Trinity Industries, Inc.

Good day, and welcome to the Trinity Industries' fourth quarter and 12-month-ended December 31, 2022 results conference call. All participants will be in listen-only mode. Should you need assistance, please signal the 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 1 on your touch-tone phone. To withdraw from the question queue, please press star then 2. 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 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 description of certain of the business issues and risks. a change in any of which would cause actual results or outcomes to differ materially from those expressed in the forward-looking statements. I would now like to turn to Officer Lee 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 fourth 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.trends.net. These slides can be found under the events and presentations portion of the website. along with the fourth 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 February 28, 2023. 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. I hope your 2023 is off to a great start. Before we begin with our prepared remarks, I want to take a moment and acknowledge the accomplishments of 2022 that don't always appear on financial statements, but are essential to all of our stakeholders. Our company purpose is delivering goods for the good of all, and embedded in this purpose is our focus on environmental, social, and governance excellence. We have updated our operating model to embed the word sustainability as a core value, further evidence that we view sustainability as a key focus for our business. Last year, we continued our efforts to ramp up our ESG initiatives as a company. This included naming a global head of ESG for Trinity to spearhead and lead our ESG initiatives, We became the first rail car manufacturing company in North America to certify that our existing EHS management system conforms to the International Organization for Standardization's Environmental Standards and Occupational Health and Safety Standards. We hired a director to lead our DE&I initiative, launched nine employee resource groups and employee networks, and completed our first ESG Roadshow with investors. Additionally, in our core business, we are consistently working on new product development to support sustainability priorities. This includes improving efficiency in new railcar designs and programs like our sustainable conversion program that allow us to repurpose existing railcars and increase the longevity of their parts and components. To date, Our sustainable rail car conversion program has reused over 54 million pounds of steel. Our ESG initiatives are ongoing, and I look forward to keeping you updated on their progress through the year. And now, turn with me to slide three to talk about our key messages from today's call, which we will expand on later in our prepared remarks. Our fourth quarter GAAP EPS from continuing operations was 46 cents, and adjusted EPS from continuing operations was 44 cents, up 10 cents sequentially, and 36 cents year over year. For the full year, GAAP EPS was $1.02, and adjusted EPS of 94 cents was up 176% over 2021. Given the unexpected labor, supply chain, and rail service challenges we faced in 2022 that impacted our ability to deliver cars at the pace we expected, we are proud of what we accomplished and the growth we achieved in 2022. Furthermore, when we look ahead, we also have reason to be optimistic. We ended the year with our future lease rate differential or FLRD, at 25.1%. We view this as a good predictor of future rate growth in the leasing segment, and the high FLRD is an indicator of continued broad-based strength in the railcar leasing market. The FLRD calculates the implied change in lease rates for railcar leases expiring over the next four quarters by applying the most recently transacted quarterly lease rate for each railcar type. The FLRD also accounts for current market rates, which remain strong despite uncertain economic sentiment. The key to remember is that industry supply has tightened, and energy costs and supply chain planning have increased the importance of visibility and control in logistics planning for businesses. Trinity has a unique advantage as both a producer of rail cars and a beneficiary of solid leasing fundamentals. The rest of the industry either does one or the other for the most part, which can be challenging in periods of market volatility. We are introducing our 2023 EPS guidance of $1.50 to $1.70. At the midpoint, this represents APS growth of 70% over 2022 and reflects higher deliveries, higher lease rates, and improved segment margins. And finally, in the fourth quarter, we completed our acquisition of Holden America, our second acquisition of 2022. Eric will discuss this acquisition and our general view on future acquisitions. And now let's turn to slide four for a market update. While we continue to feel the impact of railroad labor shortages on rail service and traffic, there have recently been some improvements in rail service metrics that give us hope that we have seen the worst. But the number of operating employees remains a key constraint for carriers heading into 2023. Without significant hiring, rail service improvements will be tough to maintain. We saw 2022 rail carload volumes in the year even with 2021. Markets like grain and automotive carried meaningful momentum into the new year, but other markets, such as chemical and metals, experienced notable headwinds late in 2022. At the same time, the number of rail cars in storage ticked up, consistent with normal seasonal trends and the volatility in carload traffic but still remained well below the five-year average. We continue to expect the existing fleet of rail cars to remain tight in 2023 and replacement needs to drive new rail car demand. Moving to the bottom of the slide, I already mentioned our FLRD is above 25%, which is a significant step up from where it was last quarter. Our lease fleet utilization in the fourth quarter held steady at 97.9%, which is the same levels we saw pre-pandemic and is evidence of a tight fleet. We received orders for 3,015 rail cars in the quarter and delivered 4,400. We ended their year with a backlog of 32,270 rail cars valued at $3.9 billion. We expect to deliver approximately 49% of this backlog in 2023, and given the multi-year order we booked in the third quarter, we expect some of this backlog to extend as late as 2028. Our backlog and recent inquiry levels represent replacement level demand, and our customers need these cars for supply chain management, which gives us confidence and visibility into our delivery forecast. Slide five shows the fourth quarter performance year over year. Our quarterly