Trinity Industries, Inc.

Good day everyone and welcome to the Trinity Industries 2022 fiscal year end and fourth quarter results conference call. All participants will be in a listen-only mode. After today's presentation, there will be an opportunity to ask questions. Please note today's 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 It 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 that differ materially from those expressed in the forward-looking statements. I'd now like to turn the conference call over to Leanne Mann, Vice President of Investor Relations. Ma'am, please go ahead.

Thank you, Operator. Good morning, everyone. We appreciate you joining us for the company's fourth quarter and full year 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 the supplemental slides. 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 website, along with the fourth quarter earnings conference call events link. A replay of today's call will be available after 1030 a.m. Eastern time through midnight on February 24th, 2022. The replay number is 877-344-7529 with an access code of 582-6703. A replay of the webcast will also be available under the events and presentations page on our investor relations website. It is now my pleasure to turn the call over to Jean.

Thank you, Leanne, and good morning, everyone. I hope 2022 is off to a safe and healthy start for all of you. We had a busy and successful end of the year, highlighted by the divestiture of our highway products business on December 31st, and we are excited about the year ahead. Our optimization efforts continued despite the supply chain and labor headwinds across the industrial economy. And our commercial team actively pursued new opportunities for existing products and services while exploring ways to expand our offerings. We believe we are through the worst of the cycle with strong metrics to support growth in both our rail products and rail car leasing and management segments. Furthermore, Considering both the supportive industry environment and our internal business optimization work, our management team and board firmly believe we enter 2022 poised for meaningful growth. We are entering the second year of our three-year plan we introduced at our investor day in late 2020, and we are on track to meet the goals we presented then. Needless to say, we're excited to sustain this momentum into 2022 as we seek to accelerate our growth. The timing for this acceleration appears opportune. In short, we think 2022 is going to be a good year. Let me summarize some key themes from our fourth quarter and the full year. Please turn to slide three. We remain encouraged by the improving macro conditions that affect our business, and we expect the North American economy to continue its post-pandemic recovery in 2022. One of the unique aspects of this recovery has been the accelerated rate of inflation for both consumers and producers. Our business is resilient in an inflationary environment, as we have the ability to reprice our lease assets and keep up with inflation. Inflation can also make existing rail cars more attractive to our end users as the price for new equipment tends to grow more quickly. Higher steel prices also make older assets more valuable to scrap, and significant retirement levels over the last few years, especially in key freight car markets like boxcars, gondolas, and grain-covered hoppers support increased demand for new rail cars. We expect 2022 rail traffic to be driven by agriculture, chemicals, and construction materials, and therefore be a freight car-led recovery. This cycle is differentiated from prior cycles as there is no single rail car driving increased rail traffic. which gives more opportunities for leased fleet utilization as well as increased deliveries. Consistent with our peers in the industry, we think 2022 will see railcar production at or slightly above replacement levels, and we are forecasting industry deliveries of 40,000 to 50,000 annually. Some highlights from our consolidated results for the quarter and the full year are highlighted on slides four and five. As a quick note, our high-weight products business has been retroactively included as part of discontinued operations and therefore not in our continuing operations. In the fourth quarter, Trinity generated revenue of $472 million up 31 percent from the fourth quarter of 2020. Our GAAP EPS from continuing operations for the quarter was 16 cents, and our adjusted EPS was 8 cents. For the full year, our GAAP EPS was 38 cents, and our adjusted EPS of 34 cents was up 18 cents over full year 2020. Eric will discuss the impact of the highway products business in a few minutes. Cash flow from continuing operations in the quarter was $197 million and $616 million for the full year. Free cash flow for the full year after investments and dividends was $539 million. This is evidence of our successful optimization efforts. We have proven that our business has the ability to generate substantial and stable cash, which gives us flexibility to further optimize our balance sheet and drive shareholder value through accretive capital allocation. Let's turn to slide six, and we can review the railcard market as a whole and where we are today as a business. Rail traffic in 2021 was a marked improvement over the lows of 2020. However, in the start of this year, we have seen rail traffic decline relative to 2021, largely due to the Omicron wave of the pandemic driving labor disruptions in the United States, as well as winter weather in Canada. We expect to see this improve as this near-term disruptions are resolved. Rail cars and storage continue to decline, with the storage rate falling below 20% in December for the first time since the summer of 2019. Storage rates are currently 7.4% down sequentially quarter over quarter. These supportive market conditions are translating into improved business fundamentals for Trinity as well. Fleet utilization is at 95.7%, which is back to pre-pandemic levels from two years ago. Additionally, after reflecting positively last quarter for the first time since we introduced the metric, our FLRD improved again in the fourth quarter to a positive 2.2%, which means current lease rates are higher than the expiring rates Trinity will encounter in the next 12 months. We like this metric because it is forward-looking and specific to the leases that are expiring. It's also worth noting that the FLRD is positive even after accounting for some tough comps on select car types, like pressure cars and general service tank cars. Supporting the upward trends in rates in the fourth quarter, renewal rates increased by 12.8%. In rail products, I noted our optimism for orders and deliveries improving in 2022 and beyond. In the fourth quarter, we received orders of 5,360 rail cars, which was 358% higher than a year ago, and deliveries