Before we get started, let me remind you that today’s conference call contains forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995 and includes statements as to estimates, expectations, intentions and predictions of future financial performance. Statements that are not historical facts are forward-looking. Participants are directed to Trinity’s Form 10-K and other SEC filings for a description of certain of the business issues and risks, a change in any of which could cause the actual results or outcomes to differ materially from those expressed in the forward-looking statements. I would now like to turn the call over to Jessica Greiner. Please go ahead.

Thank you, Caroline, and good morning, everyone. Thank you for joining Trinity Industries fourth quarter 2019 financial results conference call. I’m Jessica Greiner, Vice President of Investor Relations and Communications. I'm pleased to welcome Trinity's new Chief Executive Officer and President; Jean Savage, who will provide some opening remarks today on our call. Eric Marchetto, Senior Vice President and Group President; of TrinityRail will address Trinity's operations as well as provide insights into our market outlook. Melendy Lovett, Senior Vice President and Chief Financial Officer; will provide the financial highlights and 2020 guidance. Following the prepared remarks we will hold a Q&A session. Yesterday, after market close, Trinity reported strong fourth quarter and full year results for 2019. In the press release we also provided our initial guidance and outlook for the full year 2020. During the call today, we will discuss certain non-GAAP measures. Definitions and reconciliations of these measures were provided in the tables of the earnings press release, which is available at the investor relation section of our website, at www.trin.net. It is now my pleasure to turn the call over to Jean.

Thank you, Jessica, and good morning everyone. I'm very excited to be here at Trinity, and have the opportunity to talk to you today. In a moment, Eric and Melendy, will discuss Trinity's fourth quarter and 2019 results. Having been in my new role for three days, I've tried to think of the most important things on your mind, that I'm in a position to address today. And so I plan to discuss three things. Who I am? Why am excited to be in Trinity? And at a high level, what are my plans for the company? I am an experienced transformational executive who has had the opportunity to work in multiple industrial businesses, including 12 years in the rail industry. During my career, I've had the opportunity to transform these businesses to deliver considerable value, whether a change was needed due to fundamental market changes or business cycle, whether a business needed the operating structure improvements, or whether a change was needed to grow the business through technology and innovative products. I strongly believe in listening to customers, employees and all stakeholders, to gain understanding and knowledge of the business I'm diving into. I then use insights, these insights in addition to the facts and data, I gathered to determine where the opportunities are to make impactful, strategic decision. You will find, I'm also a strong believer in a disciplined capital allocation, and in planning for how this allocation may vary at different points in the business cycle. During my tenure with Progress Rail Services, I gained a very strong knowledge of the rail industry, including developing relationships with customers. At Progress Rail, we did everything from leasing rail cars to repairing them in the network of shop, to major modification programs, along with component remanufacturing, wheel shops, new…

Thank you, Jean, and good morning, everyone. TrinityRail delivered solid results in our first year as a rail focused company. 2019, was a year of transition, as we began the optimization of our rail platform while encountering external challenges and changing market dynamics. The organization was focused on managing business for quality over quantity, and removing both structural and cyclical costs from our platform. Our owned and managed lease fleet grew by approximately 6.5% year-over-year, to 125,000 railcars with attractive returns relative to our ROE target. We maintained high utilization, ending the year at 96% with higher average lease rates, and the organization delivered approximately 22,000 railcars at a 9.6% margin. Through it all, I'm very pleased, that we delivered on our commitments to our customers. Yesterday in our press release, we provided segment details of our financial results for the fourth quarter and the full year 2019. Today, I'd like to focus on some of the strategic activities completed or initiated during the year, that contributed to our results, and that we expect will be foundational to our financial performance in the future. Our rail products organization had a very productive year. We move forward with substantial investments and our manufacturing footprint, to bring the market state of the art railcar coatings capabilities, and maintenance shop capacity. These investments will help align Trinity's manufacturing capacity to customer demand, and lower Trinity's lease fleet maintenance costs, while growing our maintenance services business for key industrial customers. We also finalized integration of our trucking and logistics business from Trinity's diversified industrial business model, into the rail products business, as well as other facility maintenance in engineering support functions. I am pleased, with how these teams work together to streamline and improve, our supply chain operation. In addition, our product development team…

