TRINITY INDUSTRIES INC 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to provide management's perspective on our financial condition, results of operations, liquidity, and certain other factors that may affect our future results. Our MD&A should be read in conjunction with the unaudited Consolidated Financial Statements and related Notes in Part I, Item 1 of this Quarterly Report on Form 10-Q and Item 8, Financial Statements and Supplementary Data, of our 2023 Annual Report on Form 10-K. This MD&A includes financial measures compiled in accordance with generally accepted accounting principles ("GAAP") and certain non-GAAP measures. Please refer to the Non-GAAP Financial Measures section herein for information on the non-GAAP measures included in the MD&A, reconciliations to the most directly comparable GAAP financial measure, and the reasons why management believes each measure is useful to management and investors. 32 Table of Contents Forward-Looking Statements This quarterly report on Form 10-Q (or statements otherwise made by the Company or on the Company’s behalf from time to time in other reports, filings with the Securities and Exchange Commission (“SEC”), news releases, conferences, website postings or otherwise) contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Any statements contained herein that are not historical facts are forward-looking statements and involve risks and uncertainties. These forward-looking statements include expectations, beliefs, plans, objectives, future financial performances, estimates, projections, goals, and forecasts. Trinity uses the words “anticipates,” “believes,” “estimates,” “expects,” “intends,” “forecasts,” “may,” “will,” “should,” and similar expressions to identify these forward-looking statements. Potential factors that could cause our actual results of operations to differ materially from those in the forward-looking statements, include, among others: • market conditions and customer demand for our business products and services; • the cyclical nature of the industries in which we compete; • variations in weather in areas where our products are manufactured, delivered, or used; • 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; • disruptions in the transportation network used to transport parts and components to our production facilities and to deliver products to our customers, particularly with respect to the delivery of finished railcars from Mexico to the U.S., which may impact our ability to manufacture and timely deliver railcars to our customers; • shortages of labor; • impacts from asset impairments and related charges; • the timing of introduction of new products; • the inability to effectively integrate acquired businesses; • the timing and delivery of customer orders, lease portfolio sales, or a breach of customer contracts; • the creditworthiness of customers and their access to capital; • product price changes; • changes in mix of products sold; • the costs incurred to align manufacturing capacity with demand and the extent of its utilization; • the operating leverage and efficiencies that can be achieved by our manufacturing businesses; • availability and costs of steel, component parts, supplies, and other raw materials; • competition and other competitive factors; • changing technologies; • material failure, interruption of service, compromised data security, phishing emails, or cybersecurity breaches in our information technology (or that of the third-party vendors who provide information technology or other services); • surcharges and other fees added to fixed pricing agreements for steel, component parts, supplies, and other raw materials; • inflation, interest rates, and capital costs; • counter-party risks for financial instruments; • long-term funding of our operations; • taxes; • the stability of the governments and political and business conditions in certain foreign countries, particularly Mexico; • fluctuations in foreign currency exchange rates, particularly the Mexican peso; • geopolitical events, including armed conflicts, and their impact on supply chains, pricing, and the global economy; • changes in import and export quotas and regulations; • business conditions in emerging economies; • costs and results of litigation, including trial and appellate costs; • changes in accounting standards or inaccurate estimates or assumptions in the application of accounting policies; • changes in laws and regulations that may have an adverse effect on demand for our products and services, our results of operations, financial condition or cash flows; • legal, regulatory, and environmental issues, including compliance of our products with mandated specifications, standards, or testing criteria and obligations to remove and replace our products following installation or to recall our products and install different products; • actions by U.S. and/or foreign governments (particularly Mexico and Canada) relative to federal government budgeting, taxation policies, government expenditures, borrowing/debt ceiling limits, tariffs, and trade policies; 33 Table of Contents • the use of social or digital media to disseminate false, misleading and/or unreliable or inaccurate information; and • the inability to sufficiently protect our intellectual property rights. Any forward-looking statement speaks only as of the date on which such