What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-08-01 compared with 2024-05-01 · 184 added, 161 removed, 338 unchanged (51% of the section changed)

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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 have not experienced a border closure at Eagle Pass thus far in 2024, and all railcar shipments that were delayed at the end of 2023 were delivered during the first half of 2024;

however, there remains a risk of 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.

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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.

As a result of disruptions in the global supply chain, we have, from time to time, experienced shortages of materials used to manufacture or repair certain railcar types, as well as disruptions in the transportation network.

Such challenges could negatively impact our operations or our ability to timely deliver railcars to our customers.

We actively monitor our supply chain and take appropriate steps within our control to mitigate the potential impacts on our production schedules and delivery timelines.

Foreign Currency Fluctuations

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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 maintain a 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.

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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.

Finally, 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.

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 revenues for the six months ended June 30, 2024 were $1,651.0 million, representing an increase of 21.0%, compared to the six months ended June 30, 2023.

Our operating profit for the six months ended June 30, 2024 was $257.1 million compared to $168.1 million for the six months ended June 30, 2023.

• The Leasing Group's lease fleet of 109,365 company-owned railcars was 96.9% utilized as of June 30, 2024, compared to a lease fleet utilization of 97.9% on 109,060 company-owned railcars as of June 30, 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;

• For the six months ended June 30, 2024, we made a net fleet investment of approximately $46.0 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.

• The total value of the new railcar backlog at June 30, 2024 was $2.7 billion, compared to $3.6 billion at June 30, 2023.

The Rail Products Group received orders for 4,375 railcars and delivered 9,450 railcars in the six months ended June 30, 2024, in comparison to orders for 7,460 railcars and deliveries of 9,030 railcars in the six months ended June 30, 2023.

See "Consolidated Results of Operations" and "Segment Discussion" below for additional information regarding our operating results.

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.

(2) Non-GAAP financial measure.

Dollar amounts are presented for the six months ended June 30, 2024 and 2023.

Capital Structure Updates

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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.

TRL-2024 Secured Railcar Equipment Notes – In May 2024, Trinity Rail Leasing 2021 LLC, a Delaware limited liability company ("TRL-2021") and a limited purpose, indirect wholly-owned subsidiary of the Company owned through TILC, issued $432.4 million of its Series 2024-1 Class A Green Secured Railcar Equipment Notes.

These notes bear interest at a fixed rate of 5.78%, are payable monthly, and have a stated final maturity date of 2054.

Net proceeds received from the transaction were used to repay borrowings under TILC's warehouse loan facility;

to redeem the outstanding debt of Trinity Rail Leasing VII LLC's Series 2009-1 Secured Railcar Equipment Notes (the "TRL VII Notes"), of which $94.1 million was outstanding at the redemption date;

and for general corporate purposes.

The all-in interest rate for the TRL VII Notes was 6.66% per annum.

Senior Notes due 2028 – In June 2024, we issued an additional $200.0 million aggregate principal amount of 7.75% senior notes due July 2028 (the "Additional Senior Notes"), which increased the aggregate principal amount from $400.0 million to $600.0 million.

Interest on the Additional Senior Notes is payable semiannually commencing July 15, 2024.

Net proceeds received from the issuance, together with cash on hand, were used to repay $400.0 million of our 4.55% senior notes due 2024 ("Senior Notes due 2024"), and to pay related fees, costs, premiums, and expenses in connection with the issuance.

See Note 8 of the Consolidated Financial Statements for additional information regarding these debt transactions.

Litigation Updates

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Consolidated Results of Operations

The following table summarizes our consolidated results of operations for the three months ended March 31, 2024 and 2023:

The following table summarizes our consolidated results of operations for the three and six months ended June 30, 2024 and 2023:

Three Months Ended

June 30, Six Months Ended

2024 2023 2024 2023

(in millions)

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Income from continuing operations $ 58.1 $ 23.5 $ 89.8 $ 40.3

The tables below present revenues by segment for the three months ended March 31, 2024 and 2023:

Three Months Ended March 31, 2024

The tables below present revenues by segment for the three and six months ended June 30, 2024 and 2023:

Three Months Ended June 30, 2024

Revenues Percent

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Consolidated Total $ 841.4 $ — $ 841.4 16.5 %

Three Months Ended March 31, 2023

Three Months Ended June 30, 2023

External Intersegment Total

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Consolidated Total $ 722.4 $ — $ 722.4

Six Months Ended June 30, 2024

Revenues Percent

External Intersegment Total Change

(in millions)

