Trinity Industries, Inc. · NYSE:TRN
Trinity Industries — Q4 2020 Earnings Presentation
54 slides from Trinity Industries's earnings presentation, Mar 12, 2021
Slide 1: Quarterly Investor Presentation
DELIVERING GOODS for THE GOOD of ALL TRINITY INDUSTRIES, INC. Quarterly Investor Presentation March 12th, 2021 – for the period ended December 31, 2020
Slide 2: Forward-looking statements
DELIVERING GOODS for THE GOOD of ALL /// 2 Some statements in this presentation, 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,
Slide 3: Investor Presentation Contents
DELIVERING GOODS for THE GOOD of ALL /// Investor Presentation – March 2021 3 I. Trinity Industries, Inc. Overview............................... Page 4 II. Key Investment Considerations................................. Page 8 III. Railcar Market Overview.......................................... Pa
Slide 4: Trinity Industries, Inc. Overview
DELIVERING GOODS for THE GOOD of ALL /// • Trinity Industries, Inc. owns market leading businesses that provide railcar products and services in North America – Top 5 Leasing company ~ 107,045 railcars under ownership ~ 26,645 additional railcars under management – Leading manufacturer with 35% of i
Slide 5: Experienced Team Guides a Resilient Platform
DELIVERING GOODS for THE GOOD of ALL /// Experienced Team Guides a Resilient Platform Recent cycle challenged by: • Influx of capital into rail industry ◦ Collapse of oil prices ◦ Industrial decline ◦ Global trade wars ◦ COVID-19 pandemic • Cyclically Experienced Management Team • Resilient Cash Flo
Slide 6: A New Operating Model and Company Purpose
DELIVERING GOODS for THE GOOD of ALL /// A New Operating Model and Company Purpose 6
Slide 7: Key Focus Areas for Enhancing Shareholder Value
DELIVERING GOODS for THE GOOD of ALL /// Key Focus Areas for Enhancing Shareholder Value Strong Cash Flow Generation through the Rail Cycle Optimize the Returns of the Platform Deliver Premier Financial Performance Prudently Deploy Capital to Drive Value Creation 7
Slide 8: Key Investment Considerations
DELIVERING GOODS for THE GOOD of ALL KEY INVESTMENT CONSIDERATIONS
Slide 9: Trinity's Value Proposition – A Sustainable Capital Story
DELIVERING GOODS for THE GOOD of ALL /// Trinity’s Value Proposition – A Sustainable Capital Story 9
Slide 10: Attractive Yielding Assets with Long-tailed Utility
DELIVERING GOODS for THE GOOD of ALL /// A Sustainable Capital Story: Attractive Yielding Assets with Long-tailed Utility Rail Assets Generate Steady Cash Flow through Cycle Railcar Asset Cash Flow Profile: ◦ Stable generation from long-term leases and balanced renewal exposure ◦ Rising future contr
Slide 11: Trinity's Rail Platform Delivers Strategic Synergies
DELIVERING GOODS for THE GOOD of ALL /// A Sustainable Capital Story: Trinity’s Rail Platform Delivers Strategic Synergies ▪ Cost-advantaged railcar equipment sourcing ▪ Tax-advantaged lease fleet investment offsets taxable income and enhances returns ▪ Lower-relative operational cost structure ▪ Hi
Slide 12: Steady State Cash Flow and Free Cash Flow
DELIVERING GOODS for THE GOOD of ALL /// OCF - Continuing Ops Steady State Cash Flow* Average OCF Average Steady State 2016 2017 2018 2019 2020 $0.0 $250.0 $500.0 $750.0 FCF Before Lease Investment* FCF After Leasing Investment* 2016 2017 2018 2019 2020 $(250.0) $0.0 $250.0 $500.0 $750.0 5-Yr Avg ‘S
Slide 13: Reinvestment & Capital Return Drive Shareholder Value
DELIVERING GOODS for THE GOOD of ALL /// LTM BV Per share* Cumulative Dividend per share 12/15 6/16 12/16 6/17 12/17 6/18 12/18 6/19 12/19 6/20 12/20 $10.00 $12.00 $14.00 $16.00 $18.00 $20.00 Valu e Gr owt h CA GR = 12% * See appendix for footnotes A Sustainable Capital Story: Reinvestment & Capital
Slide 14: Enterprise Financial KPIs for Long-Term Performance
DELIVERING GOODS for THE GOOD of ALL /// Enterprise Financial KPI’s for Long-Term Performance Operating and Free Cash Flow Growth Mid-teen Pre-Tax Return on Equity Double- digit Dividend Growth Book Value per Share Growth 14
Slide 15: Commitment to Premier Performance and Sustainability
DELIVERING GOODS for THE GOOD of ALL /// Commitment to Premier Performance and Sustainability 15 Environmental Commitment Social Responsibility Governance Excellence Risk Management Operating our business in a way that minimizes impact on natural resources and the environment • Established Green Fin
Slide 16: Railcars Are Attractive Long-term Investments
DELIVERING GOODS for THE GOOD of ALL /// Railcars Are Attractive Long-term Investments • Long-term leases • High renewal success rates • Low credit defaults and bad debt expense • Active secondary market Stable and Predictable Cash Flows • 35-50 year useful life • Positive yield relationship to infl
Slide 17: Review of Value Proposition
DELIVERING GOODS for THE GOOD of ALL /// Review of Value Proposition 17
Slide 18: Railcar Market Overview
DELIVERING GOODS for THE GOOD of ALL RAILCAR MARKET OVERVIEW
Slide 19: Integral Part of the North American Supply Chain
DELIVERING GOODS for THE GOOD of ALL /// Integral Part of the North American Supply Chain • 1.7 million railcars in North America(1) • 1.3 trillion ton miles moved by rail in 2020(2) • 3,500+ commodities moved by rail(3) • Highly correlated to U.S. GDP • “Desert Island Statistic…” ~ Warren Buffet U.
