What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-11-02 compared with 2023-08-01 · 162 added, 127 removed, 420 unchanged (41% of the section changed)

14 unchanged sentences

• naturally-occurring events, pandemics, and/or disasters causing disruption to our manufacturing, product deliveries, and production capacity, thereby giving rise to an increase in expenses, loss of revenue, and property losses;

• the impact of the coronavirus pandemic (“COVID-19”) and the response thereto, on, among other things, demand for our products and services, our customers' ability to pay, disruptions to our supply chain, our liquidity and financial position, results of operations, stock price, payment of dividends, our ability to generate new railcar orders, our ability to originate and/or renew leases at favorable rates, our ability to convert backlog to revenue, and the operational status of our facilities;

• disruptions in the transportation network used to deliver our products, which may impact our ability to timely deliver railcars to our customers;

• disruptions in the transportation network used to transport parts and components to our production facilities and to deliver products to our customers, which may impact our ability to manufacture and timely deliver railcars to our customers;

• shortages of labor;

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In connection with the sale of THP, we agreed to indemnify Rush Hour for certain liabilities related to the ET-Plus® System, a highway guardrail end-terminal system (the “ET Plus”).

Consequently, expenses incurred during the three and six months ended June 30, 2023 and 2022, and that may be incurred in the future related to these retained obligations, will be reported in discontinued operations.

Consequently, expenses incurred during the three and nine months ended September 30, 2023 and 2022, and that may be incurred in the future related to these retained obligations, will be reported in discontinued operations.

See Note 2 of the Consolidated Financial Statements for further information related to the sale of THP and Note 14 of the Consolidated Financial Statements for information regarding the retained liabilities.

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Recent Market Developments

U.S.-Mexico Border Congestion

On September 20, 2023, the U.S.

Customs and Border Protection Agency (“CBP”) suspended U.S.

bound cross-border rail traffic in Eagle Pass, Texas, the primary border crossing used for railcar deliveries from our manufacturing facilities in Mexico.

According to the CBP, this action was taken to assist U.S.

Border Patrol due to the recent influx of migrants at the border.

While rail traffic operations resumed on September 23, congestion and rail traffic challenges continue to evolve.

The closing of the U.S.-Mexico border by the U.S.

CBP negatively impacted our third quarter railcar deliveries.

Additionally, increased state vehicle inspections have resulted in truck traffic congestion, negatively impacting our supply chain.

We are actively monitoring rail and truck traffic as both continue to be impacted.

We remain in close contact with all stakeholders, including the relevant government agencies, and continue to evaluate available alternatives for rail and truck transportation between Mexico and the United States.

Continued rail and truck congestion at the border could negatively impact our deliveries and supply chain until the congestion is resolved.

Cyclical, Seasonal and Other Trends Impacting Our Business

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We have entered into hedging transactions to mitigate the foreign currency impact of a portion of our peso-denominated expenditures;

however, in recent months, the magnitude of the peso's strengthening relative to the United States dollar has unfavorably impacted the operating results in our Rail Products Group.

Additionally, steel prices, which are subject to volatility, were elevated over much of the last two years and are a major component of our cost of revenues.

We typically use contract-specific purchasing practices, existing supplier commitments, contractual price escalation provisions, and other arrangements with our customers to reduce the impact of plate and coil steel price volatility on our operating profit.

Further, the cost and volume of lease fleet maintenance and compliance events increased in 2022, and we expect elevated levels of these activities to continue in the near term.

however, the magnitude of the peso's strengthening relative to the United States dollar during the first half of 2023 unfavorably impacted the operating results in our Rail Products Group during the three and nine months ended September 30, 2023.

Additionally, we have experienced increases in the costs of steel, components, and certain other inputs that represent a substantial portion of our cost of revenues.

We typically use contract-specific purchasing practices, existing supplier commitments, contractual price escalation provisions, and other arrangements with our customers to reduce the impact of the volatility of certain input costs on our operating profit.

Further, the cost and volume of lease fleet maintenance and compliance events have increased, and we expect elevated levels of these activities to continue in the near term.

Finally, although we remain committed to attracting and retaining a highly skilled and diverse workforce, challenging labor market conditions and increases in labor costs have negatively impacted our operations.

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Financial and Operational Highlights

• Our revenues for the six months ended June 30, 2023 were $1,364.1 million, representing an increase of 53.4%, compared to the six months ended June 30, 2022.

Our operating profit for the six months ended June 30, 2023 was $168.1 million compared to $127.8 million for the six months ended June 30, 2022.

• The Leasing Group's lease fleet of 109,060 company-owned railcars was 97.9% utilized as of June 30, 2023, compared to a lease fleet utilization of 97.2% on 110,560 company-owned railcars as of June 30, 2022.

• Our revenues for the nine months ended September 30, 2023 were $2,185.4 million, representing an increase of 57.7%, compared to the nine months ended September 30, 2022.

Our operating profit for the nine months ended September 30, 2023 was $268.3 million compared to $220.5 million for the nine months ended September 30, 2022.

• The Leasing Group's lease fleet of 109,055 company-owned railcars was 98.1% utilized as of September 30, 2023, compared to a lease fleet utilization of 97.9% on 109,195 company-owned railcars as of September 30, 2022.

Our company-owned lease fleet includes wholly-owned railcars, partially-owned railcars, and railcars under leased-in arrangements.

