Exhibit 99.1
FOR IMMEDIATE RELEASE
Trinity Industries, Inc. Announces Second Quarter 2021 Results
Reports quarterly GAAP and adjusted earnings from continuing operations of $0.12 and $0.15 per diluted share, respectively
Generates year-to-date operating and total free cash flow of $335 million and $359 million, respectively
Returned $375 million of capital to stockholders year-to-date through dividends and share repurchases
DALLAS, Texas – July 22, 2021 – Trinity Industries, Inc. (NYSE:TRN) today announced earnings results for the second quarter ended June 30, 2021.
Financial and Operational Highlights
•Quarterly total company revenues of $372 million
•Quarterly income from continuing operations per common diluted share ("EPS") of $0.12 and quarterly adjusted EPS of $0.15
•Lease fleet utilization of 94.3% and Future Lease Rate Differential ("FLRD") of negative 2.5% at quarter end
•New railcar orders of 4,570 and railcar deliveries of 1,765
•Year-to-date cash flow from operations and total free cash flow after dividends and investments ("Free Cash Flow") were $335 million and $359 million, respectively
◦Year-to-date investment of $163 million in leasing capital expenditures, net of lease portfolio sales
•Net additions of 4,550 railcars to the wholly-owned and partially-owned lease fleet compared to prior year period
•Repurchases of approximately 10.5 million shares at a cost of $291 million
•Committed liquidity of $918 million as of June 30, 2021
Management Commentary
"We are very pleased to build on the momentum growing in our business as railcar demand and the overall U.S. economy continue to recover," remarked Jean Savage, Trinity's Chief Executive Officer and President. "Best of all, our second quarter results were enhanced by the great strides the Company continues to make towards our return-focused initiatives, and we are proud to say we are on track to achieve the ambitious goals we detailed at our Investor Day last Fall."
Ms. Savage continued, "Our businesses performed well against our expectations across both our leasing and manufacturing businesses. Trinity’s lease revenue improved modestly and secondary market liquidity remains strong as demand continues to rise. There are clear signs of a strengthening recovery as the renewal success rate for the quarter improved to 81%, a level not seen in recent history. Utilization was slightly lower compared to a year ago as energy markets have lagged in the recovery. Most encouraging, though, was the continued improvement in the Future Lease Rate Differential compared to a year ago. Similarly, Trinity benefited in the second quarter from higher margins on railcars sold in the secondary market from our lease fleet as we continue to optimize for best potential returns."
"Trinity's Rail Products Group also had improved results as orders increased significantly compared to a year ago. Even better, our ongoing cost initiatives continue to lower our breakeven point for new car production and reduced the impact of higher steel costs over the quarter. We are ever diligent concerning inflation in our input costs but are increasingly optimistic about the trends in profitability for the Rail Products Group exiting 2021 and into 2022."
"Additionally, Trinity has made excellent progress against our goal to lower funding costs and optimize our balance sheet. In the quarter, Trinity repurchased $291 million of our common stock, and since the onset of the pandemic, we have successfully issued and refinanced approximately $2.3 billion of debt, which includes our partially-owned leasing subsidiary activities. As a result, we have lowered our borrowing costs by approximately 100 basis points. As we noted at our Investor Day, we believe there are many more opportunities to optimize our assets and liabilities. At quarter-end, Trinity still has an unencumbered railcar inventory totaling $1.1 billion. With improved liquidity in the secondary market for railcars, we have an increased ability to manage our fleet through buying and selling railcars."
Ms. Savage concluded, "In summary, we are encouraged by the continued recovery in the U.S. rail markets and the economy broadly. More importantly, we are very proud of the progress and execution being driven by the hard work of our collective teams at Trinity. We look forward to our continued progress and the long-term shareholder value generation that we believe will follow.”
Consolidated Financial Summary
| | | | | | | | | | | | | | | | | |
| Three Months Ended
June 30, | | |
| 2021 | | 2020 | | Year over Year – Comparison |
| (in millions, except percentages and per share amounts) | | |
Revenues (1) | $ | 371.5 | | $ | 509.2 | | Lower deliveries in the Rail Products Group, and the change in presentation of railcar sales, which totaled $10 million in Q2 2020 |
Selling, engineering, and administrative expenses | $ | 57.7 | | $ | 56.8 | | Higher litigation-related expenses |
| | | | | |
Operating profit (loss) | $ | 67.4 | | $ | (307.3) | | Q2 2020 includes $369.4 million non-cash impairment of long-lived assets charge |
Adjusted Operating profit (2) | $ | 66.7 | | $ | 62.4 | | Higher margins on lease portfolio sales in the Leasing Group, partially offset by lower volumes in the Rail Products Group and lower lease rates and higher fleet management operating costs in the Leasing Group |
| Interest expense, net | $ | 51.0 | | $ | 53.0 | | Lower overall borrowing costs associated with the Company's debt facilities, partially offset by higher overall average debt |
| Net income (loss) from continuing operations attributable to Trinity Industries, Inc. | $ | 12.7 | | $ | (206.9) | | Q2 2020 includes $369.4 million non-cash impairment of long-lived assets charge |
Adjusted Net income (loss) from continuing operations attributable to Trinity Industries, Inc. (2) | $ | 16.2 | | $ | 2.7 | | Primarily the changes in adjusted operating profit as described above and the lower adjusted provision for income taxes |
EBITDA (2) | $ | 124.1 | | $ | (238.9) | | Q2 2020 includes $369.4 million non-cash impairment of long-lived assets charge |
Adjusted EBITDA (2) | $ | 136.1 | | $ | 130.8 | | |
| Effective tax expense (benefit) rate | (23.1) | % | | (20.0) | % | | 2021 tax benefit was impacted by excess tax benefits associated with equity based compensation; 2020 tax benefit primarily related to changes in recent tax legislation, reduced by the portion of the impairment charge attributable to the noncontrolling interest, for which Trinity does not provide income taxes |
| Diluted EPS – GAAP | $ | 0.12 | | $ | (1.76) | | Q2 2020 includes the impact of $1.86 in impairment of long-lived assets |
Diluted EPS – Adjusted (2) | $ | 0.15 | | $ | 0.02 | | |
| | | | | |
| Six Months Ended
June 30, | | |
| 2021 | | 2020 | | Year over Year – Comparison |
| (in millions) | | |
Net cash provided by operating activities – continuing operations | $ | 335.1 | | $ | 327.8 | | |
Free Cash Flow (2) | $ | 358.9 | | $ | 46.7 | | Timing difference of debt proceeds issued for financing lease fleet equity investment |
Capital expenditures – leasing (3) | $ | 251.7 | | $ | 259.5 | | |
| Returns of capital to stockholders | $ | 375.0 | | $ | 81.8 | | Increase in share repurchase activity in 2021, which included a privately negotiated repurchase agreement totaling $222.5 million |
(1) Beginning in the fourth quarter of 2020, we made a prospective change to the presentation of railcar sales and now present all sales of railcars from the lease fleet as a net gain or loss from the disposal of a long-term asset regardless of the age of railcar that is sold. Historically, we presented sales of railcars from the lease fleet on a gross basis in leasing revenues and cost of revenues if the railcars had been owned for one year or less at the time of sale. Sales of railcars from the lease fleet owned for more than one year had historically been presented as a net gain or loss from the disposal of a long-term asset.