Slide 20: Delivering Essential Goods to the Global Marketplace
DELIVERING GOODS for THE GOOD of ALL /// Delivering Essential Goods to the Global Marketplace See appendix for source information • Coal • Biofuels • Frac Sand • U.S. Crude • Canadian Crude 32% of North American railcar loadings ~230 distinct commodities Energy • Natural Gas Liquids • Refined Produc
Slide 21: Capitalizing on Structural Change in the Rail Market
DELIVERING GOODS for THE GOOD of ALL /// Capitalizing on Structural Change in the Rail Market The TrinityRail platform was ideally positioned to capture market share during shifting ownership dynamics, growing at a 13% CAGR since 2002 Railcar Ownership is Shifting from Railroads to Leasing Companies
Slide 22: A Differentiated Value Proposition for Our Customers
DELIVERING GOODS for THE GOOD of ALL /// A Differentiated Value Proposition for Our Customers • Lease Portfolio • Fleet Management • Equipment Finance Solutions Leasing • Rail Product Portfolio • Aftermarket Parts Manufacturing • Maintenance • Modifications • Repair • Mobile Units Maintenance • Logi
Slide 23: Rail Market Update and Commercial Overview
DELIVERING GOODS for THE GOOD of ALL /// Rail Market Update and Commercial Overview 23 Rail Traffic is Continuing to Improve (1) Railcars are Coming out of Storage (2) Fleet Utilization is Holding while Rates Improve Rail Products Orders and Backlog Remain Weak F le e t U ti li za ti o n F L R D Fle
Slide 24: Trinity's Rail Platform Overview
DELIVERING GOODS for THE GOOD of ALL TRINITY’S RAIL PLATFORM OVERVIEW
Slide 25: Trinity's Business Segments – P&L Breakout
DELIVERING GOODS for THE GOOD of ALL /// Trinity’s Business Segments – P&L Breakout * See appendix for reconciliation of non-GAAP measures $2.0B Total Revenues Trinity Industries Inc. (FY 2020) $283M Adjusted Operating Profit* $46M Adjusted Income from Cont. Ops.* $550M Adjusted EBITDA* $802M Segmen
Slide 26: Leasing Operations: Stable Financial Performance Through the Cycle
DELIVERING GOODS for THE GOOD of ALL /// Leasing Operations Revenue OP Margin 2016 2017 2018 2019 2020 $500 $600 $700 $800 —% 10% 20% 30% 40% 50% Leading railcar lessor ◦ Owned fleet of 107,045 railcars ◦ Total owned and managed fleet of 133,690 railcars Growing portfolio and future cash flow ◦ Leas
Slide 27: Proven Asset Management Through Railcar Cycle
DELIVERING GOODS for THE GOOD of ALL /// Proven Asset Management Through Railcar Cycle Actively Managing Rate and Term through the Rail Cycle Healthy Renewals Lead to Strong Asset Utilization 3.4 yrs Remaining Lease Term 98% Utilization 74% Renewal Success 17% Annual Portfolio Expirations 50 mos Ren
Slide 28: Diversified Portfolio of Railcar Equipment
DELIVERING GOODS for THE GOOD of ALL /// Diversified Portfolio of Railcar Equipment ~ 900 Different Commodities Car Type Agriculture Construction & Metals Consumer Products Energy Refined Products & Chemicals Total (Units) Total (NBV) F re ig h t C a r Open Hopper/Gondolas Aggregates, Steel and Meta
Slide 29: Servicing High-Quality Industrial Shippers
DELIVERING GOODS for THE GOOD of ALL /// 87% 12% Shippers Railroads Other Servicing High-Quality Industrial Shippers Strong Customer Credit Profiles (by NBV) Largest customer represents < 5% of total lease revenue Serving Industrial Shippers in North America 700+ Customers 75%+ Full Service Lease To
Slide 30: Rail Products and Maintenance Services
DELIVERING GOODS for THE GOOD of ALL /// Rail Products Revenue Maintenance Services Revenue OP Margin 2016 2017 2018 2019 2020 $— $1,000 $2,000 $3,000 —% 4% 8% 12% 16% Leading manufacturer of railcars in North America ◦ Delivered 11,530 railcars representing 35% of industry shipments during FY 2020
Slide 31: Strategic Initiatives to Elevate Manufacturing Margin Performance
