Trinity Industries, Inc.

Good day, and welcome to the Trinity Industries Third Quarter Results Conference Call. All participants will be in a listen-only mode today. Should you need any 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 telephone keypad. To withdraw a question, please press star, then two. Please note this event is being recorded today. 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 risks. 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 Leigh Ann Mann, Vice President of Investor Relations. Please go ahead.

Thank you, Operator. Good morning, everyone. We appreciate you joining us for the company's third 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 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 third 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 November 1st, 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, Leanne. And good morning, everyone. When we last spoke in July, I told you that we were expecting significant acceleration in the back half of the year in terms of railcar production, lease rate growth, and better financial results. I am pleased to report today that we are on the path we laid out for you, and we continue to see momentum in the markets we serve. While there is a lot of uncertainty in the economy, We believe our business and the industry are resilient to a minor recession. They are underpinned by the significant improvement in the balance of supply and demand of rail cars over the past two years. In short, our view of our business is relatively unchanged in the last quarter. Turn with me to slide three to talk about our key messages from today's call. all of which we will expand on later in our prepared remarks. First, we are reporting GAAP EPS of 35 cents and an adjusted EPS from continuing operations for the third quarter of 34 cents, which is up 20 cents from last quarter and up 16 cents year over year. You'll see in our remarks today that our results show strength across our businesses. as higher external deliveries and gains from another successful WAPR transaction bolstered our results. Second, our future lease rate differential, or FLRD, was a positive 11% this quarter, which we believe is evidence that the market will continue to support solid increases in renewing lease rates. This is due to a higher fleet utilization in the quarter, 97.9% for our lease fleet, showing that demand remains high and available supply remains limited. Third, this quarter we completed a sale of 2,678 rail cars to our joint venture with WAPRA as part of our previously announced Rail Investment Vehicle Program. This sale generated proceeds of $254 million, and we recorded a gain of $25 million in our leasing business. In addition to the Wofford car sale, we sold several other small portfolios in the quarter for total proceeds of $300 million and a gain of $34 million. And finally, earlier this month, we announced a six-year 15,000 railcar order, which drove our reportable third quarter backlog up to an impressive $4.1 billion, and our book-to-bill ratio for the quarter was five times. This order increased our backlog by $1.8 billion. Again, each of these sales and orders is a reflection of the visibility we see in demand relative to supply for our industry. We are encouraged to see many of our customers continue to make long-term investment decisions. And now, let's turn to slide four for a market update. While rail traffic is still impacted by labor shortages and service issues, we are starting to see some easing. Rail traffic is still below pre-pandemic levels. but we continue to see improvements in railroad head counts and believe this is a needed step to support better rail service. There is no quick solution, but we are in full support of increased efficiency and service in the rail industry. After 23 months of declines in rail cars and storage, the storage number ticked up slightly over the summer. largely driven by seasonal grain cars going back into storage before the fall harvest, and tank cars in storage to make preparations for the winter heating season. However, that trend reversed in October when the AAR reported 16.9% of inactive cars as compared to almost 21% a year ago. This is the lowest percentage of inactive cars in October since 2018, and the lowest absolute number of idle rail cars since 2015. Moving to the Trinity-specific data on the bottom half of the slide, as I mentioned at the top of the call, our FLRD and fleet utilization are once again favorable in the quarter and we believe will drive up leasing revenues in coming quarters. Our FLRD is down slightly from last quarter, but this is more of a function of the mix of cars expiring as opposed to a decline in remarketing rates. The strength we are seeing in lease rates is broad-based. We delivered 3,935 rail cars in the quarter, a 57% increase over the second quarter despite continued challenges with railroad service, and supply chain disruption. Last quarter, we stated we plan to approximately double deliveries in the second half of the year as compared to the first half of the year. Our pace of production has continued to accelerate, and we still have line of sight to achieve