Good day, everyone, and welcome to the Second Quarter 2019 Results Conference Call. At this time, all participants are in a listen-only mode. Later, you'll have the opportunity to ask questions during the question-and-answer session. [Operator Instructions] Please note that this call maybe recorded. Today's conference call contains forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995, and includes statements as to estimates, expectations, intentions, and predictions of future financial performance. Statements that are not historical facts are forward-looking. Participants are directed to Trinity's Form 10-K and other SEC filings for a description of certain of the business issues and risks. A change in any of which could cause actual results or outcomes to differ materially from those expressed in the forward-looking statements. I will be standing by if you should need any assistance, and it is now my pleasure to turn today's conference over to Jessica Greiner, Vice President of Investor Relations and Communications.

Thank you, David. Good morning, everyone, and thank you for joining us today. I am Jessica Greiner, Vice President of Investor Relations and Communications. We welcome you to Trinity Industries' second quarter 2019 financial results conference call. We will begin our earnings conference call with our prepared remarks from Tim Wallace, Chief Executive Officer and President, followed by Eric Marchetto, Senior Vice President and Group President at TrinityRail; Melendy Lovett, Senior Vice President and Chief Financial Officer will provide the financial highlights and outlook. Following the prepared remarks from the leadership team, we will move to the Q&A session. Brian Madison, President at Trinity Leasing and Management Services; and Paul Mauer President of TrinityRail Products are also in the room with us today and will be part of the Q&A session. Sarah Teachout, Senior Vice President and Chief Legal Officer; and Steve McDowell, Vice President and Chief Accounting Officer are also in the room with us today. It's now my pleasure to turn the call over to Tim.

Thank you, Jessica, and good morning everyone. I'm pleased with our progress this year. We have a great organization and a strong leadership team that is highly motivated to create value for our customers and our stockholders. I have a high degree of confidence in our company's ability to generate positive results, improve our company, and grow our platform. In a few minutes, Eric and Melendy will provide comments about second quarter results. I will use my time today to discuss some points about TrinityRail. A number of business-to-business industries are in the process of being transformed through optimization initiative. These transformations are driven by companies with products and services that help their customers operate more efficiently. Product enhancements and technology applications are helping B2B companies optimize their business function. Over the years, the railroad industry has implemented productivity improvements to enhance rail transportation. Today, many of the railroads are implementing Precision Scheduled Railroading, known as PSR. This initiative is designed to make railroads more efficient and cost-effective. We see opportunities to optimize additional aspects of the rail transportation system, specifically the ownership and usage of railcars. We have identified product features that have potential to increase customer's productivity. We are also assessing different technology applications that can streamline the ownership and usage of railcar. We are pursuing value propositions that can be converted into profitable business models. We will report more on this in the future. Our vision for TrinityRail is to be the premier provider of railcar products and services in North America while generating high quality earnings and returns per shareholder. We want to be the go-to source for companies that rely on railcars to transport bulk freight. We deliver value to our customers and our shareholders through TrinityRail's integrated platform of railcar products and services. Premier…

Thank you, Tim, and good morning everyone. TrinityRail's second quarter financial performance reflects the unique value of a rail platform producing significant recurring revenues from our growing lease fleet while profiting from a healthy level of new railcar production and maintenance and compliance activities. Our rail platform of products and services is a differentiator and fundamental to providing value to our customers and other stakeholders. Our family of products available through our lease fleet and our manufacturing footprint ensures Trinity can deliver the right product when our customers need it quickly adjusting to demand as market conditions evolve. Our owned and managed lease fleet is now 124,650 railcars at the end of the second quarter. Our ability to leverage the views and service opportunities we gain from a larger and more diverse fleet continues to expand. We're adding over 565 million in new railcars to the leased fleet in the remainder of 2019. We expect our lease backlog all with commitments from customers to earn unlevered returns well in excess of our cost of capital. This will bring investment of our lease fleet to over $8 billion. Our fleet is young with an average age of nine years. We have a customer base of over 700 shippers serving diverse markets with $2.6 billion of future committed lease payments. The fleet's average monthly lease rate has been improving sequentially in 2019. We expect modest sequential improvements in pricing to continue in the second half of 2019 and compare favorably year-over-year by end of year. Our team has been very successful renewing and assigning leases to maintain a high level of utilization. And I'm very pleased with the service levels with three new rail teams continue to deliver which is differentiating our business. During the second quarter, our railcar manufacturing business increased…

