Trinity Industries, Inc.

Good morning everyone and welcome to the Trinity Industries first quarter results conference call. All participants are currently in a listen only mode. If you should need assistance during today's presentation, you may signal an operator by pressing star and then zero. After today's presentation, there will be an opportunity to ask questions. At that time, to ask a question, you may press star and then one to join the question queue. Please also 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 to differ materially from those expressed in the forward-looking statements. At this time, I'd like to hand the call over to Liam 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 first quarter 2022 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 metrics are provided in the appendix of the supplemental slides, which are accessible on our investor relations website at www.trend.net. These slides can be found under the events and presentations portion of the website, along with the first quarter earnings conference call event link. A replay of today's call will be available after 10.30 a.m. Eastern time through midnight on May 4th, 2022. The replay number is 877-344-7529 with an access code of 7333684. 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. Good morning, everyone. Before we get started today, I wanted to point out that both our 2021 annual report, and our interim CSR update report are available on our website. I'm especially proud that our CSR report provides a summary of our first formal materiality assessment, the results of which are driving our ESG strategy forward with a priority focus on employee health and safety, diversity, equity, and inclusion, human rights, energy consumption, and reduction of greenhouse gas emissions. I'll start my comments on slide three. As we have seen some of the pandemic concerns and restrictions easing, it was nice to be back in person and participate in industry events again in the first quarter. We continue to see strengthening market tailwinds as we discussed on our last call. However, new headwinds appear to be developing, including persistent inflation, increasing interest rates, and the ripple effects of the war in Ukraine. Particularly in the U.S., challenges persist in certain labor markets and supply chains as well. I want to stress the optimism I have about the second half of this year. While we will address some of the headwinds we saw the first quarter, we continue to expect leasing margins to improve with rising rates and increased utilization of the fleet driven by strong railcar demand. Also, our rail manufacturing backlog is extremely strong and we'll start delivering rail cars and conversions that were sold in more favorable market conditions as the year progresses. Our book to bill in the quarter was over two times. Our future lease rate difference will improve to 2.4% and has now been positive for three quarters. And our fleet utilization continues to improve and is back to pre-pandemic levels at 96.5%. Although we will continue to face challenges in the second quarter, our forward-looking metrics support our optimism about a strong second half of 2022. And we are maintaining our EPS guidance with that in mind. Now turn with me to slide four for a rail market update and commercial overview. Through the first quarter, we saw continued improvement in demand, which is great, but the rail industry has had difficulty serving that demand. Railroads have been very open about their struggles retaining and hiring labor to scale with the increase in freight demand. Their struggles created a disconnect between weekly carload measures and true freight rail transportation demand. We believe that demand for freight rail transportation is greater than the rail traffic measures would suggest. This disconnect is most evident in the fact that although year-to-date North American rail volumes are down year over year, the number of rail cars in storage continues to decline. This decline has been steady since the summer of 2020. The downward trend in rail car storage is a function of more demand from shippers to move product, increased scrapping, and slower train speeds. The railroads indicate they are working to improve efficiency and expect to resolve these issues later this year. Improved efficiency is good for traffic growth long term. As I mentioned a moment ago, our Trinity rail fleet utilization improved in the quarter to 96.5% as we placed more rail cars in service. This was also aided by momentum in our sustainable railcar conversion program. To date, we have converted 1,095 railcars. Remember, these are railcars that would otherwise be underutilized or scrapped, but are instead converted or upgraded to better meet changing market demand and drive higher returns on our invested capital. Also, on least fleet demand, our FLRD was 2.4% in the quarter. the third consecutive positive quarter, giving us momentum into the revenue tailwind for renewing rail car lease rates. Rail car orders and deliveries are both up year over year as well. In the quarter, our rail products group received orders for 5,055 rail cars and delivered 2,470 rail cars. The market demand continues to be led by freight