Trinity Industries, Inc.

Good day and welcome to the Trinity Industries fourth quarter and full year 2023 results conference call. All participants will be in listen-only mode. Should you need 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 your question, 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 and includes statements as to estimates, expectations, intentions, and predictions of future financial performance. Statements that are not historical facts are forward-looking. Participants that 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 fourth quarter 2023 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 certain non-GAAP financial metrics. The reconciliations of the non-gap metrics to comparable gap measures are provided in the appendix of the supplemental slides, which are accessible on our investor relations website at www.trin.net. These slides are 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 29, 2024. 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. We ended 2023 on a strong note and proved our ability to deliver results despite unexpected challenges throughout the year. Our 2023 revenue of $3 billion was up 51% year over year. Four-year gap EPS was $1.43 per diluted share, and adjusted EPS was $1.38, up 47% year-over-year. Segment margins, excluding railcar sales, were up year-over-year in both the rail products group and the railcar leasing and management services group. While our 2023 results show significant progress, I'm also encouraged by the forward metrics that are positioning our operations for an even stronger 2024. The future lease rate differential, or FLRD, is currently 23.7%, and our fleet utilization remains high at 97.5%. These indicators show continued strength in the lease fleet and our ability to increase lease rate. On the rail product side of the business, the backlog of $3.2 billion gives us production visibility. It allows us to efficiently plan our operations and compete for business that maximizes our platform's returns in the current market. Eric will discuss our financial expectations for 2024, but we are well positioned to execute a solid year. We also believe we are well positioned in sustainability, safety, and diversity, and I would like to share a few notable updates from these initiatives. In the fourth quarter, Trinity was pleased to receive Union Pacific's first-ever Sustainability Partner Award. We were recognized based on multiple sustainability initiatives. One of the initiatives was our collaboration with UP to deliver the 5239 covered hopper. which utilizes thinner and lighter materials to maximize the car's capacity. Additionally, as part of its EcoConnections Partnership Program, CN recognized Trinity for our efforts and commitment to sustainability. In Mexico, we earned the ESR badge again, highlighting our work to promote employee well-being, sustainability, environmental stewardship, philanthropy, and community involvement. Finally, Newsweek recently named us one of the greatest workplaces for diversity, highlighting our steadfast commitment to cultivating an inclusive environment where diverse perspectives coexist and thrive. We strongly believe these awards are recognition of hard work and dedication. I want to congratulate our team for keeping our core values at the forefront of our minds. Before discussing specifics from the quarter and the year, I'd like to discuss what we're seeing in the market. Car loads improved sequentially and year-over-year in the fourth quarter with improvements in chemicals, certain energy markets, and key agricultural markets like grain mill products, fertilizer, and biofuels. Automotive demand has remained strong as supply chain issues continue to improve. This is despite consumers' perceived headwinds due to the recent high inflation levels and higher borrowing costs. These are favorable trends for tank cars and auto racks. Railroad service is improving. In December, train speeds were the fastest since January 2021, with dwell times also showing faster service among the Class 1 railroads. This improvement has contributed to lower active railcar needs despite carload gains with just over 20,000 more railcars in storage at the beginning of February than a year ago. Nevertheless, we continue to view fluid rail service as a positive and believe better rail service will drive modal share growth and ultimately a stronger rail industry. Coupling better rail service with our emerging logistics platform incentivizes customers to increase rail usage in their supply chain planning. Now I want to provide some segment level highlights, starting with the rail car leasing and management services segment. In the fourth quarter, our leasing group earned $222 million in revenue and $136 million in operating profit. As foreshadowed earlier this year, Fourth quarter results included rail car sales proceeds of $136 million and a gain of $36 million. In the full year, leasing segment revenues were up 13% year over year, driven by favorable FLRD all year, higher lease rates, and net additions to the fleet. Furthermore, our 2023 revenue includes RSI logistics, which we acquired in the first quarter of 2023. As mentioned at the beginning of the call, the FLRD was 23.7% in the fourth quarter, and fleet utilization remained favorable at 97.5%. For the full year, our renewal rates were approximately 30% higher than expiring rates, and our average renewal lease term was 54 months, allowing us to lock in the higher rates longer. While the operating margin of 49.2%, which includes secondary market railcar sales, is down year-over-year, this is driven by significantly more gains in railcar sales in 2022. When removing the impact of the gains, the segment margin is up year-over-year