• For the six months ended June 30, 2023, we made a net investment in our lease fleet of approximately $214.0 million, which primarily includes new railcar additions, sustainable railcar conversions, railcar modifications, and other betterments, net of deferred profit, and secondary market purchases;

• For the nine months ended September 30, 2023, we made a net investment in our lease fleet of approximately $237.5 million, which primarily includes new railcar additions, sustainable railcar conversions, railcar modifications, and other betterments, net of deferred profit, and secondary market purchases;

and is net of proceeds from lease portfolio sales.

• The total value of the new railcar backlog at June 30, 2023 was $3.6 billion, compared to $2.2 billion at June 30, 2022.

The Rail Products Group received orders for 7,460 railcars and delivered 9,030 railcars in the six months ended June 30, 2023, in comparison to orders for 9,390 railcars and deliveries of 4,980 railcars in the six months ended June 30, 2022.

• During the six months ended June 30, 2023, sustainable railcar conversion revenues totaled $60.3 million, representing 635 railcars.

• For the six months ended June 30, 2023, we generated operating cash flows from continuing operations and Adjusted Free Cash Flow After Investments and Dividends ("Adjusted Free Cash Flow") of $140.3 million and $80.8 million (1) , respectively.

For the six months ended June 30, 2022, operating cash flows from continuing operations was a net use of $61.3 million and Adjusted Free Cash Flow was $42.5 million (1) .

• The total value of the new railcar backlog at September 30, 2023 was $3.6 billion, compared to $4.1 billion at September 30, 2022.

The Rail Products Group received orders for 10,660 railcars and delivered 13,355 railcars in the nine months ended September 30, 2023, in comparison to orders for 28,890 railcars and deliveries of 8,915 railcars in the nine months ended September 30, 2022.

◦ In the third quarter of 2022, we entered into a long-term railcar supply agreement with GATX Corporation (“GATX”) to deliver a mix of 15,000 newly built tank and freight railcars over a six-year period.

Orders received during the nine months ended September 30, 2022 include 15,000 railcars associated with this agreement.

• During the nine months ended September 30, 2023, sustainable railcar conversion revenues totaled $123.3 million, representing 1,255 railcars.

• For the nine months ended September 30, 2023, we generated operating cash flows from continuing operations and Adjusted Free Cash Flow After Investments and Dividends ("Adjusted Free Cash Flow") of $215.8 million and $49.5 million (1) , respectively.

For the nine months ended September 30, 2022, operating cash flows from continuing operations was a net use of $52.6 million and Adjusted Free Cash Flow was $0.1 million (1) .

(1) Non-GAAP financial measure.

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(1) Dividend yield is calculated as dividends paid for the four previous quarters divided by the closing stock price on the last trading day of each respective quarter.

(2) In the second quarter of 2022, we completed the final settlement of an accelerated share repurchase agreement ("ASR").

(2) In the fourth quarter of 2022, our Board of Directors terminated the existing share repurchase program and authorized a new $250.0 million share repurchase program.

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Consolidated Results of Operations

The following table summarizes our consolidated results of operations for the three and six months ended June 30, 2023 and 2022:

The following table summarizes our consolidated results of operations for the three and nine months ended September 30, 2023 and 2022:

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2023 2022 2023 2022

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Income from continuing operations $ 26.3 $ 29.7 $ 66.6 $ 56.1

The tables below present revenues by segment for the three and six months ended June 30, 2023 and 2022:

Three Months Ended June 30, 2023

The tables below present revenues by segment for the three and nine months ended September 30, 2023 and 2022:

Three Months Ended September 30, 2023

Revenues Percent

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Consolidated Total $ 821.3 $ — $ 821.3 65.4 %

Three Months Ended June 30, 2022

Three Months Ended September 30, 2022

External Intersegment Total

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Consolidated Total $ 496.6 $ — $ 496.6

Six Months Ended June 30, 2023

Nine Months Ended September 30, 2023

Revenues Percent

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Consolidated Total $ 2,185.4 $ — $ 2,185.4 57.7 %

Six Months Ended June 30, 2022

Nine Months Ended September 30, 2022

External Intersegment Total

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and restructuring activities.

Operating costs by segment for the three and six months ended June 30, 2023 and 2022 were as follows:

Operating costs by segment for the three and nine months ended September 30, 2023 and 2022 were as follows:

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2023 2022 2023 2022

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Consolidated Total $ 721.1 $ 403.9 $ 1,917.1 $ 1,165.6

(1) Includes gains on lease portfolio sales of $29.8 million and $26.9 million for the three months ended June 30, 2023 and 2022, respectively.

Includes gains on lease portfolio sales of $43.3 million and $38.7 million for the six months ended June 30, 2023 and 2022, respectively.

(1) Includes gains on lease portfolio sales of $3.1 million and $34.3 million for the three months ended September 30, 2023 and 2022, respectively.

Includes gains on lease portfolio sales of $46.4 million and $73.0 million for the nine months ended September 30, 2023 and 2022, respectively.

Operating Profit

Operating profit by segment for the three and six months ended June 30, 2023 and 2022 was as follows:

Operating profit by segment for the three and nine months ended September 30, 2023 and 2022 was as follows:

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2023 2022 2023 2022

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Discussion of Consolidated Results

Revenues – Our revenues for the three months ended June 30, 2023 were $722.4 million, representing an increase of $305.6 million, or 73.3%, over the prior year period.

Our revenues for the six months ended June 30, 2023 were $1,364.1 million, representing an increase of $474.6 million, or 53.4%, over the prior year period.

Revenues – Our revenues for the three months ended September 30, 2023 were $821.3 million, representing an increase of $324.7 million, or 65.4%, over the prior year period.