Thank you, Eric. And good morning everyone. Yesterday, the company reported strong improvement in our fourth quarter and full year 2019 results. Revenues, adjusted operating profit and adjusted earnings per share all increased by double digits, as a result of fleet growth with attractive pricing, and higher railcar deliveries with a favorable product mix. Not only did our team delivered strong operational results in a challenging market environment, Trinity's leaders have made significant strides in executing against our strategic and financial priorities, in our first full year as a rail focused company. Our priorities for 2019 included optimizing our costs and capital structure, investing in value creating growth opportunities, and returning capital to shareholders. We also committed to improving our financial filings and presentation to better highlight the value of the lease fleet in the rail platform. As Eric mentioned, leadership has been focused on streamlining our operating structure, as we transition from Trinity’s former multi business holding company, to a rail focused company. These collective actions resulted in the reduction of more than $30 million of SE&A during the year. We have more work to do, to optimize our business platform to the level of our expectation, and we are evaluating both cyclical and structural costs to enhance our performance. Another area of focus during 2019, was the optimization of our balance sheets. Trinity’s loan to value ratio on the wholly-owned lease fleet improved from 46.6% to 55.1% at the end of 2019, when including the debt funding from our corporate revolver. This was significant progress toward our goal to achieve an LTV ratio of 60% to 65%, in the near term. We expect to achieve this LTV target within the next 12 to 18 months. Our debt funding secured in 2019 was a very attractive interest rates. And…

Thanks, good morning. And Jean, congrats and look forward to working with you.

Thanks, Justin.

So maybe, to start with the 2020 revenue guidance, I'm having a little bit of difficulty bridging to the $2.5 billion to $2.7 billion on a consolidated basis, with some of the assumptions that have been laid out. Is there anything unusual with mix or the magnitude of eliminations or maybe the railcar sales, all being units that are younger than one year, that are included in that revenue number? I think, it would just be helpful to get a little bit more color on each of the components, that bridge to that total revenue outlook.

Good morning, Justin, it's Melendy. There's not really anything unusual in the $2.5 billion to $2.7 billion consolidated revenue number. Certainly, if you'd like a follow-up call later today, Jessica and I'd be happy to go into the details and help you with anything we can.

Okay. And on the share count you mentioned, you're incorporating a significant amount of buybacks. Would you be able to share what number you're using for the share count in 2020?

Since the spin off, you know, that we have consistently stated our plans to return meaningful and consistent capital to shareholders. And you've seen us do that in 2019 through both share buybacks and increasing our dividends. We certainly, expect the cash flow generation of our platform to allow us to continue to do this. Our 2020 guidance range incorporate potential share purchases that are roughly equal to what we did in 2019. And of course, this is subject to Board authorization.

Okay, that's helpful. And lastly, maybe this is one for Eric, just in terms of the demand dynamics for railcars were close to two months into the year. What have you seen in terms of order and inquiry activity year-to-date, and any kind of early expectation on how first quarter orders could look relative to what we saw in the fourth quarter?

Sure, Justin, this is Eric. As we began 2020 railcar loadings, the topline railcar loadings are still pressured. We're still seeing year-over-year trends that are unfavorable. Although, we're seeing several areas of recent improvement. Parts of the chemical space are improving, refined products. Some of the farm products and autos we've seen improvement there. When you look at our guidance of 16,000 railcars, delivering per year, there is a - we see about 60% of those in our backlog. So that implies, that we still have railcar order activity that we have to get in the next couple quarters to achieve those 16,000. What we're seeing so far this year and what would expect, is kind of that pace that we saw in '20, and the second-half of 2020 [ph] [sic 2019] to continue through this year, or through the first couple quarters into this year.

I think you mean the second-half of 2019.

'19.

Second-half of 2019, yes, continuing into the first part of 2020. That's what's kind of baked into our - that's what's implied in our guidance.

Okay, great. That's helpful. I'll leave it at that. I appreciate the time.

Thank you. And your next question comes from Matt Elkott with Cowen. Your line is now open.

Good morning, thank you. And Jean, congratulations, I look forward to working with you. My question is, it looks like you guys are expecting 5% or 6% growth in leasing revenue in 2020, but based on your guidance for railcars built for the lease fleet, which is lower than last year. And your guidance for sale of railcars, it looks like maybe your lease fleet is going to grow at a lower rate than the revenue growth rate by at least a couple of percentage points. And then renewals are going to be a headwind this year. So if that's true, are you baking in secondary market purchases that would allow you to hit that $800 million revenue growth goal?

Good morning, Matt, it's Melendy. I'll start in responding to your question. Our assumption, as far as the percentage of railcars that are going into the lease fleet is roughly the same as it was in 2019. Just a reminder, that the eliminations now include modifications and betterments, as well as the additions to the lease fleet. So, the fact that our deliveries have come down from 2019, is the primary driver of the number of railcars being added to the fleet coming down. As far as, your question around secondary market sales, we do have a small amount of secondary market sales planned into our net lease fleet investment guidance that I shared. You're right, that our current forecast of sales of lease railcars and the operating profit resulting from that is lower than our 2019 results. And part of the reason for that, a reminder, we had sales type leases that are showing up in our car sales numbers for 2019 and that was $160 million. So that's the primary reason for a 2019 car sales, being at a higher level than 2020.

Okay. But you're not making in any type of secondary market purchases for your lease fleet in the guidance.

Right. If you're looking at leasing revenue, the main drivers there, as I mentioned in my comments are, there's a headwind on renewals, as you noted, and then there's going to be fleet growth, which was the numbers Melendy talked about, in terms or additions to the fleet. Where you're getting differences in terms of the amount of fleet growth, we're expecting relative to the revenue number. That's mainly going to be the timing of both the headwind on renewal activity and then the timing of deliveries to the fleet. There's not any big secondary market purchases that are baked into that guidance.

So, does that mean Eric, that the additions to the lease fleet will happen earlier than the bulk of the headwinds on renewals?

It would imply that, also, remember that the railcars that we're adding to the fleet are going to be more expensive and have higher lease rates than existing railcars. So, you got a little bit of mix changes as well in terms of the nature of that revenue.

Got it. And just one more question, Eric. The last time you guys did 7%, I think was 7.4% manufacturing margin was in 2018 and I think your deliveries were about 20,000 cars. Now you're guiding for 7% on 16,000 cars. Can you help us understand, despite the fact that you may have a negative mix shift in 2020, why you're able to get that same margin as 2018 on lowered deliveries?

Well, the obvious is better performance, but besides that, you certainly do have a mix. The mix change is going to be a big piece of it, for sure. And we see as a headwind, there is step down with roughly 30% of both industry deliveries and our own production footprint. So, I really don't think of it as better performance in 2016. We're looking to improve our performance this year, over what we're saying, and we're going to continue to take costs out of our platform and improve what we're doing.

If you look back at the last five or six years, I think your margins got up to about 21% during the crude by rail boom, and the bottom was 27%, which is similar to what you're expecting in 2020. If we look at a normalized mid cycle margin going forward, given all the rightsizing and the cost cutting you're doing in the manufacturing segment, what would that look like?

I think you really have to pull out some of the higher margins from the crude cycle, just because, in elasticity of demand that we experienced in that time, railcar delivery was never so powerful as at that time. And we're not anticipating that in the near-term with our guidance. So, when you look at - if you pull that out, mid-cycle margins for us are going to be in that where we're talking about this year and then high single digits margin percentage is what we would expect.

Got it. Thank you very much.

Mid to high, I guess the right math.

Alright. Thanks, guys.

Thank you.

Thank you. And your next question comes from Allison Poliniak with Wells Fargo. Your line is now open.

Hi guys. Good morning.

Good morning.

Just want to go back to, I guess, the cars that you're putting in the lease fleet that are new for manufacturing. Could you give us a little color in terms of obviously, utilization at 96%, you had some of the cars sitting idle and you certainly have some renewals coming up. Is there a unique end market that's driving some of that new interest or that growth relative to what you have out there right now? Any color there that you can help?

Sure. Allison, this is Eric. Absolutely. When you look at or if you just step back and look at new railcar demand, replacement demand is still the single largest driver that is driving new railcar builds. And while we have as you mentioned idle of 96% utilization that implies available railcars. And then when you look at the industry fleet, some of the underemployed and unemployed railcars in the market, there are still pockets of strength, I think, I mentioned earlier. We're seeing demand in the chemical space specifically plastics, refined fuels, which be a lot of tank car demand, some of the farm products and autos. So the market is fairly efficient, but it's not perfectly efficient. We're seeing demand for some of those markets that have pockets of growth, whether that's growth in terms of railcar loadings or replacement demand. And replacement demand is going to be mainly around the boxcar fleet.

Got it. And then just your thoughts on storage, obviously, with the interest in newer cars and more efficient cars any thoughts on what's that real storage number? What should it look like through a cycle? Obviously, we're elevated now given traffic, but I assume some of that certainly not going to come back in terms of capacity.

Allison, this is Eric. And certainly, a lot gets talked about by the railcars and storage that the AAR puts out. And as we look at it, we kind of break that into two categories I mentioned earlier. We have unemployed railcars, which literally would be railcars and storage. Then you have under employed rail cars, that AR measure looks at railcars and haven't made a revenue move in 60 days. There is a good portion of fleet that doesn't make a revenue move in 60 days, but still under leased and active part of the lease fleet. Some examples of that would be plastics, cars, seasonal fleets, grain cars, fertilizer railcars, pressure tank cars for LPG have a seasonal aspect to it. And then there is buffer fleets that shippers have extra cars in order to compensate for some of the volatility of railcar service. And so that may not make a load in 60 days, but it's still an active part of their fleet. So when you look at, I think with the more important number there is the change that has happened. And when you look over the last year, that number that the AAR puts out has been increasing about 100,000 railcars. The biggest driver there were small cube covered hoppers, that we think have increased by about 30,000 railcars, since this time last year in that number, so that's a big driver. And then some of the other results from traffic trends, which is pure coal moves has been a big impact. I don't see as much of an impact from PSR. I would say, the impact from PSR is probably less than a quarter of that increase in that number that the railing puts out. Does that helpful?

Yes. No, that's very helpful. Thank you. And then just last for me. On the SE&A cost savings that you expect to do this year. Is there a way to think about that structural versus cyclical, or is it too muddy at this point?

We're evaluating as we mentioned, Allison. We're evaluating both structural and cyclical aspects of our business in order to achieve the savings. And I'm not really prepared to break out that level of detail at this point in time, but what I can tell you in terms of modeling is, we expect the majority of those savings to come out of that total SE&A number that's around $263 million for 2019. Not all of the cost reductions will be SE&A, but we expect the majority to be.

Great. Thank you.

Thank you.

And your next question comes from Bascome Majors with Susquehanna. Your line is open.

Yes. Melendy, I believe, I heard you say that, your guidance assume share repurchases are going to be similar this year versus last, which would certainly suggest the authorization needs to be resumed sooner rather than later given the 2.6 million shares remaining on it. But I think you've also mentioned before that that authorization was sized up to avoid running afoul IRS Private Letter Ruling related to the spin off. Can you help clarify where we might be off here and what the buyback intentions are for investors?

Certainly, good morning, Bascome. You're correct. What I shared was that our 2020 guidance range, it includes potential share repurchases that are roughly equal to what we did in 2019, subject to Board authorization. And certainly, Bascome, tax considerations are one of the important factors that we consider in our share repurchase plan. So that will have an influence on our timing.

Okay, understood. One more capital allocation here. You've talked about growth CapEx. Are acquisitions a part of the Trinity strategy in the next 12, 18, 24 months? And in specifically, could you go beyond investing in railcar assets to really adding adjacent service lines or rail related businesses to build the portfolio more broadly into the more recurring kind of revenue stream that you alluded to in your prepared remarks? Thanks.