Thank you, Eric, and good morning everyone. I'd like to start by reviewing the financial highlights for the second quarter. Yesterday following market close, the company reported second quarter revenues and earnings per share from continuing operations of $736 million and $0.29 respectively. The year-over-year improvement in our second quarter revenue and operating profit was primarily due to stronger pricing in our railcar deliveries as well as a more favorable product mix, higher sales of railcars from our leased fleet and leased fleet growth. Lower year-over-year corporate related expenses of approximately $10 million resulted from our cost optimization efforts. Operating profit improvements were partially offset by profit eliminations of $42 million resulting from the investment in newly manufactured railcars from our leased fleet. This is an increase of $17 million year-over-year. Our net interest expense increased by approximately $15 million year-over-year, reflecting the additional leverage on our balance sheet as part of our efforts to optimize our capital structure; all in all, the company delivered solid financial performance for the quarter. Regarding litigation progress, we're pleased that we've reached an agreement to settle the shareholder class action lawsuit for $7.5 million of which our insurance will pay $5 million. The settlement is subject to final documentation and court approval. This case was filed after the Jury verdict in Harman Federal False Claims Act lawsuit which the 5th Circuit later reversed in the company's favor while the company denies the allegations in the shareholder lawsuit we're pleased to put this matter behind us. For additional information regarding this case and the company's litigation, please see Note 14 to the financial statements in the company's Form 10-Q which will be filed today. Moving into guidance, in yesterday's press release Trinity reiterated annual earnings per share guidance from continuing operations of $1.15 to…

[Operator Instructions] And we will take our first question from Matt Elkott with Cowen. Please go ahead. Your line is open.

Good morning. Thank you for taking my question. I have a question on the transactions that you guys said you chose not to participate in, in the quarter. I was wondering if this is specific to this order, or if it's reflective of a change in philosophy maybe or a strategy on what kind of orders to target and what to focus on strategically for the business?

Eric?

Hey, Matt, it's Eric. I'll take that. So, I am not sure it's a change in strategy. I think we've always been deliberate about what we have done especially when it comes to originating leases. There were a few transactions in the market where there were shorter lease terms that the prospective leasee wanted to acquire a significant number of crude oil tank cars. And when we looked at our fleet and the residual exposure in the Trinity pipelines, we chose not to do that. And so, that's one case that I am looking at, and there are other -- that's not the only transaction that was in the market, but we are being very deliberate about what we put in our fleet and what markets we go after. As we mentioned, we have very good visibility of our production backlog. And therefore, we don't feel -- we feel very confident in picking our spots and the right returns picking the right deals for our business.

And as you guys focus on growing the lease fleets, I know historically you have had about 40% of the manufacturing backlog. Do you care about maintaining that percentage? Or if you can grow the lease fleet through -- in the secondary market, does that number mean anything you guys maintaining that share of the backlog?

Sure, Matt. It's Eric again. We have always said we don't run our business on market share. That has not changed. As we compete for business as I mentioned in my comments, we want to differentiate our products and our services. We believe our products are better than the others. We don't believe our products are commodities and services are commodities. And we keep pushing and talking to our customers about that. And we are confident that our customers will see the value in that and that we will be successful. If that means 40% of the market or some other share that will be an outcome of what we do. Tim, you want to add something?

Yes. This is Tim. I'll add that we also don't really focus on the percentage of cars that are going to come out of our manufacturing that are going to go to leasing. That's just a mathematical equation. We are more interested in the quality of the cars. When we are looking at our leasing business, we look at it that we are investing in markets and industries and companies that participate in those markets and the industries. And sometimes, we make a decision based on the market. Sometimes, we make a decision on what's happening in that industry. And sometimes we make a decision on a particular company that's involved there. And then it gets down to the diversification of our fleet and the amount of investment we want to have in these markets and industries and companies.

