sort of structural way of taking the cost out so that they would not come back even with the volumes improving. So it's basically helping our decremental margins now, but we're also expecting that to help our incremental margins as markets come back with volume growth.

[Larry Culp:]

Hey, Markus, I would just add that I think what Carolina has framed well there is the efforts that are underway. But right behind that, we are continuing to look for opportunities and efficiencies. And that's just the nature of kaizen really right? With the passage of time, you see more, you can do more, you build that momentum. So as we continue to look to just drive efficiency overall, but at the same time deal with these headwinds, you should expect us to root out as much cost as we can and to preserve and generate as much cash as possible. But in terms of the hard targets for today, I think Carolina has laid that out.

[Operator:]

From Citigroup, we have Andy Kaplowitz. Please go ahead.

[Andy Kaplowitz:]

Hi, good morning guys.

[Steve Winoker:]

Hi, Andy.

[Larry Culp:]

Good morning.

[Carolina Dybeck Happe:]

Morning.

[Andy Kaplowitz:]

Larry and Carolina, I just want to follow-up on the decremental margins, particularly in Aviation. You mentioned you were at 48% in Aviation excluding the charge. And you only delivered 30% of your cost actions so far. So when you talk about the runway for improvement how much more did you have here? And does your decremental have a chance of getting down into the 30% to 40% range as you go into the second half of the year here?

[Larry Culp:]

Andy, I would say that there is a lot that's in-flight pardon the pun with respect to improving the cost structure in Aviation. What we've clearly been hit hardest from a volume perspective and internal margin perspective in services. I don't think that the sequential improvement that we see in the second half is going to take us into a zone that starts with a three, but I think we will be in a zone with a four, with the third quarter showing us some modest improvement. And I think we'll see even more in the fourth.

[Operator:]

From RBC Capital Markets, we have Deane Dray. Please go ahead.

[Deane Dray:]

Thank you. Good morning, everyone.

[Larry Culp:]

Good morning, Deane.

[Deane Dray:]

Can we get some more color on the Baker Hughes exit plan? Just a little sense of the structure. I'm just not clear whether are you locking into a price? Or is that subject to market pricing during the next three years?

[Larry Culp:]

Well, Deane, I think what we wanted to highlight today is we're going to take the next step toward full monetization here. We're going to do it over a multiyear period as you saw. And the program at a high level is basically designed to enable us to sell our shares, basically the VWAP over call it the next three years. We think this makes sense in this environment. Clearly we started the monetization of Baker back in the fall of 2018 nearly two years ago. But this allows us to be I think still patient and disciplined while we divest this non-core piece of the portfolio and that sets us up clearly to redeploy that capital. And I think we're excited about the enhanced financial flexibility that it will give us.

[Carolina Dybeck Happe:]

Yes. I would just add to that that it's, sort of, technically we call it it's called a structured forward sale. And it's really that you, sort of, go quarter-by-quarter, but you're not bound by it but that's how the plan works. And by that you also get sort of, the average share price over that period.

[Operator:]

And from Vertical Research, we have Jeff Sprague. Please go ahead.

[Jeff Sprague:]

Thank you. Good day, everyone.

[Larry Culp:]

Hey, Jeff.

[Jeff Sprague:]

I wonder if we could just. Hi, Larry. Hi. Good morning. I wonder if we could get a little more color on GECAS and the process there. As you indicated just customer events dictated you had to take some actions in the second quarter. Can you give us some idea of what percent of the portfolio was impacted by that and some maybe order of magnitude of what we should expect and kind of the residual value assessment in Q3 for GECAS?

[Carolina Dybeck Happe:]

Yes, sure. If we start then with the second quarter impairment, basically given what we're seeing in the market we decided to make a risk-based approach in the second quarter. In the third quarter, we had the big one. But in the second quarter we decided because of what's happening in the market to look -- you can say start by looking at our customers and choosing the ones that we felt were highest risk. And that's basically from that angle. Then we took their assets and we looked at or tested significantly lower utilization and possible repossessions and not getting funding from government right? And with that we could see that roughly $300 million was -- as an impairment. And if you take that in perspective to the whole portfolio that was around $6 billion of our whole portfolio of operating leases which is around $30 billion in total. So those $292 million pre-tax was the impairment for the second quarter. And then if we then look at the third quarter, I would say that that's a little bit different. That's basically looking at the whole balance of our portfolio actually including the 20% we've reviewed. And here we have a full annual impairment review. I won't bore you with the details, but I can tell you it's very detailed and a very thorough process where we have three different appraisals on each aircraft that's incorporated. We update all the assumptions on discount rates and maintenance cash flows, et cetera. So it's a much bigger process. But I would say we do anticipate pressure on our cash flow assumptions and the value, sort of, driven for possible elevated repossession and a prolonged recovery for the industry. And we'll continue to monitor credit risk impairments I would say as we go over the year. Larry?

