Exhibit 99.1
FOR IMMEDIATE RELEASE
Trinity Industries, Inc. Announces First Quarter 2023 Results
Generates operating and adjusted free cash flow of $103 million and $36 million, respectively
Reports quarterly GAAP and adjusted earnings from continuing operations of $0.09 and $0.07 per diluted share, respectively
Lease fleet utilization of 98.2% and Future Lease Rate Differential ("FLRD") of positive 44.3% at quarter end
Delivered 4,045 railcars and received orders for 2,690 railcars in the quarter; backlog of $3.7 billion at quarter-end
DALLAS, Texas – May 2, 2023 – Trinity Industries, Inc. (NYSE:TRN) today announced earnings results for the first quarter ended March 31, 2023.
Financial and Operational Highlights
•Quarterly total company revenues of $642 million; 36% improvement year over year
•Quarterly income from continuing operations per common diluted share ("EPS") of $0.09 and quarterly adjusted EPS of $0.07
•Lease fleet utilization of 98.2% and FLRD of positive 44.3% at quarter end
•Railcar deliveries of 4,045 and new railcar orders of 2,690
•Year-to-date cash flow from continuing operations and adjusted free cash flow after investments and dividends ("Adjusted Free Cash Flow") were $103 million and $36 million, respectively
2023 Guidance
•Industry deliveries of 40,000 to 45,000 railcars
•Net investment in the lease fleet of $250 million to $350 million
•Manufacturing capital expenditures of $40 million to $50 million
•Confirming EPS of $1.50 to $1.70
◦Excludes items outside of our core business operations
Management Commentary
“The start of 2023 was busy at Trinity as we continued to ramp up production and optimize our business,” said Trinity’s Chief Executive Officer and President, Jean Savage. “We also completed the acquisition of RSI Logistics in the first quarter and have been very encouraged by customer feedback that reinforces our strategy to grow this business.”
“In our Railcar Leasing and Management Services Group, lease rates and utilization improved again. The Future Lease Rate Differential improved sequentially to 44.3% giving us optimism about lease rates continuing to increase this year. Additionally, our lease fleet utilization of 98.2% shows customer demand remains robust, further supporting strength in this market.”
“While the margins in the Rail Products group continue to reflect headwinds, we are seeing improvement in hiring and retention, rail service levels, and supply chain challenges,” Ms. Savage continued. "This gives us confidence that we will continue to see margin improvement through the year, and Trinity will take advantage of the operating leverage in this business.”
Ms. Savage concluded, “We are maintaining our EPS guidance of $1.50 to $1.70, which reflects revenue and margin improvement through the year, and we continue to feel optimistic about what Trinity can accomplish in 2023.”
Consolidated Financial Summary
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| Three Months Ended
March 31, | | |
| 2023 | | 2022 | | Year over Year – Comparison |
| ($ in millions, except per share amounts) | | |
| Revenues | $ | 641.7 | | $ | 472.7 | | Higher volume of, and improved pricing on, external deliveries in the Rail Products Group |
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Operating profit | $ | 69.0 | | $ | 54.8 | | Higher external deliveries in the Rail Products Group and improved lease rates in the Leasing Group, partially offset by increased employee-related and other operating costs |
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| Interest expense, net | $ | 62.1 | | $ | 43.5 | | Higher interest rates associated with variable rate debt and higher overall average debt during Q1 2023 |
| Net income from continuing operations attributable to Trinity Industries, Inc. | $ | 7.5 | | $ | 7.3 | | |
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EBITDA (1) | $ | 144.1 | | $ | 123.9 | | |
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| Effective tax (benefit) expense rate | (217.0) | % | | 23.3 | % | | Current quarter tax rate includes benefits related to release of residual taxes out of AOCI and changes in valuation allowances, offset by re-measurement of net deferred tax liabilities as a result of RSI acquisition |
| Diluted EPS – GAAP | $ | 0.09 | | $ | 0.09 | | |
Diluted EPS – Adjusted (1) | $ | 0.07 | | $ | 0.03 | | |
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| Net cash provided by operating activities – continuing operations | $ | 102.5 | | $ | 28.5 | | Working capital improvements relative to inventory build-up in the prior year |
Adjusted Free Cash Flow (1) | $ | 36.2 | | $ | 47.8 | | |
| Net lease fleet investment | $ | 134.8 | | $ | 13.5 | | Higher lease fleet investment in the current year in response to improved market conditions |
| Returns of capital to stockholders | $ | 21.1 | | $ | 19.1 | | |
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(1) Non-GAAP financial measure. See the Reconciliations of Non-GAAP Measures section within this Press Release for a reconciliation to the most directly comparable GAAP measure and why management believes this measure is useful to management and investors.
Additional Business Items
•Total committed liquidity of $452 million as of March 31, 2023.
•Acquired RSI Logistics, a data-centric provider of proprietary software and logistics and terminal management solutions to the North American rail industry, for an aggregate purchase price of $72 million.