Our revenues for the nine months ended September 30, 2023 were $2,185.4 million, representing an increase of $799.3 million, or 57.7%, over the prior year period.

The increases in revenues were primarily due to a higher volume of external deliveries in the Rail Products Group and improved lease rates, higher utilization, and the impact of the acquisition of RSI Logistics ("RSI") in the Leasing Group.

Cost of revenues – Our cost of revenues for the three months ended June 30, 2023 was $601.2 million, representing an increase of $275.6 million, or 84.6%, over the prior year period.

Our cost of revenues for the six months ended June 30, 2023 was $1,139.7 million, representing an increase of $415.6 million, or 57.4%, over the prior year period.

The increases in cost of revenues were primarily due to a higher volume of external deliveries, the impact of foreign currency fluctuations, and operational and labor-related inefficiencies in the Rail Products Group.

Selling, engineering, and administrative expenses – Selling, engineering, and administrative expenses for the three months ended June 30, 2023 were $54.3 million, representing an increase of $9.3 million, or 20.7%, when compared to the prior year period.

Selling, engineering, and administrative expenses for the six months ended June 30, 2023 were $104.2 million, representing an increase of $14.5 million, or 16.2%, when compared to the prior year period.

Cost of revenues – Our cost of revenues for the three months ended September 30, 2023 was $679.5 million, representing an increase of $284.2 million, or 71.9%, over the prior year period.

Our cost of revenues for the nine months ended September 30, 2023 was $1,819.2 million, representing an increase of $699.8 million, or 62.5%, over the prior year period.

The increases in cost of revenues were primarily due to a higher volume of external deliveries and the impact of foreign currency fluctuations in the Rail Products Group.

Cost of revenues for the nine months ended September 30, 2023 was further impacted by operational and labor-related inefficiencies in the Rail Products Group.

Selling, engineering, and administrative expenses – Selling, engineering, and administrative expenses for the three months ended September 30, 2023 were $49.1 million, representing an increase of $1.1 million, or 2.3%, when compared to the prior year period.

Selling, engineering, and administrative expenses for the nine months ended September 30, 2023 were $153.3 million, representing an increase of $15.6 million, or 11.3%, when compared to the prior year period.

These increases were primarily due to higher employee-related costs.

Gains on dispositions of property – Gains on dispositions of property increased by $2.6 million for the three months ended June 30, 2023 when compared to the prior year period primarily due to higher profits on lease portfolio sales.

Gains on dispositions of property decreased by $7.4 million for the six months ended June 30, 2023 when compared to the prior year period primarily due to higher gains associated with the disposition of certain non-operating facilities and insurance recoveries in the prior year period, partially offset by higher profits on lease portfolio sales in the current year period.

Results for the six months ended June 30, 2023 and 2022 included gains of $1.2 million and $6.4 million, respectively, related to insurance recoveries in excess of net book value for assets damaged by a tornado at the Company’s rail maintenance facility in Cartersville, Georgia in the first quarter of 2021.

Gains on dispositions of property – Gains on dispositions of property decreased by $31.9 million and $39.3 million for the three and nine months ended September 30, 2023, respectively, when compared to the prior year periods primarily due to lower lease portfolio sales volume in the current year periods, as well as gains associated with the disposition of certain non-operating facilities in the prior year periods.

Additionally, we recorded gains of $3.7 million and $1.1 million during the three months ended September 30, 2023 and 2022, respectively, and gains of $4.9 million and $7.5 million during nine months ended September 30, 2023 and 2022, respectively, related to insurance recoveries in excess of net book value for assets damaged by a tornado at the Company’s rail maintenance facility in Cartersville, Georgia.

See Note 14 of the Consolidated Financial Statements for more information.

Operating profit – Operating profit for the three months ended June 30, 2023 totaled $99.1 million, representing an increase of $26.1 million, or 35.8%, from the prior year period.

Operating profit for the six months ended June 30, 2023 totaled $168.1 million, representing an increase of $40.3 million, or 31.5%, from the prior year period.

These increases were primarily due to a higher volume of external deliveries in the Rail Products Group and improved lease rates and higher utilization in the Leasing Group, partially offset by higher employee-related and other operating costs across the enterprise.

Operating profit for the six months ended June 30, 2023 and 2022 was favorably impacted by insurance recoveries related to a tornado at the Company’s rail maintenance facility in Cartersville, Georgia in the first quarter of 2021.

Operating profit – Operating profit for the three months ended September 30, 2023 totaled $100.2 million, representing an increase of $7.5 million, or 8.1%, from the prior year period.

Operating profit for the nine months ended September 30, 2023 totaled $268.3 million, representing an increase of $47.8 million, or 21.7%, from the prior year period.

These increases were primarily due to a higher volume of external deliveries in the Rail Products Group and improved lease rates and higher utilization in the Leasing Group, partially offset by lower lease portfolio sales volume in the current year periods and higher employee-related and other operating costs across the enterprise.

Operating profit for the three and nine months ended September 30, 2023 and 2022 was favorably impacted by insurance recoveries related to a tornado at the Company’s rail maintenance facility in Cartersville, Georgia in the first quarter of 2021.

For further information regarding the operating results of individual segments, see "Segment Discussion" below.

Interest expense, net – Interest expense, net for the three months ended June 30, 2023 totaled $66.9 million, compared to $49.7 million for the three months ended June 30, 2022.

Interest expense, net for the six months ended June 30, 2023 totaled $129.0 million, compared to $93.2 million for the six months ended June 30, 2022.