[Larry Culp:]

Yes. I think, you covered it well. We thought that we would take an early look at that highest-risk portion of the portfolio roughly 20% as you said Carolina. And then we'll just run through our normal-course process here in the third quarter and we'll update folks later. But I'm pleased that we pulled that forward given the environment that we're in. I think that's very consistent with our effort to be transparent and on top of these things. But more work to do normal course here in the third.

[Operator:]

From Gordon Haskett we have John Inch. Please go ahead.

[John Inch:]

Good morning everybody.

[Carolina Dybeck Happe:]

Hi John.

[John Inch:]

Welcome. So just going back to kind of the cancellation discussion that you guys talked about or Carolina you mentioned I think with the LEAP I mean there are mounting 737 MAX cancellations. And I'm just curious, if you as in GE you're on the hook to have to repay any of the down payments or progress payments you may have received. Maybe you could size that risk for us? And by extrapolation do you think any of your Aviation previous progress payments are at risk just given the aviation environment due to COVID and what you're seeing?

[Carolina Dybeck Happe:]

If I look at what we have then on progress and cancellations for Aviation, let's start by looking at the progress collection balance that we have, right? It's $5.5 billion and it's a liability because basically it's prepayment for us. And this is largely commercial engines. And the largest portion of this is LEAP-1Bs. And I would say that the second quarter progress refunds were very small and we're not expecting a significant impact in the second half. If you think about how the flow is our risk is sort of limited to refunds on straight-out cancellations. And of course we coordinate with both the air-framers and our customers since the situations are pretty unique. And I would say that the cancellations we have done, but the air-framer is the lead on negotiating new terms. So if the air-framer agrees to refund progress also GE and CFM would be required to refund.

[Operator:]

From Melius Research we have Scott Davis. Please go ahead.

[Scott Davis:]

Good morning everybody.

[Carolina Dybeck Happe:]

Hi.

[Scott Davis:]

If we kind of isolate the businesses I mean Aviation, Power, Renewables had just rough macro; Healthcare a little bit more stable. Is there -- is the Healthcare business cash flowing at levels you would find consistent with profits?

[Larry Culp:]

Scott I think we're pretty pleased by and large with Healthcare's performance just given the mix of dynamics there, right both from a topline perspective, we had -- if you just look at orders for example we have positive orders in HCS. despite all of the downdrafts largely a function of the COVID products giving us that backfill. Clearly PDx was way down. But the team did a really nice job with that volume mix pressure to really respond quickly. A little easier in a shorter-cycle business like Healthcare to take the cost actions that we did that allowed us to hold the op margins flat and we had decent cash performance there. I think as we get into the second half and really as we think about the recovery from here despite the pressures at Aviation folks are going to need to remember that we've got a good Healthcare business that's going to get better both in terms of the macro environment and our operation and management of it, as well as the turnarounds that are underway in both Power and Renewables. So that's really a large part of the self-help story in addition to what we've talked about in addition to what's happening and the way we're managing at Aviation.

[Carolina Dybeck Happe:]

And I'll just add a comment on Healthcare because you have to remember that we sold BioPharma. So basically we had $300 million of cash flow every quarter from BioPharma that's obviously not going to repeat as of this quarter. So you have to sort of take that into consideration when you look at Healthcare.

[Operator:]

From Oppenheimer we have Christopher Glynn.

[Q – Christopher Glynn:]

Hey, thanks good morning. We saw like book value come in a little in the quarter and you have some 3Q processes underway. Longer term, I guess accounting adjustment may be 2022 for insurance. Just wondering in terms of asset sales what's the market and what's the scope of remaining potential asset sales, where you'd expect a ready market to sell that book? What's the state of play with asset sales?

[Larry Culp:]

Yes. I would say Chris with where we are today particularly on the heels of the BioPharma transaction with $41 billion of cash and I think with lots within our control operationally to improve performance from here we're not spending a lot of time on additional asset sales, right? I think we know we've got to bring these leverage numbers down. We've remained committed to our financial policy in that regard. No change. It's just going to take us a little while longer both on the Industrial side and to a lesser degree on the capital side. But we're going to move forward with this portfolio with the aim of creating as much value as we can over time.