That's very helpful. Just one last question, Tim, you mentioned in your prepared remarks something about product features as it relates to PSR, and I was wondering if you see a more compelling need to invest more in R&D for new railcar designs as a way of kind of countering the impact of PSR and giving the users -- giving the railroads and the shippers a reason to replace some of the existing railcars whether it's higher capacity cars or lighter cars or more interchangeable cars? So, I was wondering if within PSR we could have some opportunities for new innovative product designs that could help with equipment demand.

Yes. I mentioned PSR as an example of productivity enhancement that's occurring in the rail transportation industry. As far as our product features and product development goes, it's really not related to PSR. It's related to information that we receive on the performance of our products and information we receive from customers. And our commercial people are actively involved with our customers looking for opportunities that we can develop features is going to make our customers more productive in their business. And that's the real key in the business to business transactions of being able to bring features that optimize the customer's use of the product. And, our products group has a number of different initiatives on the drawing board. And they have some prototypes out running. And then we even have some new cars out. Eric, tell him a little bit about the autorack and what we have done in that area.

Sure. Matt, this is Eric. We introduced a new product earlier this year serving the auto industry. And it was a new autorack that we call it the Hourglass Autorack. And in that rack, we think it's very innovative. It's gotten very good response from the auto manufacturers and the Class 1. And it's a proprietary product for us. And in that it gives more room for people to load and unload the cars. And so we think it was a creative, innovative product that the industry is responding very well to get.

And it came from feedback?

It came from talking to our customers and being out in our field service team and in the market and identifying challenges that impede the efficiency of rail transportation and we solve problems. And that's really, we talked about product development. It's about bringing efficiency to the rail market, which always doesn't go hand-in-hand, but we want -- we think there's opportunities to bring more efficiency, the rail industry that will then allow the rail industry to capture more noble share.

And we've received orders for that product in the form of leases that we have. So we're introducing that railcar into through our leasing company. And then that gives us great feedback, like I said, on the use of the railcar. And that's important to us when we come up with new design features that we stay connected to the product. So we can work out any little problems that might be there or we can add enhancements on the next generation.

That's great. Thank you very much.

We'll take our next question from Justin Long with Stephens. Please go ahead. Your line is open.

Thanks and good morning. So to start, I wanted to ask about the new ROE target to see if there is any additional color you could provide around the assumptions behind that path to 11% to 13%. Is that assuming a normalized industry railcar build rate and normalized gain on -- games on sale? And could you just talk about what you view is the key items that should drive that improvement in the ROE as well?

Good morning, Justin, it's Melendy. Let me first talk you through our considerations in setting the 11% to 13% pre-tax ROE target. And that is a goal -- our goal by the end of 2021. So what we did is we evaluated our own historical ROE performance as post spin Trinity. And we also looked at competitor's performance on those measures as well. We modeled several different scenarios to validate that that the goal is a stretch goal for us, but it's also achievable. And our current cost of equity, which is around 10.5% was also a consideration. So, as far as more specifics around, industry deliveries and other detailed assumptions of our scenarios, we weren't planning to go into the details around those. But I can tell you that based on our 2019 guidance, we expect our progress this year to be around, we expect to be it around 9.5% pre-tax ROE by the end of the year. And, once we get to the end of 2021 and see how we perform versus that 11% to 13%, near-term goal, we will continue to set our goals to improve beyond that day.

Okay, that's helpful. And then secondly, I wanted to see if there is any color you could provide on the quarterly cadence of railcar deliveries as we look into the back half of the year and also would love to get your view on mix. And you noted that it was favorable in the quarter. But looking into the back half and 2020 do you think Car Type mix gets better or worse versus where we are today?

Hello, Justin. This is Eric. We talked about a step-up in our rate of delivery in the back half of 29 -- 2019, of about 30%-35%. And that will obviously, we can't just flip the switch and instantly do that. So that'll continue throughout the second half of 2019. In terms of mix and favorable mix and things like that when you look at the industry backlog and where we're seeing demand, I think that's still a very favorable mix for us as it's generally a tank car product mix and a lot of specially freight cars. So from a from a mix standpoint, based on the industry backlog and where we're seeing inquiries would expect that to continue into 2020.