Business Group Summary
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| Three Months Ended
March 31, | | |
| 2023 | | 2022 | | Year over Year – Comparison |
| ($ in millions) | | |
| Railcar Leasing and Management Services Group | | |
| Leasing and management revenues | $ | 203.5 | | $ | 183.1 | | Improved lease rates and higher utilization |
| Leasing and management operating profit | $ | 72.0 | | $ | 68.0 | | Improved lease rates and higher utilization, partially offset by higher maintenance costs and increased depreciation |
Operating profit on lease portfolio sales (1) | $ | 13.5 | | $ | 10.5 | | Higher profits on lease fleet portfolio sales |
Fleet utilization (2) | 98.2 | % | | 96.5 | % | | |
Future Lease Rate Differential (3) | +44.3 | % | | +2.4 | % | | Improvement in current market lease rates |
Owned lease fleet (in units) (2) | 108,865 | | 107,090 | | Growth in the lease fleet, partially offset by lease fleet portfolio sales |
| Investor-owned lease fleet (in units) | 33,420 | | 29,740 | | Additional sale to Signal Rail in Q3 2022 |
| Rail Products Group | | | | | |
| Revenues | $ | 637.8 | | $ | 391.1 | | Higher volume of deliveries and favorable pricing, partially offset by the mix of railcars sold |
| Revenues eliminations – Lease subsidiary | $ | (199.4) | | $ | (101.3) | | |
| Operating profit | $ | 25.3 | | $ | 0.8 | | Increased deliveries and favorable pricing, partially offset by higher labor-related costs and the mix of railcars sold. Includes insurance recoveries of $1.2 million and $6.4 million in the current and prior year quarters, respectively |
| Operating profit eliminations – Lease subsidiary | $ | (16.8) | | $ | (8.8) | | |
| Operating profit margin | 4.0 | % | | 0.2 | % | | |
| New railcars: | | | | | |
| Deliveries (in units) | 4,045 | | 2,470 | | |
| Orders (in units) | 2,690 | | 5,055 | | |
| Order value | $ | 300.8 | | $ | 634.7 | |
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| Backlog value | $ | 3,705.9 | | $ | 1,895.4 | |
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| Sustainable railcar conversions: | | | | | |
| Deliveries (in units) | 590 | | 445 | | |
| Backlog (in units) | 2,085 | | 1,275 | | |
| Backlog value | $ | 173.7 | | $ | 128.2 | | |
| Corporate and other | | | | | |
| Selling, engineering, and administrative expenses | $ | 26.0 | | $ | 22.2 | | Higher employee-related costs |
| Gains on dispositions of property | $ | — | | $ | (6.5) | | Prior year quarter includes gain on disposition of non-operating facilities |
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| March 31, 2023 | | December 31, 2022 | | |
| Loan-to-value ratio | | | | | |
| Wholly-owned subsidiaries, excluding corporate revolving credit facility | 65.0 | % | | 65.7 | % | | |
(1) Excludes $1.3 million selling profit associated with sales-type leases for the three months ended March 31, 2022.
(2) Includes wholly-owned railcars, partially-owned railcars, and railcars under leased-in arrangements.
(3) FLRD calculates the implied change in lease rates for railcar leases expiring over the next four quarters. The FLRD assumes that these expiring rates will be renewed at the most recent quarterly transacted lease rates for each railcar type. We believe the FLRD is useful to both management and investors as it provides insight into the near-term trend in lease rates.
Conference Call
Trinity will hold a conference call at 8:00 a.m. Eastern on May 2, 2023 to discuss its first quarter results. To listen to the call, please visit the Investor Relations section of the Company's website at www.trin.net and access the Events & Presentations webpage, or the live call can be accessed at 1-888-317-6003 with the conference passcode "4840816". Please call at least 10 minutes in advance to ensure a timely connection. An audio replay may be accessed through the Company’s website or by dialing 1-877-344-7529 with passcode "2259191" until 11:59 p.m. Eastern on May 9, 2023.
Additionally, the Company will provide Supplemental Materials to accompany the earnings conference call. The materials will be accessible both within the webcast and on Trinity's Investor Relations website under the Events and Presentations portion of the site along with the First Quarter Earnings Call event weblink.
Non-GAAP Financial Measures
We have included financial measures compiled in accordance with generally accepted accounting principles ("GAAP") and certain non-GAAP measures in this earnings press release to provide management and investors with additional information regarding our financial results. Non-GAAP measures should not be considered in isolation or as a substitute for our reporting results prepared in accordance with GAAP and, as calculated, may not be comparable to other similarly titled measures for other companies. For each non-GAAP financial measure, a reconciliation to the most comparable GAAP measure has been included in the accompanying tables. When forward-looking non-GAAP measures are provided, quantitative reconciliations to the most directly comparable GAAP measures are not provided because management cannot, without unreasonable effort, predict the timing and amounts of certain items included in the computations of each of these measures. These factors include, but are not limited to: the product mix of expected railcar deliveries; the timing and amount of significant transactions and investments, such as lease portfolio sales, capital expenditures, and returns of capital to stockholders; and the amount and timing of certain other items outside the normal course of our core business operations.