cars, And in the first quarter, we saw replacement demand for boxcars to serve predominantly the paper and food markets. As our order book for 2022 deliveries is close to full, we are now taking orders into 2023. Deliveries are still being impacted by supply chain disruptions, but we did see on-time deliveries improve steadily through the first quarter due to some easing in pandemic-related absenteeism, as well as better internal handling of our inventory and supply chain. We expect to end 2022 with daily railcar production basically doubling from where we started the year. Again, another very tangible sign of strong market demand. Turning to slide five, Eric will go into more detail on our financial highlights, but I'd like to just note a few metrics. Our Q1 2022 revenue of $473 million is up 43% from Q1 2021, driven by the strong external deliveries in the quarter. Our GAAP EPS was $0.09 and includes another insurance gain from the Cartersville tornado that benefited the rail product segment. Excluding that gain, our adjusted EPS from continuing operations was 3 cents. Our cash flow from continuing operations was 29 million in the quarter, and free cash flow was 48 million, both impacted by working capital growth due to manufacturing volume increases and ongoing supply chain inefficiencies. We believe our business is well prepared to handle these current headwinds of supply chain disruption, high input costs, and freight surcharges, but we're not immune to their effects. We are managing these challenges, and this is especially apparent in our working capital growth. Our mitigation efforts include intentionally building up inventory to dampen the effect of supply chain unreliability. Now moving to slide six, and the discussion on our business segments. In our leasing business, our revenues are up slightly quarter over quarter and have remained pretty flat over the last year as our utilization is improving while the overall size of the lease fleet has decreased slightly. Lease rates are down slightly on average due to the mix of the fleet and the timing of fleet renewal. As a reminder, our average remaining lease term is about three years. So while renewals and renewal rates are positive, it takes time to see these flow through the results. Our operating margins in the leasing segment were challenged this quarter due to a few factors. We saw an increase in the cost and volume of maintenance activities. As we have stated before, the sustainable railcar conversion requires accelerated depreciation on donor railcars. The railcars that are the best candidates for conversion are younger railcars. So the impact of the accelerated depreciation can meaningfully reduce operating margins in the near term. However, we continue to believe this program is a worthwhile investment and future benefit as the rail cars drive more profitability to the fleet. Moving to rail products, quarterly revenue was down sequentially due to the timing of deliveries, but still reflects substantial growth and improving fundamentals year over year. Looking forward, our orders taken in the first quarter were strong and reflected growth from both the revenue and the margin perspective. Operating margin in the segment was two-tenths of a percent, but includes a gain of 6.4 million from insurance proceeds from the Cartersville tornado. We have removed this gain when calculating adjusted EPS, but as a point of reference, rail products margin would have been a negative 1.4% excluding this gain. Operating margins in the rail products group remain challenged. As I mentioned on our call in February, in the first half of the year, we are delivering rail cars that were ordered at the bottom of the cycle, including some fixed price contracts, which have been negatively impacted by high steel and raw material prices. The orders we are taking today and the orders we will be delivering in the back half of 2022 reflect much stronger pricing And when those orders start to deliver, we expect to see a meaningful step change in our margins in the segment. In addition to the input cost inflation, margins in the segment were also impacted due to a higher level of production line changeovers. Additionally, our maintenance services business struggled in the quarter, largely due to very high absenteeism in January due to the Omicron wave leading to operating inefficiencies. As so many other companies have mentioned, Omicron was a meaningful disruption to our business in Q1, but quickly subsided. We have previously talked about difficulties in hiring and retention, specifically in the United States. We are making changes to our compensation and benefits to stay competitive in the marketplace. While early, we are starting to see improvement. Moving to slide seven, I wanted to highlight a few improvements on our strategic initiatives. Our LTV in the quarter of 63.8% is within our target range of 60 to 65%. We are in year two of the three-year plan we laid out at the investor day in 2020, and think we are well positioned to reach the goals we presented to you then, including a mid-teen pre-tax ROE goal. And now I'll turn the call over to Eric to go into more detail on our financial results and our guidance for the rest of the year.