Okay, great. I'll leave it at that. Thanks for the time.

We'll take our next question from Bascome Majors with Susquehanna. Please go ahead. Your line is open.

Yes, good morning. If you do the math on the backlog in the -- as of June in the second half, delivery guidance, it looks like there's 9,000, give or take a few hundred cars in the backlog today for delivery in 2020 and beyond? Can you give us a sort of directional look about how much of that is slated for 2020? And what's in multi-years that might go beyond that? Eric?

So, Bascome, you're asking about the backlog in how much of that is the in 2020 and beyond?

How much visibility do you have into the 2020 delivery schedule based on the backlog you reported as of June?

Okay. So we have good visibility. Now, I think with our backlog, it will, it continues obviously, sequentially, quarter-over-quarter. And it would with the firm commitments that we have would decline throughout. There is a multi-year order in our backlog that runs further than that. But that's relatively small compared to the size of our backlog. So I would consider most of our backlog delivering either in 2019 or 2020.

Okay. And I mean, with the order environment, creating some opportunities that you felt weren't a great fit for Trinity. How are you managing production capacity to protect margins and what looks like at some point in 2020 matter would be maybe or later in the year, the market could potentially see a downturn in order to improve pretty dramatically.

So we I mean, obviously, yes, we are managing our production footprint. We believe it is very flexible footprint, and we will -- that's kind of the nature of the rail manufacturing business, you're always -- you always have a point in the future where you don't have, where you're having the inflection points. And the good news is we're seeing inquiry levels that are still very healthy. And that are car types that fit our production plan. And so, I think that's further out than it is near-term.

Okay. So it sounds like we shouldn't just extrapolate the order total, we saw this quarter and I think that's where the market is and should stay?

Yes, as I said. This is Eric, again. As I said, in previous conference calls orders are lumpy. And there was a lot of uncertainty this quarter that we think that cause pauses whether it be global trade tariffs, the threat of tariffs on Mexico, interest rates, everything, everything in between. So there was there, all of those things cause people to pause on decisions. We still like the inquiry levels. GDP looks like it will continue to be favorable. Railcar loadings, we expect to start to improve. All of that should bode well for demand.

Thank you very much on that, Eric, and maybe I want to follow-up on Justin's questions on the retargeting clarify a couple of things. Is the simple math on that just pre-tax income over average equity for the whole company? Or is this a leasing specific target or there are some other adjustments? Can you help us with just how you get there?

Good morning Bascome. Yes, it is a consolidated Trinity number. So it's at the Trinity level, and the simple math is as you said, net income before taxes over an average equity. The one exclusion that we're making from the average equity is the AOCI, AOCL, and we made the decision to exclude that since it's not an operating measure.

Okay. I appreciate that.

So, profit before tax over our average equity without the AOCI to AOCL.

I appreciate that. That's simple and we can certainly replicate it on our end. Go ahead.

And Bascome one more thing to consider is the minority interest, remember it needs to be adjusted for Trinity's 38% ownership in the partially owned fleet, so we make that adjustment as well.

And we'll follow-up a bit more on some of the details after the call.

Happy.

The last thing to get there in the point and a half to get into that range over the next couple years, do you need to see lease renewals return positive? I know you don't want to give all of your modeling insensitivity assumptions, but does that have to happen to get there?

We have certainly modeled in profit before tax improvement over the planning period. And that would be both from our lease rate expectations as well as our delivery expectations. We've also mentioned that we're exploring additional services opportunities that would increase the recurring revenue of our platform and these would be services related to our lease fleet and providing services related to the usage and ownership of railcars.

Thank you both for the time.

Thank you.

Our next question comes from Matt Brooklier with Buckingham Research. Please go ahead. Your line is open.

Yes. Thanks and good morning. So you talked about the cars that you passed on in the quarter from an order perspective that didn't meet your return criteria. Can you talk about the types of equipment that are included in orders that you did take in the quarter?