So, Bascome, this is Jean. I will say that we're always looking for the right time and the right opportunity to make investments. And as we discussed earlier, we're wanting to make sure we have a balance in both growth and in returns to our shareholders. So, we are keeping a list, we will continue to monitor that and see if we find the right purchase, at the right time.

And Bascome, I would add that, we mentioned in our comments that our near-term focus is on optimizing our platform of businesses and really driving the financial performance improvement. So, totally agree with the Jean's comments. We're continuing to look for the right opportunity at the right valuation with our main focus being on optimizing our existing businesses.

Okay. And last one from me. Jean, when do you think you're going to be far enough along in your strategic planning efforts to deliver that plan to investors, whether that comes via an analyst day or some other format? Thank you.

Well, as far as the timing, we're still working. This is day three or actually they started day four for me. So if you give me a little bit more time, I'll get that out to you. But I am planning on doing some calls in the near-term and then making sure, that I get out and talk with our investors. And so, I will do some type of a roadshow or visits. Hopefully, that helps. But that's all I can give you right now.

All right. Thank you. Appreciate it.

Your next question comes from Gordon Johnson with GLJ Research. Your line is now open.

Hey, guys, thanks for taking the questions.

You're welcome.

Alright. So, I guess first, you guys talked about, you need to see some increased orders to hit your guidance for 2020. Can you give us some sense of kind of what the lead times are with respect to those orders? And when should we expect you to start to see those orders to kind of get towards your 2020 guidance?

Sure, Gordon, this is Eric. I'll speak in generalities around that. What I said is that, our guidance implies that we have unsold space in our guidance of 16,000 railcars. So generally, the timing of those orders are going to have to be the first-half of this year in order to place deliveries. So, I would say, generally speaking, it's going to be in the first or second quarter order activity, in order to deliver it in 2020.

Okay, that's helpful. And then can you guys help me understand, it seems like you guys changed the definition with respect to free cash flow, well, where you're including the sales of fleet and free cash flow, but the CapEx associated with that fleet isn't included in free cash flow. Can you guys help me understand how to navigate that definition?

Hi, Gordon, this is Jessica. As Melendy mentioned, we did provide free cash flow before lease fleet investment and following our last conference call, that was a new measure that we provided and it was an earnings release. We've maintained the definition of that. And of that non-GAAP measures, we're happy to walk you through any particular questions you may have about the measure.

And Gordon, this is Melendy. I would just add that, the reason we want to talk about free cash flow before our lease fleet investments, because we consider that lease fleet investment discretionary and driven by demand in the marketplace. And just a reminder, that lease fleet investment we're talking about on a cash basis, the total cash that it takes to grow our lease fleet. But we can lever that those add to the lease fleet on their market value, rather than their cost. And that's a real advantage to the platform. So, that's an important driver for why we've chosen the free cash flow before lease fleet investment definition.

Okay. That’s helpful. And then just one last one. As we look to the orders with respect to the RSI numbers that are reported, it looks like kind of you guys average around 30% to 40% of those RSI orders. So, as we look to those numbers coming out for Q1, I guess, over the next couple months, are you guys ingraining in your guidance a significant increase in industry orders? Or would you say, that you have the visibility into your own orders that even if the industry orders are low, you're confident you'll still be able to hit your guidance? Thank you.

Thank you, Gordon, this is Eric. I'll answer that. I think I mentioned this earlier that, what is implied in our delivery guidance is ordered level in the first-half of this year that's going to be consistent with what the industry experienced in second-half of 2019. So it implies both industry activity and our own orders that we take. I feel good about the visibility that we have to date with the orders we've taken, and we still have work to do in order to hit that delivery target for the year.

Thanks again, guys. Good luck.

Thank you.

And the next question comes from Steve Barger with KeyBanc Capital Markets. Your line is now open.

Hi, good morning.

Good morning.

Melendy, sorry if I missed this, but when you were talking about the headwinds in 1Q from the transition to lower production and how that's going to pressure 1Q? Will that drive EPS down into the single digits? Or maybe, can you talk about the percentage of EPS you expect in first-half versus second-half?