About Trinity Industries
Trinity Industries, Inc., headquartered in Dallas, Texas, owns businesses that are leading providers of rail transportation products and services in North America. Our businesses market their railcar products and services under the trade name TrinityRail®. The TrinityRail platform provides railcar leasing and management services; railcar manufacturing, maintenance and modifications; and other railcar logistics products and services. Trinity reports its financial results in two reportable segments: the Railcar Leasing and Management Services Group and the Rail Products Group. For more information, visit: www.trin.net.
Some statements in this release, which are not historical facts, are “forward-looking statements” as defined by the Private Securities Litigation Reform Act of 1995. Forward-looking statements include statements about Trinity's estimates, expectations, beliefs, intentions or strategies for the future, and the assumptions underlying these forward-looking statements, including, but not limited to, future financial and operating performance, future opportunities and any other statements regarding events or developments that Trinity believes or anticipates will or may occur in the future. Trinity uses the words “anticipates,” “assumes,” “believes,” “estimates,” “expects,” “intends,” “forecasts,” “may,” “will,” “should,” “guidance,” “projected,” “outlook,” and similar expressions to identify these forward-looking statements. Forward-looking statements speak only as of the date of this release, and Trinity expressly disclaims any obligation or undertaking to disseminate any updates or revisions to any forward-looking statement contained herein to reflect any change in Trinity’s expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based, except as required by federal securities laws. Forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from historical experience or our present expectations, including but not limited to risks and uncertainties regarding economic, competitive, governmental, and technological factors affecting Trinity’s operations, markets, products, services and prices, and such forward-looking statements are not guarantees of future performance. For a discussion of such risks and uncertainties, which could cause actual results to differ from those contained in the forward-looking statements, see “Risk Factors” and “Forward-Looking Statements” in Trinity’s Annual Report on Form 10-K for the most recent fiscal year, as may be revised and updated by Trinity’s Quarterly Reports on Form 10-Q, and Trinity’s Current Reports on Form 8-K.
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| Investor Contact: |
| Leigh Anne Mann |
| Vice President, Investor Relations |
| Trinity Industries, Inc. |
| (Investors) 214/631-4420 |
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| Media Contact: |
| Jack L. Todd |
| Vice President, Public Affairs |
| Trinity Industries, Inc. |
| (Media Line) 214/589-8909 |
- TABLES TO FOLLOW -
Trinity Industries, Inc.
Condensed Consolidated Statements of Operations
(in millions, except per share amounts)
(unaudited)
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| | | Three Months Ended
March 31, |
| | | | | 2023 | | 2022 |
| Revenues | | | | | $ | 641.7 | | | $ | 472.7 | |
| Operating costs: | | | | | | | |
| Cost of revenues | | | | | 538.5 | | | 398.5 | |
| Selling, engineering, and administrative expenses | | | | | 49.9 | | | 44.7 | |
| Gains on dispositions of property: | | | | | | | |
| Lease portfolio sales | | | | | 13.5 | | | 11.8 | |
| Other | | | | | 1.8 | | | 13.5 | |
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| Restructuring activities, net | | | | | (0.4) | | | — | |
| | | | | 572.7 | | | 417.9 | |
| Operating profit | | | | | 69.0 | | | 54.8 | |
| Interest expense, net | | | | | 62.1 | | | 43.5 | |
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| Other, net | | | | | 1.6 | | | (1.6) | |
| Income from continuing operations before income taxes | | | | | 5.3 | | | 12.9 | |
| Provision (benefit) for income taxes: | | | | | | | |
| Current | | | | | 0.9 | | | 1.8 | |
| Deferred | | | | | (12.4) | | | 1.2 | |
| | | | | (11.5) | | | 3.0 | |
| Income from continuing operations | | | | | 16.8 | | | 9.9 | |
| Loss from discontinued operations, net of income taxes | | | | | (3.1) | | | (6.9) | |
| Loss on sale of discontinued operations, net of income taxes | | | | | — | | | (1.1) | |
| Net income | | | | | 13.7 | | | 1.9 | |
| Net income attributable to noncontrolling interest | | | | | 9.3 | | | 2.6 | |
| Net income (loss) attributable to Trinity Industries, Inc. | | | | | $ | 4.4 | | | $ | (0.7) | |
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| Basic earnings per common share: | | | | | | | |
| Income from continuing operations | | | | | $ | 0.09 | | | $ | 0.09 | |
| Loss from discontinued operations | | | | | (0.04) | | | (0.10) | |
| Basic net income (loss) attributable to Trinity Industries, Inc. | | | | | $ | 0.05 | | | $ | (0.01) | |
| Diluted earnings per common share: | | | | | | | |
| Income from continuing operations | | | | | $ | 0.09 | | | $ | 0.09 | |
| Loss from discontinued operations | | | | | (0.04) | | | (0.10) | |
| Diluted net income (loss) attributable to Trinity Industries, Inc. | | | | | $ | 0.05 | | | $ | (0.01) | |
| Weighted average number of shares outstanding: | | | | | | | |
| Basic | | | | | 80.8 | | | 82.9 | |
| Diluted | | | | | 83.2 | | | 85.5 | |
Trinity has certain unvested restricted stock awards that participate in dividends on a nonforfeitable basis and are therefore considered to be participating securities. Consequently, diluted net income (loss) attributable to Trinity Industries, Inc. per common share is calculated under both the two-class method and the treasury stock method, and the more dilutive of the two calculations is presented.
