Good morning. My name is Dennis, and I will be your conference operator today. At this time, I would like to welcome everyone to the GATX Corporation First Quarter 2024 Earnings Conference Call. [Operator Instructions] I would now like to turn the conference over to Shari Hellerman, Head of Investor Relations for GATX Corporation. Please go ahead.

Thank you, Dennis. Good morning, and thank you for joining GATX's 2024 first quarter earnings call. I'm joined today by Bob Lyons, President and Chief Executive Officer; and Tom Ellman, Executive Vice President and Chief Financial Officer. As a reminder, some of the information you'll hear during our discussion today will consist of forward-looking statements. Actual results or trends could differ materially from those statements or forecasts. For more information, please refer to the risk factors included in our earnings release and those discussed in GATX's Form 10-K for 2023 and elsewhere in our filings with the SEC. GATX assumes no obligation to update or revise any forward-looking statements to reflect subsequent events or circumstances. Before I provide a quick recap of our first quarter results, I'd like to remind everyone that our Annual Shareholders meeting is scheduled on Friday, April 26 at 9:00 a.m., Central time, and will be held in a virtual-only meeting format. Earlier today, GATX reported 2024 first quarter net income of $74.3 million, or $2.03 per diluted share. This compares to 2023 first quarter net income of $77.4 million, or $2.16 per diluted share. The 2024 first quarter results included a net positive impact of $0.6 million, or $0.02 per diluted share from tax adjustments and other items. The 2023 first quarter results included a net negative impact of $1.3 million, or $0.04 per diluted share from tax adjustments and other items. These items are detailed in the supplemental information section of our earnings release. Our first quarter results and the operating environment were in line with our expectations coming into the year. GATX Rail North America fleet continues to perform very well with utilization of 99.4% at the end of the first quarter. Our renewal success rate also remained very high at 83.4%. We…

[Operator Instructions] Your first question is from the line of Matt Elkott with TD Cowen. Please go ahead.

Good morning. Thank you. Can you guys talk about the absolute lease rates and how they've trended in the quarter?

Sure, Matt. It's Bob. I'll take that one. Whether it's versus last year's first quarter or the fourth quarter, relatively flat. But again, keep in mind we've had a really substantial increase in lease rates over the course of the last couple of years. So they have leveled off at a very attractive level, hence the LPI coming in at 33%. And based on the outlook for renewals, we'll continue to see very positive uplift if rates just stay where they are at today.

Regarding that, if, Bob, what's your opinion? Do you think they will stay at the current levels, given what rail traffic is doing and velocity seems to be improving as well, or do you think there could be some downward pressure?

Well, I don't see any impetus for downward pressure right now, and likewise, we don't see a catalyst or anything really making rates spike up. So our expectation, and it was the expectation we had coming into the year is that, you know, they'll be at this level and consistently at this level through the year.

Matt, one thing - Matt, I'm sorry. This is Tom. One thing that you'll notice is that when there is some weakness in a particular car type you are tending to see scrapping activity increase so that supply and demand stays in balance.

Yes, probably that makes sense. And then on the remarketing income, it was pretty solid in the quarter given the expectations coming into the year. Are you guys still expecting what you had been expecting at the end of 4Q for remarketing income, or have those expectations changed for the full year?

We still expect to be in that $90 million to $100 million range, Matt, that we laid out at the beginning of the year. And as you know, remarketing is really difficult to predict quarter to quarter. It's the most difficult thing we have to predict or to estimate quarter to quarter, and we live it every day. You know, it's a lot of different transactions, a lot of different assets in the market, and trying to pin down the timing of those is difficult to do. And we're always driven to do the most economic thing. So, it's tough to lay them out quarter by quarter, but we fully expect to be where we were, the range we laid out coming into the year.

Okay. And then just one last question. You know, if you - if we just annualize the first quarter, you'll be over $8 a share for the year, but your - high end of your guidance is $7.70. Is the variable here, is it remarketing income? Where can we - where should we see the kind of subsiding in earnings for the rest of the year? Where is it going to come from?

