Trinity Industries, Inc.

Good morning and welcome to the Trinity Industry fourth quarter 2020 results conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touchtone phone. To withdraw from the question queue, please press star then two. 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 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. Please note this event is being recorded. I would now like to turn the conference over to Jessica Greiner, Vice President of Investor Relations and Communications. Please go ahead.

Thank you, Kate, and 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 rescheduled fourth quarter 2020 financial results conference call following the weather-related events affecting Texas and surrounding areas last week. Our prepared remarks will include comments from Gene Savage, Trinity's Chief Executive Officer and President, 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.trend.net. These slides can be found under the events and presentations portion of the site, along with the fourth quarter earnings call event link. They are also available live during the webcast. It is now my pleasure to turn the call over to Jean.

Thank you, Jessica. And good morning, everyone. I'd like to start today on slide three and pick up where we left off at our investor day in November last year. We laid out our strategy for Trinity's rail platform to deliver premier financial performance and deploy capital to drive value creation. 2020 was a year of extraordinary change for Trinity. Affecting this change to evolve into a cash flow and returns-focused company during a global pandemic was all the more challenging. But our team pulled together and made difficult decisions that have put Trinity on the path to accelerate our financial performance. I want to commend our people for their commitment to the company, to each other, and to our customers and all our stakeholders. To begin my remarks, I believe there are several highlights from our fourth quarter and fiscal year 2020 performance that position us very well for the future. First, we've aligned our business under a core purpose and laid out a strategy for improving the company's returns. The strategic initiatives focused on optimizing our business structure and growing our product and service offerings to advance modal share for the railcar industry. Second, in line with this strategy, Trinity completed the vast majority of our planned restructuring efforts during 2020. We also made further progress on leveraging Trinity's balance sheet under our targeted capital structure. We expect to make additional progress in lowering our overall cost structure in 2021. Third, Trinity's rail platform proved resilient during the unprecedented market events of COVID-19. generating strong cash flow from operations. And finally, there is potential to return additional capital to shareholders given the attractive cash flow profile of our business and the enhanced capital allocation framework we laid out at our investor day. We are very excited about our future and very much expect 2021 to be a year of execution against our strategy to move the company forward. We believe we have a number of levers at our disposal to improve our performance and will share those results with you along the way. Turning to slide four, let's review the key financial highlights. Our fourth quarter financial performance reflects the decline in rail car demand as rail traffic fell amid the COVID-19 outbreak last spring. As a result, fourth quarter revenue of $416 million declined approximately 51% compared to last year. Our fourth quarter gap loss of $1.13 primarily reflects one-time charges that occurred during the quarter. Trinity's adjusted EPS of $0.04 fell from prior year as a result of lower deliveries and softer railcar pricing. Trinity's team worked quickly and diligently to cut costs out of the business, but our cost structure was burdened by the lost efficiency from production declines. While our leasing operations held steady during a challenging market, lower lease portfolio sales and rail car deliveries created an earnings headwind for the full year. Our total gap loss for the year of $1.27 declined 217% year over year, and 2020 adjusted earnings declined 71% to 37 cents per share. Our earnings performance amid the COVID-19 environment is disappointing. However, our platform continues to drive significant and stable cash flows. Our fourth quarter cash flow from continuing operations totaled 195 million, which is down just 15% from the prior year. Free cash flow after all investments and dividends of $64 million decreased 51% over the fourth quarter of 2019. For the year and turning to slide five, operating cash flow of $652 million improved significantly year over year. As a result of our more conservative capital structure during the pandemic, Free cash flow of $113 million declined approximately 22% given higher leasing equity, CapEx, for the year. Both Eric and I will speak to the performance factors driving these results in a minute, but the important takeaway from our consolidated fourth quarter and full year metrics is the resilient and stable cash flow generated from Trinity's rail platform in a very challenging market. a testament to the valuable synergies within the business. Overall, we continue to operate in a soft but improving market. Looking at slide six, rail volumes, which are closely tied to the U.S. economic output, have essentially recovered from the decline we saw over the first half of 2020. We are seeing the strongest recovery in agricultural and consumer-related markets. Railcar loadings for energy-related commodities like crude and coal continue to lag the recovery given the impact of the economic shutdown. Industry railcar utilization is also improving. Over 125,000 railcars have returned to service or were scrapped since the peak of railcars in storage last summer. We estimate nearly 51,000 rail cars were scrapped in 2020, resulting in the first year of an industry fleet contraction in over a decade. We expect this elevated pace of scrapping to continue so long as higher steel prices incentivize rail car owners to scrap older assets. While the industry rail car storage rate of 24% remains above the five-year average, The trend is a relevant indicator for the health of the railcar industry. Looking at the bottom two charts, specific to Trinity's business, we generally see the sector-specific impacts of an industry recovery first within our lease fleet before we see improvement in new railcar demand. During 2020, lease rates declined significantly compared to expiring lease rates as a result of lower demand for railcars. As rail traffic has picked back up, lease fleet utilization is stabilizing. We are also beginning to see early improvement in sequential rail car lease rates with a future lease rate differential, FLRD, metric inflecting positively during the fourth quarter. We introduced this metric at our investor day to provide investors a sense of headwinds or