Trinity Industries, Inc.
Condensed Consolidated Balance Sheets
(in millions)
(unaudited)
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| March 31, 2023 | | December 31, 2022 |
| ASSETS | | | |
| Cash and cash equivalents | $ | 81.9 | | | $ | 79.6 | |
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| Receivables, net of allowance | 333.2 | | | 323.5 | |
| Income tax receivable | 10.1 | | | 7.8 | |
| Inventories | 632.7 | | | 629.4 | |
| Restricted cash | 181.1 | | | 214.7 | |
| Property, plant, and equipment, net: | | | |
| Manufacturing/Corporate | 341.9 | | | 340.7 | |
| Leasing: | | | |
| Wholly-owned subsidiaries | 5,888.1 | | | 5,788.1 | |
| Partially-owned subsidiaries | 1,509.9 | | | 1,521.3 | |
| Deferred profit on railcars sold to the Leasing Group | (763.4) | | | (763.3) | |
| 6,976.5 | | | 6,886.8 | |
| Goodwill | 222.3 | | | 195.9 | |
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| Other assets | 401.4 | | | 386.6 | |
| Total assets | $ | 8,839.2 | | | $ | 8,724.3 | |
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| LIABILITIES AND STOCKHOLDERS' EQUITY | | | |
| Accounts payable | $ | 314.5 | | | $ | 287.5 | |
| Accrued liabilities | 273.7 | | | 261.0 | |
| Debt: | | | |
| Recourse | 704.3 | | | 624.1 | |
| Non-recourse: | | | |
| Wholly-owned subsidiaries | 3,826.9 | | | 3,800.7 | |
| Partially-owned subsidiaries | 1,176.4 | | | 1,182.8 | |
| 5,707.6 | | | 5,607.6 | |
| Deferred income taxes | 1,133.2 | | | 1,134.7 | |
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| Other liabilities | 159.8 | | | 163.9 | |
| Stockholders' equity: | | | |
| Trinity Industries, Inc. | 994.2 | | | 1,012.4 | |
| Noncontrolling interest | 256.2 | | | 257.2 | |
| 1,250.4 | | | 1,269.6 | |
| Total liabilities and stockholders' equity | $ | 8,839.2 | | | $ | 8,724.3 | |
Trinity Industries, Inc.
Condensed Consolidated Statements of Cash Flows
(in millions)
(unaudited)
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| Three Months Ended
March 31, |
| 2023 | | 2022 |
| Operating activities: | | | |
| Net cash provided by operating activities – continuing operations | $ | 102.5 | | | $ | 28.5 | |
| Net cash used in operating activities – discontinued operations | (3.1) | | | (8.0) | |
| Net cash provided by operating activities | 99.4 | | | 20.5 | |
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| Investing activities: | | | |
| Proceeds from lease portfolio sales | 56.7 | | | 71.1 | |
| Proceeds from dispositions of property and other assets | 4.9 | | | 15.6 | |
| Capital expenditures – leasing | (191.5) | | | (84.6) | |
| Capital expenditures – manufacturing and other | (7.1) | | | (2.3) | |
| Acquisitions, net of cash acquired | (66.2) | | | — | |
| Proceeds from insurance recoveries | 1.2 | | | — | |
| Other | (1.1) | | | — | |
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| Net cash used in investing activities | (203.1) | | | (0.2) | |
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| Financing activities: | | | |
| Net proceeds from (repayments of) debt | 96.7 | | | 54.2 | |
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| Dividends paid to common shareholders | (21.1) | | | (19.1) | |
| Other | (3.2) | | | (6.4) | |
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| Net cash provided by financing activities | 72.4 | | | 28.7 | |
| Net increase (decrease) in cash, cash equivalents, and restricted cash | (31.3) | | | 49.0 | |
| Cash, cash equivalents, and restricted cash at beginning of period | 294.3 | | | 302.4 | |
| Cash, cash equivalents, and restricted cash at end of period | $ | 263.0 | | | $ | 351.4 | |
Trinity Industries, Inc.
Reconciliations of Non-GAAP Measures
(in millions, except per share amounts)
(unaudited)
Adjusted Operating Results
We have supplemented the presentation of our reported GAAP operating profit, income from continuing operations before income taxes, provision (benefit) for income taxes, income from continuing operations, net income from continuing operations attributable to Trinity Industries, Inc., and diluted income from continuing operations per common share attributable to Trinity Industries, Inc. with non-GAAP measures that adjust the GAAP measures to exclude the impact of certain gains on dispositions of other property; restructuring activities, net; interest expense, net; and certain other transactions or events (as applicable). These non-GAAP measures are derived from amounts included in our GAAP financial statements and are reconciled to the most directly comparable GAAP financial measures in the tables below. Management believes that these measures are useful to both management and investors for analyzing the performance of our business without the impact of certain items that are not indicative of our normal business operations. Non-GAAP measures should not be considered in isolation or as a substitute for our reporting results prepared in accordance with GAAP and, as calculated, may not be comparable to other similarly titled measures for other companies.
