Thank you for standing by. My name is Kate, and I will be your conference operator today. At this time, I would like to welcome everyone to the GATX 2025 First Quarter Earnings Call. Thank you. I would now like to turn the call Over to Shari Hellerman, head of investor relations. Please go ahead.

Thank you, Kate. Good morning, and thank you for joining GATX Corporation's 2025 first quarter earnings call. I'm joined today by Bob Lyons, President and Chief Executive Officer, and Paul Titterton, Executive Vice President and President of Rail North America. Tom Ellman, our Chief Financial Officer, was called away on a family matter and will not be joining our call this morning. 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 Corporation's Form 10-K for 2024 and our other filings with the SEC. GATX Corporation assumes no obligation to update or revise any forward-looking statements to reflect subsequent events or circumstances. Before we begin, I'd like to remind everyone that our annual shareholders meeting is scheduled on Friday, April 25th, at 9 AM Central Time and will be held in a virtual-only meeting format. I will provide a quick overview of our 2025 first quarter results, and then I'll turn it over to Bob for additional commentary on the current market environment. After that, we'll open the call up for questions. Earlier today, GATX Corporation reported 2025 first quarter net income of $78.6 million or $2.15 per diluted share. This compares to 2024 first quarter net income of $74.3 million or $2.03 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. These items are detailed in the supplemental information section of our earnings release. Our first quarter results were in line with our expectations coming into the year. In North America, supply…

Thank you, Shari. And thank you all for joining the call this morning. Appreciate the time. As I talked to Tom Ellman last night about his schedule for today, I volunteered to sit in as de facto CFO in his absence. It also occurred to me that while I spent fourteen years in that role previously, Tom is far better at that job than I ever was. And so you're stuck with me today for finance-related questions. But happy to have Paul here with me to talk about anything you might want to discuss in the North American rail market. With the uncertainty around the impact of tariffs in North America and abroad, along with the general uncertainty in economic conditions, I thought I'd open with some brief comments on those topics and hopefully address a number of your questions upfront. First of all, the impact of the recent tariff announcements has to date had very little impact on our business and financial results, I think reflective of what Shari already outlined this morning. That's not surprising given that our installed base of assets around the globe is generally on long-term lease with strong customers, and we enter each year with a pretty predictable level of cash flow from our lease portfolio. On a longer-term basis, however, we're an economically driven company, and a sustained pare back in economic growth as a result of tariffs or global tensions could affect GATX Corporation at some point. We certainly aren't seeing that today, but it's not outside the realm of possibility. Talking about each of our markets separately, we'll start with Rail North America. Here, our customers continue to need the railcars that they have in their fleets today, and you see that through the really high renewal success rate that we…

At this time, I would like to remind everyone in order to ask a question, press star then the number one on your telephone keypad. We will pause for just a moment to compile the Q&A roster. Your first question comes from the line of Bascome Majors with Susquehanna. Please go ahead.

Thank you for the candid discussion on, you know, the concern and uncertainty around the second and third order impacts of tariffs. Is this an environment where you feel like you would have raised guidance if it weren't for that uncertainty and the unpredictability of it in the back half of the year?

Thanks for the question. Ordinarily, GATX Corporation doesn't really adjust earnings in the first quarter. We only provide annual guidance, as you know. And it's a little difficult for us to kind of assess the full year, one quarter out of the gate. We tend to be a little bit more deliberate. When we have raised guidance in the past or changed guidance in the past, it's usually been at the midyear point. So even this forget tariffs, forget the macroeconomic volatility, the uncertainty, I think if we look back in history, the first quarter we usually reiterate that's what we're comfortable doing today. The first quarter absolutely played out the way we thought it would. And our expectations remain right in that $8.30 to $8.70 range. There was nothing that occurred during the quarter that would materially alter our thoughts around that.

Thank you for that, and we certainly have seen that midyear pattern over many years, and I appreciate you reminding us. You know, higher level you guys and, you know, particularly, you know, Paul at the Resk conference a few weeks ago, really articulated, you know, maybe the uniqueness of this cycle for railcar leasing in your businesses and that, you know, you've really had a tremendous amount of growth in your core markets without help from really railroad volumes, mostly from, you know, supply side inflation, be it steel prices, components, labor that's, you know, driving up the cost of new cars and replacement cost of, you know, many of the decades-old assets you own, but also, you know, a mix of reduction discipline and perhaps constraints on the railcar OE side in North America. I mean, if anything, the, you know, the glass half full take here from our perspective would be that, you know, new railcar production is getting more and not less constrained in this environment. And certainly, some of those inflationary factors are ticking back up after ticking down for the better part of a couple of years from the pandemic peak. You know, how do you feel about the supply side thesis today? And, you know, is it really just we have to balance some of the demand destruction potential even though demand really hasn't been a driver of this up cycle in railcar leasing?