These increases were primarily driven by higher variable interest rates associated with TILC's warehouse loan facility and the revolving credit facility and higher overall average debt in 2023.

Income taxes – The effective tax rate from continuing operations for the three months ended June 30, 2023 was an expense of 23.9%, which differs from the U.S.

The effective tax rate from continuing operations for the six months ended June 30, 2023 was a benefit of 11.3%, which differs from the U.S.

statutory rate of 21.0% primarily due to the release of residual taxes out of AOCI, the re-measurement of our net deferred tax liabilities due to the acquisition of RSI, changes in our valuation allowances, state income taxes, and foreign income taxes.

Interest expense, net – Interest expense, net for the three months ended September 30, 2023 totaled $68.8 million, compared to $55.0 million for the three months ended September 30, 2022, primarily driven by higher average debt due to the issuance of the Senior Notes due 2028 and the TRL-2023 term loan in June 2023, as well as higher interest rates.

Interest expense, net for the nine months ended September 30, 2023 totaled $197.8 million, compared to $148.2 million for the nine months ended September 30, 2022.

The increase was primarily driven by higher variable interest rates and higher average debt due to the issuance of the Senior Notes due 2028 and the TRL-2023 term loan in June 2023.

Income taxes – The effective tax rate from continuing operations for the three months ended September 30, 2023 was an expense of 18.6%, which differs from the U.S.

statutory rate of 21.0% primarily due to state income taxes, foreign income taxes, non-deductible executive compensation, excess tax benefits associated with equity-based compensation, taxes not recorded on our non-controlling interests in partially-owned subsidiaries, and the remeasurement of deferred tax liabilities due to state tax law changes and rate reductions enacted during the third quarter.

The effective tax rate from continuing operations for the nine months ended September 30, 2023 was an expense of 2.8%, which differs from the U.S.

statutory rate of 21.0% primarily due to the release of residual taxes out of AOCI;

the re-measurement of our net deferred tax liabilities due to the acquisition of RSI and state tax law changes and rate reductions enacted during the year;

changes in our valuation allowances;

state income taxes;

and foreign income taxes.

See Note 9 of the Consolidated Financial Statements for additional information.

The effective tax rates from continuing operations for the three and six months ended June 30, 2022 were expenses of 26.0% and 25.0%, respectively, which differ from the U.S.

The effective tax rates from continuing operations for the three and nine months ended September 30, 2022 were expenses of 22.5% and 23.7%, respectively, which differ from the U.S.

statutory rate of 21.0% primarily due to state income taxes, foreign income taxes, non-deductible executive compensation, excess tax benefits associated with equity-based compensation, taxes not recorded on our non-controlling interests in partially-owned subsidiaries, and a reduction of our uncertain tax positions balance due to a lapse of a state statute of limitations.

Segment Discussion

Railcar Leasing and Management Services Group

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2023 2022 Percent 2023 2022 Percent

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(1) Operating profit includes:

depreciation;

depreciation and amortization;

fleet operating costs, which include maintenance, compliance, freight, and storage;

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Interest expense is not a component of operating profit and includes the effect of hedges.

(2) Includes $1.3 million selling profit associated with sales-type leases for the six months ended June 30, 2022.

(3) Depreciation expense includes $0.8 million and $5.5 million for the three and six months ended June 30, 2023, respectively, related to the disposal of certain railcar components associated with our sustainable railcar conversion program.

For the three and six months ended June 30, 2022, depreciation expense includes $3.9 million and $6.1 million, respectively, related to our sustainable railcar conversion program.

(4) Interest expense for the three and six months ended June 30, 2022 includes $1.5 million of loss on extinguishment of debt associated with the repayment of TRIP Railcar Co.

(2) Includes $1.3 million selling profit associated with sales-type leases for the nine months ended September 30, 2022.

(3) Depreciation and amortization expense includes $0.1 million and $5.6 million for the three and nine months ended September 30, 2023, respectively, related to the disposal of certain railcar components associated with our sustainable railcar conversion program.

For the three and nine months ended September 30, 2022, depreciation and amortization expense includes $2.4 million and $8.5 million, respectively, related to our sustainable railcar conversion program.

(4) Interest expense for the nine months ended September 30, 2022 includes $1.5 million of loss on extinguishment of debt associated with the repayment of TRIP Railcar Co.

LLC's outstanding term loan agreement.

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Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2023 2022 2023 2022

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Operating profit margin on lease portfolio sales 5.2 % 11.4 % 18.9 % 13.9 %

(1) Excludes $1.3 million selling profit associated with sales-type leases for the six months ended June 30, 2022.

Total revenues for the Railcar Leasing and Management Services Group increased by 14.3% and 12.8% for the three and six months ended June 30, 2023, respectively, compared to the prior year periods.

Leasing and management revenues for the three and six months ended June 30, 2023 were favorably impacted primarily by improved lease rates and higher utilization, which resulted in higher revenues when compared to the three and six months ended June 30, 2022.

Revenues for the Leasing Group were also favorably impacted for the three and six months ended June 30, 2023 by the acquisition of RSI.

Leasing and management operating profit for the three and six months ended June 30, 2023 increased by 12.8% and 9.6%, respectively, compared to the prior year periods primarily due to improved lease rates and higher utilization, partially offset by higher maintenance costs and increased depreciation and selling, engineering, and administrative expenses.

Leasing Group operating profit increased by 12.3% and 10.1% for the three and six months ended June 30, 2023, respectively, compared to the prior year periods and was favorably impacted by higher profit from lease portfolio sales.