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| Three Months Ended March 31, 2023 |
| GAAP | | | | Gains on dispositions of property – other (1) | | Restructuring activities, net | | Interest expense, net (2) | | | | Adjusted |
| Operating profit | $ | 69.0 | | | | | $ | (1.2) | | | $ | (0.4) | | | $ | — | | | | | $ | 67.4 | |
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| Income from continuing operations before income taxes | $ | 5.3 | | | | | $ | (1.2) | | | $ | (0.4) | | | $ | (0.4) | | | | | $ | 3.3 | |
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| Provision (benefit) for income taxes | $ | (11.5) | | | | | $ | (0.4) | | | $ | (0.1) | | | $ | (0.1) | | | | | $ | (12.1) | |
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| Income from continuing operations | $ | 16.8 | | | | | $ | (0.8) | | | $ | (0.3) | | | $ | (0.3) | | | | | $ | 15.4 | |
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| Net income from continuing operations attributable to Trinity Industries, Inc. | $ | 7.5 | | | | | $ | (0.8) | | | $ | (0.3) | | | $ | (0.3) | | | | | $ | 6.1 | |
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| Diluted weighted average shares outstanding | 83.2 | | | | | | | | | | | | 83.2 |
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| Diluted income from continuing operations per common share attributable to Trinity Industries, Inc. | $ | 0.09 | | | | | | | | | | | | | $ | 0.07 | |
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| Three Months Ended March 31, 2022 |
| GAAP | | Gains on dispositions of property – other (1) | | | | | | | | Interest expense, net (2) | | | | Adjusted |
| Operating profit | $ | 54.8 | | | $ | (6.4) | | | | | | | | | $ | — | | | | | $ | 48.4 | |
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| Income from continuing operations before income taxes | $ | 12.9 | | | $ | (6.4) | | | | | | | | | $ | (0.3) | | | | | $ | 6.2 | |
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| Provision (benefit) for income taxes | $ | 3.0 | | | $ | (1.6) | | | | | | | | | $ | (0.1) | | | | | $ | 1.3 | |
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| Income from continuing operations | $ | 9.9 | | | $ | (4.8) | | | | | | | | | $ | (0.2) | | | | | $ | 4.9 | |
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| Net income from continuing operations attributable to Trinity Industries, Inc. | $ | 7.3 | | | $ | (4.8) | | | | | | | | | $ | (0.2) | | | | | $ | 2.3 | |
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| Diluted weighted average shares outstanding | 85.5 | | | | | | | | | | | | | | 85.5 |
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| Diluted income from continuing operations per common share attributable to Trinity Industries, Inc. | $ | 0.09 | | | | | | | | | | | | | | | $ | 0.03 | |
(1) Represents insurance recoveries in excess of net book value for assets damaged by a tornado at the Company’s rail maintenance facility in Cartersville, Georgia in the first quarter of 2021.
(2) Represents interest income accretion related to a seller-financing agreement associated with the sale of certain non-operating assets.
Adjusted Free Cash Flow
Adjusted Free Cash Flow After Investments and Dividends ("Adjusted Free Cash Flow") is a non-GAAP financial measure. We believe Adjusted Free Cash Flow is useful to both management and investors as it provides a relevant measure of liquidity and a useful basis for assessing our ability to fund our operations and repay our debt. Adjusted Free Cash Flow is reconciled to net cash provided by operating activities from continuing operations, the most directly comparable GAAP financial measure, in the following table. Adjusted Free Cash Flow is defined as net cash provided by operating activities from continuing operations as computed in accordance with GAAP, plus cash proceeds from lease portfolio sales, less capital expenditures for manufacturing, dividends paid, and Equity CapEx for leased railcars. Equity CapEx for leased railcars is defined as leasing capital expenditures, adjusted to exclude net proceeds from (repayments of) recourse and non-recourse debt. Non-GAAP measures should not be considered in isolation or as a substitute for our reporting results prepared in accordance with GAAP and, as calculated, may not be comparable to other similarly titled measures for other companies.