statement is made. Except as required by federal securities laws, Trinity undertakes no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made. For a discussion of risks and uncertainties which could cause actual results to differ from those contained in the forward-looking statements, see “Risk Factors” in our 2023 Annual Report on Form 10-K, this Form 10-Q and future Forms 10-Q and Current Reports on Forms 8-K. 34 Table of Contents Company Overview Trinity Industries, Inc. and its consolidated subsidiaries (“Trinity,” “Company,” “we,” “our,” or "us") own businesses that are leading providers of railcar products and services in North America. We market our railcar products and services under the trade name TrinityRail ® . The TrinityRail platform provides railcar leasing and management services; railcar manufacturing; railcar maintenance and modifications; and other railcar logistics products and services. We report our operating results in two reportable segments: (1) the Railcar Leasing and Services Group (the "Leasing Group"), which owns and operates a fleet of railcars and provides third-party fleet leasing, management, and administrative services; railcar maintenance and modification services; and other railcar logistics products and services; and (2) the Rail Products Group, which manufactures and sells railcars and related parts and components. Effective January 1, 2024, the Company modified its organizational structure to better leverage our maintenance services capabilities to support lease fleet optimization and to grow our services and parts businesses. The new structure resulted in a change to our reportable segments beginning in 2024. In connection with this organizational update, we aligned the maintenance services business, which was previously reported in the Rail Products Group, to now be presented within our leasing business. This change aligns with the way in which our CODM assesses performance and allocates resources. Consequently, beginning January 1, 2024, we report our operating results in two reportable segments: (1) the Railcar Leasing and Services Group, formerly the Railcar Leasing and Management Services Group, and (2) the Rail Products Group. These changes had no impact to our previously reported consolidated results of operations, financial position, or cash flows. All prior period segment results set forth herein have been recast to reflect these changes and present results on a comparable basis. Executive Summary Cyclical, Seasonal and Other Trends Impacting Our Business General/Business Trends The industries in which our customers operate are cyclical in nature. Although lease rates and lease fleet utilization remain strong, weaknesses in certain sectors of the North American and global economy may make it more difficult to sell or lease certain types of railcars. Additionally, changes in certain commodity prices, or changes in demand for certain commodities, could impact customer demand for various types of railcars. Further, disruptions in the global supply chain have impacted demand for, and the costs of, certain of our products and services. We continuously assess demand for our products and services and take steps to rationalize and diversify our leased railcar portfolio and align our operating capacity appropriately. We evaluate the creditworthiness of our customers and monitor performance of relevant market sectors; however, weaknesses in any of these market sectors could affect the financial viability of our customers, which could negatively impact our revenues, credit loss expense, and operating profits. We continue to believe that our rail platform is able to respond to cyclical changes in demand and perform throughout the railcar cycle. Due to their transactional nature, lease portfolio sales are the primary driver of fluctuations in results in the Leasing Group. U.S.-Mexico Border Disruption In late 2023, the U.S. Customs and Border Protection Agency suspended cross-border rail traffic in Eagle Pass, Texas, the primary border crossing used for railcar deliveries from our manufacturing facilities in Mexico, which negatively impacted our railcar deliveries in the second half of 2023. We have not experienced a border closure at Eagle Pass thus far in 2024, and substantially all railcar shipments that were delayed at the end of 2023 were delivered during the three months ended March 31, 2024; however, while we have seen some improvement in recent months, there is ongoing instability at the border, and there can be no assurance that similar border closings or congestion will not occur in the future. We actively monitor rail and truck traffic at the U.S.-Mexico border and 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. Any future rail and truck congestion at the border could negatively impact our deliveries and supply chain. 