Sure Matt. This is Eric. It's fairly broad-based as we mentioned already, we -- there was autorack orders in that business. There is also some obviously tank cars and plastics and other covered hopper such as larger covered hoppers, which serve the agricultural market, fairly diverse, both with lease -- leasing customers and sales to railroads and shippers.

Okay. And then, Eric, earlier in the call, you talk to your lease revenue, assuming it's the revenue per car, sequentially improving into the second half of this year, we know that lease rates for one of your competitors is, kind of turning flattish right now, but trying to get a sense for what's going to drive that improvement. As we look into, the second half, I'm assuming mix is a big part of that. But if you could give a little bit more color, I think that'd be helpful?

Sure, Matt. You're right, mix is a big impact. What I was describing as the average lease rate in our portfolio. So the three things that would directly impact that would be renewals, and assignments and existing cars, and then the additions of the fleet minus any cars that we sell out of the fleet. And all of those measures we expect will have a slight improvement on average lease rates when you take all those in account. In terms of drilling down into the next layer your question in terms of what we're seeing on renewals and existing car front, we are seeing improvements or stabilization of lease rates, it's not across the board, [technical difficulty], and we're seeing more car types with improvements sequentially then decline. We are seeing improvements in some FreightCar.

But, one of the initiatives that you have on the lease side of your business is to in-source more than the maintenance on the least fleet. You talked about getting to a 50% number, could you talk about and you may have but what's the timeframe for servicing 50% of your lease fleet cars internally, what are you -- what is it right now? And then, if possible, talk to maybe a sensitivity, how much savings maybe from a dollar perspective for a car do you think you achieve by servicing the maintenance side of your lease fleet cars in-house and when should that start to trickle into the P&L?

Okay. Matt, this is Eric again. Great question and very detailed question, what I'll start with is, well currently around a third of our maintenance is in using our captive network. The Iowa facility, we expect to come online in late 2020. So really, you won't start seeing the benefits of that facility until 2021. And so, that will take it there some of the benefits that we see in having our own network, they're kind of threefold. First, its customer experience, we have a much more predictable throughput and on time delivery, when we're using our captive network. And that's important for our customers, as they're planning their business. Two, we think it's a nice return from a maintenance standpoint of the investment in that network and that we're able to make a return on that work, that's attractive, some of that will flow through the rail segment and some of that will flow through leasing. And then third, is just more about availability of the cars, better turn times, all of that, which will the leasing company benefits from better turn times. And so, all those factors kind of come in, we have those benefits on the portion that we do now. And we see, we would see that benefit increasing as we capture more of the share of those workers internally.

Thank you.

Thank you.

Thank you.

We'll take our next question from Allison Poliniak with Wells Fargo. Please go ahead. Your line is open.

Hi, guys. Good morning.

Good morning.

I just want to follow-up on Bascome and Justin's line of questioning on the returns, but I know you don't want to go into specifics of your Trinity assumption. But obviously I think Bascome mentioned it, we're facing somewhat of an uncertain macro. What kind of assumptions are you kind of making in there, we are sort of just flat here, or is this more of a self-help story in terms of the investments that you guys are making?

Good morning, Allison. It's Melendy. As I mentioned, we looked at several different scenarios as we were setting the targets. And certainly we stress tested those. We talked a lot today in our prepared comments about the integrated rail platform and its ability to grow and to deliver strong financial performance. Certainly the market has an impact on what our performance can be. However, our goal is to stabilize -- is to stabilize our earnings and returns to have them, be more steady through the cycles as a result of growing our lease fleet and adding service to our platform. So again, we looked at several different scenarios, we certainly stress tested those, the 11% to 13% pre-tax ROE goal is, it's going to be a stretch goal for us to accomplish. And we are considering both financial and operational levers in looking at what actions we can take to achieve those goals and we're confident.

Great. And then, I think Eric, you had mentioned a pause. And that's certainly what we're hearing from the industrial world. But one of the industrial calls today did know, obviously a pause in June but a pretty sharp snapback in July. Are you seeing that in the inquiry levels as well, that's giving you some confidence out there?

