Trinity Industries, Inc.

Good day 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 star then 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 remove yourself from queue, please press star then two. 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 involved. a change in any of which could cause actual results or outcomes to differ materially from those expressed in the forward-looking statements. I would now like to turn the conference over to Leanne Mann, Vice President of Investor Relations. Please go ahead.

Thank you, Operator. Good morning, everyone. We appreciate you joining us for the company's second 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 reconciliation of the non-GAAP metrics to comparable GAAP measures are provided in the appendix of the supplemental slides, which are accessible on our investor relations website at www.tren.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. A replay of today's call will be available after 1030 a.m. Eastern time through midnight on August 3rd, 2022. Replay information is 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, Leigh Ann. And good morning, everyone. As you will hear in our remarks this morning, we think that today's results are proof that our hard work is paying off, and we are seeing improvement around our business. And leasing, utilization, renewal rates, and the FLRD are all up sequentially. Margins have improved, and our lease fleet continues to be optimized to meet changing demand in the markets we serve. And real product. Though supply chain and labor issues persist, we saw sequential improvement in both revenue and margins and are on track to reach our goal of a mid to high single-digit operating profit margin before the end of the year. In short, we are proud of our team and so increasingly confident about what we can accomplish in 2022. Before I get to the results, I wanted to share with our investment community that on June 28, Trinity celebrated 50 years of being listed on the New York Stock Exchange and had the unique opportunity to ring the closing bell. I was there with my executive team, as well as some of the leaders of our employee resource groups, and it was a really exciting experience. And now, turn with me to slide three to talk about our key messages from today's call. For the second quarter, we are reporting gap and adjusted EPS from continuing operations of 14 cents, which on an adjusted basis is up 11 cents sequentially and 6 cents year over year. These results reflect improving operations and Trinity's ability to execute despite high inflation and high interest rates. We are working diligently to reprice our assets to reflect the current market dynamic. As a result, our teacher lease rate differential, which is calculated by attributing current lease rates to all railcar leases expiring in the next 12 months, improved to 14.7%. This is now the fourth consecutive quarter of a positive FLRD. We continue to see tightness in the North American fleet drive utilization of our fleet. We ended the quarter with fleet utilization of 97.2% in line with pre-pandemic levels. Based on our results to date, we have confidence to raise our guidance range to between 90 cents and $1.10 adjusted earnings per share. Turning to slide four, I want to spend a little bit of time talking about what we see in the market. As you are all aware, labor issues have been an impediment for the railroads, and you can see the impact of these challenges in the top left chart, which shows rail traffic down from last year, but still well above 2020 levels. Additionally, on the top right chart, you can see that after almost two years of reductions in the storage rate for rail cars, that number ticked up slightly in June and again in July. In regards to the service levels, several Class 1 railroads are actively seeking to curtail the number of rail cars on their lines to begin normalizing their performance. While these actions may drive some rail cars out of service in the very near term, we believe improved railroad service is imperative. We are hearing from our shipper customers there are more originations available than industry data would suggest. The railroads have not been able to meet all of that demand this year. We need the North American Freight Rail Network to normalize to support the current flow of goods presently and make rail a compelling mode of transportation in the future. Moving to the bottom half of the slide, as I already mentioned, our fleet utilization and FLRD are both up sequentially and compared to last year. Lease rate improvement and utilization improvement continue to be led by the freight car market, and this quarter we saw delivery of a higher volume of high margin freight cars. We expect this trend to continue through the year. Railcar orders in the quarter were 4,335, and deliveries were 2,510, an increase of 42% year over year. We expect to deliver about twice as many railcars in the second half of the year as we did in the first half. One thing to note is that a larger portion of our rail cars were delivered into our lease fleet this quarter. And we continue to believe giving our customer this option is one of the many strengths of our platform. Along with the sale of new rail cars to meet customer demand, additionally, we took advantage of an active secondary market and bought and sold in the quarter to further optimize our fleet. Eric will talk more about this in a moment, but it is important for investors to recognize that our ability to build for