35 Table of Contents Supply Chain Disruptions As a result of disruptions in the global supply chain, we have continued to experience shortages of materials used to manufacture or repair certain railcar types, as well as disruptions in the transportation network, which have impacted our ability to timely deliver these railcars to our customers. While we believe these challenges will be resolved over time, they may persist over the foreseeable future, which could continue to impact our operations. We will continue to monitor the situation and take appropriate steps within our control to mitigate the potential impacts on our production schedules and delivery timelines. Foreign Currency Fluctuations We are exposed to the impact of foreign currency fluctuations in our Mexico operations resulting from certain expenditures that are denominated in the Mexican peso. The strengthening of the Mexican peso relative to the U.S. dollar unfavorably impacted the operating results in our Rail Products Group in 2023. We have expanded our hedging program and have taken other actions to mitigate the foreign currency impact of a portion of our peso-denominated expenditures. We regularly evaluate and update our strategies to mitigate the negative effects on margins and operating profits that may arise due to foreign currency fluctuations. Input and Labor Costs We periodically experience 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. We continually assess the impact of input and labor costs on our operational efficiency, margins, and overall profitability. 36 Table of Contents Financial and Operational Highlights • Our revenues for the three months ended March 31, 2024 were $809.6 million, representing an increase of 26.2%, compared to the three months ended March 31, 2023. Our operating profit for the three months ended March 31, 2024 was $115.2 million compared to $69.0 million for the three months ended March 31, 2023. • The Leasing Group's lease fleet of 110,205 company-owned railcars was 97.5% utilized as of March 31, 2024, compared to a lease fleet utilization of 98.2% on 108,865 company-owned railcars as of March 31, 2023. Our company-owned lease fleet includes wholly-owned railcars, partially-owned railcars, and railcars under leased-in arrangements. • For the three months ended March 31, 2024, we made a net investment in our lease fleet of approximately $123.3 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 March 31, 2024 was $2.9 billion, compared to $3.7 billion at March 31, 2023. The Rail Products Group received orders for 1,880 railcars and delivered 4,695 railcars in the three months ended March 31, 2024, in comparison to orders for 2,690 railcars and deliveries of 4,045 railcars in the three months ended March 31, 2023. • During the three months ended March 31, 2024, sustainable railcar conversion revenues totaled $50.2 million, representing 675 railcars. • For the three months ended March 31, 2024, we generated operating cash flows from continuing operations and Adjusted Free Cash Flow After Investments and Dividends ("Adjusted Free Cash Flow") of $56.5 million and $11.7 million (1) , respectively, in comparison to $102.5 million and $36.2 million (1) , respectively, for the three months ended March 31, 2023. (1) Non-GAAP financial measure. See the Non-GAAP Financial Measures section within this Form 10-Q for a reconciliation to the most directly comparable GAAP measure and why management believes this measure is useful to management and investors. See "Consolidated Results of Operations" and "Segment Discussion" below for additional information regarding our operating results. 37 Table of Contents Returns of Capital to Shareholders Returns of capital to shareholders in the form of dividends are summarized below. There were no shares repurchased during the three months ended March 31, 2024 and 2023. (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. Capital Structure Updates TILC Warehouse Loan Facility – In March 2024, we entered into a new Trinity Industries Leasing Company ("TILC") warehouse loan facility with a total commitment amount of $800.0 million, a revolving termination date of March 15, 2027, and a maturity date of March 15, 2028. This warehouse loan facility replaced the prior $1.0 billion warehouse loan facility. See Note 8 of the Consolidated Financial Statements for additional information regarding this debt transaction. Litigation Updates See Note 14 of the Consolidated Financial Statements for an update on the status of certain litigation. 38 Table of Contents Consolidated Results of Operations The following table summarizes our consolidated results of operations for the three months ended March 31, 2024 and 2023: Three Months Ended March 31, 2024 2023 (in millions) Revenues $ 809.6 $ 641.7 Cost of revenues 644.9 538.5 Selling, engineering, and administrative expenses 52.3 49.9 Gains on dispositions of property 2.8 15.3 Restructuring activities, net — (0.4) Total operating profit 115.2 69.0 Interest expense, net 69.1 62.1 Other, net 3.4 1.6 Income from continuing operations before income taxes 42.7 5.3 Provision (benefit) for income taxes 11.0 (11.5) Income from continuing operations $ 31.7 $ 16.8 Revenues The tables below present revenues by segment for the three months ended March 31, 2024 and 2023: Three Months Ended March 31, 2024 Revenues Percent External Intersegment Total Change (in millions) Railcar Leasing and Services Group $ 284.3 $ 0.9 $ 285.2 22.5 % Rail Products Group 525.3 142.1 667.4 13.6 % Segment Totals 809.6 143.0 952.6 16.1 % Eliminations — (143.0) (143.0) Consolidated Total $ 809.6 $ — $ 809.6 26.2 % Three Months Ended March 31, 2023 Revenues External Intersegment Total (in millions) Railcar Leasing and Services Group $ 232.7 $ 0.2 $ 232.9 Rail Products Group 409.0 178.6 587.6 Segment Totals 641.7 178.8 820.5 Eliminations — (178.8) (178.8) Consolidated Total $ 641.7 $ — $ 641.7 39 