Trinity Industries, Inc.

Good morning and welcome to the Trinity Industries second quarter 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 touch-tone phone. To withdraw your question, please press star then two. Please note today's event is being 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. It is now my pleasure to turn the conference over to Steve McDowell, Chief Accounting Officer. Please go ahead.

Thank you, Rocco. Good morning, everyone. We appreciate you joining us for the company's second quarter 2021 financial results conference call. 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 reference slides highlighting key points of discussion as well as certain non-GAAP financial metrics. The reconciliations of the non-GAAP metrics to comparable GAAP measures are provided in the appendix of our supplemental slides. 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 website, along with the second quarter earnings conference call event link. It is now my pleasure to turn the call over to Jean.

Thank you, Steve, and good morning to everyone joining us today. I hope everyone is enjoying summer so far, especially as the world continues to get back to normal. As you can see from our results, we are very pleased to see the market continue to recover as well. Some demand improvement across both our leasing and manufacturing businesses is obviously a welcome development. And when combined with the great progress we continue to make on our internal effort to enhance returns, we're excited for the years ahead at Trendy. As we discussed at our investor day last fall, we see significant opportunity to drive returns through the optimization of our fleet, our operations, and our balance sheet. In the second quarter, we made meaningful strides across each initiative, keeping us on track to achieve our three-year strategic goals. Let me now summarize the key themes from our second quarter. While we're still recovering from the lower order volumes and weaker demand of 2020, you can see improvement across most of the indicators for our industry. First, railcar loads continue to ramp up from the lows of last year. Additionally, the supply of existing railcars is contracting thanks to elevated scrapping activity driven by higher steel prices. As a result, we saw improving asset demand and steady Trinity Fleet utilization and rising orders. While we are only in July, from our perspective, we expect each of these industry trends to continue to improve into 2022 based on what we see in our business and the overall economy. If we turn to slide four, you can see how this backdrop, in combination with our internal efforts, positively impacted our summary financials. First, our second quarter revenue of $372 million was down 27% from a year ago, which was in line to slightly better than my expectations. Our gap APS for the quarter was $0.12 compared to an adjusted EPS for the quarter of $0.15, which includes a $0.03 adjustment primarily from the loss on extinguishment of our partially owned subsidiary's debt. Our results were positively impacted by our rail products group operations, which achieved break-even margins from our ongoing optimization efforts. The last time we were at these low production levels was in 2010, and we lost money. We are encouraged that we achieved break-even margins despite the near-term headwinds of input cost inflation and low volumes. As in previous quarters, Trinity's rail platform continues to drive solid cash flow relative to our earnings. In the quarter, cash flow from operations totaled $265 million and free cash flow or excess cash after all investments and dividends was $269 million. Eric will go into more details on our cash flow results in a moment. To recap, We're very pleased to report that our operational performance and railcar inquiries continue to turn the corner, and we are increasingly optimistic about the year ahead. Let's turn to slide five, and I can provide a little more color on the overall railcar market. First, as you know, consumer confidence is very strong, and that activity has begun to ripple into our markets as we are seeing increasing railcar loads, which are now running roughly 8% above 2020. However, carload volumes have been below 2019 levels so far this year, so more recovery is required to reach the pre-pandemic levels. The year-over-year carload trends continue to benefit each of the other metrics on slide five. Rail cars and storage declined 5% compared to a quarter ago. which has also been aided by strong scrapping market I mentioned. Our utilization rate remained relatively flat compared to last quarter. As a result, our future lease rate differential, or SLRD metric, which is the average of the rates transacted in the current quarter as compared to the average of the next 12 months expiring rates, improved to a minus 2.5%. compared to last quarter's minus 14.8%, continuing a recovery that we believe began in the third quarter of last year. This marks a significant inflection point and demonstrates that higher new car pricing is beginning to feed into the overall lease market. While different markets will have different trajectories, this is a very encouraging trend. Lastly, the demand is beginning to show up in orders, which were up 224% compared to last quarter. As we mentioned at our investor day, we continue to anticipate that industry deliveries will improve in the coming quarters and settle in line with replacement levels in 2022 and 2023. Before I move on to our segment results, let me give a quick update on steel prices and inflation in general. At a high level, as I mentioned, we and other rail car manufacturers will face a headwind on the production side of our business. Although we are experiencing an increase in new car orders, some of our customers are still hesitant to place orders. Markets demonstrating the most strength are chemical, construction, and intermodal, but we are seeing improving trends across many segments of the fleet. While it is important to realize, excuse me, what is important to realize, though, is historical inflation, driven by expanding economic growth, is a long-term positive for fixed asset businesses like ours. As an example, inflation has already impacted the underlying economics for many of our end customers in markets like agriculture, construction, chemical, and energy. Inflation supports fixed asset prices in two key ways. First, asset replacement costs grow with rising prices for input materials like steel. Second, increasing commodity prices for asset users make higher lease rates and prices for equipment more acceptable. Turning to slide six, let's walk through Trinity's segment results for the quarter. For the leasing business, Trinity's lease revenue improved compared to last year as we experienced higher per diem asset usage and lease fleet growth. This was somewhat offset by slightly lower utilization, primarily attributable to softness and energy-related markets and the corresponding effects on remarketing rates. Most notably, there are clear signs of a strengthening recovery as renewal success rates continue to improve to a level not seen in recent history. And renewal rates, while in total still slightly down for the quarter, moved into positive territory compared to expiring rates as the quarter progressed. Further supporting this improvement and momentum is a recovery to our FLRD rate that I mentioned previously. With respect to our costs, as noted on prior calls, we continue to maintain a strong discipline. It is expected that maintenance and other operational expenses required to position the lease fleet for increasing demand will be a headwind to the leasing segment margin for the year. As part of our strategic initiatives, we continue to work toward increasing the percentages of maintenance and compliance events handled internally within our shops. Over the last few years, our service capacity has increased from roughly one-third to over half of our maintenance events, achieving a target we set out at the end of 2018. With our current footprint, we have the ability to get to 70%, which will continue to reduce the effective maintenance cost of our fleet and improve our rail car serviceability for our customers. As a good indicator of our progress, year to date 2021, over 60% of our fleet maintenance spend was internal. Turning to our rail product segment, as I noted, We are pleased to have achieved break-even margins despite a challenging near-term headwind from higher steel costs and the lowest quarterly production volume since 2010. The incremental margin progress we've made over the past six months is almost entirely attributable to our operational efficiencies, cost initiatives, and internal supply chain initiatives. We are optimistic that we will see improving margins in the segment as railcar pricing potentially increases given tighter supply and rising demand. In our maintenance facilities, we're expecting continued headwinds and ramping up our new Midwest facility as we are experiencing difficulties in filling open positions at that location. What is most exciting is what we are seeing in our orders. which totaled 4,570 in the quarter, up 224% compared to last quarter. As you'll recall from the past few quarters, we had an increasing level of interest and inquiries, and it's now great to see those materialize in orders. This is the highest order quarter since the fourth quarter of 2018. and approximately half of our backlog value is expected to deliver in 2021, resulting in declining year-over-year deliveries, although we do expect our delivery rate to build through the year to meet demand from new orders. Let me wrap up my remarks on slide seven with an update on our return optimization initiatives. Similar to last quarter, Trinity was busy and executed against both our cost and our balance sheet goals. First, on our balance sheet, Eric will give more detail here, but we've made the most of the low interest rate environment and have added significant value as a result. In total, Trinity has issued and refinanced approximately $2.3 billion of debt since the onset of the pandemic, including our partially owned subsidiaries. In aggregate, we have lowered the company's borrowing costs by 100 basis points over that time. On top of that, we have continued our disciplined commitment to return capital to shareholders. In the quarter, Trinity repurchased 68 million of stock in the open markets and also completed a 223 million block purchase from Value Act as they monetized a portion of their investment. These repurchases accounted for just under 10% of the company's shares. Turning to our enterprise and manufacturing costs, we continued to make progress on both fronts, which is contributing to our goal to enhance returns. And we continued to optimize our fleet, as you saw by our transaction activity in the quarter. Over the quarter, Trinity was active in the secondary markets and booked gains on lease portfolio sales of $11 million. That said, we expect as railcar demand improves, Trinity will have opportunities to both buy and sell in the secondary markets, which continue to open and broaden. Finally, to update on our new product initiatives, we're proud to report that TrendSight continues to see strong uptake. Although the product is still in its early growth stage, we are ahead of plan and interest continues to build. We're also seeing strong demand for our new covered hopper product, which is hitting the market and the ag market at an opportune time. Also, our redesigned intermodal products are being well received by customers and are driving some of the order activity we touched on earlier. To summarize, the whole Trinity team is executing very well against our near and long-term plans to drive returns and add value for shareholders. We felt confident in the three-year plan we outlined at our investor day last fall, and we look forward to updating you on the progress in the quarters to come. With that, let me hand the call over to Aaron for more detail on our results.