Railcar Leasing and Services Group $ 564.8 $ 1.8 $ 566.6 13.0 %

Rail Products Group 1,086.2 215.4 1,301.6 4.7 %

Segment Totals 1,651.0 217.2 1,868.2 7.1 %

Eliminations — (217.2) (217.2)

Consolidated Total $ 1,651.0 $ — $ 1,651.0 21.0 %

Six Months Ended June 30, 2023

External Intersegment Total

(in millions)

Railcar Leasing and Services Group $ 500.5 $ 0.7 $ 501.2

Rail Products Group 863.6 379.4 1,243.0

Segment Totals 1,364.1 380.1 1,744.2

Eliminations — (380.1) (380.1)

Consolidated Total $ 1,364.1 $ — $ 1,364.1

Operating Costs

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and restructuring activities.

Operating costs by segment for the three months ended March 31, 2024 and 2023 were as follows:

Operating costs by segment for the three and six months ended June 30, 2024 and 2023 were as follows:

Three Months Ended

June 30, Six Months Ended

2024 2023 2024 2023

(in millions)

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Consolidated Total $ 699.5 $ 623.3 $ 1,393.9 $ 1,196.0

(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.

(1) Includes gains on lease portfolio sales of $22.7 million and $29.8 million for the three months ended June 30, 2024 and 2023, respectively.

Includes gains on lease portfolio sales of $24.8 million and $43.3 million for the six months ended June 30, 2024 and 2023, respectively.

Operating Profit

Operating profit by segment for the three months ended March 31, 2024 and 2023 was as follows:

Operating profit by segment for the three and six months ended June 30, 2024 and 2023 was as follows:

Three Months Ended

June 30, Six Months Ended

2024 2023 2024 2023

(in millions)

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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.

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.

Revenues – Our revenues for the three months ended June 30, 2024 were $841.4 million, representing an increase of $119.0 million, or 16.5%, over the prior year period.

Our revenues for the six months ended June 30, 2024 were $1,651.0 million, representing an increase of $286.9 million, or 21.0%, over the prior year period.

These increases in revenues were primarily due to higher external deliveries in the Rail Products Group and improved lease rates and net additions to the lease fleet in the Leasing Group.

For the six months ended June 30, 2024, revenues were favorably impacted by a higher volume of external repairs in the Leasing Group.

Cost of revenues – Our cost of revenues for the three months ended June 30, 2024 was $662.4 million, representing an increase of $61.2 million, or 10.2%, over the prior year period primarily due to higher external deliveries in the Rail Products Group.

Our cost of revenues for the six months ended June 30, 2024 was $1,307.3 million, representing an increase of $167.6 million, or 14.7%, over the prior year period 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 June 30, 2024 were $61.3 million, representing an increase of $7.0 million, or 12.9%, when compared to the prior year period.

Selling, engineering, and administrative expenses for the six months ended June 30, 2024 were $113.6 million, representing an increase of $9.4 million, or 9.0%, when compared to the prior year period.

These increases were primarily due to higher employee-related costs, including increased incentive-based compensation, and continued investments in technology.

Selling, engineering, and administrative expenses in the prior year periods include additional contingent consideration associated with an acquisition.

Gains on dispositions of property – Gains on dispositions of property decreased by $6.2 million and $18.7 million for the three and six months ended June 30, 2024, respectively, when compared to the prior year periods.

These decreases were primarily due to lower lease portfolio sales in the current year periods.

Additionally, we recorded gains of $1.2 million during the six months ended June 30, 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.

Operating profit – Operating profit for the three months ended June 30, 2024 totaled $141.9 million, representing an increase of $42.8 million, or 43.2%, from the prior year period.

Operating profit for the six months ended June 30, 2024 totaled $257.1 million, representing an increase of $89.0 million, or 52.9%, from the prior year period.

These increases were primarily due to higher external deliveries and improved efficiencies in the Rail Products Group and improved lease rates in the Leasing Group, partially offset by lower lease portfolio sales in the current year periods.

Operating profit for the six months ended June 30, 2024 was favorably impacted by a higher volume of external repairs in our maintenance services business.

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.

Interest expense, net – Interest expense, net for the three months ended June 30, 2024 totaled $70.1 million, compared to $66.9 million for the three months ended June 30, 2023.

Interest expense, net for the six months ended June 30, 2024 totaled $139.2 million, compared to $129.0 million for the six months ended June 30, 2023.

These increases were primarily driven by higher interest rates and higher average debt in 2024, as well as a $1.5 million loss on extinguishment of debt for the three and six months ended June 30, 2024.

Other, net – Other, net for the three months ended June 30, 2024 resulted in income of $3.4 million, compared to expense of $1.3 million for the three months ended June 30, 2023.