(2) 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.
(3) For the six months ended June 30, 2020, Capital expenditures – leasing is net of sold lease fleet railcars owned one year or less.
Business Group Summary
| | | | | | | | | | | | | | | | | |
| Three Months Ended
June 30, | | |
| 2021 | | 2020 | | Year over Year – Comparison |
| (in millions, except percentages and number of units) | | |
| Railcar Leasing and Management Services Group | | | | | |
| Leasing and management revenues | $ | 185.1 | | $ | 182.7 | | |
| Leasing and management operating profit | $ | 70.0 | | $ | 78.5 | | Lower lease rates, higher fleet management operating costs, and slightly lower fleet utilization, partially offset by growth in the lease fleet |
| Operating profit on lease portfolio sales | $ | 11.1 | | $ | 4.4 | | Higher margins on railcars sold from the lease portfolio |
| Fleet utilization | 94.3 | % | | 94.7 | % | | Primarily driven by decrease in energy-related markets |
Future Lease Rate Differential ("FLRD") (1) | (2.5) | % | | (19.9) | % | | Recovery of current market lease rates compared to the prior year period |
Owned lease fleet (in units) (2) | 108,635 | | 104,085 | | |
| Investor-owned lease fleet (in units) | 26,490 | | 26,710 | | |
| | | | | |
| Rail Products Group | | | | | |
| Revenues | $ | 261.8 | | $ | 405.6 | | Lower deliveries and a shift in the mix of railcar products and services sold |
| Operating profit margin | 1.2 | % | | 1.9 | % | | Lower deliveries and shifts in mix, partially offset by operational efficiencies |
| Deliveries (in units) | 1,765 | | 2,985 | | |
| Orders (in units) | 4,570 | | 840 | | |
| Order value | $ | 372.6 | | $ | 105.9 | | Higher number of units, differences in product mix, and competitive pricing |
| Backlog value | $ | 1,177.7 | | $ | 1,337.3 | | |
| | | | | |
| All Other | | | | | |
| Revenues | $ | 78.2 | | $ | 69.3 | | Increased demand and higher input costs for highway products |
| Operating profit | $ | 12.8 | | $ | 7.3 | | |
| | | | | |
| June 30, 2021 | | December 31, 2020 | | |
| Loan-to-value ratio | | | | | |
| Wholly-owned subsidiaries, including corporate revolving credit facility | 62.5 | % | | 58.5 | % | | Increased leverage associated with leased assets, partially offset by amortization of debt on encumbered assets |
(1) FLRD calculates the weighted average of the most current quarterly lease rates transacted compared to the weighted average lease rates for railcars expiring over the next twelve months.
(2) Includes wholly-owned railcars, partially-owned railcars, and railcars under sale-leaseback arrangements.
Additional Business Items
Liquidity and Capital Resource Updates
•June 2021 Refinancing of Partially-Owned Leasing Subsidiaries' Debt
◦Triumph Rail LLC ("Triumph Rail"), formerly known as TRIP Master Funding LLC, a partially-owned subsidiary of the Company, issued $560.4 million of Series 2021-2 Green Secured Railcar Equipment Notes (the "Triumph Rail Notes"). The Triumph Rail Notes bear interest at an all-in interest rate of 2.20% and have a stated final maturity date of 2051. Net proceeds received from the issuance of the Triumph Rail Notes, as well as proceeds from the sale of railcars and related operating leases to TRIP Railcar Co. LLC described below, were used to redeem Triumph Rail's existing Secured Railcar Equipment Notes, of which $869.1 million was outstanding at the redemption date. The all-in rate for these notes was 5.16% per annum.
◦TRIP Railcar Co. LLC, a partially-owned subsidiary of the Company, drew down $329.6 million under a term loan agreement ("TRIP Railcar Co. term loan"). The TRIP Railcar Co. term loan bears interest at LIBOR plus 1.85% and has a stated maturity date of June 2025. Net proceeds received from the TRIP Railcar Co. term loan were used to purchase railcars and related operating leases from Triumph Rail.
◦TRP 2021 LLC, formerly known as Trinity Rail Leasing 2012 LLC, a partially-owned subsidiary of the Company, issued $355.0 million of Series 2021-1 Green Secured Railcar Equipment Notes (the "TRP-2021 Notes"). The TRP-2021 Notes bear interest at an all-in interest rate of 2.13% and have a stated final maturity date of 2051. Net proceeds received from the TRP-2021 Notes were used to redeem TRP-2021's existing Secured Railcar Equipment Notes, of which $348.0 million was outstanding at the redemption date. The all-in rate for these notes was 3.59% per annum.
•In June 2021, Trinity Rail Leasing 2021 LLC, a wholly-owned subsidiary of the Company, issued $325.0 million of Series 2021-1 Green Secured Railcar Equipment Notes (the "TRL-2021 Notes"). The TRL-2021 Notes bear interest at an all-in interest rate of 2.31% and have a final maturity date of 2051. Net proceeds received from the TRL-2021 Notes were used to repay borrowings under TILC's secured warehouse credit facility and for general corporate purposes.
•During the quarter, Trinity repurchased approximately $68 million of shares under the Company's authorized share repurchase program, of which $77 million remains authorized through December 31, 2021.
•On April 29 2021, we entered into a stock repurchase agreement with ValueAct Capital Master Fund, L.P. (“ValueAct”) to repurchase 8.1 million shares of our common stock for $27.47 per share, for an aggregate purchase price of $222.5 million, in a privately negotiated transaction. The price per share represents a discount of 3.5% from the closing price for a share of common stock on the New York Stock Exchange on April 29, 2021. Under the repurchase agreement, ValueAct will not make any additional sales of common stock without our consent through September 1, 2021.
•During the quarter, Trinity received a $207 million income tax refund associated with the tax loss carryback for the 2019 tax year as permitted under recent tax legislation. The Company's income tax receivable at the end of the second quarter was $233 million.
Conference Call
Trinity will hold a conference call at 8:30 a.m. Eastern on July 22, 2021 to discuss its second 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 "6833145". 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 "10152026" until 11:59 p.m. Eastern on July 29, 2021.
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 Second 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 shareholders; and the amount and timing of certain other items outside the normal course of our core business operations, such as restructuring activities and the potential financial and operational impacts of the COVID-19 pandemic.
