Trinity Industries, Inc.

Good day and welcome to the Trinity Industries Third Quarter 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. You may register to ask a question at any time by pressing the star and 1 on your telephone keypad. 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 these forward-looking statements. Please note today's call may be recorded and I will be standing by should you need any assistance. It is now my pleasure to turn the call over to your Vice President of Investor Relations, Jessica Greiner. Please go ahead.

Thank you, David. Good morning, everyone. I'm Jessica Greiner, Vice President of Investor Relations and Communications for Trinity. We appreciate you joining us for the company's third quarter 2020 financial results conference call. Our prepared remarks will include comments from both Trinity's Chief Executive Officer and President, Gene Savage, and Eric Marchetto, the company's Chief Financial Officer. We will hold a Q&A session following the prepared remarks from our leaders. During the call today, we will refer to a few slides highlighting key points of discussion. The supplemental materials are accessible on our IR website at www.trin.net. These slides can be found under the events and presentations portion of the site, along with the third quarter earnings call event link. It is now my pleasure to turn the call over to Jean.

Thank you, Jessica, and good morning, everyone. Trinity has been on a transformative journey over the last year to realign our business, our people, our cost structure, and our purpose to deliver superior returns to our shareholders. The timing and execution of these initiatives were challenged by the COVID-19 outbreak. I want to commend our people and our business leaders for their resiliency and commitment to overcoming the hurdles caused by the pandemic and their efforts to establish our strategic framework for the future, all while delivering high-quality products and services to our customers. As a major milestone in our journey, Trinity will host a virtual investor day in four weeks. At this event, the management team will present our value proposition and strategic framework for accelerating our financial performance. Today, we want to focus on the results of the third quarter and highlight how our results and actions taken during the quarter align with our goals that you will hear more about in the coming months. The goals of our strategic framework are to, one, optimize the returns of our lease fleet, two, reduce the impact of cyclicality, and three, to increase the modal advantage of the rail car industry. In the third quarter, Trinity implemented its new strategy. We expect these strategic shifts to drive operating model performance and generate superior shareholder returns. Our strategy is grounded in our newly defined purpose of delivering goods for the good of all. This purpose seeks to emphasize for all Trinity stakeholders the essential role that rail transportation plays in our daily lives as we eat dinner with our families, clean our homes, fuel our cars, and lead a safe and happy life. Trinity has a rich history. a legacy of strong growth, and a reputation of flexibility. With these attributes and our new focus, Trinity's premier railcar products and services will support essential North America supply chains. Going forward, we'll emphasize the optimization of our platform and scale new product and service offerings that will make our existing investment more valuable. This strategy will place more importance on cash flow and returns, resulting in more disciplined levels of growth through the cycle. Our management team continued our progress in optimizing the cost structure of the business during the third quarter. As a result of the new strategy, we had additional headcount and other administrative cost reductions. We also made the decision to exit the US trucking and logistics business and outsource this service to third parties. With this, we have a small impairment charge relating to the trucking fleet that have primarily serviced Trinity's former industrial businesses. When including the actions from the first half of the year, Trinity has implemented over $80 million worth of reduction in operating costs and other related costs. Please refer to slide four of our supplemental materials. We continue to rationalize our footprint as well. During the quarter, further right-sizing resulted in a total manufacturing headcount reduction of 47% year-to-date. We anticipate there could be additional reductions heading into the beginning of next year. We are evaluating our material costs and reviewing the relative spend between direct and indirect costs in order to lower our break-even point. We believe through various cost efforts, the rail segment margin could meaningfully improve throughout the cycle. We'll share more detail on these efforts at our upcoming Investor Day. As you saw in our press release, we're also working on our balance sheet optimization, and Eric will talk to you about our successes in the financial overview. Overall, our business results were in line with our expectations from our base case scenario provided at the start of the COVID-19 pandemic. Our leasing business is holding steady at around 95% utilization, and we are controlling costs in order to minimize the impact of lower lease rates on renewals. Lease rates on renewals declined in the third quarter relative to their expiring rates, However, pricing sequentially held fairly stable from the second quarter. Our portfolio of expirations subject to renewal over the next 12 months is in line with our typical 15% to 20% average, and we are closely monitoring our markets for signs of improvement. Based on recent market pricing for renewals, the lease rates for our current expirations in 2021 will have a much easier comp relative to the expirations this year. We have already noticed improvements in certain markets, like agriculture, including grain, and intermodal, while other markets, like energy, continue to see headwinds. As an operating lessor, we aim to differentiate our product and service offerings on customer experience, making the ownership and usage of rail car equipment a more attractive and valuable proposition for industrial shippers. Scaling additional services that we can provide that leverage our broad platform, market knowledge, and analytics of our owned and managed lease fleets can bring a premium recurring revenue stream to the business. More recently, we've been developing the analytics and infrastructure to support the addition of telematics on rail cars and have partnered with other leading rail service providers to create a new technology platform called Rail Pulse that we believe will help transform rail shipping in the future. While this platform and resulting services are in the early stages of development, we believe these capabilities are a key factor in improving the rail industry's competitive position relative to other modes of transportation longer term. Looking again at our third quarter performance, we incurred startup costs for our new maintenance facility in the Midwest as we onboarded new employees, and accepted our first customers into the plant. We expect the inefficiencies from the startup of operations to be a headwind for the segment margin in the coming year. But we do expect the new facility to be accretive to earnings in 2021. With the capacity from this new facility, we believe we have the capability to service and maintain up to 60% of our lease fleet in-house. This exceeds the target we set two years ago at the time of spinoff. We will continue to evaluate further growth of our maintenance services business, including the expansion of service capabilities in underserved markets. As I mentioned, our manufacturing operations continue to slow their production into the third quarter with additional rationalization of our headcount. However, this was not at the same pace as the reduction we had in the second quarter, which allowed us to limit the amount of disruption to our plants. In our base case scenario, our production plans for the remainder of the year assume the full delivery of our 2020 backlog. This would result in just over 11,000 rail cars delivered in 2020. During the third quarter, rail manufacturing received orders for 2,000 rail cars composed primarily of larger complex transactions that reflect the strength of Trinity's rail platform and our ability to tailor solutions for our customers. These orders were predominantly for 2021 delivery and reflect competitive market pricing. We continue to see a good pipeline of inquiries for rail cars, new and existing. Like so many others, our business continues to operate with an even greater emphasis on the health and well-being of our people. Looking out over the next few years, we see the broader economic recovery driving more rail shipments and equipment demand as business and consumer confidence in renewed and shippers across the continent feel confident in making long-term capital decisions. Railcar loadings rebounded during the third quarter from the historical declines earlier this year. However, market uncertainty continues to cloud near-term demand for railcars as much of the economy remains under pressure given the COVID-19 pandemic. We remain cautiously optimistic regarding the trajectory of demand heading into next year. Given the range of possibilities based on potential scenarios for the economy, the election, and the pandemic, we are still operating in a very fluid environment and are electing to not provide guidance. That being said, we are committed to improving the financial performance of our platform, and we believe much of the improvement is within our control. A recovery in the cycle, when it occurs, will be an added tailwind. Eric, I'll turn it over to you to discuss some of our financial initiatives.