(1) Excludes $1.3 million selling profit associated with sales-type leases for the nine months ended September 30, 2022.

Total revenues for the Railcar Leasing and Management Services Group increased by 14.3% and 13.3% for the three and nine months ended September 30, 2023, respectively, compared to the prior year periods.

Leasing and management revenues for the three and nine months ended September 30, 2023 were favorably impacted primarily by improved lease rates and higher utilization, which resulted in higher revenues when compared to the three and nine months ended September 30, 2022.

Revenues for the Leasing Group were also favorably impacted for the three and nine months ended September 30, 2023 by the acquisition of RSI.

Leasing and management operating profit for the three and nine months ended September 30, 2023 increased by 16.2% and 11.8%, respectively, compared to the prior year periods primarily due to improved lease rates and higher utilization, partially offset by higher maintenance costs and increased depreciation and selling, engineering, and administrative expenses.

Leasing Group operating profit decreased by 17.9% and 0.2% for the three and nine months ended September 30, 2023, respectively, compared to the prior year periods primarily due to lower lease portfolio sales volume in the current year periods.

The Leasing Group generally uses its non-recourse warehouse loan facility or cash to provide initial funding for a portion of the purchase price of the railcars.

After initial funding, the Leasing Group may obtain long-term financing for the railcars in the lease fleet through non-recourse asset-backed securities;

long-term non-recourse operating leases pursuant to sale-leaseback transactions;

long-term recourse debt such as equipment trust certificates;

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Information regarding the Leasing Group’s lease fleet is as follows:

June 30, 2023 June 30, 2022

September 30, 2023 September 30, 2022

Number of railcars:

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Fleet utilization 98.1 % 97.9 %

(1) Includes 2,490 railcars and 2,845 railcars under leased-in arrangements as of June 30, 2023 and 2022, respectively.

(1) Includes 2,495 railcars and 2,805 railcars under leased-in arrangements as of September 30, 2023 and 2022, respectively.

(2) Includes wholly-owned railcars, partially-owned railcars, and railcars under leased-in arrangements.

Rail Products Group

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2023 2022 Percent 2023 2022 Percent

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8.4 8.7 (3.4) % 25.3 25.4 (0.4) %

(Gains) losses on dispositions of property 0.2 0.1 * (0.9) (6.3) *

Gains on dispositions of property (3.7) (0.9) * (4.6) (7.2) *

Operating profit $ 39.2 $ 26.0 50.8 % $ 88.2 $ 40.5 117.8 %

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* Not meaningful

(1) Includes sustainable railcar conversion revenues of $6.4 million, representing 45 railcars, for the three months ended June 30, 2023 and sustainable railcar conversion revenues of $60.3 million, representing 635 railcars, for the six months ended June 30, 2023.

Includes sustainable railcar conversion revenues of $39.2 million, representing 485 railcars, for the three months ended June 30, 2022 and sustainable railcar conversion revenues of $89.0 million, representing 930 railcars, for the six months ended June 30, 2022.

Revenues for the Rail Products Group increased for the three and six months ended June 30, 2023 by 64.7% and 63.9%, respectively, when compared to the prior year periods.

Revenues in our rail products business increased as a result of higher deliveries, partially offset by the mix of railcars sold.

Revenues in our maintenance services business increased as a result of higher volumes and favorable pricing, partially offset by the mix of repairs.

Revenues in other were driven by the growth of our parts business as a result of the acquisition of Holden America.

Cost of revenues for the Rail Products Group increased for the three and six months ended June 30, 2023 by 65.1% and 60.9%, respectively, when compared to the prior year periods.

In our rail products business, the increase in cost of revenues was driven by higher deliveries, the impact of foreign currency fluctuations, operational inefficiencies associated with production line changeovers and supply chain disruptions, and labor inefficiencies associated with onboarding of new employees.

In our maintenance services business, cost of revenues increased as a result of a higher volume of general repairs and the mix of repairs and continues to be impacted by labor shortages leading to operating inefficiencies.

Operating profit for the three and six months ended June 30, 2023 was favorably impacted by higher deliveries, partially offset by the mix of railcars sold, the impact of foreign currency fluctuations, and operational and labor inefficiencies.

Additionally, during the six months ended June 30, 2023 and 2022, operating profit was favorably impacted by gains of $1.2 million and $6.4 million, respectively, related to insurance recoveries in excess of net book value for assets damaged by a tornado at the Company’s rail maintenance facility in Cartersville, Georgia in the first quarter of 2021.

(1) Includes sustainable railcar conversion revenues of $63.0 million, representing 620 railcars, for the three months ended September 30, 2023 and sustainable railcar conversion revenues of $123.3 million, representing 1,255 railcars, for the nine months ended September 30, 2023.

Includes sustainable railcar conversion revenues of $28.9 million, representing 300 railcars, for the three months ended September 30, 2022 and sustainable railcar conversion revenues of $117.9 million, representing 1,230 railcars, for the nine months ended September 30, 2022.

Revenues for the Rail Products Group increased for the three and nine months ended September 30, 2023 by 14.2% and 43.0%, respectively, when compared to the prior year periods.

For the three months ended September 30, 2023, revenues in our rail products business increased as a result of higher deliveries and a favorable mix of railcars sold.

For the nine months ended September 30, 2023, revenues in our rail products business increased as a result of higher deliveries, partially offset by the mix of railcars sold.