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| Three Months Ended
March 31, |
| 2023 | | 2022 |
| Net cash provided by operating activities – continuing operations | $ | 102.5 | | | $ | 28.5 | |
| Proceeds from lease portfolio sales | 56.7 | | | 71.1 | |
| Capital expenditures – manufacturing and other | (7.1) | | | (2.3) | |
| Dividends paid to common stockholders | (21.1) | | | (19.1) | |
| Equity CapEx for leased railcars | (94.8) | | | (30.4) | |
| Adjusted Free Cash Flow After Investments and Dividends | $ | 36.2 | | | $ | 47.8 | |
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| Capital expenditures – leasing | $ | 191.5 | | | $ | 84.6 | |
| Less: | | | |
| Payments to retire debt | (149.6) | | | (73.0) | |
| Proceeds from issuance of debt | 246.3 | | | 127.2 | |
| Net proceeds from (repayments of) debt | 96.7 | | | 54.2 | |
| Equity CapEx for leased railcars | $ | 94.8 | | | $ | 30.4 | |
EBITDA and Adjusted EBITDA
“EBITDA” is defined as income from continuing operations plus interest expense, income taxes, and depreciation and amortization expense. Adjusted EBITDA is defined as EBITDA plus gains on dispositions of other property; restructuring activities, net; and interest income. EBITDA and Adjusted EBITDA are non-GAAP financial measures; however, the amounts included in these calculations are derived from amounts included in our GAAP financial statements. EBITDA and Adjusted EBITDA are reconciled to net income, the most directly comparable GAAP financial measure, in the following table. This information is provided to assist management and investors in making meaningful comparisons of our operating performance between periods. We believe EBITDA is a useful measure for analyzing the performance of our business. We also believe that EBITDA is commonly reported and widely used by investors and other interested parties as a measure of a company’s operating performance and debt servicing ability because it assists in comparing performance on a consistent basis without regard to capital structure, depreciation or amortization (which can vary significantly depending on many factors). EBITDA and Adjusted EBITDA should not be considered as alternatives to net income as indicators of our operating performance, or as alternatives to operating cash flows as measures of liquidity. Non-GAAP measures should not be considered in isolation or as a substitute for our reporting results prepared in accordance with GAAP and, as calculated, may not be comparable to other similarly titled measures for other companies.
| | | | | | | | | | | | | | | |
| | | Three Months Ended
March 31, |
| | | | | 2023 | | 2022 |
| Net income | | | | | $ | 13.7 | | | $ | 1.9 | |
| Less: Loss from discontinued operations, net of income taxes | | | | | (3.1) | | | (6.9) | |
| Less: Loss on sale of discontinued operations, net of income taxes | | | | | — | | | (1.1) | |
| Income from continuing operations | | | | | $ | 16.8 | | | $ | 9.9 | |
| Interest expense | | | | | 64.8 | | | 44.1 | |
| Provision (benefit) for income taxes | | | | | (11.5) | | | 3.0 | |
| Depreciation and amortization expense | | | | | 74.0 | | | 66.9 | |
EBITDA | | | | | $ | 144.1 | | | $ | 123.9 | |
| Gains on dispositions of property – other | | | | | (1.2) | | | (6.4) | |
| | | | | | | |
| Restructuring activities, net | | | | | (0.4) | | | — | |
| Interest income | | | | | (0.4) | | | (0.3) | |
| | | | | | | |
| | | | | | | |
| Adjusted EBITDA | | | | | $ | 142.1 | | | $ | 117.2 | |
Exhibit 99.2
Trinity Industries, Inc.
Earnings Release Conference Call – Q1 2023
May 2, 2023
Leigh Anne Mann
Vice President, Investor Relations
Thank you, operator. Good morning everyone. We appreciate you joining us for the Company’s first quarter 2023 financial results conference call.
Our prepared remarks will include comments from Jean 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.trin.net. These slides are 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 9th, 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.
E. Jean Savage
Chief Executive Officer and President
Thank you, Leigh Anne, and good morning everyone.
I’ll start on Slide 3 to talk about our key messages from today’s call, which we will expand on later in our prepared remarks.
Our first quarter GAAP EPS from continuing operations was $0.09, and adjusted EPS from continuing operations was $0.07, up $0.04 year over year.
We ended the quarter with our Future Lease Rate Differential, or FLRD, at 44.3%. 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. And our lease fleet utilization improved this quarter to 98.2%, reinforcing that the railcar market remains tight.
We are re-confirming our 2023 EPS guidance of $1.50 to $1.70. We are confident in our ability to achieve these results as we look forward in 2023. We expect to see segment operating margins up significantly as we take advantage of the operating leverage of the business, manufacturing backlog, and strong railcar lease environment.
And finally, in the first quarter, we completed our acquisition of RSI Logistics, a data-centric provider of proprietary rail logistics software and management solutions. I’ll discuss this acquisition and how it fits into our digital strategy later in my prepared remarks.
And now, let’s turn to Slide 4 for a market update.
Starting on the top left, despite intermodal pulling down rail traffic, carloads are up almost 4% year over year. We’re encouraged to see that rail service issues appear to be improving with higher train speeds and shorter dwell times, but overall performance still has room to improve. Near shoring activities, trucking labor headwinds, and heightened interest in ESG continue to foster pent-up demand for rail transportation. Even as railroad service continues to improve, the pent-up demand will continue to drive more rail volume despite uncertain macroeconomic conditions.
Moving to the top right graph, the continued railroad service headwinds are keeping populations of the North American railcar fleet out of storage. At the beginning of April, the AAR reported that more than 82% of the fleet was active, representing a meaningful month over month and year over year improvement. Covered hoppers, primarily for agricultural markets, and open hoppers, for construction materials, metals, and coal, have seen the greatest recent improvement. It’s also worth noting that tank cars are at the lowest level of storage since this metric began in 2016.