tailwinds The current pricing environment will have upon Trinity's lease portfolio in the near term. Orders during the fourth quarter were low as expected and for the year represent the lowest number of orders since the financial crisis in 2009. This is not surprising given the availability of rail cars within the industry and the current projections for a slowly recovering industrial economy. We are seeing a significant increase year-over-year in the number of inquiries from shippers and Class 1 railroads for available railcar equipment. While it's premature to estimate when these inquiries will lead to improvement in lease utilization, rates, and new railcar orders, it is a very positive sign for the rail market recovery. Given where we are today, we expect a modest recovery in railcar demand in the back half of 2021. Trinity's market leading platform and experience managing through railcar cycles enables us to promptly respond to changing market dynamics and meet customer demand. More importantly, while the railcar market may likely only improve to a more normalized or replacement level market in the near term, We feel confident in our ability to execute our strategy and improve our financial performance. Turning from the industry to Trinity's results on slide seven. The value and stability of Trinity's leasing business was readily apparent as the year unfolded. Our lease fleet utilization took an initial step down in the first quarter of the year, then proceeded to hover around 95% utilization through 2020. We are highly focused on maintaining our utilization and are seeing green shoots of improvement within various railcar types. Approximately 17% of our portfolio was up for renewal in 2020, limiting the impact of declining lease rates on top-line revenue for the leasing business. Stronger lease rates on railcars added to the portfolio nearly offset the headwinds from utilization and lower lease rates on renewals. with annual revenue from leasing and management declining approximately 1% year over year. Looking into 2021, we have approximately 20% of our portfolio up for renewal, and we will have less of a headwind for lease rate pricing as reflected by the FLRD metrics. The leasing team did a tremendous job managing our maintenance expenses to offset the earnings impact of the revenue decline within the segment. Segment profit also benefited from the change in our depreciation policy to extend the useful life of our assets and better reflect the economics of rail car ownership. We have a number of initiatives in place to lower our overall maintenance cost structure through increasing the use of our internal network and implementing advanced technologies into our maintenance cleaning processes. Looking into next year, 2021 will be a heavier compliance year for maintenance events, so leveraging our maintenance platform will be key. The rail product segment endured a difficult year as declining backlog required production cuts and layoffs within both our production and maintenance facilities. Lower pricing and the unabsorbed burden from the lower deliveries impacted the margins throughout the year. In the fourth quarter, the performance was also impacted by startup costs related to our new maintenance facility in the Midwest, and idling costs associated with other non-strategic facilities, resulting in break-even margin in the segment. We do expect there to be ongoing headwinds to segment performance in the first quarter of this year due to lower volumes, further headcount reductions, and additional maintenance facility startup costs. We anticipate the benefit of our cost savings initiatives will begin to benefit segment performance in the second half of the year and will improve the segment margin performance year over year. Before I turn the call over to Eric to discuss our financial results in further detail, let me close with an update on our initiative to improve Trinity's returns on slide eight. First, as a reminder, We believe there are a number of levers at our disposal to improve our pre-tax ROE performance to a mid-teen level through the cycle. The strategic initiatives align under two areas of focus, optimization and growth. As we detailed at our investor day, there's a significant information value in our rail platform, and we are confident in our ability to monetize that value across services, parts, and solutions. In 2020, our balance sheet optimization was modest as a result of a healthy level of near-term liquidity and our decision to maintain a more conservative capital structure through the pandemic. During the year, our net debt increased approximately $135 million. In 2021, we expect to add additional leverage to our balance sheet as we have opportunity to deploy that capital. In regards to SENA, we achieved over $35 million of annualized administrative cost reductions in 2020. We'll continue evaluating SENA cost reduction opportunities through process improvement and vendor management, and as always, manage the cost structure of our support organization to the size of the overall business. To improve our manufacturing performance, we are moving forward with our supply chain initiatives to enhance the value of outsourced fabrication activities from our facilities. We expect these efforts to shift approximately $45 million of cyclical headcount cost savings achieved in 2020 to structural cost savings upon execution. We've also made a modest investment subsequent to year-end to acquire a rail car cleaning company with advanced proprietary robotics. We expect to scale this technology to our facilities over the next few years, which will improve our overall production operations efficiency and improve rail segment margins. In regards to fleet optimization, we expect to make modest investments to reposition certain rail cars to other commodity service that we believe have better longer-term demand profiles. We also expect to complete a modest level of portfolio sales from our lease fleet to financial investment partners with lower-hurdle capital. Earlier this month, our commercial team was very excited to officially launch the new TrendSight digital service offering for our customers. TrendSight provides real-time intelligence on the location and condition and status of rail car equipment, resulting in rail transportation efficiency and safety that enhance rail feed operations for shippers. This product offering is aligned with our sustainability commitment and is a key initiative in our business strategy to improve the overall rail modal supply chain. Trendsight is generating a modest amount of revenue through the beta testing of the product, and we are receiving a very positive response from shippers interested in service following the product launch. It is early days for sure. But with a backdrop of improving fundamentals and our confidence in the strategy we have developed, it's an exciting time to be looking forward to Trinity. With that, let me now turn the call over to Eric to detail our quarterly results.