There was no other, net (income) expense for the six months ended June 30, 2024, compared to expense of $2.9 million for the six months ended June 30, 2023.

The changes in other, net (income) expense are primarily due the remeasurement impact of foreign currency fluctuations related to the Mexican peso.

Additionally, other, net for the six months ended June 30, 2024 includes a fee of $3.1 million related to the execution of back-to-back interest rate caps associated with the new TILC warehouse loan facility.

Income taxes – The effective tax rates from continuing operations for the three and six months ended June 30, 2024 were expenses of 22.7% and 23.8%, respectively, which differ from the U.S.

statutory rate of 21.0% primarily due to state income taxes, foreign income taxes, and non-deductible executive compensation, partially offset by the benefit of noncontrolling interest, for which we do not provide income taxes, excess tax benefits associated with equity-based compensation, and changes in state tax laws enacted in the second quarter.

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.

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, and taxes not recorded on our non-controlling interests in partially-owned subsidiaries.

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 accumulated other comprehensive income;

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changes in our valuation allowances;

state income taxes;

and foreign income taxes.

state income taxes, and foreign income taxes.

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

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Railcar Leasing and Services Group

Three Months Ended March 31,

2024 2023 Percent

($ in millions) Change

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

2024 2023 Percent 2024 2023 Percent

($ in millions) Change ($ in millions) Change

Leasing and management $ 221.9 $ 203.8 8.9 % $ 430.9 $ 398.5 8.1 %

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(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.

(4) Depreciation and amortization 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.

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.

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Three Months Ended

June 30, Six Months Ended

2024 2023 2024 2023

($ in millions)

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Operating profit margin on lease portfolio sales 14.0 % 23.1 % 13.3 % 23.3 %

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.

Total revenues for the Railcar Leasing and Services Group increased by 4.9% and 13.0% for the three and six months ended June 30, 2024, respectively, compared to the prior year periods.

Leasing and management revenues for the three and six months ended June 30, 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 and six months ended June 30, 2023.

Digital and logistics services revenues for the three and six months ended June 30, 2024 decreased when compared to the prior year periods primarily due to a change in revenue recognition from gross basis to net basis based on our conclusion that we are acting as an agent for certain services provided to a small number of customers.

Our maintenance services business is primarily dedicated to servicing our lease fleet pursuant to the provisions of our lease contracts.

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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.

Revenues in our maintenance services business increased for the three months ended June 30, 2024 as a result of the mix of external repairs.

Revenues in our maintenance services business increased for the six months ended June 30, 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 decreased by 6.1% and increased by 4.0% for the three and six months ended June 30, 2024, respectively, compared to the prior year periods.

In our maintenance services business, cost of revenues decreased for the three months ended June 30, 2024 as a result of the mix of external repairs, as well as a government incentive related to our investment at a rail maintenance facility.

In our maintenance services business, cost of revenues increased for the six months ended June 30, 2024 as a result of the volume of external repairs.

Cost of revenues for the three and six months ended June 30, 2024 was also impacted by the gross basis to net basis change described above.

Leasing Group operating profit increased by 10.2% and 13.8% for the three and six months ended June 30, 2024, respectively, compared to the prior year periods primarily due to improved lease rates and net additions to the lease fleet, partially offset by lower lease portfolio sales in the current year periods.

For the six months ended June 30, 2024, operating profit was further increased by a higher volume of external repairs in the maintenance services business.

Additionally, operating profit was favorably impacted by gains of $1.2 million during the six months ended June 30, 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.

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

March 31, 2024 March 31, 2023

June 30, 2024 June 30, 2023

Number of railcars:

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Fleet utilization 96.9 % 97.9 %

(1) Includes 2,490 railcars and 2,470 railcars under leased-in arrangements as of March 31, 2024 and 2023, respectively.

(1) Includes 2,490 railcars under leased-in arrangements as of both June 30, 2024 and 2023.

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

Rail Products Group

Three Months Ended March 31,

2024 2023 Percent

($ in millions) Change

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

2024 2023 Percent 2024 2023 Percent

($ in millions) Change ($ in millions) Change

Rail products (1)

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* 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.

(1) Includes sustainable railcar conversion revenues of $14.4 million, representing 195 railcars, for the three months ended June 30, 2024 and sustainable railcar conversion revenues of $64.6 million, representing 870 railcars, for the six months ended June 30, 2024.

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.

Revenues for the Rail Products Group decreased for the three months ended June 30, 2024 by 3.2% when compared to the prior year period primarily as a result of lower deliveries and the mix of railcars sold.