DELIVERING GOODS for THE GOOD of ALL /// Strategic Initiatives to Elevate Manufacturing Margin Performance ◦ Concentrate manufacturing footprint ◦ Monetize underutilized asset base Lower Investment ◦ ◦ Enhance value of outsourced fabrication activities ◦ Minimize cycle-related headcount costs Reduce
Slide 32: Revenue Opportunity for Services Expansion in Railcar Industry
DELIVERING GOODS for THE GOOD of ALL /// ~ $20-25B TAM Revenue Opportunity for Services Expansion in Railcar Industry Positioned for Further Success in the Marketplace • Superior customer experience through “Anytime” access • Fleet Management Solutions • RailPulseTM consortium Digital Platforms • Co
Slide 33: Financial Discussion and Strategic Objectives
DELIVERING GOODS for THE GOOD of ALL FINANCIAL DISCUSSION AND STRATEGIC OBJECTIVES
Slide 34: Trinity's Platform is Built to Deliver Shareholder Value
DELIVERING GOODS for THE GOOD of ALL /// Trinity’s Platform is Built to Deliver Shareholder Value FY 2020 Revenues $2.0B FY 2020 Cash Flow, Continuing Ops $652M FY 2020 OP Margin, Adjusted* 14.1% FY 2020 Shareholder Returns $285M * See appendix for reconciliation of non-GAAP measures 34
Slide 35: Strategically Positioned for Market Uncertainty
DELIVERING GOODS for THE GOOD of ALL /// Strategically Positioned for Market Uncertainty and Opportunistic Deployment 35 Unencumbered Railcars $1.4B • Pledge to warehouse • Additional assets can be sold or financed • LTV of 58.5% for the wholly-owned lease portfolio as of Q4-20(1) CAPITAL LEVERS Rec
Slide 36: Platform Optimization is Critical to Improve Pre-Tax ROE
DELIVERING GOODS for THE GOOD of ALL /// Platform Optimization is Critical to Improve Pre-Tax ROE ~ 4 to 5 pts ~ 4 to 5 pts ~ 2 to 3 pts ~ Mid-teen LT Pre-Tax ROE Target Strategic Initiatives in Place to Deliver Results Financial Initiatives Optimization Efforts Expansion & Growth SE&A and Manufactu
Slide 37: Executing on Strategic Initiatives to Improve Pre-Tax ROE
DELIVERING GOODS for THE GOOD of ALL /// Executing on Strategic Initiatives to Improve Pre-Tax ROE 37 Net Debt increase of $135M LTV(1) increase to 58.5% Balance Sheet Optimization Official launch of TrinsightTM digital service platform in February 2021 New Products & Services Initiatives Enhance va
Slide 38: Capital Allocation Framework – Near Term Strategy
DELIVERING GOODS for THE GOOD of ALL /// Capital Allocation Framework – Near Term Strategy 38 Trinity’s line of sight on near-term cash flow generation and sources of capital over the next 3 years are expected to create significant shareholder value
Slide 39: Capital Allocation Framework – Long Term Strategy
DELIVERING GOODS for THE GOOD of ALL /// Capital Allocation Framework – Long Term Strategy Pr og ra m m at ic O p p or tu n is ti c Manage Leverage Reinvest Return Capital Minimum Liquidity Requirements Manage Debt Profile Maintenance CapEx Working Capital Organic Growth M&A Double-digit Dividend Gr
Slide 40: Appendix
DELIVERING GOODS for THE GOOD of ALL Appendix
Slide 41: Reconciliation: Adjusted Operating Results
DELIVERING GOODS for THE GOOD of ALL /// Reconciliation: Adjusted Operating Results (1) The effective tax rate for impairment of long-lived assets, pension plan settlement, restructuring activities, and the early redemption of debt is before consideration of the CARES Act. (2) Excludes $81.3 million
Slide 42: Reconciliation: Adjusted Operating Results (continued)
DELIVERING GOODS for THE GOOD of ALL /// Reconciliation: Adjusted Operating Results (continued) We have supplemented the presentation of our reported GAAP operating profit (loss), income (loss) from continuing operations before income taxes, provision (benefit) for income taxes, income (loss) from c
Slide 43: Year Ended December 31, 2018 GAAP Write-off of assets held under capital leases Adjusted
DELIVERING GOODS for THE GOOD of ALL /// Year Ended December 31, 2018 GAAP Write-off of assets held under capital leases Adjusted (in millions, except per share amounts) Operating profit $ 315.1 $ 12.6 $ 327.7 Income from continuing operations before income taxes $ 151.6 $ 12.6 $ 164.2 Provision for