lease is a significant lever at our disposal to drive optimal return and meet the needs of the current market. Please turn to slide five. Our revenue in the quarter was $417 million, up 42% year over year. Our earnings per share for the quarter was 14 cents, also an improvement year over year. On the cash side, our cash flow from continuing operations was a negative 90 million, and free cash flow was a negative 5 million. Our cash flow is being impacted by higher volumes of railcar deliveries in future periods, as well as continued supply chain challenges, both of which require higher inventory balances. Moving to slide six, let's talk about our segments, starting with leasing. In leasing, improved utilization, renewal rates up 13.2% over expiring rates, and their renewal success rate of 82% all increased our revenue to 195 million. We also increased our leasing and management operating profit margin to just over 40% in the quarter. with lower fleet operating costs mainly driven by lower maintenance expenses than last quarter. It's worth noting that our margin is negatively impacted by over 200 basis points from the accelerated depreciation related to sustainable railcar conversion. We also recorded a gain of 27 million for lease portfolio sales in the segment this quarter. In rail products, we saw sequential and year-over-year improvement in both revenue and margin. Our revenue for the quarter improved on higher deliveries, as well as more HM 251 modifications. As input costs remained elevated, we also booked more revenue from escalation provisions in our contracts. While our escalation provisions protect margin dollars, Escalation will pull down margin percentages as the revenue and cost both go up by the same amount. However, our cash on cash returns remain unchanged. On the margin side, we saw great improvement with a segment operating profit margin of 3.2% up from breakeven last quarter. This margin gain represents improved performance in the business as we are beginning to deliver higher-priced orders and realizing efficiencies in our manufacturing process. We have stated we expect to end the year with an operating profit margin in mid to high single digits, and we are proud to show the progress we are making, especially since we were delivering on some fixed-price deliveries in the quarter that negatively impacted the margins. As we deliver almost double the first half production in the second half of the year, we expect to see continued improvement in the margins. Please turn to slide seven, where we review some of the initiatives we are pursuing around our business to enhance ROE. In the quarter, we closed two ABS transactions, including TRL 2022 in April and Tribute Rail in May. Both are secured with existing railcar assets. Now turn with me to slide eight to talk about our digital product portfolio and an exciting acquisition we made in the second quarter. We regularly talk about TrendSight, our next-gen digital platform that monitors sensor-equipped cars and their freight in real time. It uses data and analytics to provide insights into the health, performance, and status of the fleet. This quarter, we acquired the Quasar platform to enhance our offering with yard management capabilities and access to new customers. The product monitors each railcar, noting when it arrives, is inspected, cleaned, repaired, loaded, and departed. Trendsight and Quasar will work in tandem to give Trinity and our shipper customers more visibility and predictability of supply chains. These services will be further benefited by the Rail Pulse initiative. As a refresher, the coalition is made up of forward-thinking rail car owners who are working together to enhance rail safety, efficiency, and sustainability advantages for shippers through the adoption of GPS and other telematics technology. We were proud to be a founding member of this coalition, and we're also excited to welcome to the group this quarter Union Pacific, the second Class 1 railroad to participate. The collective coalition now comprises approximately 30% of North American rail cars. To put it all together, we see a future where digital logistics platforms like TrendSight and Quasar, rail pulses, standardized infrastructure, and emerging sensor and GPS technologies work together to deliver rail shippers a clear view of their supply chain, enabling them to make better, faster decisions in this changing global economy. We are believers in the railroads as an important part of the North American supply chain, and we believe these developments will help drive modal share and improve visibility, safety, and efficiency of the rail network. While the financial impact of our digital product portfolio is still small, we are on target with our internal goals and expect continued growth as our industry and our customers recognize the benefits of a digitized rail network. Before I hand the call to Eric, I want to again reinforce my enthusiasm about the second half of 2022. As we have said on the last two calls, our backlog gives us visibility into future revenue, and the work we did at the bottom of the cycle to improve our business will allow us to realize higher margins as our revenue grows. We believe in the strength of our platform, and we think our business, though not immune, is better able to weather the impacts of high inflation and interest rates than most. I look forward to talking with you in October about our continued growth, and now I'll turn the call to Eric to go through some of our financial results. Eric?