Table of Contents Operating Costs Operating costs are comprised of cost of revenues; selling, engineering, and administrative costs; gains or losses on property disposals; and restructuring activities. Operating costs by segment for the three months ended March 31, 2024 and 2023 were as follows: Three Months Ended March 31, 2024 2023 (in millions) Railcar Leasing and Services Group (1) $ 184.9 $ 148.3 Rail Products Group 623.6 563.5 Segment Totals 808.5 711.8 Corporate and other 26.5 26.0 Restructuring activities, net — (0.4) Eliminations (140.6) (164.7) Consolidated Total $ 694.4 $ 572.7 (1) Includes gains on lease portfolio sales of $2.1 million and $13.5 million for the three months ended March 31, 2024 and 2023, respectively. Operating Profit Operating profit by segment for the three months ended March 31, 2024 and 2023 was as follows: Three Months Ended March 31, 2024 2023 (in millions) Railcar Leasing and Services Group $ 100.3 $ 84.6 Rail Products Group 43.8 24.1 Segment Totals 144.1 108.7 Corporate and other (26.5) (26.0) Restructuring activities, net — 0.4 Eliminations (2.4) (14.1) Consolidated Total $ 115.2 $ 69.0 Discussion of Consolidated Results Revenues – Our revenues for the three months ended March 31, 2024 were $809.6 million, representing an increase of $167.9 million, or 26.2%, over the prior year period. The increase in revenues was primarily due to higher external deliveries in the Rail Products Group, and improved lease rates and a higher volume of external repairs in the Leasing Group. Cost of revenues – Our cost of revenues for the three months ended March 31, 2024 was $644.9 million, representing an increase of $106.4 million, or 19.8%, over the prior year period. The increase in cost of revenues was primarily due to higher external deliveries and the impact of foreign currency fluctuations in the Rail Products Group. Selling, engineering, and administrative expenses – Selling, engineering, and administrative expenses for the three months ended March 31, 2024 were $52.3 million, representing an increase of $2.4 million, or 4.8%, when compared to the prior year period primarily due to higher employee-related costs. Gains on dispositions of property – Gains on dispositions of property decreased by $12.5 million for the three months ended March 31, 2024, when compared to the prior year period primarily due to lower lease portfolio sales volume in the current year period. Additionally, we recorded gains of $1.2 million during three months ended March 31, 2023 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. 40 Table of Contents Operating profit – Operating profit for the three months ended March 31, 2024 totaled $115.2 million, representing an increase of $46.2 million, or 67.0%, from the prior year period. The increase was primarily due to higher external deliveries in the Rail Products Group, improved lease rates in the Leasing Group, and a higher volume of external repairs in our maintenance services business, partially offset by lower lease portfolio sales volume in the current year period. 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 March 31, 2024 totaled $69.1 million, compared to $62.1 million for the three months ended March 31, 2023. The increase was primarily driven by higher average debt in 2024. Income taxes – The effective tax rate from continuing operations for the three months ended March 31, 2024 was an expense of 25.8%, which differs from the U.S. statutory rate of 21.0% primarily due to state income taxes and foreign income taxes, partially offset by the benefit of noncontrolling interest, for which we do not provide income taxes. The effective tax rate from continuing operations for the three months ended March 31, 2023 was a benefit of 217.0%, which differs from the U.S. statutory rate of 21.0% primarily due to the release of residual taxes out of accumulated other comprehensive income; the re-measurement of our net deferred tax liabilities due to the acquisition of a subsidiary; changes in our valuation allowances; state income taxes; and foreign income taxes. See Note 9 of the Consolidated Financial Statements for additional information. 41 Table of Contents Segment Discussion Railcar Leasing and Services Group Three Months Ended March 31, 2024 2023 Percent ($ in millions) Change Revenues: Leasing and management $ 209.0 $ 194.7 7.3 % Maintenance services (1) 65.2 29.4 121.8 % Digital and logistics services 11.0 8.8 25.0 % Total revenues $ 285.2 $ 232.9 22.5 % Cost of revenues (2) 169.6 146.8 15.5 % Selling, engineering, and administrative expenses 18.1 16.9 7.1 % Gains on dispositions of property: Lease portfolio sales 2.1 13.5 * Other 0.7 1.9 * Total operating profit $ 100.3 $ 84.6 18.6 % Total operating profit margin 35.2 % 36.3 % Total operating profit margin, excluding lease portfolio sales 34.4 % 30.5 % Selected expense information for Company-owned railcars (3) : Depreciation and amortization expense (4) $ 59.9 $ 61.6 (2.8) % Maintenance and compliance expense (5) $ 30.4 $ 34.8 (12.6) % Other fleet operating costs (6) $ 7.7 $ 9.2 (16.3) % Interest expense (7) $ 57.4 $ 54.8 4.7 % * Not meaningful (1) Revenues related to services performed by the maintenance services business to support the railcars in our lease fleet are eliminated within the Railcar Leasing & Services Group and are excluded from the totals reported on this line. (2) Includes