Moving to the bottom of this slide, positive commercial momentum continues for our lease fleet. I’ve already mentioned that our FLRD is above 44%, which is a significant step up from last quarter. What we find especially encouraging is that we see improvement in virtually all railcar types in our fleet. The highest increases are coming from our tank car fleet, which has lagged the freight car recovery in recent years. Our lease fleet utilization improved to 98.2%, and we remain optimistic about lease rate growth in the coming quarters given the tight existing railcar market, higher interest rates, and the current inflationary environment. Furthermore, as we lock in substantially higher lease rates, we are also increasing the term of the leases, which gives us confidence in longer-term revenue generation.
We delivered 4,045 railcars in the quarter and received orders for 2,690. We exited the first quarter with a backlog of 30,915 railcars valued at $3.7 billion. Inquiry levels remain supportive of replacement-level demand over the next several years, especially in several key railcar fleets including covered hoppers, gondolas, autoracks, and boxcars. We have been selective in our go-to market strategy in order to maintain steady manufacturing performance through the cycle. Furthermore, this recovery has been supply-led, which has made for a stable market driven by replacement-level demand.
Slide 5 shows the first quarter performance year over year. Our quarterly revenue of $642 million was up 36% compared to a year ago, and our first quarter adjusted EPS of $0.07 was up 133%. While our cash flow from continuing operations in the quarter of $103 million was up 260%, our adjusted free cash flow of $36 million was down 24%. Many moving pieces drove these numbers, and the timing of railcar sales creates variability in free cash flow. I want to start by talking about segment performance and later Eric will discuss cash flow.
Please turn with me to Slide 6 for segment results, starting at the top with the leasing segment.
Leasing segment revenue in the first quarter of $204 million reflects improved renewal rates and higher utilization. Our renewal success rate of 80% in the quarter, increased utilization, and a high FLRD are evidence that market rates are rising and customers are holding onto their railcars and understand the economics of a tight market with elevated interest rates and rising lease rates. Our FLRD has been positive for seven consecutive quarters and, as we continue to raise lease rates, we expect continued revenue growth in this segment.
Leasing and management operating profit margins were 35.4% in the first quarter. Margins were slightly down sequentially due to increased maintenance expense, as well as depreciation expenses because of higher sustainable railcar conversion activity. Remember, sustainable railcar conversions are a cash accretive action for Trinity as they extend the usable life of assets at attractive returns on invested capital. We expect leasing margins to improve as lease rates push upward and these expenses stabilize.
In the Rail Products segment, quarterly revenue was slightly down sequentially due to a lower volume of deliveries compared to the fourth quarter. However, segment revenue was up 63% year over year, reflecting significantly higher deliveries in manufacturing.
Our operating margins in the Rail Products segment came in at 4.0% in the first quarter, an improvement sequentially and year over year. However, these margins are still lower than we would like and reflect a challenging labor environment. The accelerated pace of hiring and onboarding has affected productivity, given the volume of new employees and the need for training. While these issues, along with continued rail service and supply chain issues, continued to affect us through the first quarter, we see improvement across the board. We are optimistic that we are through the worst. All that to say, we expect to see operating margin improve substantially through the year and expect high single-digit margins in this segment.
Turning to Slide 7, we remain focused on our strategic initiatives, and this quarter I want to highlight the work we’re doing to improve the rail supply chain.
As I mentioned at the top of the call, we completed our acquisition of RSI Logistics, a data-centric provider of proprietary software and logistics and terminal management solutions to the North American rail industry. We are excited about this acquisition and the capabilities it gives us. I want to step back and talk about our rail services journey and how this acquisition fits into the future state of our business. Please turn to Slide 8.
Our proprietary Trinsight platform was enhanced with our acquisition of Quasar last year. These businesses give us access and insight into unique data and analytics about railcars, including asset health, shipment condition, location, and yard management. The RSI Logistics acquisition added a full suite of logistics capabilities to our digital portfolio, including shipment execution software and services to efficiently manage rail logistics, transloading, and warehousing solutions.
Our goal is to help our customers optimize their supply chain by making shipments more visible and data real-time and easily accessible. We are creating an end-to-end platform to help our customers safely, efficiently, and predictably bring their products from the point of origin to the point of use.
We are working with industry leaders and channel partners toward broader network integration and optimization through initiatives like RailPulse. Customer feedback on the RSI acquisition has been very positive. Specifically, their transloading and turnkey rail logistics solutions are seen as leaders in the industry, giving our customers an enhanced offering all in one place. We look forward to continuing the integration of this business into Trinity as we work toward a better digital solution for rail shippers.
Eric will talk about full-year expectations in a minute, but I wanted to close by talking about some of the key themes we are seeing that keep us optimistic.
We significantly ramped up hiring in the fourth quarter of 2022 and the first quarter of 2023 and are spending time training those employees. We believe labor has largely stabilized, and we expect substantial efficiency improvement with a more experienced employee base in the second half of the year. The rail services issues that plagued us in 2022, specifically around the border, have largely been resolved. And, while there is still some variation in our supply chain, we have learned to operate through it and do not view this as a significant issue in the future.
We expect revenue to improve on both sides of our business, with higher deliveries and lease rates. We expect margin improvement on both sides of our business, with better efficiency and moderated maintenance expenses. While our first quarter results were dampened, the fundamental strength in our industry is evident, and we are excited about the year ahead as those trends persist and we see an easing of the headwinds.