[Operator:]

From Crédit Suisse we have John Walsh. Please go ahead

[John Walsh:]

Hi, good morning everyone.

[Carolina Dybeck Happe:]

Good morning.

[John Walsh:]

So there's a lot of puts and takes as it relates to kind of cash flow good guys and bad guys. You did make this comment that you think Industrial free cash flow was up in 2021. I'm kind of just wondering if there's any way to frame the order of magnitude, if we were kind of to remove any kind of volume lift just from some of the timing around restructuring cash, BioPharma, inheritance taxes et cetera if we already start positive before anything else. Or if we're -- all of those items aggregate to something negative and we need that volume lift to come through and help cash into next year?

[Carolina Dybeck Happe:]

Okay. So let me do that. But as you say there are a lot of good guys and bad guys and puts and takes. But we say we return to positive free cash flow in Industrial free cash flow in 2021 and that's based on what we see today, right? So in addition to some gradual improvement in end markets there are really a number of items that give us this confidence. I would say the first and very important one is that we deliver on our 2020 cost and cash actions, right? So annualizing $1.5 billion to $2 billion of structural costs out it flows to the free cash flow. And then as you mentioned, we also have the reduction in inheritance taxes a lot of that on the Power side with the say deferred monetization and what have you. That would be basically a $1 billion year-over-year improvement in 2021. Then on the businesses gaining traction. I would say Power it's more of a continued turnaround story right cost out and keep the fleet running. Renewables also turnaround on Grid and hydro better project execution. We have the Haliade-X orders. And we see some growth on the international markets that I mentioned in my previous comments. Healthcare well early signs of better trends. We saw most improvements through the quarter. And here we also have the program where we are working on improving our fixed costs. And what was a margin expansion activity is now a margin preserving activity and then will also help in margin expansion. And I think this is super important this operational self-help and really working with the lean transformation that then takes hold in the whole company, because that improves both the margin and the profit, but also the working capital. And we've just seen the start of sort of us gaining traction there. And you will see that in our results over time. Commercially, Larry maybe you want to comment on that?

[Larry Culp:]

Well as I mentioned earlier, I mean we just think that there are going to be opportunities amidst the pressure of the moment really across the portfolio to smartly create new programming and products. You see that particularly in Healthcare right now given the way the team has responded around not only the ventilator and patient monitor opportunity. But the way frankly we've been able to deploy some of the digital products in a more meaningful way than we might have otherwise despite all the time and money that we have put into the digital health care effort. So Carolina I think you covered it. It's really about sequential improvement from here. Again, the environment remains challenging. But with respect to those things that are within our control, we think Healthcare is well positioned to lead. The turnarounds in Power and Renewables continue and we're expecting a multiyear recovery in Aviation.

[Steve Winoker:]

Hey, Brandon, we only – we are past the hour. We have time – we will fit in one more in the queue. I recognize there are more folks and we'll get you afterwards, but just one last one please.

[Operator:]

Okay. And for Morgan Stanley we have Josh Pokrzywinski. Please go ahead.

[Josh Pokrzywinski:]

Hi, good morning, everyone.

[Larry Culp:]

Hey, Josh.

[Carolina Dybeck Happe:]

Good morning.

[Josh Pokrzywinski:]

Larry, could you help us out with maybe a teams element in terms of that Aviation recovery over multiple years. What would you expect to be kind of the normal lag between departure growth and shop visits? Obviously, there's a lot of elements of maximizing green time and USM and retirements a lot of factors at work. But what does normal look like? So we can -- we try to understand the baseline for some of those other moving parts?

[Larry Culp:]

Yes. Josh I'm not sure we really have a working definition of normal, if you will, right? If we went back and we looked at the way this has played out for us over time right whether it be 9/11 the crisis or -- I mean every time that we've seen these sorts of pressures, the dynamics have been different every time out. So I think the best that we can share today is that as the airlines are working through what this means, not only in terms of their fleet plans and their cash -- their own cash preservation efforts their maintenance programs going forward, we'll continue to be under some pressure in services. I just don't think there's any -- really any two ways about it. So despite the improvement in departures and that sequential uplift. I think we're mindful that this is going to continue to be challenging for us in 2020 and that won't be the end of it.

[Steve Winoker:]

Brandon, we are out of time at this point. So I want to -- I'm going to thank everybody then and we're going to have to move on. But again, we'll be available for follow-up questions as needed.

[Operator:]

Thank you. Ladies and gentlemen, this concludes today's conference. Thank you for joining. You may now disconnect.