depreciation and amortization expense, maintenance and compliance expense, and other fleet operating costs related to our lease fleet, as well as operating costs for our maintenance services and digital and logistics services businesses. (3) Includes wholly-owned railcars, partially-owned railcars, and railcars under leased-in arrangements. (4) Depreciation and amortization expense includes $4.7 million for the three months ended March 31, 2023 related to the disposal of certain railcar components associated with our sustainable railcar conversion program. Additionally, amortization of deferred profit on railcars sold from the Rail Products Group to the Leasing Group is included in depreciation and amortization expense, resulting in the recognition of depreciation expense based on our original manufacturing cost of the railcars. (5) Maintenance and compliance expense is reported at cost with respect to the services performed by our maintenance services business to support the railcars in our lease fleet. (6) Other fleet operating costs include freight, storage, rent, and ad valorem taxes. (7) Interest expense is not a component of operating profit and includes the effect of hedges. Information related to lease portfolio sales is as follows: Three Months Ended March 31, 2024 2023 ($ in millions) Lease portfolio sales $ 24.2 $ 56.7 Operating profit on lease portfolio sales $ 2.1 $ 13.5 Operating profit margin on lease portfolio sales 8.7 % 23.8 % Total revenues for the Railcar Leasing and Services Group increased by 22.5% for the three months ended March 31, 2024, compared to the prior year period. Leasing and management revenues for the three months ended March 31, 2024 were favorably impacted primarily by improved lease rates and net additions to the lease fleet, which resulted in higher revenues when compared to the three months ended March 31, 2023. 42 Table of Contents Our maintenance services business is primarily dedicated to servicing our lease fleet pursuant to the provisions of our lease contracts. This may include services that are not included in the full-service lease agreement, such as repairs of railcar damage or other customer-specific requirements. We also perform maintenance and repair activities on railcars owned by third parties, including our investor-owned fleet. Revenues in our maintenance services business increased for the three months ended March 31, 2024 as a result of a higher volume of repairs completed for third parties, including our investor-owned fleet, as well as favorable pricing. Cost of revenues for the Railcar Leasing and Services Group increased by 15.5% for the three months ended March 31, 2024, compared to the prior year period. In our maintenance services business, cost of revenues increased for the three months ended March 31, 2024 as a result of the volume of external repairs. Cost of revenues was favorably impacted by lower maintenance and fleet operating costs and reduced depreciation in the leasing and management business. Leasing Group operating profit increased by 18.6% for the three months ended March 31, 2024, compared to the prior year period primarily due to improved lease rates and a higher volume of external repairs in the maintenance services business, partially offset by lower lease portfolio sales volume in the current year period. Additionally, operating profit was favorably impacted by gains of $1.2 million during the three months ended March 31, 2023 related to insurance recoveries in excess of net book value for assets damaged by a tornado at the Company’s rail maintenance facility in Cartersville, Georgia in the first quarter of 2021. The Leasing Group generally uses its non-recourse warehouse loan facility or cash to provide initial funding for a portion of the purchase price of the railcars. After initial funding, the Leasing Group may obtain long-term financing for the railcars in the lease fleet through non-recourse asset-backed securities; long-term recourse debt; long-term non-recourse promissory notes; or third-party equity. Information regarding the Leasing Group’s lease fleet is as follows: March 31, 2024 March 31, 2023 Number of railcars: Wholly-owned (1) 86,655 85,185 Partially-owned 23,550 23,680 110,205 108,865 Investor-owned 32,995 33,420 143,200 142,285 Company-owned railcars (2) : Average age in years 13.2 12.5 Average remaining lease term in years 2.9 3.0 Fleet utilization 97.5 % 98.2 % (1) Includes 2,490 railcars and 2,470 railcars under leased-in arrangements as of March 31, 2024 and 2023, respectively. (2) Includes wholly-owned railcars, partially-owned railcars, and railcars under leased-in arrangements. 