Revenues in our maintenance services business increased for the three and nine months ended September 30, 2023 as a result of higher volumes and favorable pricing, partially offset by the mix of repairs.

Increases in other revenues were driven by the growth of our parts business as a result of the acquisition of Holden America.

Cost of revenues for the Rail Products Group increased for the three and nine months ended September 30, 2023 by 13.3% and 41.2%, respectively, when compared to the prior year periods.

In our rail products business, the increase in cost of revenues for the three and nine months ended September 30, 2023 was driven by higher deliveries and the impact of foreign currency fluctuations.

For the nine months ended September 30, 2023, cost of revenues in our rail products business was further impacted by operational inefficiencies associated with production line changeovers and supply chain disruptions, and labor inefficiencies associated with onboarding of new employees.

In our maintenance services business, cost of revenues increased for the three and nine months ended September 30, 2023 as a result of a higher volume of general repairs and the mix of repairs and continues to be impacted by labor shortages leading to operating inefficiencies.

Operating profit for the three and nine months ended September 30, 2023 was favorably impacted by higher deliveries, partially offset by the mix of railcars sold and the impact of foreign currency fluctuations.

Operating profit for the nine months ended September 30, 2023 was further impacted by operational and labor inefficiencies.

Additionally, operating profit was favorably impacted by gains of $3.7 million and $4.9 million during the three and nine months ended September 30, 2023, respectively, and gains of $1.1 million and $7.5 million during the three and nine months ended September 30, 2022, respectively, related to insurance recoveries in excess of net book value for assets damaged by a tornado at the Company’s rail maintenance facility in Cartersville, Georgia in the first quarter of 2021.

Information related to our Rail Products Group backlog of new railcars is as follows.

In addition to the amounts below, as of June 30, 2023, our backlog related to sustainable railcar conversions totaled $179.9 million, representing 2,160 railcars.

In addition to the amounts below, as of September 30, 2023, our backlog related to sustainable railcar conversions totaled $124.4 million, representing 1,540 railcars.

September 30,

2023 2022 Percent

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Total $ 3,598.4 $ 4,090.9 (12.0) %

Three Months Ended June 30, Six Months Ended

Three Months Ended September 30, Nine Months Ended

September 30,

2023 2022 2023 2022 Percent

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Orders received (1)

3,200 19,500 10,660 28,890 (63.1) %

Deliveries (4,325) (3,935) (13,355) (8,915) 49.8 %

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Average selling price in ending backlog $ 122,332 $ 121,554 0.6 %

(1) The adjustment for the three and six months ended June 30, 2023 includes 160 railcars valued at $19.2 million that were placed with a different customer and are also included in orders received in the table above, resulting in no net effect on ending backlog.

The adjustment for the six months ended June 30, 2022 includes 300 railcars valued at $34.6 million that were removed from the new railcar backlog and shifted to the sustainable railcar conversion backlog.

Total backlog dollars increased by 64.3% when compared to the prior year period due to an increase in the volume and average selling price of orders received primarily driven by a new long-term railcar supply agreement with GATX Corporation executed in the third quarter of 2022.

We expect to deliver approximately 28.6% of our railcar backlog value during 2023 and 33.1% during 2024, with the remainder to be delivered through 2028.

(1) Orders received for the three and nine months ended September 30, 2022 include 15,000 railcars valued at approximately $1.8 billion associated with a long-term railcar supply agreement with GATX.

(2) The adjustment for the nine months ended September 30, 2023 includes 160 railcars valued at $19.2 million that were placed with a different customer and are also included in orders received in the table above, resulting in no net effect on ending backlog.

The adjustment for the nine months ended September 30, 2022 includes 300 railcars valued at $34.6 million that were removed from the new railcar backlog and shifted to the sustainable railcar conversion backlog.

Total backlog dollars decreased by 12.0% when compared to the prior year period.

The ending backlog as of September 30, 2022 included approximately $1.8 billion associated with a long-term railcar supply agreement with GATX.

We expect to deliver approximately 17.2% of our railcar backlog value during the remaining three months of 2023 and 39.6% during 2024, with the remainder to be delivered through 2028.

The orders in our backlog from the Leasing Group are fully supported by lease commitments with external customers.

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Transactions between the Rail Products Group and the Leasing Group are as follows:

Three Months Ended June 30, Six Months Ended

Three Months Ended September 30, Nine Months Ended

September 30,

2023 2022 2023 2022

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Corporate and other

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2023 2022 Percent 2023 2022 Percent

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* Not meaningful

Selling, engineering, and administrative expenses for the three and six months ended June 30, 2023 increased 24.4% and 21.0%, respectively, compared to the prior year periods primarily from higher employee-related costs, as well as the change in estimated fair value of additional contingent consideration associated with an acquisition.

Total operating costs during the six months ended June 30, 2022 were favorably impacted by gains associated with the disposition of non-operating facilities.

Selling, engineering, and administrative expenses for the three and nine months ended September 30, 2023 increased 0.4% and 13.9%, respectively, compared to the prior year periods primarily from higher employee-related costs.

Additionally, selling, engineering, and administrative expenses for the nine months ended September 30, 2023 include the change in estimated fair value of additional contingent consideration associated with an acquisition.

Total operating costs during the three and nine months ended September 30, 2022 were favorably impacted by gains associated with the disposition of non-operating facilities.

As we continue to streamline our operational footprint, we may have additional gains or losses on the disposition of other non-operating facilities.

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and short-term debt, long-term debt, and equity.

