Trinity Industries, Inc. · NYSE:TRN
Trinity Industries — Q2 2021 Earnings Presentation
56 slides from Trinity Industries's earnings presentation, Jul 29, 2021
Slide 1: Quarterly Investor Presentation – July 29, 2021
DELIVERING GOODS for THE GOOD of ALL TRINITY INDUSTRIES, INC. Quarterly Investor Presentation July 29, 2021 – for the period ended June 30, 2021 Exhibit 99.1
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 – July 2021 contents
DELIVERING GOODS for THE GOOD of ALL /// Investor Presentation – July 2021 3 I. Trinity Industries, Inc. Overview................................Page 4 II. Key Investment Considerations................................. Page 8 III. Railcar Market Overview.......................................... Pag
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 ~ 108,635 railcars under ownership ~ 26,490 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 2017 2018 2019 2020 LTM Q2-21 $0.0 $250.0 $500.0 $750.0 FCF Before Lease Investment* FCF After Lease Investment* 2017 2018 2019 2020 LTM Q2-21 $(250.0) $0.0 $250.0 $500.0 $750.0 5-Y
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 6/21 $10.00 $12.00 $14.00 $16.00 $18.00 $20.00 Value Growth CAGR = 10% * See appendix for footnotes A Sustainable Capital Story: Reinvestment & Capita
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: Railcars Benefit from Inflation Long-Term
DELIVERING GOODS for THE GOOD of ALL /// Railcars Benefit from Inflation Long-Term See appendix for source info 17 P ri ce I n cr ea se M u lt ip le Average New Railcar Prices PPI (Railroad Cars and Car Parts) CPI Inflation (2%) 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2
Slide 18: Review of Value Proposition
DELIVERING GOODS for THE GOOD of ALL /// Review of Value Proposition 18
Slide 19: Railcar Market Overview
DELIVERING GOODS for THE GOOD of ALL RAILCAR MARKET OVERVIEW
Slide 20: 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 21: 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 22: 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 23: 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 24: Rail Market Update and Commercial Overview
DELIVERING GOODS for THE GOOD of ALL /// Rail Market Update and Commercial Overview 24 Rail Traffic is Continuing to Improve (1) Railcars are Coming out of Storage (2) Fleet Utilization is Holding while Rates are Firming Rail Products Orders Significantly Improve Fl ee t U ti liz at io n FLR D Fleet
Slide 25: Trinity's Rail Platform Overview
DELIVERING GOODS for THE GOOD of ALL TRINITY’S RAIL PLATFORM OVERVIEW
Slide 26: 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 $1.6B Total Revenues Trinity Industries Inc. (LTM Q2-21) $269M Adjusted Operating Profit* $48M Adjusted Income from Cont. Ops.* $533M Adjusted EBITDA* $742M Segm
Slide 27: Leasing Operations: Stable Financial Performance Through the Cycle
DELIVERING GOODS for THE GOOD of ALL /// Leasing Operations Revenue OP Margin 2017 2018 2019 2020 LTM Q2-21 $500 $600 $700 $800 —% 10% 20% 30% 40% 50% Stable Financial Performance Through the Cycle Portfolio Expirations Imply Manageable Renewal Risk(2) Leasing Operations Revenue and Operating Profit
Slide 28: 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 29: 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) Fr ei g h t C ar Open Hopper/Gondolas Aggregates, Steel and Metal
Slide 30: 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 31: Rail Products and Maintenance Services
DELIVERING GOODS for THE GOOD of ALL /// Rail Products Revenue Maintenance Services Revenue OP Margin 2017 2018 2019 2020 LTM Q2-21 $— $1,000 $2,000 $3,000 —% 4% 8% 12% Leading manufacturer of railcars in North America ◦ Delivered 8,500 railcars representing 31% of industry shipments during LTM Q2-2
Slide 32: 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 33: $20-25B TAM Revenue Opportunity for Services Expansion
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 34: Financial Discussion and Strategic Objectives
DELIVERING GOODS for THE GOOD of ALL FINANCIAL DISCUSSION AND STRATEGIC OBJECTIVES
Slide 35: 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 LTM Q2-21 Revenues $1.6B LTM Q2-21 Cash Flow, Continuing Ops $659M LTM Q2-21 OP Margin, Adjusted* 16% LTM Q2-21 Shareholder Returns $578M * See appendix for reconciliation of non-GAAP measures 35
Slide 36: Healthy Balance Sheet