this target in 2022. Moving to orders, in addition to the 15,000 railcar multi-year order with GATX, We received orders for an additional 4,500 rail cars in the third quarter, demonstrating the continued momentum of the market. We believe the market demand is driven by attrition of aging assets, and so we would expect order volumes to remain steady in the short term, despite macroeconomic uncertainty. Lessors seem to be less speculative than during previous cycles, which is keeping demand more consistent and rationalized. With the continued growth in our backlog, Trinity is beginning to take orders for production space in 2024. We continue to believe that our ability to provide rail cars for shippers, railroads, and other leasing companies give us the broadest view into trends and dynamics in the industry. and ultimately drive strong returns for our shareholders. The GATX multi-year order demonstrates the strength and the long-tenured relationships we maintain in the industry. With this renewed supply agreement, we expect to deliver a mix of 15,000 newly built tank and freight rail cars over a six-year period. We look forward to continuing this partnership, which provides a base load of orders over the next six years. Moving to slide five, our revenue for the quarter was $497 million, up 18% year-over-year, and our adjusted earnings per share of 34 cents was up 16 cents year-over-year. Our cash flow in the quarter was $9 million, and free cash flow was a negative $42 million. ERIC will cover our cash flow in more depth, but in short, this is what we expected for the quarter as we continue to grow our working capital to prepare for the increased pace of deliveries and mitigate as much supply chain risk as we can. Please turn with me to slide six for segment results. Our leasing segment revenue of $195 million remained consistent compared to last quarter, and we ended with a slightly smaller fleet. We saw renewal rates up over the expiring rates in the quarter and a renewal success rate of 82%. This is our fifth quarter with a positive FLRD, and as we continue to Reprice our fleet, we expect to see revenue growth in the segment, which flows straight to the bottom line. Revenue is also impacted by the change in fleet composition as a result of net lease fleet investment activities. Excluding car sales, operating profit margins in our leasing and management segments slightly declined sequentially due to higher fleet operating costs, as well as higher depreciation levels in support of our sustainable railcar conversion program. Total operating profit margin for this segment benefited from the $25 million gain on the railcar sale to WAFRA. We continue to view gains on railcar sales as a normal and recurring part of our business. Fleet optimization is an ongoing process. Having the dual levers of production and owning a fleet gives us several options to decide how best to allocate our capital. Looking at rail products, our revenue of $597 million was up 39% sequentially and 76% year over year, driven by a large increase in deliveries in the quarter, as well as better pricing dynamics. Our operating margin of 4.4% also improved sequentially, up 120 basis points, due to better pricing dynamics and rail cars delivered. In the quarter, we booked a gain of $1.1 million due to insurance recoveries. This is excluded from our adjusted consolidated results, but included in the rail products group. Removing this gain, our rail products operating profit margin would be 4.2% in the quarter. While supply chain issues have been improving across the network, our production and deliveries in the quarter were negatively impacted by rail service issues and congestion at the US-Mexico border. I'm proud of the way our operations team has adapted to this changing environment to meet the needs of our customers. This flexibility has come at a cost, affecting operating margins by 300 basis points in the quarter. Finally, moving to slide seven, I'd like to highlight a few additional activities we undertook during the quarter in support of our longer-term strategic initiatives. We amended and renewed our revolver for a new five-year term. and admitted both our warehouse and revolver facilities to be indexed to SOFR in anticipation of the upcoming phase-out of LIBOR. We repurchased $14 million worth of shares and now have $34 million remaining on our current authorization. Year to date, our net investment in the lease fleet is $176 million, which went down in the quarter due to our large portfolio sale to Wafra, more than offsetting additions to the fleet. Our sustainable railcar conversion program continues to have good results, and the current conversion backlog is 2,420 railcars. Finally, I am proud to report that Trinity completed its first ESG Roadshow. The presentation is available on our website if you are interested in reading about some of the great initiatives our team is pursuing. I'm impressed by Trinity's focus on improved sustainability, both for our business and for the industry as a whole, as we fulfill our company's purpose of delivering goods for the good of all. And now I'll turn the call over to Eric to review our financial results.