Debt instruments that we have utilized include the TILC warehouse loan facility, senior notes, convertible subordinated notes, asset-backed securities, non-recourse promissory notes, sale-leaseback transactions, and our revolving credit facility.

As of June 30, 2023, we have total committed liquidity of $698.5 million.

As of September 30, 2023, we have total committed liquidity of $780.0 million.

Our total available liquidity includes:

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We intend to use the remainder of the net proceeds for general corporate purposes, which may include repayment of other debt, including our Senior Notes due 2024.

Dividend Payments – We paid $43.3 million in dividends to our common stockholders during the six months ended June 30, 2023.

Dividend Payments – We paid $64.7 million in dividends to our common stockholders during the nine months ended September 30, 2023.

Share Repurchase Authorization – In December 2022, our Board of Directors authorized a new share repurchase program effective December 9, 2022 with no expiration.

The new share repurchase program authorizes the Company to repurchase up to $250.0 million of its common stock.

There were no shares repurchased during the three and six months ended June 30, 2023.

The following table summarizes our cash flows from operating, investing, and financing activities for the six months ended June 30, 2023 and 2022:

Six Months Ended

There were no shares repurchased during the three and nine months ended September 30, 2023.

The following table summarizes our cash flows from operating, investing, and financing activities for the nine months ended September 30, 2023 and 2022:

Nine Months Ended

September 30,

(in millions)

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Net cash flows from discontinued operations (8.1) (18.1)

Net increase in cash, cash equivalents, and restricted cash $ 2.3 $ 4.1

Net decrease in cash, cash equivalents, and restricted cash $ (27.6) $ (63.7)

Operating Activities .

Net cash provided by operating activities from continuing operations for the six months ended June 30, 2023 was $140.3 million compared to net cash used in operating activities from continuing operations of $61.3 million for the six months ended June 30, 2022.

Net cash provided by operating activities from continuing operations for the nine months ended September 30, 2023 was $215.8 million compared to net cash used in operating activities from continuing operations of $52.6 million for the nine months ended September 30, 2022.

The changes in our operating assets and liabilities are as follows:

Six Months Ended

Nine Months Ended

September 30,

(in millions)

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Changes in operating assets and liabilities $ (15.2) $ (263.3)

The changes in our operating assets and liabilities resulted in a net use of $6.2 million for the six months ended June 30, 2023, as compared to a net use of $193.4 million for the six months ended June 30, 2022.

The changes in our operating assets and liabilities resulted in a net use of $15.2 million for the nine months ended September 30, 2023, as compared to a net use of $263.3 million for the nine months ended September 30, 2022.

Operating assets in the prior year period were impacted by higher inventory balances in anticipation of higher volumes of railcar deliveries in future periods, as well as continued supply chain challenges.

Investing Activities.

Net cash used in investing activities from continuing operations for the six months ended June 30, 2023 was $292.1 million compared to $198.5 million of net cash used in investing activities from continuing operations for the six months ended June 30, 2022.

Net cash used in investing activities from continuing operations for the nine months ended September 30, 2023 was $316.3 million compared to $186.1 million of net cash used in investing activities from continuing operations for the nine months ended September 30, 2022.

Significant investing activities are as follows:

• We made a net investment in our lease fleet of $214.0 million during the six months ended June 30, 2023, compared to $198.9 million in the prior year period.

• We made a net investment in our lease fleet of $237.5 million during the nine months ended September 30, 2023, compared to $176.3 million in the prior year period.

Our investment in the lease fleet primarily includes new railcar additions, sustainable railcar conversions, railcar modifications, and other betterments, net of deferred profit, and secondary market purchases;

and is net of proceeds from lease portfolio sales.

• During the six months ended June 30, 2023, we acquired a company that is a provider of proprietary software and logistics and terminal management solutions for net cash of $66.2 million.

During the six months ended June 30, 2022, we acquired a company that owns and operates an end-to-end rail logistics software platform providing a real-time data universe to freight rail shippers and operators for net cash of $9.4 million.

• During the nine months ended September 30, 2023, we acquired a company that is a provider of proprietary software and logistics and terminal management solutions for net cash of $66.6 million.

During the nine months ended September 30, 2022, we acquired a company that owns and operates an end-to-end rail logistics software platform providing a real-time data universe to freight rail shippers and operators for net cash of $9.4 million.

• We purchased equity investments totaling $1.1 million and $15.5 million during the nine months ended September 30, 2023 and 2022, respectively, primarily related to our investments in Signal Rail Holdings LLC.

See Note 5 of the Consolidated Financial Statements.

Financing Activities.

Net cash provided by financing activities during the six months ended June 30, 2023 was $159.5 million compared to $278.6 million of net cash provided by financing activities for the six months ended June 30, 2022.

Net cash provided by financing activities during the nine months ended September 30, 2023 was $81.0 million compared to $193.1 million of net cash provided by financing activities for the nine months ended September 30, 2022.

Significant financing activities are as follows:

• During the six months ended June 30, 2023, we had total borrowings of $1,253.9 million and total repayments of $1,035.3 million, for net proceeds of $218.6 million, primarily from debt proceeds for general corporate purposes and to support our investment in the lease fleet.

During the six months ended June 30, 2022, we had total borrowings of $1,194.1 million and total repayments of $833.3 million, for net proceeds of $360.8 million, primarily from debt proceeds to support our investment in the lease fleet.

• We paid $43.3 million and $39.3 million in dividends to our common stockholders during the six months ended June 30, 2023 and 2022, respectively.

• We repurchased common stock totaling $22.4 million during the six months ended June 30, 2022.