DELIVERING GOODS for THE GOOD of ALL /// Healthy Balance Sheet Strategically Positioned for Market Uncertainty and Opportunistic Deployment 36 Unencumbered Railcars $1.1B • Pledge to warehouse • Additional assets can be sold or financed • LTV of 62.5% for the wholly-owned lease portfolio as of Q2-21
Slide 37: 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 38: 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 38 YTD Net Debt increase of $271M LTV(1) increase to 62.5% Balance Sheet Optimization New Products & Services Initiatives Enhance value of outsourced fabrication activities Scale newly acquired rail cl
Slide 39: Capital Allocation Framework – Near Term Strategy
DELIVERING GOODS for THE GOOD of ALL /// Capital Allocation Framework – Near Term Strategy 39 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 40: 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 pp or tu ni st ic Manage Leverage Reinvest Return Capital Minimum Liquidity Requirements Manage Debt Profile Maintenance CapEx Working Capital Organic Growth M&A Double-digit Dividend Grow
Slide 41: Appendix
DELIVERING GOODS for THE GOOD of ALL Appendix
Slide 42: Reconciliation: Adjusted Operating Results
DELIVERING GOODS for THE GOOD of ALL /// Reconciliation: Adjusted Operating Results (1) The effective tax rate for pension plan settlement, restructuring activities, and the loss on extinguishment of debt is before consideration of the CARES Act. (2) Excludes $7.1 million of loss on extinguishment o
Slide 43: Reconciliation: Adjusted Operating Results (continued)
DELIVERING GOODS for THE GOOD of ALL /// Reconciliation: Adjusted Operating Results (continued) (1) The effective tax rate for impairment of long-lived assets, pension plan settlement, restructuring activities, and the loss on extinguishment of debt is before consideration of the CARES Act. (2) Excl
Slide 44: 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, income from continuing operations before income taxes, provision (benefit) for income taxes, income from continuing operations,
Slide 45: Adjusted Results: 2018 and 2017
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 46: 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 47: 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 48: 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 lease portfolio s
Slide 49: Reconciliation: Lease Investment & Required Equity CapEx
DELIVERING GOODS for THE GOOD of ALL /// Reconciliation: Lease Investment & Required Equity CapEx Lease investment is typically leveraged at a 70-80% LTV, reducing required equity capital and increasing available cash flow. (1) For periods prior to the fourth quarter of 2020, Capital expenditures –
Slide 50: Reconciliation: Walking FCF Beyond Lease Investment
DELIVERING GOODS for THE GOOD of ALL /// Reconciliation: Walking FCF Beyond Lease Investment 50 2017 2018 2019 2020 LTM Q2-21 (in millions) Net cash provided by operating activities – continuing operations $ 610.1 $ 274.2 $ 396.7 $ 651.8 $ 659.1 Proceeds from lease portfolio sales * 360.7 230.5 205.
Slide 51: 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) Excludes $7.1 million of loss on extinguishment of
Slide 52: Reconciliation of Lease Portfolio 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 Statements of Cash Flows: Operating activities: Net gains on lease portfolio sales $ (50.5) $ (41.4) $
Slide 53: Reconciliation of Lease Portfolio Sales Accounting (quarterly)
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 Statements of Cash Flows: Operating activities: Net gains on lease portfolio sales $ (8.7) $
Slide 54: 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 June 30, 2021 2. Intersegment revenues are eliminated; a prospective change in the pr
Slide 55: Presentation Footnotes (continued)
DELIVERING GOODS for THE GOOD of ALL /// Presentation Footnotes (continued) 55 SLIDE 24 – Rail Market Update and Commercial Overview 1. AAR Weekly Railcar Loadings 2. AAR Rail Time Indicators – July 1, 2021 3. Future Lease Rate Differential (FLRD) calculates the weighted average of the most current
Slide 56: Contact Information
DELIVERING GOODS for THE GOOD of ALL /// Contact Information 56 Contact Information: Eric Marchetto, Executive Vice President and Chief Financial Officer 214-631-4420 TrinityInvestorRelations@trin.net Investor Website: www.trin.net/investor-relations