Allison, this is Eric. I think that's a fair assessment. We obviously -- the inquiry levels, while we never went down, just the quality of the inquiries, we feel pretty confident and we have good line of sight and commercial activity this quarter and for the remainder of the year. So yes, I do sense that snapback as you call it.

Okay. And then just enough to pick on leasing utilization, so it was certainly still high, but it just stepped down from the quarter. Was that just sort of a timing issue? Any color there?

Leasing utilization, is that your question?

Yes.

Yes, it stepped down. We did have mainly two car types that really influenced that. We're moving -- we have in the coal market, we're moving some cars from one customer to the other. We have an opportunity to improve rates. Unfortunately in the quarter those -- they were off lease. So, we expect that to be temporary in nature and we do have some small cube covered hoppers that came back this quarter. Obviously that market is a little more challenged. We do see that market. We think it's bottomed out and we are seeing slow improvement there, but that impacted our utilization for the quarter.

Okay, great. Thank you.

We'll take our next question from Steve Barger with KeyBanc Capital. Please go ahead. Your line is open.

Hey, good morning everybody.

Good morning.

You have talked a lot about how you differentiated and you're pushing customers to understand that the integrated platform is not a commodity, but I'm just curious what is the specific pitch to convince people to pay a premium price in a lower demand environment when you have competitors that are willing to get more aggressive on price?

Well, this is Tim. When you have differentiated products that have features on them, that enhance the productivity of the user, a lot of times they'll pay for it because and that's what our overall goal is to end up with features and what Eric and I were describing earlier on this auto carrier that we have, it's a feature that isn't out there in the marketplace. And we are able when we have features to demonstrate to our customers, the value proposition that's associated with the feature and then they can put their pencil to it and then come back and they'll say okay, we see benefits. Sometimes the benefits are tangible benefits and sometimes the benefits are intangible benefits. And the autorack that we were talking about is a matter of there's a safety issue. As an example when they're loading, I think it's pickup trucks on autorack. What they've had to do in the past is the loaders have had to take the rear window of the pickup truck out and climb through it to be able to get inside of the car to make it inside of the truck to load it. With our autorack, I think the feedback we've received is that they're able to go through the door and not go through the back rear window. Right and so this is a good example of optimizing the usage of a railcar hence because the people that have received these railcars have sent back messages to us of the value that they're placing on that not just productivity but if you can imagine, if your employees are out there climbing through the windows, the back windows of pickup trucks on a day in, day out basis there's a higher probability for safety problems and things like that on one of our tank cars on our tank cars, we have a valve at the bottom of a car and we extended the valve to where they could operate that valve on both sides of the car, where in the past, it was just set to be used on one because the handle wasn't there. But we did quite a bit of research in that particular area. It sounds like something simple but it really does get down to what we can do to load and unload a railcar efficiently, what we can design.

So I mean those are those are good examples. What percentage of your product offering do you think has a differentiated feature like that and have you considered making those only available via the lease fleet rather than just selling them to third parties out in the market?

Like I said, we normally launch new product features and have done this for years through our leasing company because it gives us that connection with the usage of the railcar and we try to get that back. Eric, you want to comment.

Yes, Steve. This is Eric, let me just add a couple of things. One when you talk in customer terms at a high level, we're looking to solve the problems. And we think in down markets and up markets especially in down markets customers are looking for a service alternative that will create value for them. So we think it resonates with our customers. It will not resonate on product differentiation will not resonate with all products and all customers but service certainly does in service differentiation whether we're dealing with railroads, industrial shippers or leasing customers, service differentiation does resonate with our customers.

And an example of a service that would be tied to a product is the flexibility of our production line and for customers to be able to come in at the last minute and request either space or requests large capacity or request that we move and change something and we like to think of ourselves as kind of like the old Ringling Brothers, Barnum & Bailey Circus to where we have something going on in one circle and something else going on in the other circle and we're quick change artist. So, our people thrive on that. And Paul and the manufacturing people have done a great job. And then Brian in the leasing business has a lot of feedback coming back from customers. We were watching something the other day where a customer said it was an internal piece that they said they like to do business with us for our end-to-end solutions if we provide them on their other products. They said we'd like to just be able to come to Trinity Leasing and tell them what our problem is and then they'll go and work. So we're also working towards having something that you would think of as kind of an industrial country service that any of our customers and I mentioned to it earlier it's like a club, any of our customers that come to us with a problem or a challenge or an idea, we want to be able to provide solutions and opportunities for them to improve the performance of their company by using our rail products.