43 Table of Contents Rail Products Group Three Months Ended March 31, 2024 2023 Percent ($ in millions) Change Revenues: Rail products (1) $ 639.2 $ 558.4 14.5 % Parts & components 28.2 29.2 (3.4) % Total revenues $ 667.4 $ 587.6 13.6 % Operating costs: Cost of revenues 615.9 556.4 10.7 % Selling, engineering, and administrative expenses 7.7 7.0 10.0 % Losses on dispositions of property — (0.1) * Operating profit $ 43.8 $ 24.1 81.7 % Operating profit margin 6.6 % 4.1 % * Not meaningful (1) Includes sustainable railcar conversion revenues of $50.2 million, representing 675 railcars, for the three months ended March 31, 2024 and sustainable railcar conversion revenues of $53.9 million, representing 590 railcars, for the three months ended March 31, 2023. Revenues for the Rail Products Group increased for the three months ended March 31, 2024 by 13.6%, when compared to the prior year period primarily as a result of higher deliveries. Cost of revenues for the Rail Products Group increased for the three months ended March 31, 2024 by 10.7%, when compared to the prior year period. The increase in cost of revenues for the three months ended March 31, 2024 was driven by higher deliveries and the impact of foreign currency fluctuations, partially offset by operational efficiencies associated with reduced production line changeovers and fewer supply chain disruptions, and improved labor efficiencies when compared to the prior year period. Operating profit for the Rail Products Group increased for the three months ended March 31, 2024 by 81.7%, when compared to the prior year period primarily due to higher deliveries and improved operational and labor efficiencies. Information related to our Rail Products Group backlog of new railcars is set forth below. In addition to the amounts below, as of March 31, 2024, our backlog related to sustainable railcar conversions totaled $35.8 million, representing 445 railcars. March 31, 2024 2023 Percent (in millions) Change External customers $ 2,626.3 $ 3,257.1 Leasing Group 312.6 448.8 Total $ 2,938.9 $ 3,705.9 (20.7) % Three Months Ended March 31, 2024 2023 Percent (in units, $ in whole dollars) Change Beginning balance 25,890 32,270 Orders received 1,880 2,690 (30.1) % Deliveries (4,695) (4,045) 16.1 % Ending balance 23,075 30,915 (25.4) % Average selling price in ending backlog $ 127,363 $ 119,874 6.2 % Total backlog dollars decreased by 20.7% when compared to the prior year period. We expect to deliver approximately 49.1% of our railcar backlog value during the remaining nine months of 2024 and 20.4% during 2025, 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. The final amount of backlog attributable to the Leasing Group may vary by the time of delivery as customers may elect to change their procurement decision. 44 Table of Contents Transactions between the Rail Products Group and the Leasing Group are as follows: Three Months Ended March 31, 2024 2023 ($ in millions) Revenues: New railcars $ 135.2 $ 134.3 Sustainable railcar conversions $ 0.4 $ 39.0 Parts & components $ 6.5 $ 5.3 Deferred profit $ 2.1 $ 14.7 Number of new railcars (in units) 1,095 1,020 Number of sustainable railcar conversions (in units) 5 390 Corporate and other Three Months Ended March 31, 2024 2023 Percent (in millions) Change Operating costs: Selling, engineering, and administrative expenses $ 26.5 $ 26.0 1.9 % Operating loss $ (26.5) $ (26.0) 1.9 % Selling, engineering, and administrative expenses for the three months ended March 31, 2024 were relatively flat when compared to the prior year period. There were no gains or losses on dispositions of property for the three months ended March 31, 2024 and 2023; however, as we continue to streamline our operational footprint, we may have gains or losses on the disposition of non-operating facilities. 45 Table of Contents Liquidity and Capital Resources Overview We expect to finance future operating requirements with cash, cash equivalents, and short-term marketable securities; cash flows from operations; 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, and our revolving credit facility. As of March 31, 2024, we have total committed liquidity of $798.8 million. Our total available liquidity includes: $118.8 million of unrestricted cash and cash equivalents; $581.8 million unused and available under our revolving credit facility; and $98.2 million unused and available under the TILC warehouse loan facility based on the amount of warehouse-eligible, unpledged equipment. We believe we have access to adequate capital resources to fund operating requirements and are an active participant in the capital markets. We intend to use cash from operations and our available liquidity to repay our 4.55% senior notes due 2024 ("Senior Notes due 2024"). Liquidity Highlights TILC Warehouse Loan Facility – In March 2024, we entered into a new TILC warehouse loan facility with a total commitment amount of $800.0 million, a revolving termination date of March 15, 2027, and a maturity date of March 15, 2028. This warehouse loan facility replaced the prior $1.0 billion warehouse loan facility. See Note 8 of the Consolidated Financial Statements for additional information regarding this debt transaction. Dividend Payments – We paid $23.0 million in dividends to our common stockholders during the three months ended March 31, 2024. Share Repurchase Authorization – In December 2022, our Board of Directors authorized a share repurchase program effective December 9, 2022 with no expiration. The 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 months ended March 31, 2024. Cash Flows The following table summarizes our cash flows from operating, investing, and financing activities for the three months ended March 31, 2024 and 2023: Three Months Ended March 31, 2024 2023 (in millions) Net cash flows from continuing operations: Operating activities $ 56.5 $ 102.5 Investing activities (124.0) (203.1) Financing activities 71.8 72.4 Net cash flows from discontinued operations (4.3) (3.1) Net increase (decrease) in cash, cash equivalents, and restricted cash $ — $ (31.3) 46 Table of