Slide 44: Reconciliation: EBITDA and Adjusted EBITDA
DELIVERING GOODS for THE GOOD of ALL /// Reconciliation: EBITDA and Adjusted EBITDA “EBITDA” is defined as income (loss) from continuing operations plus interest expense, income taxes, and depreciation and amortization expense. Adjusted EBITDA is defined as EBITDA plus non-cash impairment of long-li
Slide 45: Reconciliation: Leasing Economic Profit
DELIVERING GOODS for THE GOOD of ALL /// Reconciliation: Leasing Economic Profit Economic Profit is a non-GAAP financial measure derived from amounts included in our GAAP financial statements. For the Leasing Group, Economic Profit is defined as Operating Profit – Leasing Operations as computed in a
Slide 46: Reconciliation: Steady State Cash Flow
DELIVERING GOODS for THE GOOD of ALL /// Reconciliation: Steady State Cash Flow Steady State Cash Flow is a non-GAAP financial measure and is defined as net cash provided by operating activities from continuing operations as computed in accordance with GAAP, plus cash proceeds from sales of leased r
Slide 47: Reconciliation: Lease Investment and Required Equity CapEx
DELIVERING GOODS for THE GOOD of ALL /// Reconciliation: Lease Investment and Required “Equity CapEx” Lease investment is typically leveraged at a 70-80% LTV, reducing required equity capital and increasing available cash flow. *Leasing CapEx is defined as “Capital Expenditures – leasing, net of sol
Slide 48: Reconciliation: Walking FCF Beyond Lease Investment
DELIVERING GOODS for THE GOOD of ALL /// Reconciliation: Walking FCF Beyond Lease Investment Total Free Cash Flow After Investments and Dividends ("Free Cash Flow") is a non-GAAP financial measure and is defined as net cash provided by operating activities from continuing operations as computed in a
Slide 49: Reconciliation: Total Company Pre-Tax ROE
DELIVERING GOODS for THE GOOD of ALL /// Reconciliation: Total Company Pre-Tax ROE (1) Excludes $81.3 million of non-cash impairment of long-lived asset charges associated with the noncontrolling interest recorded in the second quarter of 2020. (2) Return on Equity is calculated as income from conti
Slide 50: Reconciliation of Railcar Sales Accounting
DELIVERING GOODS for THE GOOD of ALL /// Year Ended December 31, 2019 Year Ended December 31, 2020 As Reported Adjustments As Adjusted As Reported Adjustments As Adjusted (in millions) Consolidated Statement of Cash Flows: Operating activities: Net gain on railcar lease fleet sales $ (50.5) $ (41.4)
Slide 51: Quarterly Railcar Sales Accounting Reconciliation
DELIVERING GOODS for THE GOOD of ALL /// Three Months Ended March 31, 2020 Three Months Ended June 30, 2020 As Reported Adjustments As Adjusted As Reported Adjustments As Adjusted (in millions) Consolidated Statement of Cash Flows: Operating activities: Net gain on railcar lease fleet sales $ (8.7)
Slide 52: Presentation Footnotes
DELIVERING GOODS for THE GOOD of ALL /// SLIDE 4 – Trinity Industries, Inc. Overview 1. Current dividend yield represents the Company’s most recent quarterly dividend, annualized and the Company’s stock price as of December 31, 2020 2. Intersegment revenues are eliminated SLIDE 10 – A Sustainable Ca
Slide 53: Presentation Footnotes (continued)
DELIVERING GOODS for THE GOOD of ALL /// Presentation Footnotes (continued) 53 SLIDE 26 – Stable Financial Performance Through the Cycle 1. Leasing Operations Profit Margin calculated using only revenues and profit from Leasing Operations including Partially Owned Subsidiaries and excluding Car Sale
Slide 54: Contact Information
DELIVERING GOODS for THE GOOD of ALL /// Contact Information 54 Contact Information: Jessica Greiner, VP Investor Relations and Communications 214-589-8047 | Jessica.Greiner@trin.net | TrinityInvestorRelations@trin.net Investor Website: www.trin.net/investor-relations