of 2,805 rail cars were 26% higher. Another testament to our optimization efforts has been the commercial team's ability to sustain traditional levels of market share while implementing a more aggressive pricing strategy. Although this is a freight car driven recovery, the lower margin on freight cars will be more than offset by the improvement in volume. Supply chain delays are impacting the timing of some near-term deliveries, but there are lasting demand dynamics driving 2022 optimism and likely beyond as well. It is also worth noting that in 2022, we have experienced labor shortages in North America due to absenteeism from COVID. While this has been a headwind of 10 to 15% of the workforce in some of our facilities, declining case rates from the latest wave of COVID-19 have us optimistic that our workforce can return to regular levels of productivity in the coming weeks. On slide seven, let's turn to Trinity's segment results for the quarter. In our leasing business, revenue and operating profit were slightly down from the last quarter. As already mentioned, renewal rates and the FLRD were both improved in the quarter, which is a leading indicator for revenue and margin growth in 2022. Our ability to renew expiring contracts improves through the year, with a 2021 renewal rate of 79%, the best rate we've seen since 2014. Now, looking at the rail products group, revenue and margin were both improved from last quarter, and booked a bill in the quarter was 1.9 times. As I mentioned earlier, although the supply chain disruptions and labor issues we discussed in the last quarter still persist, we have made significant progress, especially in terms of supply chain, toward improved results. Operating margins in the rail products group were 3.3%, up from negative 0.9% the prior quarter. Compared to last year, new rail car deliveries for the full year were down 23%. This is largely due to an order that needed to deliver at the first of this year, a supply chain issue that pushed some deliveries into 2022, and weakness in tank car demand. I'll move to slide eight with an update on a returns optimization initiative. The highlight of the quarter from an enterprise optimization perspective was the divestiture of our highway products business. So I'd like to take a minute to talk about that transaction with you. In the quarter, Trinity completed the sale of Trinity Highway products to a private equity fund, Monomoy Capital Partners, for an aggregate purchase price of $375 million. And we recorded a net gain of $131 million on the sale, which is reflected in discontinued operations. We had said previously that we were not the appropriate long-term owner, and this business was not core to Trinity. Therefore, completing this transaction represented the completion of our company's desire to be fully focused on rail-related industries. We were pleased with the terms of the sale and immediately deployed the $375 million of proceeds back to our shareholders with a two-pronged strategy. First, we directly purchased $250 million worth of stock, or 8.8 million shares, from Value Act in a privately negotiated transaction. Second, we used the remaining $125 million of proceeds to enter into an accelerated share repurchase, or ASR, agreement. The ASR is part of our existing authorization, so including shares previously repurchased After completing the ASR, we will have approximately 73 million left in the authorization that we expect to repurchase before it expires at the end of the year. All in all, our team did a phenomenal job getting this transaction completed and getting the proceeds immediately and effectively deployed. Looking at 2021 as a whole, we made substantial progress toward our strategic initiatives. Our TrendSight development was awarded Innovation of the Year by the Canadian Association of Rail Suppliers. And we're on target as far as cars online with TrendSight. Our sustainable rail car conversion program continues to grow with 1,150 cars in our backlog and 650 delivered in the full year. In the fourth quarter, we re-tanked approximately 80 cars and completed a heavy re-body on 210 cars. As a point of reference, for our conversions, we're able to reuse varying levels of components depending on the donor railcar. But generally, we can reuse anywhere from 10,000 to 25,000 pounds of material per railcar, which is a meaningful source of waste minimization. Additionally, we view the Watford transaction we completed in the third quarter as a major step toward lease fleet optimization. And the partnership is off to a great start. And for the full year, we returned $895 million to our shareholders, including $807 million in share repurchases. Before I hand the call over to Eric, I'd like to reinforce our purpose statement, which is delivering goods for the good of all. The challenges of the past few years have taught us all many lessons. And here at Trinity, we see the supply chain disruption and the subsequent ripple effects around the world as a good opportunity to revisit increased use of rail as part of an integrated supply chain. We continue to partner with railroads and shippers through programs like Rail Pulse to look for ways to improve rail for the greater good of the broader supply chain and overall North American economy. We are better positioned with our pricing and have made great strides in reducing costs, and we are focused on strong returns. We think the sustainability of rail as compared to other modes of transport provides a unique opportunity as our customers think about decarbonization. We are also committed to improving the efficiency of rail and are deliberate in our new product development process. On average, we spend about $10 million a year on new product development and plan to do so again in 2022. In 2021, our new products included a horizontal side-seam large covered hopper for the agricultural market, which optimizes the clearance envelope of the railcar through corrugated sides for strength and efficiency. The result is a railcar with more capacity and five feet shorter than a traditional covered hopper. This means more rail cars per train and less fuel per unit of commodity. We also developed a new composite floor for the refrigerated boxcar market, which allows for an easy transition from fresh food to frozen food service and improves the versatility and utilization of this car type. We believe the rail industry is poised for growth. and there are opportunities up and down the supply chain to increase efficiency and remove friction. We continue to look for opportunities to grow Trinity's presence in the supply chain, both organically and through acquisition. We know rail has room for improvement in terms of predictability and efficiency, but Trinity is committed to being part of the solution. With that, let me hand the call over to Eric for more detail on our results.