Contents Operating Activities . Net cash provided by operating activities from continuing operations for the three months ended March 31, 2024 was $56.5 million compared to net cash provided by operating activities from continuing operations of $102.5 million for the three months ended March 31, 2023. The changes in our operating assets and liabilities are as follows: Three Months Ended March 31, 2024 2023 (in millions) (Increase) decrease in receivables, inventories, and other assets $ (82.0) $ 6.8 Increase (decrease) in accounts payable, accrued liabilities, and other liabilities 29.7 26.1 Changes in operating assets and liabilities $ (52.3) $ 32.9 The changes in our operating assets and liabilities resulted in a net use of $52.3 million for the three months ended March 31, 2024, as compared to a net source of $32.9 million for the three months ended March 31, 2023. The change in operating assets for the current year period was impacted by higher receivables balances, partially offset by lower inventory balances associated with railcar deliveries. Investing Activities. Net cash used in investing activities from continuing operations for the three months ended March 31, 2024 was $124.0 million compared to $203.1 million of net cash used in investing activities from continuing operations for the three months ended March 31, 2023. Significant investing activities are as follows: • We made a net investment in our lease fleet of $123.3 million during the three months ended March 31, 2024, compared to $134.8 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 three months ended March 31, 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. We had no acquisitions during the three months ended March 31, 2024. Financing Activities. Net cash provided by financing activities during the three months ended March 31, 2024 was $71.8 million compared to $72.4 million of net cash provided by financing activities for the three months ended March 31, 2023. Significant financing activities are as follows: • During the three months ended March 31, 2024, we had total borrowings of $909.9 million and total repayments of $803.8 million, for net proceeds of $106.1 million, primarily from debt proceeds to support our investment in the lease fleet and for general corporate purposes. During the three months ended March 31, 2023, we had total borrowings of $246.3 million and total repayments of $149.6 million, for net proceeds of $96.7 million, primarily from debt proceeds to support our investment in the lease fleet and for general corporate purposes. • We paid $23.0 million and $21.1 million in dividends to our common stockholders during the three months ended March 31, 2024 and 2023, respectively. Current Debt Obligations The revolving credit facility contains several financial covenants that require the maintenance of ratios related to minimum interest coverage for the leasing and manufacturing operations and maximum leverage. A summary of our financial covenants is detailed below: Ratio Covenant Actual at March 31, 2024 Maximum leverage (1) No greater than 3.75 to 1.00 2.01 Minimum interest coverage (2) No less than 2.25 to 1.00 8.20 (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 March 31, 2024. (2) Defined as the ratio of the difference of (A) consolidated EBITDA less (B) consolidated capital expenditures – operating and administrative 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 March 31, 2024. As of March 31, 2024, 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. 47 Table of Contents Supplemental Guarantor Financial Information Our Senior Notes due 2024 are fully and unconditionally and jointly and severally guaranteed by certain of Trinity’s 100%-owned subsidiaries: Trinity Industries Leasing Company; Trinity North American Freight Car, Inc.; Trinity Rail Group, LLC; Trinity Tank Car, Inc.; and TrinityRail Maintenance Services, Inc. (collectively, the "Guarantor Subsidiaries”). The Senior Notes due 2024 indenture agreement includes customary provisions for the release of the guarantees by the Guarantor Subsidiaries upon the occurrence of certain allowed events including the release of one or more of the Guarantor Subsidiaries as guarantor under our revolving credit facility. See Note 9 of our 2023 Annual Report on Form 10-K. 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 March 31, 2024, assets held by the Non-Guarantor Subsidiaries included $110.7 million of restricted cash that was not available for distribution to Trinity Industries, Inc. (“Parent”), $7,223.9 million of equipment securing certain non-recourse debt, and $545.7 million of assets located in foreign locations. As of December 31, 2023, assets held by the Non-Guarantor Subsidiaries included $122.4 million of restricted cash that was not available for distribution to the Parent, $7,157.8 million of equipment securing certain non-recourse debt, and $590.0 million of assets located in foreign locations. The following tables include the summarized financial information for Parent and Guarantor Subsidiaries (together, the obligor group) on a combined basis after elimination of intercompany transactions within the obligor group (in millions). Investments in and equity in the earnings of the Non-Guarantor Subsidiaries (the non-obligor group) have been excluded. Three Months Ended March 31, 2024 Summarized Statement of Operations: Revenues (1) $ 580.3 Cost of revenues (2) $ 514.0 Income from continuing operations $ 6.0 Net income (3) $ 1.7 March 31, 2024 December 31, 2023 Summarized Balance Sheets: Assets: Receivables, net of allowance (4) $ 437.0 $ 308.4 Inventories $ 583.7 $ 628.5 Property, plant, and equipment, net $ 513.4 $ 531.2 Goodwill and other assets $ 401.1 $ 399.1 Liabilities: Accounts payable and accrued liabilities (5) $ 506.0 $ 480.7 Debt $ 846.8 $ 846.9 Deferred income taxes $ 924.7 $ 923.6 Other liabilities $ 141.8 $ 150.9 Noncontrolling interest $ 239.2 $ 238.4 (1) There were no net sales from the obligor group to Non-Guarantor Subsidiaries during the three months ended March 31, 2024. (2) Cost of revenues includes $102.1 million of purchases from Non-Guarantor Subsidiaries during the three months ended March 31, 2024. (3) Net income includes $4.3 million of net loss related to discontinued operations. (4) Receivables, net of allowance includes $87.9 million and $87.7 million of receivables from Non-Guarantor Subsidiaries as of March 31, 2024 and December 31, 2023, respectively. (5) Accounts payable includes $96.5 million and $109.8 million of payables to Non-Guarantor Subsidiaries as of March 31, 2024 and December 31, 2023, respectively. 48 Table of Contents Capital Expenditures For the full year 2024, we anticipate a net investment in our lease fleet of between $300 million and $400 million. Capital expenditures related to operating and administrative activities, including supporting automation, technology, and modernization of our facilities and processes, are projected to range between $50 million and $60 million for the full year 2024. Equity Investment See Note 5 of the Consolidated Financial Statements for information about our investment in partially-owned subsidiaries. Off Balance Sheet Arrangements As of March 31, 2024, we had letters of credit issued under our revolving credit facility in an aggregate amount of $18.2 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. See Note 8 of the Consolidated Financial Statements for further information about our corporate revolving credit facility. Additionally, we had a letter of credit issued outside our revolving credit facility for $8.5 million. This letter of credit obligation replaces a required cash liquidity reserve to support the TILC warehouse loan facility and renews by its terms each year. Derivative Instruments We use derivative instruments to mitigate interest rate risk, including risks associated with the impact of changes in interest rates in anticipation of future debt issuances and to offset interest rate variability of certain floating rate debt issuances outstanding. We also may use derivative instruments from time to time to mitigate the impact of changes in foreign currency exchange rates. Derivative instruments are accounted for in accordance with applicable accounting standards. See Note 3 of the Consolidated Financial Statements for discussion of how we utilize our derivative instruments. 49 Table of Contents Non-GAAP Financial Measures We have included financial measures compiled in accordance with GAAP and certain non-GAAP measures in this Quarterly Report on Form 10-Q 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 reported 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, we provide a reconciliation to the most comparable GAAP measure. Adjusted Free Cash Flow Adjusted Free Cash Flow After Investments and Dividends ("Adjusted Free Cash Flow") is a non-GAAP financial measure. We believe Adjusted 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. Adjusted 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 table. Adjusted 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 operating and administrative activities, dividends paid, and Equity CapEx for leased railcars. Equity CapEx for leased railcars is defined as capital expenditures for our lease fleet, adjusted to exclude net proceeds from (repayments of) recourse and non-recourse debt. Three Months Ended March 31, 2024 2023 (in millions) Net cash provided by operating activities – continuing operations $ 56.5 $ 102.5 Proceeds from lease portfolio sales 24.2 56.7 Capital expenditures – operating and administrative (4.6) (7.1) Dividends paid to common shareholders (23.0) (21.1) Equity CapEx for leased railcars (41.4) (94.8) Adjusted Free Cash Flow After Investments and Dividends $ 11.7 $ 36.2 Capital expenditures – lease fleet $ 147.5 $ 191.5 Less: Payments to retire debt (803.8) (149.6) Proceeds from issuance of debt 909.9 246.3 Net proceeds from (repayments of) debt 106.1 96.7 Equity CapEx for leased railcars $ 41.4 $ 94.8 Contractual Obligations and Commercial Commitments Except as described below, as of March 31, 2024, there have been no material changes to our contractual obligations from December 31, 2023: • In March 2024, we entered into a new TILC warehouse loan facility with a total commitment amount of $800.0 million, a revolving termination date of March 15, 2027, and a maturity date of March 15, 2028. This warehouse loan facility replaced the prior $1.0 billion warehouse loan facility. See Note 8 of the Consolidated Financial Statements for additional information regarding this debt transaction. Recent Accounting Pronouncements See Note 1 of the Consolidated Financial Statements for information about recent accounting pronouncements. 50 Table of Contents