And finally, since we last spoke in February, I’m proud to report that Trinity has released our 2022 Annual Report and will soon file our 2023 Corporate Social Responsibility report. Regarding our CSR report, we have made progress as a company, and I wanted to preview a few highlights from the report with you today.
First, we’ve achieved our third party limited assurance of Scope 1 and Scope 2 greenhouse gas metrics. Also, for the first time, we are tying executive compensation to environmental metrics, like year over year energy reduction and water usage. Diversity, Equity, and Inclusion metrics will continue to be connected to compensation as well. Our CSR report has excellent information, and I encourage you to check it out and hold us accountable for continued improvement.
In terms of safety, we have reduced our nonfatal occupational injuries and illnesses by 27% over the last three years. I’m proud to say that by putting safety first, and always focusing on continuous improvement, we are now 40% better than the industry.
And now I’ll turn the call over to Eric to review our financial results.
Eric R. Marchetto
Executive Vice President and Chief Financial Officer
Good morning everyone.
Please turn to Slide 9, where we will discuss consolidated financial results.
In the first quarter, revenue of $642 million improved sequentially and year over year due to higher external railcar deliveries and improved pricing. Our adjusted earnings per share of $0.07 was up year over year but down sequentially, due to lower lease portfolio sales in the first quarter. Lease portfolio sales were $57 million in the first quarter with a gain of $14 million.
Our earnings were aided by a 217% tax benefit. Several moving pieces affected our tax rate in the quarter, and I’ll discuss those briefly. In our TRIP leasing subsidiary, we released stranded tax assets previously recorded in AOCI and recorded an income tax benefit of $11.9 million, $7.5 million of which relates to noncontrolling interest. This results in a net $4.4 million positive impact on net income.
Our tax rate also benefited by a $4.0 million change in valuation allowances.
These items were partially offset by a re-measurement of net deferred tax liabilities due to the RSI acquisition, resulting in an increase in deferred tax expense of $3.2 million in the quarter.
Moving to the cash flow statement, our cash flow from continuing operations in the quarter was $103 million, and adjusted free cash flow was $36 million after investments and dividends. We did not repurchase any shares in the quarter but paid $21 million in dividends. In terms of investing activity, our fleet additions totaled $192 million, including deliveries, modifications, and secondary market additions; offset by lease portfolio sales of $57 million, bringing our net fleet investment in the quarter to $135 million. Lease portfolio sales were low in the quarter, and we expect this number to be fairly lumpy through the year, but we are on track for our net fleet investment full year guidance of $250 to $350 million. Our investment of $7 million in manufacturing and general capital expenditures is also on pace for our full-year guidance.
Turning to Slide 10. We currently have liquidity of $451 million, which includes cash and equivalents, revolver availability, and warehouse availability. In the first quarter, we amended our revolving credit facility to increase the total facility commitment from $450 million to $600 million to enhance our liquidity and flexibility.
We are maintaining higher working capital, which we view necessary to support higher levels of deliveries and the current supply chain landscape.
Higher interest rates have impacted our debt profile. Our debt remains approximately 80% fixed rate, but the impact of higher short term rates along with higher debt balances has increased our interest
expense over the last year. In the first quarter, net interest expense of $62 million was up $19 million year over year and will be a headwind to our earnings this year.
And, finally, our loan-to-value for the wholly-owned lease portfolio is 65.0%, in line with our target range.
I’ll conclude my prepared remarks on Slide 11 with our outlook and guidance.
Our outlook remains relatively unchanged from our fourth quarter call. We view North American industry deliveries in the range of 40 thousand to 45 thousand railcars, representing replacement level demand. We expect a net lease fleet investment of $250 million to $350 million for the year, in line with our three-year target. We expect manufacturing and general capital expenditures of $40 million to $50 million for the year, representing investments in safety, efficiency, and automation. We expect to achieve our revised three-year cash flow from operations target of $1.2 to $1.4 billion.
And finally, we are affirming our 2023 adjusted EPS from continuing operations guidance of $1.50 to $1.70 per share. Given that we reported $0.07 in the first quarter, we believe that this guidance shows we expect meaningful improvement in our Rail Group margins in the second half of the year and continued lease rate increases in the Leasing segment.
In conclusion, as we have increased deliveries over the last several quarters, we have not been able to achieve the necessary efficiency levels to get the margins we expect. As more of our employees are onboarded and trained, we expect to see that efficiency improve and financial results to reflect that as the year progresses.
As we said last quarter, improvement does not happen overnight, but the work we have done to attract, train, and retain our workforce will be visible in our results as the year progresses, and we look forward to sharing our progress with you.
And now, operator, we are ready for the first question.
(after Q&A)
E. Jean Savage
Chief Executive Officer and President
Thank you, and thank you again everyone for joining us this morning.
We believe 2023 is going to be a great year for Trinity, with significant improvements through the year in terms of revenue and operating profit in both of our operating segments. We have a talented and motivated workforce, and we look forward to sharing our progress with you through the year.
Thank you again for your continued support.