revenue of $591 million was up 25% as compared to a year ago, and our fourth quarter adjusted EPS of 44 cents was up 450%. While our cash flow from continuing ops in the quarter of $62 million was down 69%, Our adjusted free cash flow of $138 million was up 394%. Slide 6 shows our full year 2022 performance as compared to 2021. Our revenue, just below $2 billion, was up 30% from a year prior. And our full year adjusted EPS improved by 176%, as I previously mentioned. Additionally, our railcar deliveries improved by 50% in 2022, and our ending backlog was $3.9 billion. For the full year, cash flow was impacted by elevated working capital related to higher volumes of railcar deliveries and continued supply chain challenges. When you look at the year-over-year cash flow variance, It is worth noting that 2021 benefited from collecting $438 million in income tax receivables. Please turn with me to slide seven for segment results. I've already talked about the strong FLRD and fleet utilization in the leasing segment, but I also wanted to mention our renewal success rate in the fourth quarter of 85%. Our success rate for the entire year was 82%, a level we have not seen since 2014. This success rate shows that even as we are able to increase rates at renewal to match rising current rates, customers continue to value holding the railcar and thus accept the higher rates. In short, The railcar fleet is still tight, and we have a lot of visibility and stability on the leasing side of our business. Leasing segment revenue of $197 million in the fourth quarter reflects improved rates and net lease fleet investment activities. Our FLRD has now been positive for six quarters, and we are starting to see those higher rates reflected in our financials. Leasing and management operating profit margins were 38.3% in the fourth quarter and were up sequentially due to net lease fleet investment activities. Margins were down year over year because of a general increase in maintenance, which tends to be cyclical in nature, as well as higher depreciation expense, mainly due to our sustainable railcar conversion program. In the rail product segment, Quarterly revenue of $656 million was up sequentially and year over year due to higher deliveries and favorable pricing and product mix. Our pace of deliveries picked up as the year progressed, and we exited the year at a higher run rate. In the first half of 2022, we delivered just under 5,000 rail cars, which improved to over 8,000 in the second half of the year. Our operating margins in the rail product segment came in at 2.8% in the fourth quarter and 2.8% for the full year. We spoke at length in our third quarter call about operating inefficiencies and supply chain issues pulling down margins. Unfortunately, these issues continue to impact us in the fourth quarter. In addition to continued rail service disruptions, supplier deliveries have not kept pace with our scheduled needs, and railcar completion on several lines fell behind. Furthermore, capacity at facilities has increased more slowly than expected to meet our original production schedule. Labor was a challenge, with higher attrition requiring more hiring and onboarding than expected, which was significant given the increase in hiring we needed to achieve to match an increased production level, specifically in Mexico. The impact of rail service, supply chain, and labor issues was over 400 basis points of efficiency lost in operating profit. This means if our efficiency had performed as expected, our quarterly margin in the segment would have been about 7%. which is in the high single-digit range we anticipated. We still expect to exit the planning period with rail products margins in the high single digits as we expect these issues to ease through 2023. Finally, moving to slide eight, I want to point out a few more key accomplishments. In December, we raised our quarterly dividend to 26 cents per share an increase of approximately 13%, delivering on our three year goal of double digit dividend growth. Additionally, our board approved a new share repurchase authorization of $250 million with no expiration. This gives us more flexibility on timing as we consider various methods of capital deployment. Our net lease fleet investment for the year was $178 million, slightly below our anticipated range of $250 million to $300 million. This is due to both a stronger-than-expected secondary market, driving higher-than-expected railcar sales, and lower delivery to the lease fleet, given some of the supply chain issues impacting our delivery rate. Our pre-tax ROE was 10.4% for the full year. We ended 2021 with a full-year ROE of 3.4%, so 2022 marks a significant and sustainable improvement towards our strategic goal of a mid-teen ROE. 2023 marks the third year of our three-year plan we introduced at the end of 2020. On our third quarter call, we modified our operating cash flow target to a range of $1.2 billion to $1.4 billion to account for the sale of our highway business, higher working capital needs, and geography of rail car sales. Other than that adjustment, we are on track to hit those three-year targets, and we continue to work toward hitting these metrics. Before I turn the call to Eric, I wanted to talk about a few things in our business. First, despite supply chain and rail service challenges, we continue to see strong inquiries and have great customer relationships, which gives us confidence in order flow in the near future. In addition to EPS growth in 2023, I also want to emphasize that we are seeing a significant amount of operating leverage in our business and expect to continue seeing higher returns, which we think is a more impactful measurement of our business, given the value of our lease fleet and the visibility we have into our business. We continue to make organizational changes and initiatives to focus on positioning our manufacturing and leasing businesses to maximize value creation through tough external headwinds. The rail products group is a strategic asset that provides revenue diversity and competitive advantage, but tends to be more volatile given its exposure to market and labor issues in the short term, which has certainly been the case this year. However, over multi-year periods, the business trends with the same railcar fundamentals as the leasing business, and there is a significant return to be made. In closing, despite an unpredictable macroeconomic backdrop, I am proud of what our team accomplished this year. Operating any business does not come without challenges. but I have confidence in our ability to execute in 2023 on our three-year goals, given the strength of our business model and the team we have in place. And now I'll turn the call over to Eric to review our financial results.