Revenues for the Rail Products Group increased for the six months ended June 30, 2024 by 4.7% when compared to the prior year period primarily as a result of higher deliveries.

Cost of revenues for the Rail Products Group decreased for the three months ended June 30, 2024 by 7.6% when compared to the prior year period primarily due to improved labor efficiencies, operational efficiencies associated with reduced production line changeovers and fewer supply chain disruptions, as well as lower deliveries when compared to the prior year period.

Cost of revenues for the Rail Products Group for the six months ended June 30, 2024 was relatively flat when compared to the prior year period primarily driven by higher deliveries and the impact of foreign currency fluctuations, partially offset by improved labor efficiencies and operational efficiencies associated with reduced production line changeovers and fewer supply chain disruptions when compared to the prior year period.

Operating profit for the Rail Products Group increased for the three months ended June 30, 2024 by 107.4% when compared to the prior year period primarily due to improved labor and operational efficiencies, partially offset by lower deliveries.

Operating profit for the Rail Products Group increased for the six months ended June 30, 2024 by 94.6% when compared to the prior year period primarily due to improved labor and operational efficiencies and higher deliveries.

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.

In addition to the amounts below, as of June 30, 2024, our backlog related to sustainable railcar conversions totaled $19.6 million, representing 250 railcars.

2024 2023 Percent

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Total $ 2,683.2 $ 3,605.4 (25.6) %

Three Months Ended

Three Months Ended June 30, Six Months Ended

2024 2023 2024 2023 Percent

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Deliveries (4,755) (4,985) (9,450) (9,030) 4.7 %

Other adjustments (1)

— (160) — (160)

Ending balance 20,815 30,540 20,815 30,540 (31.8) %

Average selling price in ending backlog $ 128,907 $ 118,055 9.2 %

(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.

Total backlog dollars decreased by 25.6% 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.

We expect to deliver approximately 36.0% of our railcar backlog value during the remaining six months of 2024 and 27.9% 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.

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

Three Months Ended

Three Months Ended June 30, Six Months Ended

2024 2023 2024 2023

($ in millions)

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Corporate and other

Three Months Ended March 31,

2024 2023 Percent

(in millions) Change

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

2024 2023 Percent 2024 2023 Percent

(in millions) Change (in millions) Change

Operating costs:

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$ 33.5 $ 31.6 6.0 % $ 60.0 $ 57.6 4.2 %

Gains on dispositions of property (0.2) — * (0.2) — *

Operating loss $ (33.3) $ (31.6) 5.4 % $ (59.8) $ (57.6) 3.8 %

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.

*Not meaningful

Selling, engineering, and administrative expenses for the three and six months ended June 30, 2024 were relatively flat when compared to the prior year periods.

Total operating costs during the three and six months ended June 30, 2024 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.

Liquidity and Capital Resources

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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.

As of June 30, 2024, we have total committed liquidity of $985.2 million.

Our total available liquidity includes:

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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

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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.

TRL-2024 Secured Railcar Equipment Notes – In May 2024, TRL-2021 issued $432.4 million of its Series 2024-1 Class A Green Secured Railcar Equipment Notes.

These notes bear interest at a fixed rate of 5.78% and have a stated final maturity date of 2054.

Net proceeds received from the transaction were used to repay borrowings under TILC's warehouse loan facility, to redeem the outstanding debt of the TRL VII Notes, and for general corporate purposes.

Redemption of TRL-VII Secured Railcar Equipment Notes – In May 2024, we redeemed in full the TRL VII Notes, of which $94.1 million was outstanding at the redemption date.

The all-in interest rate for the TRL VII Notes was 6.66% per annum.

Senior Notes due 2028 – In June 2024, we issued an additional $200.0 million aggregate principal amount of 7.75% senior notes due July 2028, which increased the aggregate principal amount from $400.0 million to $600.0 million.

Interest on the Additional Senior Notes is payable semiannually commencing July 15, 2024.

Net proceeds received from the issuance, together with cash on hand, were used to repay our Senior Notes due 2024, and to pay related fees, costs, premiums, and expenses in connection with the issuance.

Redemption of Senior Notes due 2024 – In June 2024, we redeemed in full $400.0 million aggregate principal amount of our 4.55% senior notes due 2024.

See Note 8 of the Consolidated Financial Statements for additional information regarding these debt transactions.

Dividend Payments – We paid $47.2 million in dividends to our common stockholders during the six months ended June 30, 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.

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

During the three and six months ended June 30, 2024, share repurchases totaled 33,900 shares, at a cost of approximately $0.9 million, resulting in a remaining authorization to repurchase up to $249.1 million of its common stock under the share repurchase program as of June 30, 2024.