Good morning, Steve. We don't give quarterly guidance. And so, just wanting to let you know that our first quarter is being impacted by lower deliveries, lost efficiencies and rightsizing costs. I think your thoughts are generally in the range, but again, not wanting to turn it into quarterly guidance.

Understood. And Jean, I welcome aboard. I know you started this week, but since you do have that experience of Progress and having been on the board, you know, PSR has been a huge topic in 2019. Any thoughts on how you view that in terms of positioning Trinity relative to opportunities or threats from that?

Sure, I think overall for the industry PSR will help us increase the efficiency of that mode of transportation, and allow future growth. So as you look at both sustainability and the fact that transportation by the rail is four to six times more sustainable than by truck, that I think you'll see a movement over time as the overall performance of the railroads to deliver the product, at the right time and consistently, for their customers. So, I guess, that's what I'd say for the PSR. I think it's good for us and good for the railroad.

Got it. And just thinking about your experience whether you talked about in the Surface Mining business and again at Progress. Can you talk about early thoughts on opportunities to bring technology into Trinity, to help optimize the business, maybe talk both internally and for external initiatives?

Sure. I'll just start out with some of the work that I did with Surface Mining and Technology. It was all about making the performance of the total cost of ownership for our customers, the best and the lowest it could be. We use technology to help them understand, where their equipment was, how it was performing and also how to get the maintenance done before they had either an issue or a breakdown of that equipment. Same type of philosophy can work for the railcars that we have, in monitoring the health of those railcars, making sure that we can plan to pull those cars out of service prior to them having an issue with that car, and having it bad ordered maybe and set out of use for them. So, I think as we look to how we make improvements, there's that. There's also for tank cars, some sensors that we can put on them to help us see how those tank cars are performing, make sure that if there are any emerging issues or concerns that we can notify both the shipper and the railroad.

Thanks for that color. And then just last one from me. Eric, I think you addressed this to some degree, but 2019 orders are the lowest since 2016. And I know it's tough forecasting cycles, but did I hear you say that, you think this 10,000 run rate for Trinity is kind of trough-ish?

I did not say that. But what I did say was that, I expect in the near-term industry orders to maintain that pace that we saw in the fourth quarter, third and fourth.

Okay.

Steve, I'm not trying to be cute, but it all gets back into what's going on with railcar loadings. They've still been unfavorable. I would have expected them to turn, because the comps are a little bit easier. They have not yet. So we got to keep watching what's going on in terms of railcar loading activity, that will lead our outlook on railcar demand.

Very good. Thank you.

And the last question comes from Douglas Greiner with Wilbanks, Smith & Thomas. Your line is now open.

In regards to the balance sheet optimization plan, specifically moving from the 55% LTV on the wholly-owned lease fleet to the 60% to 65% target over the next 12 to 18 months. What are the steps in that operational plan and the biggest challenges you're facing in order to execute on that successfully? Thanks.

Good morning, Doug. This is Melendy. As far as the specific steps, some of that's going to depend on what our commercial activity is, what our railcar investment vehicle partners are doing. But basically, the steps are, we have set the 60% to 65% goal as a near-term goal, I mentioned we expect to reach that in 12 to 18 months. So basically, as we need the capital to grow our business and to return capital to shareholders, we will go out to the debt markets and evaluate what is the right debt for us to raise, given the cost of debt in our time horizon and such. And on an as needed basis, we will add that debt to our lease fleet to move that loan to value to the 60% to 65% level.

Doug, I would just add, this is Eric that the capital markets are certainly available for us to issue to get more capital.

And as far as the challenges, I would say the challenges are mostly related to like I said, I think that are out of our control, so timing. And for example, this year, we had forecasted to have our loan to value at 57%. We ended the year at about 55%, because, we did better on our working capital management and didn't need to raise as much capital.

Great. Thank you, Carolina and to all of our investors. That concludes today's conference call. A replay of today's call will be available after 1 o'clock Eastern Standard Time through midnight on February 27, 2020. The access number is 402-220-7233. 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.