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 rail-related businesses market their railcar products and services under the trade name TrinityRail®. The TrinityRail platform provides railcar leasing and management services, as well as railcar manufacturing, maintenance and modifications. Trinity also owns businesses engaged in the manufacture of products used on the nation’s roadways and in traffic control. Trinity reports its financial results in three principal business segments: the Railcar Leasing and Management Services Group, the Rail Products Group, and All Other. 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, including the potential financial and operational impacts of the COVID-19 pandemic. 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.
| | |
| Investor Contact: |
| Eric R. Marchetto |
| Executive Vice President and Chief Financial Officer |
| Trinity Industries, Inc. |
| (Investors) 214/631-4420 |
|
| 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)
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended
June 30, | | Six Months Ended
June 30, |
| 2021 | | 2020 | | 2021 | | 2020 |
| Revenues | $ | 371.5 | | | $ | 509.2 | | | $ | 770.3 | | | $ | 1,124.4 | |
| Operating costs: | | | | | | | |
| Cost of revenues | 259.2 | | | 396.6 | | | 555.2 | | | 878.6 | |
| Selling, engineering, and administrative expenses | 57.7 | | | 56.8 | | | 112.1 | | | 121.1 | |
| Gains on dispositions of property: | | | | | | | |
| Lease portfolio sales | 11.1 | | | 5.7 | | | 12.8 | | | 14.4 | |
| Other | 1.0 | | | 0.9 | | | 10.8 | | | 1.8 | |
| Impairment of long-lived assets | — | | | 369.4 | | | — | | | 369.4 | |
| Restructuring activities, net | (0.7) | | | 0.3 | | | (1.0) | | | 5.8 | |
| 304.1 | | | 816.5 | | | 642.7 | | | 1,358.7 | |
| Operating profit (loss) | 67.4 | | | (307.3) | | | 127.6 | | | (234.3) | |
| Interest expense, net | 51.0 | | | 53.0 | | | 102.3 | | | 106.9 | |
| Loss on extinguishment of debt | 11.7 | | | — | | | 11.7 | | | 5.0 | |
| | | | | | | |
| Other, net | 0.8 | | | (0.7) | | | 2.0 | | | (1.5) | |
| Income (loss) from continuing operations before income taxes | 3.9 | | | (359.6) | | | 11.6 | | | (344.7) | |
| Provision (benefit) for income taxes: | | | | | | | |
| Current | 0.5 | | | (79.7) | | | 5.3 | | | (452.5) | |
| Deferred | (1.4) | | | 7.9 | | | (0.2) | | | 233.1 | |
| (0.9) | | | (71.8) | | | 5.1 | | | (219.4) | |
| Income (loss) from continuing operations | 4.8 | | | (287.8) | | | 6.5 | | | (125.3) | |
| Loss from discontinued operations, net of income taxes | — | | | — | | | (0.4) | | | (0.2) | |
| Net income (loss) | 4.8 | | | (287.8) | | | 6.1 | | | (125.5) | |
| Net loss attributable to noncontrolling interest | (7.9) | | | (80.9) | | | (9.9) | | | (80.3) | |
| Net income (loss) attributable to Trinity Industries, Inc. | $ | 12.7 | | | $ | (206.9) | | | $ | 16.0 | | | $ | (45.2) | |
| | | | | | | |
| Basic earnings per common share: | | | | | | | |
| Income (loss) from continuing operations | $ | 0.12 | | | $ | (1.76) | | | $ | 0.15 | | | $ | (0.38) | |
| Income (loss) from discontinued operations | — | | | — | | | — | | | — | |
| Basic net income (loss) attributable to Trinity Industries, Inc. | $ | 0.12 | | | $ | (1.76) | | | $ | 0.15 | | | $ | (0.38) | |
| Diluted earnings per common share: | | | | | | | |
| Income (loss) from continuing operations | $ | 0.12 | | | $ | (1.76) | | | $ | 0.15 | | | $ | (0.38) | |
| Income (loss) from discontinued operations | — | | | — | | | — | | | — | |
| Diluted net income (loss) attributable to Trinity Industries, Inc. | $ | 0.12 | | | $ | (1.76) | | | $ | 0.15 | | | $ | (0.38) | |
| Weighted average number of shares outstanding: | | | | | | | |
| Basic | 102.8 | | | 117.3 | | | 106.4 | | | 117.6 | |
| Diluted | 105.1 | | | 117.3 | | | 108.9 | | | 117.6 | |
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. There were no restricted shares and stock options included in the computation of diluted EPS for the three and six months ended June 30, 2020 as we incurred a loss for these periods, and any effect on loss per common share would have been antidilutive.
Trinity Industries, Inc.
Condensed Segment Data
(in millions)
(unaudited)
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended
June 30, | | Six Months Ended
June 30, |
| Revenues: | 2021 | | 2020 | | 2021 | | 2020 |
| Railcar Leasing and Management Services Group | $ | 185.1 | | | $ | 192.8 | | | $ | 368.6 | | | $ | 429.1 | |
| Rail Products Group | 261.8 | | | 405.6 | | | 522.8 | | | 915.0 | |
| All Other | 78.2 | | | 69.3 | | | 146.3 | | | 132.7 | |
| Segment Totals before Eliminations | 525.1 | | | 667.7 | | | 1,037.7 | | | 1,476.8 | |
| Eliminations – Lease Subsidiary | (151.0) | | | (156.0) | | | (262.3) | | | (346.4) | |
| Eliminations – Other | (2.6) | | | (2.5) | | | (5.1) | | | (6.0) | |
| Consolidated Total | $ | 371.5 | | | $ | 509.2 | | | $ | 770.3 | | | $ | 1,124.4 | |
| | | | | | | |
| Three Months Ended
June 30, | | Six Months Ended
June 30, |
| Operating profit (loss): | 2021 | | 2020 | | 2021 | | 2020 |
| Railcar Leasing and Management Services Group | $ | 81.1 | | | $ | 82.9 | | | $ | 159.4 | | | $ | 175.8 | |
| Rail Products Group | 3.2 | | | 7.9 | | | (5.6) | | | 33.0 | |
| All Other | 12.8 | | | 7.3 | | | 28.1 | | | 16.6 | |
| Segment Totals before Eliminations, Corporate Expenses, Impairment of long-lived assets, and Restructuring activities | 97.1 | | | 98.1 | | | 181.9 | | | 225.4 | |
| Corporate | (27.1) | | | (24.2) | | | (49.8) | | | (52.3) | |
| Impairment of long-lived assets | — | | | (369.4) | | | — | | | (369.4) | |
| Restructuring activities, net | 0.7 | | | (0.3) | | | 1.0 | | | (5.8) | |
| Eliminations – Lease Subsidiary | (3.0) | | | (11.0) | | | (4.8) | | | (30.9) | |
| Eliminations – Other | (0.3) | | | (0.5) | | | (0.7) | | | (1.3) | |
| Consolidated Total | $ | 67.4 | | | $ | (307.3) | | | $ | 127.6 | | | $ | (234.3) | |
Trinity Industries, Inc.
Selected Financial Information – Leasing Group
($ in millions)
(unaudited)
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended
June 30, | | Six Months Ended
June 30, |
| | 2021 | | 2020 | | 2021 | | 2020 |
| Revenues: | | | | | | | |
| Leasing and management | $ | 185.1 | | | $ | 182.7 | | | $ | 368.6 | | | $ | 374.7 | |
Sales of railcars owned one year or less at the time of sale (1) | — | | | 10.1 | | | — | | | 54.4 | |
| Total revenues | $ | 185.1 | | | $ | 192.8 | | | $ | 368.6 | | | $ | 429.1 | |
Operating profit (2): | | | | | | | |
| Leasing and management | $ | 70.0 | | | $ | 78.5 | | | $ | 146.6 | | | $ | 161.0 | |
Lease portfolio sales (1) | 11.1 | | | 4.4 | | | 12.8 | | | 14.8 | |
| | | | | | | |
| Total operating profit | $ | 81.1 | | | $ | 82.9 | | | $ | 159.4 | | | $ | 175.8 | |
| Total operating profit margin | 43.8 | % | | 43.0 | % | | 43.2 | % | | 41.0 | % |
| | | | | | | |
| Leasing and management operating profit margin | 37.8 | % | | 43.0 | % | | 39.8 | % | | 43.0 | % |
| | | | | | | |
| Selected expense information: | | | | | | | |
Depreciation (3) | $ | 57.2 | | | $ | 54.0 | | | $ | 111.8 | | | $ | 107.6 | |
| Maintenance and compliance | $ | 25.3 | | | $ | 23.0 | | | $ | 50.9 | | | $ | 48.9 | |
| Rent | $ | 1.7 | | | $ | 3.0 | | | $ | 3.4 | | | $ | 6.0 | |
| Selling, engineering, and administrative expenses | $ | 13.2 | | | $ | 13.0 | | | $ | 24.5 | | | $ | 27.3 | |
Interest (4) | $ | 57.0 | | | $ | 47.1 | | | $ | 102.7 | | | $ | 102.2 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended
June 30, | | Six Months Ended
June 30, |
| 2021 | | 2020 | | 2021 | | 2020 |
| (in millions) |
| Lease portfolio sales | $ | 71.5 | | | $ | 73.8 | | | $ | 88.8 | | | $ | 186.6 | |
| Operating profit on lease portfolio sales | $ | 11.1 | | | $ | 4.4 | | | $ | 12.8 | | | $ | 14.8 | |
| Operating profit margin on lease portfolio sales | 15.5 | % | | 6.0 | % | | 14.4 | % | | 7.9 | % |
(1) Beginning in the fourth quarter of 2020, we made a prospective change to the presentation of railcar sales and now present all sales of railcars from the lease fleet as a net gain or loss from the disposal of a long-term asset regardless of the age of railcar that is sold. Historically, we presented sales of railcars from the lease fleet on a gross basis in leasing revenues and cost of revenues if the railcars had been owned for one year or less at the time of sale. Sales of railcars from the lease fleet owned for more than one year had historically been presented as a net gain or loss from the disposal of a long-term asset.
(2) Operating profit includes: depreciation; maintenance and compliance; rent; and selling, engineering, and administrative expenses. Amortization of deferred profit on railcars sold from the Rail Products Group to the Leasing Group is included in the operating profit of the Leasing Group, resulting in the recognition of depreciation expense based on the Company's original manufacturing cost of the railcars. Interest expense is not a component of operating profit and includes the effect of hedges.
(3) Depreciation expense related to our small cube covered hopper railcars decreased by approximately $3.5 million and $7.0 million for the three and six months ended June 30, 2021, respectively, relative to the three and six months ended June 30, 2020 as a result of the impairment charge recorded in the second quarter of 2020 related to these railcars.
(4) Interest expense for the three and six months ended June 30, 2021 includes $11.7 million of loss on extinguishment of debt associated with the refinancing of our partially-owned subsidiaries' debt. Interest expense for the six months ended June 30, 2020 includes $5.0 million of loss on extinguishment of debt associated with the early redemption of debt.
Trinity Industries, Inc.
Condensed Consolidated Balance Sheets
(in millions)
(unaudited)
| | | | | | | | | | | |
| June 30, 2021 | | December 31, 2020 |
| ASSETS | | | |
| Cash and cash equivalents | $ | 91.0 | | | $ | 132.0 | |
| | | |
| Receivables, net of allowance | 218.3 | | | 199.0 | |
| Income tax receivable | 233.1 | | | 445.8 | |
| Inventories | 365.6 | | | 321.2 | |
| Restricted cash | 164.7 | | | 96.4 | |
| Property, plant, and equipment, net | 7,048.7 | | | 7,003.4 | |
| Goodwill | 215.7 | | | 208.8 | |
| | | |
| Other assets | 279.9 | | | 295.2 | |
| Total assets | $ | 8,617.0 | | | $ | 8,701.8 | |
| | | |
| LIABILITIES AND STOCKHOLDERS' EQUITY | | | |
| Accounts payable | $ | 188.1 | | | $ | 156.4 | |
| Accrued liabilities | 275.9 | | | 314.7 | |
| Debt | 5,288.2 | | | 5,017.0 | |
| | | |
| Deferred income taxes | 1,049.3 | | | 1,047.5 | |
| | | |
| Other liabilities | 157.6 | | | 150.2 | |
| Stockholders' equity: | | | |
| Trinity Industries, Inc. | 1,389.9 | | | 1,738.8 | |
| Noncontrolling interest | 268.0 | | | 277.2 | |
| 1,657.9 | | | 2,016.0 | |
| Total liabilities and stockholders' equity | $ | 8,617.0 | | | $ | 8,701.8 | |
Trinity Industries, Inc.
Additional Balance Sheet Information
(in millions)
(unaudited)
| | | | | | | | | | | |
| June 30, 2021 | | December 31, 2020 |
| Property, Plant, and Equipment | | | |
| Manufacturing/Corporate: | | | |
| Property, plant, and equipment | $ | 970.2 | | | $ | 979.4 | |
| Accumulated depreciation | (576.5) | | | (577.9) | |
| 393.7 | | | 401.5 | |
| Leasing: | | | |
| Wholly-owned subsidiaries: | | | |
| Machinery and other | 19.4 | | | 19.5 | |
| Equipment on lease | 7,154.8 | | | 7,010.6 | |
| Accumulated depreciation | (1,320.5) | | | (1,234.2) | |
| 5,853.7 | | | 5,795.9 | |
| Partially-owned subsidiaries: | | | |
| Equipment on lease | 2,255.6 | | | 2,248.2 | |
| Accumulated depreciation | (650.0) | | | (621.9) | |
| 1,605.6 | | | 1,626.3 | |
| | | |
| Deferred profit on railcars sold to the Leasing Group | (1,062.9) | | | (1,064.7) | |
| Accumulated amortization | 258.6 | | | 244.4 | |
| (804.3) | | | (820.3) | |
| $ | 7,048.7 | | | $ | 7,003.4 | |
| | | | | | | | | | | |
| June 30, 2021 | | December 31, 2020 |
| Debt | | | |
| Corporate – Recourse: | | | |
| Revolving credit facility | $ | 50.0 | | | $ | 50.0 | |
Senior notes, net of unamortized discount of $0.2 and $0.2 | 399.8 | | | 399.8 | |
| 449.8 | | | 449.8 | |
| Less: unamortized debt issuance costs | (1.4) | | | (1.6) | |
| Total recourse debt | 448.4 | | | 448.2 | |
| | | |
| Leasing – Non-recourse: | | | |
| Wholly-owned subsidiaries: | | | |
Secured railcar equipment notes, net of unamortized discount of $0.5 and $0.6 | 2,318.1 | | 2,042.4 |
2017 promissory notes, net of unamortized discount of $9.0 and $10.1 | 781.4 | | | 802.7 | |
| TILC warehouse facility | 534.2 | | | 519.4 | |
| 3,633.7 | | | 3,364.5 | |
| Less: unamortized debt issuance costs | (26.4) | | | (24.0) | |
| 3,607.3 | | | 3,340.5 | |
| Partially-owned subsidiaries: | | | |
Secured railcar equipment notes, net of unamortized discount of $0.3 and $— | 915.1 | | | 1,237.5 | |
| TRIP Railcar Co. term loan | 329.6 | | | — | |
| Less: unamortized debt issuance costs | (12.2) | | | (9.2) | |
| 1,232.5 | | | 1,228.3 | |
| Total non–recourse debt | 4,839.8 | | | 4,568.8 | |
| Total debt | $ | 5,288.2 | | | $ | 5,017.0 | |
Trinity Industries, Inc.
Condensed Consolidated Statements of Cash Flows
(in millions)
(unaudited)
| | | | | | | | | | | |
| Six Months Ended
June 30, |
| 2021 | | 2020 |
| Operating activities: | | | |
| Net cash provided by operating activities – continuing operations | $ | 335.1 | | | $ | 327.8 | |
| Net cash used in operating activities – discontinued operations | (0.4) | | | (0.2) | |
| Net cash provided by operating activities | 334.7 | | | 327.6 | |
| | | |
| Investing activities: | | | |
| Proceeds from lease portfolio sales | 88.8 | | | 132.2 | |
| Proceeds from dispositions of property and other assets | 24.0 | | | 14.2 | |
Capital expenditures – leasing (net of sold lease fleet railcars owned one year or less with a net cost of $54.0 for the six months ended June 30, 2020) | (251.7) | | | (259.5) | |
| Capital expenditures – manufacturing and other | (17.4) | | | (41.5) | |
| Acquisitions, net of cash acquired | (16.6) | | | — | |
| Other | (0.1) | | | — | |
| | | |
| | | |
| Net cash used in investing activities | (173.0) | | | (154.6) | |
| | | |
| Financing activities: | | | |
| Net (repayments of) proceeds from debt | 251.5 | | | (65.9) | |
| Shares repurchased | (329.4) | | | (35.4) | |
| Dividends paid to common shareholders | (47.4) | | | (46.4) | |
| Other | (9.1) | | | (9.0) | |
| | | |
| | | |
| Net cash used in financing activities | (134.4) | | | (156.7) | |
| Net increase in cash, cash equivalents, and restricted cash | 27.3 | | | 16.3 | |
| Cash, cash equivalents, and restricted cash at beginning of period | 228.4 | | | 277.6 | |
| Cash, cash equivalents, and restricted cash at end of period | $ | 255.7 | | | $ | 293.9 | |
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 (loss), income (loss) from continuing operations before income taxes, provision (benefit) for income taxes, income (loss) from continuing operations, net income (loss) from continuing operations attributable to Trinity Industries, Inc., and diluted income (loss) 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 pension plan settlement, impairment of long-lived assets, restructuring activities, loss on extinguishment of debt, the income tax effects of the CARES Act, 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.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, 2021 |
| GAAP | | Pension plan settlement (1) | | Restructuring activities (1) | | Loss on extinguishment of debt – Controlling Interest (1)(2) | | Loss on extinguishment of debt – Noncontrolling Interest (3) | | Income tax effect of CARES Act | | Adjusted |
| Operating profit (loss) | $ | 67.4 | | | $ | — | | | $ | (0.7) | | | $ | — | | | $ | — | | | $ | — | | | $ | 66.7 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Income (loss) from continuing operations before income taxes | $ | 3.9 | | | $ | 1.0 | | | $ | (0.7) | | | $ | 4.6 | | | $ | 7.1 | | | $ | — | | | $ | 15.9 | |
| | | | | | | | | | | | | |
| Provision (benefit) for income taxes | $ | (0.9) | | | $ | 0.2 | | | $ | (0.2) | | | $ | 1.0 | | | $ | — | | | $ | 0.4 | | | $ | 0.5 | |
| | | | | | | | | | | | | |
| Income (loss) from continuing operations | $ | 4.8 | | | $ | 0.8 | | | $ | (0.5) | | | $ | 3.6 | | | $ | 7.1 | | | $ | (0.4) | | | $ | 15.4 | |
| | | | | | | | | | | | | |
| Net income (loss) from continuing operations attributable to Trinity Industries, Inc. | $ | 12.7 | | | $ | 0.8 | | | $ | (0.5) | | | $ | 3.6 | | | $ | — | | | $ | (0.4) | | | $ | 16.2 | |
| | | | | | | | | | | | | |
| Diluted weighted average shares outstanding | 105.1 | | | | | | | | | | | | 105.1 |
| | | | | | | | | | | | | |
| Diluted income (loss) from continuing operations per common share attributable to Trinity Industries, Inc. | $ | 0.12 | | | | | | | | | | | | | $ | 0.15 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, 2020 |
| GAAP | | Impairment of long-lived assets – Controlling Interest (1)(4) | | Impairment of long-lived assets – Noncontrolling Interest (3) | | Restructuring activities (1) | | Income tax effect of CARES Act | | Adjusted |
| Operating profit (loss) | $ | (307.3) | | | $ | 288.1 | | | $ | 81.3 | | | $ | 0.3 | | | $ | — | | | $ | 62.4 | |
| | | | | | | | | | | |
| Income (loss) from continuing operations before income taxes | $ | (359.6) | | | $ | 288.1 | | | $ | 81.3 | | | $ | 0.3 | | | $ | — | | | $ | 10.1 | |
| | | | | | | | | | | |
| Provision (benefit) for income taxes | $ | (71.8) | | | $ | 67.4 | | | $ | — | | | $ | 0.1 | | | $ | 11.3 | | | $ | 7.0 | |
| | | | | | | | | | | |
| Income (loss) from continuing operations | $ | (287.8) | | | $ | 220.7 | | | $ | 81.3 | | | $ | 0.2 | | | $ | (11.3) | | | $ | 3.1 | |
| | | | | | | | | | | |
| Net income (loss) from continuing operations attributable to Trinity Industries, Inc. | $ | (206.9) | | | $ | 220.7 | | | $ | — | | | $ | 0.2 | | | $ | (11.3) | | | $ | 2.7 | |
| | | | | | | | | | | |
Diluted weighted average shares outstanding (5) | 117.3 | | | | | | | | | | 118.7 |
| | | | | | | | | | | |
| Diluted income (loss) from continuing operations per common share attributable to Trinity Industries, Inc. | $ | (1.76) | | | | | | | | | | | $ | 0.02 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, 2021 |
| GAAP | | Pension plan settlement (1) | | Restructuring activities (1) | | Loss on extinguishment of debt – Controlling Interest (1)(2) | | Loss on extinguishment of debt – Noncontrolling Interest (3) | | Income tax effect of CARES Act | | Adjusted |
| Operating profit (loss) | $ | 127.6 | | | $ | — | | | $ | (1.0) | | | $ | — | | | $ | — | | | $ | — | | | $ | 126.6 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Income (loss) from continuing operations before income taxes | $ | 11.6 | | | $ | 2.2 | | | $ | (1.0) | | | $ | 4.6 | | | $ | 7.1 | | | $ | — | | | $ | 24.5 | |
| | | | | | | | | | | | | |
| Provision (benefit) for income taxes | $ | 5.1 | | | $ | 0.5 | | | $ | (0.3) | | | $ | 1.0 | | | $ | — | | | $ | (3.4) | | | $ | 2.9 | |
| | | | | | | | | | | | | |
| Income (loss) from continuing operations | $ | 6.5 | | | $ | 1.7 | | | $ | (0.7) | | | $ | 3.6 | | | $ | 7.1 | | | $ | 3.4 | | | $ | 21.6 | |
| | | | | | | | | | | | | |
| Net income (loss) from continuing operations attributable to Trinity Industries, Inc. | $ | 16.4 | | | $ | 1.7 | | | $ | (0.7) | | | $ | 3.6 | | | $ | — | | | $ | 3.4 | | | $ | 24.4 | |
| | | | | | | | | | | | | |
| Diluted weighted average shares outstanding | 108.9 | | | | | | | | | | | | 108.9 |
| | | | | | | | | | | | | |
Diluted income (loss) from continuing operations per common share attributable to Trinity Industries, Inc. | $ | 0.15 | | | | | | | | | | | | | $ | 0.22 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, 2020 |
| GAAP | | Impairment of long-lived assets – Controlling Interest (1)(4) | | Impairment of long-lived assets – Noncontrolling Interest (3) | | | | Restructuring activities (1) | | Loss on extinguishment of debt (1) | | Income tax effect of CARES Act | | Adjusted |
| Operating profit (loss) | $ | (234.3) | | | $ | 288.1 | | | $ | 81.3 | | | | | $ | 5.8 | | | $ | — | | | $ | — | | | $ | 140.9 | |
| | | | | | | | | | | | | | | |
| Income (loss) from continuing operations before income taxes | $ | (344.7) | | | $ | 288.1 | | | $ | 81.3 | | | | | $ | 5.8 | | | $ | 5.0 | | | $ | — | | | $ | 35.5 | |
| | | | | | | | | | | | | | | |
| Provision (benefit) for income taxes | $ | (219.4) | | | $ | 67.4 | | | $ | — | | | | | $ | 1.4 | | | $ | 1.2 | | | $ | 166.0 | | | $ | 16.6 | |
| | | | | | | | | | | | | | | |
| Income (loss) from continuing operations | $ | (125.3) | | | $ | 220.7 | | | $ | 81.3 | | | | | $ | 4.4 | | | $ | 3.8 | | | $ | (166.0) | | | $ | 18.9 | |
| | | | | | | | | | | | | | | |
| Net income (loss) from continuing operations attributable to Trinity Industries, Inc. | $ | (45.0) | | | $ | 220.7 | | | $ | — | | | | | $ | 4.4 | | | $ | 3.8 | | | $ | (166.0) | | | $ | 17.9 | |
| | | | | | | | | | | | | | | |
Diluted weighted average shares outstanding (5) | 117.6 | | | | | | | | | | | | | | 119.3 |
| | | | | | | | | | | | | | | |
Diluted income (loss) from continuing operations per common share attributable to Trinity Industries, Inc. | $ | (0.38) | | | | | | | | | | | | | | | $ | 0.15 | |
(1) The effective tax rate for pension plan settlement, impairment of long-lived assets, 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 of debt associated with the noncontrolling interest recorded in the second quarter of 2021.
(3) Represents the portion of the non-cash impairment of long-lived asset charge and the loss on extinguishment of debt attributable to the noncontrolling interest, for which Trinity does not provide income taxes.
(4) 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.
(5) GAAP diluted weighted average shares outstanding excludes 1.4 million and 1.7 million shares for the three and six months ended June 30, 2020, respectively, since the Company was in a net loss position for these periods. When adjusting for the items above, these shares become dilutive.
Free Cash Flow
Total Free Cash Flow After Investments and Dividends ("Free Cash Flow") is a non-GAAP financial measure. The change in presentation of sales of railcars from the lease fleet, which was effected on a prospective basis beginning in the fourth quarter of 2020, had no effect on our previously reported Free Cash Flow.
We believe 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. 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 tables.
For the six months ended June 30, 2021, 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 new leased railcars. Equity CapEx for new leased railcars is defined as leasing capital expenditures, adjusted to exclude net proceeds from (repayments of) debt.
| | | | | |
| Six Months Ended June 30, 2021 |
| (in millions) |
| Net cash provided by operating activities – continuing operations | $ | 335.1 | |
| Proceeds from lease portfolio sales | 88.8 | |
| Adjusted Net Cash Provided by Operating Activities | 423.9 | |
| Capital expenditures – manufacturing and other | (17.4) | |
| Dividends paid to common stockholders | (47.4) | |
Free Cash Flow (before Capital expenditures – leasing) | 359.1 | |
| Equity CapEx for new leased railcars | (0.2) | |
| Total Free Cash Flow After Investments and Dividends | $ | 358.9 | |
| |
| Capital expenditures – leasing | $ | 251.7 | |
| Less: | |
| Payments to retire debt | (1,925.2) | |
| Proceeds from issuance of debt | 2,176.7 | |
| Net proceeds from (repayments of) debt | 251.5 | |
| Equity CapEx for new leased railcars | $ | 0.2 | |
For the six months ended June 30, 2020, 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 sales of leased railcars owned more than one year at the time of sale, less capital expenditures for manufacturing, dividends paid, and Equity CapEx for new leased railcars. Equity CapEx for new leased railcars is defined as leasing capital expenditures, net of sold lease fleet railcars owned one year or less, adjusted to exclude net proceeds from (repayments of) debt.
| | | | | |
| Six Months Ended June 30, 2020 |
| (in millions) |
| Net cash provided by operating activities – continuing operations | $ | 327.8 | |
| Proceeds from railcar lease fleet sales owned more than one year at the time of sale | 132.2 | |
| Adjusted Net Cash Provided by Operating Activities | 460.0 | |
| Capital expenditures – manufacturing and other | (41.5) | |
| Dividends paid to common stockholders | (46.4) | |
Free Cash Flow (before Capital expenditures – leasing) | 372.1 | |
| Equity CapEx for new leased railcars | (325.4) | |
| Total Free Cash Flow After Investments and Dividends | $ | 46.7 | |
| |
Capital expenditures – leasing, net of sold lease fleet railcars owned one year or less of $54.0 | $ | 259.5 | |
| Less: | |
| Payments to retire debt | (618.3) | |
| Proceeds from issuance of debt | 552.4 | |
| Net proceeds from (repayments of) debt | (65.9) | |
| Equity CapEx for new leased railcars | $ | 325.4 | |
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-lived assets, restructuring activities, loss on extinguishment of debt, and pension plan settlement. 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 (loss), 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
June 30, | | Six Months Ended
June 30, |
| 2021 | | 2020 | | 2021 | | 2020 |
| Net income (loss) | $ | 4.8 | | | $ | (287.8) | | | $ | 6.1 | | | $ | (125.5) | |
| Less: Loss from discontinued operations, net of income taxes | — | | | — | | | (0.4) | | | (0.2) | |
| Income (loss) from continuing operations | $ | 4.8 | | | $ | (287.8) | | | $ | 6.5 | | | $ | (125.3) | |
| Interest expense | 51.1 | | | 53.0 | | | 102.5 | | | 109.3 | |
| Provision (benefit) for income taxes | (0.9) | | | (71.8) | | | 5.1 | | | (219.4) | |
| Depreciation and amortization expense | 69.1 | | | 67.7 | | | 135.7 | | | 134.6 | |
EBITDA | $ | 124.1 | | | $ | (238.9) | | | $ | 249.8 | | | $ | (100.8) | |
| Impairment of long-lived assets | — | | | 369.4 | | | — | | | 369.4 | |
| Restructuring activities, net | (0.7) | | | 0.3 | | | (1.0) | | | 5.8 | |
| Loss on extinguishment of debt | 11.7 | | | — | | | 11.7 | | | 5.0 | |
| Pension plan settlement | 1.0 | | | — | | | 2.2 | | | — | |
| Adjusted EBITDA | $ | 136.1 | | | $ | 130.8 | | | $ | 262.7 | | | $ | 279.4 | |
Exhibit 99.2
Trinity Industries, Inc.
Earnings Release Conference Call – Q2 2021
July 22, 2021
Steven L. McDowell
Vice President and Chief Accounting Officer
Thank you, Rocco. Good morning everyone. We appreciate you joining us for the Company’s second quarter 2021 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 our supplemental slides. The supplemental materials are accessible on our IR website at www.trin.net. These slides can be found under the Events and Presentations portion of the website, along with the Second Quarter Earnings Conference Call event link.
It is now my pleasure to turn the call over to Jean.
E. Jean Savage
Chief Executive Officer and President
Thank you, Steve, and good morning to everyone joining us today.
I hope everyone is enjoying summer so far, especially as the world continues to get back to normal. As you can see from our results, we are very pleased to see the market continue to recover as well. Some demand improvement across both our leasing and manufacturing businesses is obviously a welcome development, and when combined with the great progress we continue to make on our internal effort to enhance returns, we’re excited for the years ahead at Trinity. As we discussed at our Investor Day last fall, we see significant opportunity to drive returns through the optimization of our fleet, our operations, and our balance sheet. In the second quarter, we made meaningful strides across each initiative, keeping us on track to achieve our 3-year strategic goals.
Let me now summarize the key themes from our second quarter.
While we’re still recovering from the lower order volumes and weaker demand of 2020, you can see improvement across most of the indicators for our industry. First, rail carloads continue to ramp up from the lows of last year. Additionally, the supply of existing railcars is contracting thanks to elevated scrapping activity driven by higher steel prices. As a result, we saw improving asset demand in steady Trinity fleet utilization and rising orders. While we are only in July, from our perspective, we expect each of these industry trends to continue to improve into 2022 based on what we see in our business and the overall economy.
If we turn to Slide 4, you can see how this backdrop, in combination with our internal efforts, positively impacted our summary financials. First, our second quarter revenue of $372 million was down 27% from a year ago, which was inline to slightly better than my expectations. Our GAAP EPS for the quarter was $0.12, compared to an adjusted EPS for the quarter of $0.15, which includes a $0.03 adjustment primarily from the loss on extinguishment of our partially-owned subsidiaries’ debt. Our results were positively impacted by our Rail Products Group operations, which achieved breakeven margins from our ongoing optimization efforts. The last time we were at these low production levels was in 2010, and we lost money. We are encouraged that we achieved breakeven margins despite the near-term headwinds of input cost inflation and low volumes.
As in previous quarters, Trinity’s rail platform continues to drive solid cash flow relative to our earnings. In the quarter, cash flow from operations totaled $265 million, and Free Cash Flow, or excess cash after all investments and dividends, was $269 million. Eric will go into more details on our cash flow results in a moment.
To recap, we’re very pleased to report that our operational performance and railcar inquiries continue to turn the corner, and we are increasingly optimistic about the year ahead.
Let’s turn to Slide 5, and I can provide a little more color on the overall railcar market.
First, as you know, consumer confidence is very strong, and that activity has begun to ripple into our markets as we are seeing increasing rail carloads, which are now running roughly 8% above 2020. However, carload volumes have been below 2019 levels so far this year, so more recovery is required to reach the pre-pandemic levels. The year-over-year carload trends continue to benefit each of the other metrics on Slide 5. Railcars in storage declined 5% compared to a quarter ago, which has also been aided by strong scrapping market I mentioned. Our utilization rate remained relatively flat compared to last quarter. As a result, our Future Lease Rate Differential, or FLRD metric, which is the average of the rates transacted in the current quarter as compared to the average of the next 12
months expiring rates, improved to a -2.5%, compared to last quarter’s -14.8%, continuing a recovery that we believe began in the third quarter of last year. This marks a significant inflection point and demonstrates that higher new car pricing is beginning to feed into the overall lease market. While different markets will have different trajectories, this is a very encouraging trend.
Lastly, the demand is beginning to show up in orders, which were up 224% compared to last quarter. As we mentioned at our Investor Day, we continue to anticipate that industry deliveries will improve in the coming quarters and settle in line with replacement levels in 2022 and 2023.
Before I move on to our segment results, let me give a quick update on steel prices and inflation in general. At a high level as I mentioned, we and other railcar manufacturers will face a headwind on the production side of our business. Although we are experiencing an increase in new car orders, some of our customers are still hesitant to place orders. Markets demonstrating the most strength are chemical, construction, and intermodal, but we are seeing improving trends across many segments of the fleet.
What is important to realize though is historically inflation driven by expanding economic growth is a long-term positive for fixed-asset businesses like ours. As an example, inflation has already impacted the underlying economics for many of our end customers in markets, like agriculture, construction, chemical, and energy. Inflation supports fixed asset prices in two key ways. First, asset replacement costs grow with rising prices for input materials, like steel. Second, increasing commodity prices for asset users make higher lease rates and prices for equipment more acceptable.
Turning to Slide 6, let’s walk through Trinity’s segment results for the quarter. For the Leasing business, Trinity’s lease revenue improved compared to last year as we experienced higher per diem asset usage and lease fleet growth. This was somewhat offset by slightly lower utilization primarily attributable to softness in energy-related markets and the corresponding effects on remarketing rates. Most notably, there are clear signs of a strengthening recovery as renewal success rates continue to improve to a level not seen in recent history, and renewal rates, while in total still slightly down for the quarter, moved into positive territory compared to expiring rates as the quarter progressed. Further supporting this improvement in momentum is the recovery to our FLRD that I mentioned previously.
With respect to our costs, as noted on prior calls, we continue to maintain a strong discipline. It is expected that maintenance and other operational expenses required to position the lease fleet for increasing demand will be a headwind to the Leasing segment margin for the year.
As part of our strategic initiatives, we continue to work towards increasing the percentages of maintenance and compliance events handled internally within our shops. Over the last few years, our service capacity has increased from roughly one-third to over half of our maintenance events – achieving a target we set out at the end of 2018. With our current footprint, we have the ability to get to 70%, which will continue to reduce the effective maintenance costs of our fleet and improve our railcar serviceability for our customers. As a good indicator of our progress, year-to-date 2021, over 60% of our fleet maintenance spend was internal.
Turning to our Rail Products segment, as I noted, we are pleased to have achieved breakeven margins despite a challenging near-term headwind from higher steel costs and the lowest quarterly production volume since 2010. The incremental margin progress we have made over the past six months is almost entirely attributable to our operational efficiencies, cost initiatives, and internal supply chain initiatives. We are optimistic that we will see improving margins in the segment as railcar pricing potentially increases given tighter supply and rising demand. In our maintenance facilities, we are expecting continued headwinds in ramping up our new Midwest facility, as we are experiencing difficulties in filling open positions at that location.
What is most exciting is what we are seeing in our orders, which totaled 4,570 in the quarter, up 224% compared to last quarter. As you’ll recall from the past few quarters, we had an increasing level of interest and inquiries, and it’s now great to see those materialize in orders. This is the highest order quarter since the fourth quarter of 2018, and approximately half of our backlog value is expected to deliver in 2021, resulting in declining year-over-year deliveries; although, we do expect our delivery rate to build through the year to meet demand from new orders.
Let me wrap up my remarks on Slide 7, with an update on our return optimization initiatives. Similar to last quarter, Trinity was busy and executed against both our cost and our balance sheet goals.
First on our balance sheet, Eric will give more detail here, but we have made the most of the low interest rate environment and have added significant value as a result. In total, Trinity has issued and refinanced approximately $2.3 billion of debt since the onset of the pandemic, including our partially-owned subsidiaries. In aggregate, we have lowered the Company’s borrowing costs by 100 basis points over that time.
On top of that, we have continued our disciplined commitment to return capital to shareholders. In the quarter, Trinity repurchased $68 million of stock in the open markets and also completed a $223
million block purchase from ValueAct as they monetized a portion of their investment. These repurchases accounted for just under 10% of the Company’s shares.
Turning to our enterprise and manufacturing costs, we continued to make progress on both fronts, which is contributing to our goal to enhance returns.
And we continue to optimize our fleet as you saw by our transaction activity in the quarter. Over the quarter, Trinity was active in the secondary markets and booked gains on lease portfolio sales of $11 million. That said, we expect as railcar demand improves Trinity will have opportunities to both buy and sell in the secondary markets, which continue to open and broaden.
Finally, to update on our new product initiatives, we are proud to report that Trinsight continues to see strong uptake. Although the product is still in its early growth stage, we are ahead of plan, and interest continues to build. We are also seeing strong demand for our new covered hopper product, which is hitting the agriculture market at an opportune time. Also, our redesigned intermodal products are being well received by customers and are driving some of the order activity we touched on earlier.
To summarize, the whole Trinity team is executing very well against our near and long-term plans to drive returns and add value for shareholders. We feel confident in the 3-year plan we outlined at our Investor Day last fall, and we look forward to updating you on the progress in the quarters to come.
With that, let me hand the call over to Eric for more detail on our results.
Eric R. Marchetto,
Executive Vice President and Chief Financial Officer
Thank you, Jean – and good morning everyone.
I will start on Slide 8 with some summary headlines. As Jean noted, Trinity’s second quarter was driven in part by the improving market dynamics for both our leasing and manufacturing segments. Additionally, our improving manufacturing margin and consolidated returns benefited from our progress on optimization initiatives.
Our second quarter consolidated revenue totaled $372 million, which was down 27.0% compared to a year ago. This was driven by the combination of lower deliveries from our rail segment combined with a higher proportion of deliveries for our leasing customers, which are eliminated from our consolidated results. Specifically, over 64% of deliveries in the quarter were for our lease portfolio, compared to 41% in Q2 2020.
Overall, our adjusted earnings improved sequentially to $0.15 from $0.07, driven by a combination of better fundamentals, gains on lease portfolio sales, and our share repurchase activity.
Our second quarter earnings included an $11 million gain on lease portfolio sales, consistent with our ongoing lease fleet optimization efforts aided by the broadening secondary market. We did incur an expense of $11.7 million related to the early extinguishment of debt in our partially-owned leasing entities. We have removed this expense from our adjusted results. That said, our segment results continue to improve consistent with our expectation for higher earnings in the back half of the year.
In regards to cash flow, year-to-date cash flow from operations totaled $335 million. Cash flow from operations in the second quarter was $265 million, which reflects the collection of $207 million of our income tax receivable during the second quarter. Net of this impact, cash from operations was down slightly compared to the first quarter, as our inventory grew, reflecting higher steel prices and a modest ramp-up in expected deliveries in the second half of the year. As a result of these factors, we are revising our cash flow from operations range to $600 to $650 million, which was previously $625 to $675 million.
Our net investment for leasing in the quarter was approximately $72 million, consisting of $144 million of additions and betterments reduced by portfolio sales of $72 million. Our manufacturing capex was $9 million for the second quarter. For the year, our expectations for net leasing and manufacturing capex is $200 to $250 million and $45 million to $55 million, respectively. Our range for net leasing capex for the year was reduced $100 million, primarily due to a shift in deliveries from the lease portfolio to direct sale.
Total Free Cash Flow after investments and dividends totaled $269 million in the second quarter. The improvement in cash flow from operations is the result of the timing of the tax receivable. Additionally, Free Cash Flow was aided by the debt financing accomplished in the quarter, which increased the loan-to-value on our wholly-owned lease fleet to 62.5%.
Turning to Slide 9, Trinity remains in a strong financial position, and our liquidity at the end of the second quarter was $918 million.
We have discussed our ongoing work to optimize the balance sheet, and we certainly took advantage of the low interest rate environment. Over the past quarter, Trinity accessed the debt markets for approximately $1.6 billion, which included refinancing over $1.25 billion of debt for our partially-owned leasing entities and the issuance of $325 million of Green asset-backed securities at a rate of 2.31%
and an anticipated 7-year life. The aggregate effect of our financing activities over the past twelve months has lowered Trinity’s borrowing costs approximately 100 basis points.
Additionally, the secondary market for railcars has improved. In the second quarter, Trinity was an active buyer and seller of railcars. We sold 700 railcars, yielding the gain I mentioned earlier. We also purchased 155 railcars, which we were able to deploy at attractive returns immediately. The takeaway is that Trinity has the ability to improve our returns with our platform in various ways, and we expect to increasingly pursue these options. I’ll end by reemphasizing that we will continue to take a disciplined approach to capital deployment that drives shareholder value.
As a reminder, our capital allocation priorities remain largely unchanged. We expect to make investments in our lease fleet for growth, especially in markets where we can meet increasing demand. As we see opportunities in the secondary market, we expect to be a buyer and seller to drive further optimization of our fleet and improve returns.
As highlighted in our release, Trinity purchased 10.5 million shares at a cost of $291 million in the quarter, which includes a direct purchase from our largest shareholder. Additionally, our dividend in the quarter totaled $24 million, bringing the total year-to-date capital return to shareholders to $375 million.
In closing, our strategic plan is taking hold, and I’m proud that Trinity continues to deliver on the commitments we made at our Investor Day last fall. We are focused on executing upon internal initiatives and the resulting value creation. Additionally, I am excited about the improving market backdrop and how our platform can perform in this environment.
Rocco, you may now take us to questions from our participants.
Steven L. McDowell
Vice President and Chief Accounting Officer
Thank you, Rocco. A replay of today’s call will be available after 10:30 a.m. Eastern time through midnight on July 29th, 2021. The replay number is (877) 344-7529 with an access code of 10152026. A replay of the webcast will also be available under the Events and Presentations page on our Investor Relations website located at www.trin.net. We look forward to visiting with you again on our next conference call. Thank you for joining us this morning.