That would be on the remarketing income side.

Got it.

Because if we annualize the remarketing income from the first quarter, we'd be well above where we - the guidance we gave at the beginning of the year and we expect to be within the range we laid out at the beginning of the year.

Perfect. Thank you very much.

Thank you.

Your next question is from the line of Justin Long with Stephens. Please go ahead.

Thanks. Good morning. And I guess to start by dovetailing on that last question, it's helpful to get that clarity on remarketing income expectations. But last quarter you gave a lot of segment-level guidance and some ranges on 2024 expectations. I know the guidance overall didn't change from an EPS perspective but did anything at the segment level change versus what you were anticipating at the start of the year?

Justin, no, not really. I mean, we're - as we look out through the balance of the year and what occurred in the first quarter, I hate to use the word uneventful, but as planned may be the better way to look at it, and that's across every segment.

Okay, great. And second question is on investment opportunities. I was curious if you could just comment on what you're seeing in the pipeline today. And any updated thoughts around the level of investment volume we could see in 2024?

Tom, do you want to go ahead with that one?

Yes. So coming into the year we expected that we see investment levels that were similar to 2023 $1.6 billion. And if you look at what happened in the first quarter where we did $375 million, we're kind of right on pace, and our expectations for the year remain in that range.

Okay. Easy enough. I'll leave it there. Thanks for the time.

Justin?

Your next question is from the line of Bascome Majors with Susquehanna. Please go ahead.

I wanted to come back to remarketing income. Can you talk a little bit qualitatively about the depths and types and just tenor of that market in North America today? And if there's been any shifts since six, nine months ago. And, you mentioned in the prepared remarks that you thought the cadence would be fairly even. It's typically been more lumpy than that. Is that just a function of the difficulty to predict when the deals close, or is there something different about how you are managing your books into the market this year versus what you've done in the past? Thank you.

Bascome, I'll take that one. It's really the kind of a - the lumpiness occurs because of the timing of individual sales transactions. We don't put a book out and sell a thousand cars to one buyer. We do many, many sales, small sales to a lot of different buyers. So getting all of those to line up and kind of predict those in a given timeframe is difficult to do. And we are certainly not going to force anything into a particular quarter if it doesn't make - when it might not make economic sense. So, whether we get something in the second quarter or third quarter, we become indifferent. We want the best economic outcome for the shareholder. In terms of the market overall, it feels really good. The secondary market remains incredibly healthy, active, robust. We said in 2023 when we came into the year, we thought that it might taper off a little bit because interest rates were on the rise. But that didn't happen, and it certainly didn't happen in the first quarter. We don't see it happening based on the level of interest we get when we're putting packages out. And it's from a pretty broad and deep buyer group. So we're encouraged by that.

And if I could ask a follow-up, I mean, you finally officially renamed the third segment Engine Leasing to reflect your focus there. As your partner in the JV side of that business gets further along in some of its transformation. Is there an opportunity to perhaps restructure the JV longer term and bring more of that economics in-house, or it will just be maybe more incremental growth continues to come at 100% ownership economics to you?

We're going to continue, as we laid out at the beginning of the year to invest directly. We expect investment level directly on engines to be in that $250 million range again this year. Again, those are very lumpy each engine is at $25 million, $30 million undertaking. So predicting those on a quarterly basis can be tough. But we are working on investment activity at the same level we saw last year, which is very encouraging. Then, within the joint venture itself, they did roughly $250 million to $300 million of investment volume last year within the joint venture, and we see that going up pretty sharply this year. So they're returning much more to a growth mode after managing the portfolio through the COVID crisis. In terms of restructuring the joint venture in the future, that's not something we are contemplating, and certainly, it's been a very beneficial joint venture for 25-plus years now for both parties, and it works well in the current form.

Thank you.

Your next question is from the line of Justin Bergner with Gabelli Funds. Please go ahead.

Good morning, everyone. Good morning, Rob - Bob. Sorry, excuse me. First question relates to your comment that for railcar types that are seeing some lease rate softness on a sequential basis. There seems to be this offsetting dynamic whereby more of these cars are being scrapped. Can you elaborate on that?

Yes. Justin wasn't talking about where you might see something in terms of lease rates. What that's referring to is Matt's question had to do with velocity. And if velocity were to pick up for a given car type, and a lessor tends to need less of them, the market as a whole has tended to scrap any excess cars so that the market remains in balance and lease rates actually stay strong.

Okay. That's helpful. And is that just a function of the scrap rate still being compelling such that it doesn't take a sort of meaningful change in the outlook for that car type to justify scrapping the car?

Yes. So it's both a feature of the scrap prices are strong on any kind of historical basis, and people are just hanging on to cars because the challenges of getting incremental cars. So it's more a case of some of those cars towards the end of their life are being held onto until something comes up and people determine, you know what, we don't need a fuel.

Okay. Got you. And with respect to the joint venture, the - I guess, segment equity income sort of dropped this quarter compared to some recent quarters, I guess, particularly the last quarter. Is that just a function of lower remarketing income in the joint ventures, or any other dynamics worth calling out?

So the mix of income for the first quarter was very similar to what it was for the full year '23 in both cases about 55% of the JV income was operating and about 45% was remarketing. But the absolute dollar amount of remarketing gains versus the fourth quarter were down a bit, about $3 million, or so.

Okay. So just to be clear, the joint venture, while it drove a lot of the upside surprise in 2023 is so far in 2024, delivering according to your plan, I guess, the broader engine leasing segment as well.

Yes. Just to echo Bob's opening comments. Yes, yes, so kind of across segments that's where we are seeing inclusive of engine leasing and within engine leasing, inclusive of the JV.

All right. Thanks, Tom, and thanks for taking my questions.

Yes.

Your next question is from the line of Brendan McCarthy with Sidoti. Please go ahead.

Hi, good morning, everybody. Thanks for taking my questions. I just wanted to start off at Rail India. It looks like the investment volume there is pretty - look pretty stable. I think at the start of or at the end of last year, you mentioned you'd like to see the railcar balance above 10,000, I think by the end of 2024. But it looks like you're on a good pace to surpass that maybe next quarter. Can you just talk about the market dynamics in India? What you're seeing, obviously, utilization remains right at 100%, but - can you talk about the dynamics and what you expect for this year and next maybe?

Sure. And the dynamics remain very strong. The Indian Railway continues to invest in its infrastructure. And just with the GDP growth in India and the need for continued infrastructure development, a lot of the products that will support that infrastructure development will move by rail, whether it's steel, cement, you think about any activity in India construction related, they're going to need rail service. And so what really governs our ability right now to add cars to the fleet is the capacity to build. And if we could get access to more railcars, we would put more on lease. But we have to work with a number of different builders. They're doing a great job that the demand is so high. We don't have unfettered access to what we want. We'll certainly go over the 10,000 wagon mark this year. Very good start to the year in the first quarter with deliveries where they were at on new wagons and yes, we should hit that in the next quarter or two.

Got you. And just kind of looking at the guidance that you gave last quarter, it looks like you expect the Rail International segment profit up $10 million to $15 million. That still - obviously, that still remains the same despite the elevated wagon additions.

Yes, that's correct.

Okay. Okay. Last question for me. I just had a, you know, wondering if you could provide some insight on the Norfolk Southern complaints. I saw that they had the $600 million settlement. Do you have any updates you could provide us with those complaints?

As you can understand, little litigation of that nature, we really don't get into detail on that. We continue to believe very strongly in the position we have that the claims Norfolk Southern has made against GATX are unfounded and will defend ourselves accordingly.

Understood. Thanks for the insight. That's all from me.

Thank you.

At this time, there are no further questions. I will turn the call back over to Shari Hellerman for closing remarks.

I'd like to thank everyone for their participation on the call this morning. Please contact me with any follow-up questions. Thank you.

This concludes the GATX Corporation 2024 first quarter earnings conference call. Thank you for joining. You may now disconnect.