• During the nine months ended September 30, 2023, we had total borrowings of $1,444.3 million and total repayments of $1,279.0 million, for net proceeds of $165.3 million, primarily from debt proceeds for general corporate purposes and to support our investment in the lease fleet.

During the nine months ended September 30, 2022, we had total borrowings of $1,664.5 million and total repayments of $1,351.5 million, for net proceeds of $313.0 million, primarily from debt proceeds to support our investment in the lease fleet.

• We paid $64.7 million and $58.3 million in dividends to our common stockholders during the nine months ended September 30, 2023 and 2022, respectively.

• We repurchased common stock totaling $36.8 million during the nine months ended September 30, 2022.

The prior year period excludes $25.0 million representing the final settlement of the ASR, which was funded in December 2021 but a portion of which remained outstanding.

There were no shares repurchased during the six months ended June 30, 2023.

Certain shares of stock repurchased during September 2022, totaling $2.6 million, were cash settled in October 2022 in accordance with normal settlement practices.

There were no shares repurchased during the nine months ended September 30, 2023.

Current Debt Obligations

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Ratio Covenant Actual at

June 30, 2023

September 30, 2023

Maximum leverage (1)

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No less than 2.25 to 1.00 8.53

(1) Defined as the ratio of consolidated total indebtedness to consolidated earnings before interest, taxes, depreciation and amortization ("EBITDA") for the Borrower and its restricted subsidiaries for the period of four consecutive quarters ending with June 30, 2023.

(2) Defined as the ratio of the difference of (A) consolidated EBITDA less (B) consolidated capital expenditures – manufacturing and other to consolidated interest expense to the extent paid in cash, in each case for the Borrower and its restricted subsidiaries for the period of four consecutive quarters ending with June 30, 2023.

As of June 30, 2023, we were in compliance with all such financial covenants.

As of September 30, 2023, we were in compliance with all such financial covenants.

Please refer to Note 8 of the Consolidated Financial Statements for a description of our current debt obligations.

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The Senior Notes due 2024 are not guaranteed by any of our remaining 100%-owned subsidiaries or partially-owned subsidiaries (“Non-Guarantor Subsidiaries”).

As of June 30, 2023, assets held by the Non-Guarantor Subsidiaries included $198.1 million of restricted cash that was not available for distribution to Trinity Industries, Inc.

As of September 30, 2023, assets held by the Non-Guarantor Subsidiaries included $119.7 million of restricted cash that was not available for distribution to Trinity Industries, Inc.

(“Parent”), $7,246.2 million of equipment securing certain non-recourse debt, and $552.4 million of assets located in foreign locations.

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Investments in and equity in the earnings of the Non-Guarantor Subsidiaries (the non-obligor group) have been excluded.

Six Months Ended June 30, 2023

Nine Months Ended September 30, 2023

Summarized Statement of Operations:

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Net income (loss) (3)

June 30, 2023 December 31, 2022

September 30, 2023 December 31, 2022

Summarized Balance Sheets:

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Noncontrolling interest $ 252.6 $ 257.2

(1) There were no net sales from the obligor group to Non-Guarantor Subsidiaries during the six months ended June 30, 2023.

(2) Cost of revenues includes $200.1 million of purchases from Non-Guarantor Subsidiaries during the six months ended June 30, 2023.

(1) There were no net sales from the obligor group to Non-Guarantor Subsidiaries during the nine months ended September 30, 2023.

(2) Cost of revenues includes $345.5 million of purchases from Non-Guarantor Subsidiaries during the nine months ended September 30, 2023.

(3) Net income (loss) includes $8.1 million of net loss related to discontinued operations.

(4) Receivables, net of allowance includes $93.4 million and $87.9 million of receivables from Non-Guarantor Subsidiaries as of June 30, 2023 and December 31, 2022, respectively.

(5) Accounts payable includes $45.1 million and $57.8 million of payables to Non-Guarantor Subsidiaries as of June 30, 2023 and December 31, 2022, respectively.

(4) Receivables, net of allowance includes $91.6 million and $87.9 million of receivables from Non-Guarantor Subsidiaries as of September 30, 2023 and December 31, 2022, respectively.

(5) Accounts payable includes $76.7 million and $57.8 million of payables to Non-Guarantor Subsidiaries as of September 30, 2023 and December 31, 2022, respectively.

Capital Expenditures

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Off Balance Sheet Arrangements

As of June 30, 2023, we had letters of credit issued under our revolving credit facility in an aggregate amount of $16.8 million, the majority of which are expected to expire in October 2023.

As of September 30, 2023, we had letters of credit issued under our revolving credit facility in an aggregate amount of $15.9 million, the majority of which are expected to expire in October 2024.

Our letters of credit obligations support performance bonds related to certain railcar orders.

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Equity CapEx for leased railcars is defined as leasing capital expenditures, adjusted to exclude net proceeds from (repayments of) recourse and non-recourse debt.

Six Months Ended

Nine Months Ended

September 30,

(in millions)

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Adjusted Free Cash Flow After Investments and Dividends

$ 80.8 $ 42.5

Capital expenditures – leasing $ 483.3 $ 691.1

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Contractual Obligations and Commercial Commitments

Except as described below, as of June 30, 2023, there have been no material changes to our contractual obligations from December 31, 2022:

Except as described below, as of September 30, 2023, there have been no material changes to our contractual obligations from December 31, 2022:

• In March 2023, we amended our revolving credit facility to increase the total facility commitment from $450.0 million to $600.0 million and to amend certain other terms.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis