Trinity Industries, Inc.

Good day and welcome to the Trinity Industries Third 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 a question. To ask a question, you may press star, then one on your touchtone phone. To withdraw your question, please press star, then two. Please note, this event is being recorded. 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 risk, a change in any of which could cause actual results or outcomes to differ materially from those expressed in the forward-looking statement. I would now like to turn the conference over to Leigh Ann Mann, Vice President of Investor Relations. Please go ahead.

Thank you, Eileen. Good morning, everyone. We appreciate you joining us for the company's third 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. It 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.tren.net. These slides can be found under the events and presentations portion of the website, along with the third quarter earnings conference call event link. It is now my pleasure to turn the call over to Jean.

Thank you, Leanne, and welcome to Trinity. Good morning, everyone. Trinity had another strong quarter on a consolidated basis, and continues to make great strides to optimize returns, highlighted by our newly formed joint venture with WACRA and our new $250 million share repurchase plan, both of which Eric and I will talk about later. Overall, we remain very confident in our ability to execute and hit the targets we shared with you at our investor day a year ago. Let me summarize some key things from our third quarter. At the industry level, fundamentals continue to improve broadly but unevenly. While industrial production levels have ebbed and flowed with supply chain disruption, overall industrial production is approaching pre-pandemic levels, and strong North American economic growth is forecasted over the next few years. With these macroeconomic trends, rail carload volumes are rising from last year's lows, At the same time, the population of rail cars in stores is falling, with elevated scrapping levels and relatively slower train speeds. From our vantage point, the improving rail car demand recovery will continue into 2022, which is very supportive for fundamentals in both of our rail-focused business lines. Let's look at the impact of these trends on our consolidated results. highlighted on slide four. In the third quarter, Trinity generated revenue of $504 million, up 10% from a year ago. Our GAAP EPS was $0.33 compared to an adjusted EPS of $0.29. We'll detail both businesses in a few minutes, but I think it's important to note the strength of our diversified platform. While our rail products group results may vary from quarter to quarter based on our specific orders delivered, Trinity drove solid and consistent cash flow growth in the third quarter. Cash flow from operations totaled $93 million, and free cash flow, or excess cash after all investments and dividends, was $157 million. Eric will go into more detail, but the important takeaway here is that our model can drive significant value creation through stable cash flow and a return of capital to shareholders. In summary, we remain pleased with our execution against our returns optimization initiatives and are equally excited to see continued strength in the industry fundamentals that underpin our future results. Let's turn to slide five, and we can review the rail car market as a whole. First, rail car loads and traffic continue to improve. The industry car loads are now roughly 6.5% above 2020 year-to-date, and we're moving closer to pre-pandemic levels last seen in 2019. Rail cars and storage declined 6% compared to a quarter ago, aided by continued scrapping activity and continued deployment of vital assets in key markets. like boxcars, gondolas, hoppers, and tank cars. Relative to the modest increase in carload levels, slower train speeds are also helping to drive railcar demand, as the average railcar in North America is getting fewer turns. Against that backdrop, Trinity's fundamental key performance indicators are improving as well. Our utilization improved from last quarter to 95%. And the future lease rate differential, which we call the FLRD, turned positive and now stands at 1.4% compared to a negative 20.9% just a year ago. Demand for new rail cars has been exciting as well. In the quarter, with the quarters for 2,530 new rail cars, up 27% compared to a year ago. As we noted last quarter, we believe stronger underlying leasing dynamics and higher car pricing should continue to positively impact our results. And new deliveries will likely trend in line with replacement levels in 2022 and 2023. To be clear, the trend may not be linear each quarter, as our rail product segment results prove. That said, we remain very encouraged by the industry dynamics in place today. On slide six, let's turn to Trinity's segment results for the quarter. In our leasing business, revenue increased slightly compared to last quarter based on a combination of fleet growth, higher utilization rates, and increased servicer fees. Revenue growth in the quarter was also partially offset by lower average lease rates as we cycle through legacy renewals. To contextualize that impact, it's important to note that the four indicators for lease rates are positive. Specifically, our renewal rates in the quarter were 7% higher than expiration. And our view on overall lease rate trends remains positive, as evidenced by the trend in the FLRD I mentioned earlier. Our margins in leasing and management services were also strong, up 340 basis points compared to a quarter ago. Our leasing business benefited from higher servicer fees in the quarter, partially offset by fleet operating costs. We also had modestly higher depreciation driven by our successful sustainable conversion program, which I'll detail later in my remarks. Recall from our commentary earlier this year that we expect these expenses required to position the lease fleet for increasing demand will be a headwind to the leasing segment margin for the year. That said, we believe the headwind in the short term is a good problem to have. given the value being created by rising demand and the resulting long-term returns to Trinity. Now, looking at our results in the Rural Products Group, margin improvement progress year-to-date was offset by labor shortages and turnover, as well as supply chain disruption. Specifically, Operating margins in the rail products group for the quarter was a negative 0.9% compared to 1.2% last quarter. The path of the recovery in this segment will likely be less linear given quarter-to-quarter dynamics like delivery mix, supply chain disruption, and labor shortages. That said, we remain confident based on two main indicators for the business. The first, is that demand for railcars continues to rise as evidenced by utilization, lease rates, and orders in the quarter. The second key indicator is railcar values. While higher input costs like steel can serve as a near-term headwind to our deliveries, we remain very confident that higher costs will drive higher railcar values and ultimately margins as older orders work through our pipeline. Lastly, it's important to note that while this quarter was challenged, Trinity continues to make significant progress on our expense optimization initiative and the rail products group. I'll move to slide seven with an update on our returns optimization initiatives. We were busy and made some great progress over the quarter. Beginning with our balance sheet, Trinity and Wafra, an institutional investor, announced a joint venture partnership that targets $1 billion of diversified rail car asset sales over the next three years. The joint venture is a significant step in our commitment to optimize Trinity's balance sheet and drive ROE. Trinity also renewed our commitment to return capital to shareholders. with a new $250 million share repurchase authorization. In our view, shareholders benefit both from the strong free cash flow that Trinity's portfolio generates, and also as we optimize our balance sheet to help drive better returns on equity for the overall enterprise. Touching on our enterprise cost reduction efforts, Trinity disposed of three properties in the quarter for a total of $8 million in proceeds and $3 million of gains on asset disposal. In manufacturing, we continue to drive meaningful improvements as our lien initiatives and other cost programs have reduced the break-even cost of producing a railcar. Turning to our lease fleet optimization, Clearly, the Walker portfolio sale was a key event, driving $325 million in proceeds. Similar to last quarter, we were also busy on the investment side as we spent $112 million in leasing capex to add to and improve our lease fleet during the quarter. Looking at the fourth quarter, we would expect the pace to slow as we onboard and optimize for the actions taken year to date. The key takeaway here is that fleet returns have improved both from MIPS and the accretive reinvestment of sale proceeds. In addition to portfolio transactions, Trinity closed on a small $4 million secondary market acquisition. In the third quarter, our fleet improved as we doubled the volume of sustainable conversions of tank cars, which totaled 242 compared to 119 last quarter. Through the end of the third quarter, we have received orders for over 1,400 sustainable conversions, which includes a mix of tank and freight cars comprised of internal and external orders. These sustainable conversions allow us to pivot our fleet by converting or upgrading existing rail cars to better meet the challenging demands of the market and to improve the yield of our fleet. This is an important piece to our fleet optimization effort. Lastly, to update on our new products and services, we are on pace with a number of initiatives. For trend sites, We now have reached our 2021 goal for customers paying subscription fees for the service. Additionally, new product development will hit our full goal for 2021. In conclusion, Trinity remains very confident in the three-year plan we outlined at our Investor Day last fall. And we still have a number of ongoing initiatives to continue to enhance returns especially as rail car fundamentals continue to improve into 2022 and beyond. Before I hand the call over to Eric, I'd like to take a moment to discuss our focus on sustainability. Trinity is committed to being a market leader in promoting and enhancing the sustainable environmental benefits of rail transportation. We believe a more sustainable transportation system starts with a shift from highway to rail, as rail reduces emissions to move one ton of freight 75% as compared to on highway. It leads to less congestion and less wear on our critical infrastructure. To promote this transition, we prioritize product and service ideas, which enable shippers to improve the efficiency of their supply chain, moving more freight with fewer rail cars and fewer car loads. We've discussed a few of our new products that fulfill this forward-thinking, more sustainable vision, including our newest grain car and trend sites. Trading has also put great focus in leveraging existing assets to meet new demand through our sustainable conversion program. This eliminates the need to produce an entirely new railcar in certain markets. Earlier this year, we introduced the railcar leasing industry's first green financing framework, and as of quarter end, Approximately $4.3 billion of our rail car related debt meets this designation. At our facility, we've implemented a number of different programs to reduce emissions, limit water use, and recycle waste. In meeting our purpose to deliver goods for the good of all, we strive to reduce our environmental impact and increase our positive impact on people. With that, let me hand the call over to Eric for more detail on our results.