Understood. That's great color. Thank you. And you've also talked about how in soft market you want to take a contrarian position to buy cars, seems like new car pricing was soft in the quarter for some car types. Has that translated into you starting to see secondary deals that are attractive to you as a buyer or are there still more non-strategic buyers willing to pay a premium out there?

Dave, this is Eric. In terms of the secondary market, we are seeing a lot of portfolios being offered into the market. We're bidding on those. We also obviously we did some transactions in the second quarter, we're selling cars. Not only our already partners but into the third-party market. I would describe the market is still healthy. It's not as deep as it was a year or two years ago. But it's still a relatively healthy market. We do think there will be opportunities. I think there are some of the new entrants that some of the bank money that's entered the market over the last decade may is probably pausing on future investments and they'll probably make decisions on whether they want to sell or hold based on what they can do.

Steve, this is Melendy. I mentioned in my comments that based on the secondary market portfolios that we've seen in the valuations that we understand, those are going at we've dialed back our expectations of the number of those transactions that we would be successful in completing for the year.

And Steve this is Tim. I'll respond just a little bit. We also with our platform and the breadth of it and the bandwidth, so to speak, people do come to us, when they have railcars and they need to liquidate them in a hurry because we can make quick decisions. And we've been able to do that over the years. And so we're very opportunistic in that area where we may be saying today, we're not liking the RFQs that we're receiving but we may end up having a customer come to us quickly because they need some liquidity. And we can help in that area.

Great. One more on just industry conditions, Eric going back to your order and inquiry comments based on what you see out there for fleet growth versus traffic levels or replacement requirements. Do you think 1Q industry orders which were just under 10,000 for the industry is the low point for the year or do you think it's possible as we go into the back half that we could have a print lower than that?

So forecasting orders isn't something I'd like to do but I would say that the levels that we're operating at in terms of industry orders are probably in line with replacement demand. We do see growth elements in the market. So, not all the orders are replacement but just the level of orders. I would say would be characterized as a replacement demand. We do see markets that we expect to grow over the next few years. So I would expect take it or leave it at that.

And just there's a lot of different definitions for replacement demand but does that suggest a 40,000 car market or something?

In round numbers, I think that's fair.

All right. And then one last one, Melendy, you highlighted strong free cash flow generation as part of the integrated platform but on prior calls, you've also talked about dramatically growing the size of the lease fleet. If that's organic, we're probably unlikely to see free cash flow in the near-term. So just to be clear is the priority lease fleet growth or is it free cash generation?

Yes, I appreciate the question and that's certainly a balance that we're working towards. And when I talk about strong free cash flow generation, we often think of that before our lease fleet growth because that lease fleet growth is it's market dependent because those are leases that those are cars that have a lease attached to them for a customer. So to a large extent, our lease fleet growth is going to be market driven. Another way that we're looking at our free cash flow generation is what is our discretionary free cash flow, if we consider what do we have to invest in order to keep our earnings sources, our cash flow sources running what's left over after that discretionary, after those what is our discretionary cash flow after those investments. So those are a couple of different ways that we're looking at it. And we certainly will provide some more detailed information for you in the future.

Understood, thank you.

And there are no further questions on the line. At this time, I'll turn the program back to Jessica Greiner for closing statements.

Thank you, David. That concludes today's conference call. A replay of today's call will be available after 1 o'clock Eastern Standard Time through midnight on August 1, 2019. The access number is 402-220-7237. A replay of the webcast will also be available under the Events and Presentations page on our investor relations Web site located at www.trin.net. We look forward to visiting with you again on our next conference call. Thank you for joining us this morning.

This does conclude today's program. Thank you for your participation and you may now disconnect.