and reflects the impact of higher lease rates improving performance in the sector. Trinity delivered 17,355 rail cars in 2023 and 4,000 in the fourth quarter. Fourth quarter deliveries were approximately 1,300 units below our projections, primarily as a result of the border closing. In addition to the previous border closure that affected us in Q3, the U.S. Customs and Border Protection Agency closed the International Railway crossing bridges at Eagle Pass and El Paso, Texas on December 18th, and they remained fully closed until December 22nd. Eagle Pass is Trinity's primary border crossing for railcar deliveries from our Sabinas and Monclova Mexico manufacturing facilities. The financial impact of the border closure and related congestion primarily includes lost revenue on delayed units, increased freight and storage expenses, reduced efficiency, and increased overtime pay. In the fourth quarter, Trinity booked 840 new railcar orders, or about 20% of the quarterly industry orders, which demonstrates the lumpiness of order activity from quarter to quarter. For the full year, our share of industry orders was in our normal range of 30 to 40%, and we still hold about half of the industry backlog with long lead times on most new orders. This allows us to be disciplined in the orders we accept into our backlog. We have seen inquiry activity pick up substantially in the first quarter and continue to view our backlog and our order volume favorably. In the fourth quarter, segment revenue of $674 million was slightly down sequentially, primarily due to the border closing preventing us from getting finished rail cars across the border by year end. This also affected the segment's operating margin, which was 6.1%. Fourth quarter results included gains from insurance recoveries. The margin would be 5.9%, excluding the gains, up 70 basis points sequentially. The border closure affects our efficiency, which results in lower margins. The margin impact from the border closure was approximately 150 basis points in the fourth quarter. On the four-year basis, the rail products group showed significant improvement year over year. Deliveries were 30% higher year over year, driving revenue improvement of 30% and operating profit improvement of 119% in the segment. This is especially impressive when you remember the headwinds we faced in 2023, including challenges with labor in Mexico, as well as external challenges, including a strengthening peso at the beginning of the year, border closures and related supply chain challenges in the back half of the year. Our full year operating margin of 4.8% is up 200 basis points from 2022, and we expect to see continued improvement in 2024. Over the last several years, external headwinds have negatively impacted the manufacturing business's performance. We will remain disciplined in our pricing and production decisions to account for our current external limitations, allowing us to drive consistent and efficient operations. We have conducted our annual make versus buy review and have found opportunities to bring some capabilities in-house. We're also working in tandem with our logistics partners to ease constraints at the border. And we'll continue to evolve our manufacturing footprint and product portfolio in order to maximize returns for our entire platform. I feel confident this is a necessary step for Trinity and expect to see the positive effects in 2024. Before I turn the call over to Eric, I would like to take a minute to review some highlights from 2023. I already mentioned some of the challenging headwinds we faced, and I'm so proud of our employees and their willingness to work hard to find creative solutions that drove results with considerable year-over-year growth, despite an unexpected operating environment. As mentioned, we completed our acquisition of RSI Logistics in the first quarter. We are very pleased with the performance of this business and their prior acquisitions as we have worked to integrate them into Trinity. Ultimately, our goal is to make rail shipping an easy choice for shippers across North America. We have focused on expanding our offerings to include digitally-enabled logistics services as our customers work to modernize their supply chains. We are working to enhance our large, diversified lease fleet and better serve our customers. We believe Trinity has a growing strategic value to our customers because of these services. Continued focus on service expansion will make Trinity and the rail industry as a whole more appealing to customers. On a related note, as you may have seen previewed in our press release this morning, we have moved our maintenance business into our rail car leasing segment, effective January 1st. Trinity is a leasing company enabled by manufacturing and services, and this change reflects that organizational structure. It allows us to better leverage our maintenance services capabilities to support lease fleet optimization and to grow our services business. As a result, we will rename the segment the Railcar Leasing and Services Group. We will recast all prior segment results, starting with our first quarter filings, which will change the margin makeup of both segments. Eric will give some guidance on how to think about these segments in 2024 and going forward. Finally, as we look forward strategically as a company, I'm excited to announce that we will host an Investor Day in Dallas on Tuesday, June 25th. Reach out to Leanne for information on the event and accommodations. We look forward to hosting you in Texas and sharing our vision for Trinity. And now, I'll turn the call over to Eric to review the financial statements, discuss the fourth quarter results, and share our expectations for 2024.