The following table summarizes our cash flows from operating, investing, and financing activities for the six months ended June 30, 2024 and 2023:

Six Months Ended

(in millions)

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Net cash flows from discontinued operations (6.0) (5.4)

Net increase (decrease) in cash, cash equivalents, and restricted cash $ — $ (31.3)

Net increase in cash, cash equivalents, and restricted cash $ 129.1 $ 2.3

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.

Net cash provided by operating activities from continuing operations for the six months ended June 30, 2024 was $299.7 million compared to net cash provided by operating activities from continuing operations of $140.3 million for the six months ended June 30, 2023.

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

Three Months Ended

Six Months Ended

(in millions)

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Changes in operating assets and liabilities $ 69.5 $ (6.2)

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.

The changes in our operating assets and liabilities resulted in a net source of $69.5 million for the six months ended June 30, 2024, as compared to a net use of $6.2 million for the six months ended June 30, 2023.

The change in operating assets for the current year period was impacted primarily 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.

Net cash used in investing activities from continuing operations for the six months ended June 30, 2024 was $55.9 million compared to $292.1 million of net cash used in investing activities from continuing operations for the six months ended June 30, 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.

• We made a net fleet investment of $46.0 million during the six months ended June 30, 2024, compared to $214.0 million in the prior year period primarily due to the timing of lease portfolio sales relative to fleet additions.

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.

• 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.

We had no acquisitions during the six months ended June 30, 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.

Net cash used in financing activities during the six months ended June 30, 2024 was $108.7 million compared to $159.5 million of net cash provided by financing activities for the six months ended June 30, 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.

• During the six months ended June 30, 2024, we had total repayments of $1,759.9 million and total borrowings of $1,722.2 million, for net repayments of $37.7 million, primarily from the redemption of the Senior Notes due 2024 and the TRL VII Notes, partially offset by debt proceeds to support our investment in the lease fleet and for general corporate purposes.

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.

• We paid $47.2 million and $43.3 million in dividends to our common stockholders during the six months ended June 30, 2024 and 2023, respectively.

Current Debt Obligations

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Ratio Covenant Actual at

March 31, 2024

June 30, 2024

Maximum leverage (1)

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No less than 2.25 to 1.00 13.22

(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.

As of June 30, 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.

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:

Cost of revenues (2)

Income from continuing operations $ 6.0

Net income (3)

March 31, 2024 December 31, 2023

Summarized Balance Sheets:

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

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.

Capital Expenditures

For the full year 2024, we anticipate a net investment in our lease fleet of between $300 million and $400 million.

For the full year 2024, we anticipate a net fleet investment 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.

See Note 5 of the Consolidated Financial Statements for information about our investments 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.

As of June 30, 2024, we had outstanding letters of credit issued under our revolving credit facility in an aggregate amount of $5.2 million, the majority of which are expected to expire in November 2024.

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

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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

Cash Flow from Operations with Net Gains on Lease Portfolio Sales

Cash flow from operations with net gains on lease portfolio sales is a non-GAAP financial measure.

We believe this measure is useful to both management and investors as it provides a relevant measure of liquidity and a useful basis for assessing the breadth of the cash flow generation capabilities across our operating platform, as well as our ability to fund our operations and repay our debt.

This measure is defined as net cash provided by operating activities from continuing operations as computed in accordance with GAAP, plus net gains on lease portfolio sales and is reconciled to net cash provided by operating activities from continuing operations, the most directly comparable GAAP financial measure, in the following table.

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.

Six Months Ended

(in millions)

Net cash provided by operating activities – continuing operations $ 299.7 $ 140.3

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

Net gains on lease portfolio sales 24.8 43.3

Cash flow from operations with net gains on lease portfolio sales

$ 324.5 $ 183.6

Capital expenditures – lease fleet $ 147.5 $ 191.5

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:

Except as described below, as of June 30, 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.

• In May 2024, TRL-2021 issued $432.4 million of its Series 2024-1 Class A Green Secured Railcar Equipment Notes.

These notes have a stated final maturity date of 2054.

• In May 2024, we redeemed in full the TRL VII Notes, of which $99.7 million was outstanding as of December 31, 2023.

• In June 2024, we issued an additional $200.0 million aggregate principal amount of 7.75% senior notes due 2028, which increased the aggregate principal amount from $400.0 million to $600.0 million.

• In June 2024, we redeemed in full $400.0 million aggregate principal amount of 4.55% senior notes due 2024.

See Note 8 of the Consolidated Financial Statements for additional information regarding these debt transactions.

Recent Accounting Pronouncements

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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