Bascome, this is Paul speaking, and thanks for the question. It's a very good question and yeah, you know, what I would say is we continue to believe in what we've been calling the supply-led market thesis and the self-correcting market thesis. Which is basically to say exactly as you described that it is relative to history expensive to build and expensive to finance new railcars, and that has been a constraint on new car production, you know, you look at the ARCI numbers, for the last couple of quarters, we're on an annualized run rate of around 20,000 cars of orders per year, which is, you know, well below the replacement rate, well below what we've seen in history. And as you correctly note, that that is supportive of our business. When we have a large and diverse installed fleet of railcars. That thesis continues to hold and just to add to that, I would say, you know, that we talked about this the self-correcting market as we've described it, which is to say, since there isn't an overhang of idle cars in the market, in any one of our markets when we see a little bit of weakness, we tend to see scrapping pickup, which again is supported by a fairly high scrap price right now. And the market corrects back into balance fairly quickly, which is as compared to say the great recession when that did not occur. So overall, the thesis that we've articulated that this is a supportive market for our core installed fleet really continues to be the case.

Bascome, I'd add to that too, that when we provided our guidance at the beginning of the year, I'd have to look back at my specific comments, but I believe I indicated that, you know, our forecast, our expectations are certainly not predicated on carload growth. To be clear, we would welcome that. But we're not dependent on it. We came into the year expecting very muted carload growth. But other factors at play are very much beneficial to GATX Corporation in this market.

Lastly, and then I'll pass it on, when you think about the sort of demand risk that you highlighted and the uncertainty that, you know, that entails in a lot of your markets. Do you feel more risk and uncertainty and variability in, say, aerospace versus North American rail or Europe and India rail? I just want to understand maybe directionally if you could rank order where you feel visibility is more uncertain versus more certain. Thank you.

Sure. And I would say if I had to kind of rank order all the markets we're in or the regions of the world that we're in, probably the one right now with the most uncertainty would be on the rail side in Europe. Just because of, you know, the different factors at play there. And we're already coming into the year with pretty minimal GDP growth in Europe. But, again, you know, we have a large base of installed assets in that market. Highly predictable cash flow coming into the year. So if there's a little bit more stress in that market, it's not really gonna change our overall outlook. Thank you.

Your next question comes from the line of Andrzej Tomczyk with Goldman Sachs. Please go ahead.

Morning. Thanks for taking my questions. First, could you just provide more color on the macro volatility that you mentioned and how it might specifically impact, you know, the North America railcar segment and geographically, if you could get into that as well. I know you touched on it a little bit earlier, but are there any, you know, comments from customers that you could pass along sort of intra-quarter or here into April that we could take away? Thanks.

Sure. I'll start there, and Paul can fill in too if he wants to add. But from a commercial perspective, I think the volatility, the uncertainty of the markets where we see that manifest itself is, you know, in our customer's longer-term growth plan. The more difficult it is for them to predict three to five years out, the more difficult it is for them to size their fleets accordingly and consider growth. So if we see anything, it's maybe longer decision periods or some uncertainty among our customers. The flip side of that, as I mentioned at the open, is the installed base, the cars they have in their fleet today, with an 80 plus percent renewal success rate and roughly 25% LPI, it's pretty clear they're holding on to what they have and committing on those long term. So that's a very good sign. From a pure intermediate standpoint in terms of fleet growth, it's a little bit tougher and that's maybe where we see some hesitancy in terms of committing.

Yeah. And I'll just add, I think echoing everything Bob said and just adding that, you know, to some degree, because what customers say and what they do, our customers in North America certainly talk about uncertainty. But as Bob said, when you look at our renewal success and our pricing, they're holding on to the assets that they have. And I think that speaks to the fact that uncertainty cuts both ways, and our customers don't want to let go of the assets that they have even if they feel that uncertainty because they don't they're not necessarily saying, you know, we definitely need to shrink our fleet. That's quite the opposite, I think, they're saying. We do need to hold on to the assets that we have today.

Thanks. And just as a quick follow-up there, in North America, are customers buying into the notion that, you know, manufacturing could come back, sort of to the US, Mexico, Canada, the reshoring theme. Is that a consideration for customers? And I know you mentioned, you know, not letting go of their fleet, but is there a consideration that customers could actually increase the fleet over time given those near-shoring trends?

So it's a great question to which I'm gonna give an unsatisfying answer, I'm afraid. We have a very large customer base. Bob said over 800 customers in North America. And we get a wide range of comments from them on that. I will say we have some customers that buy that thesis and say that they're going to lean into that thesis. We have others who don't, and it really varies widely from customer to customer, from segment to segment. I will say to the customers that have commented that they do buy that thesis, it's very much with a long-term bent. It's not something that's going to affect us one way or the other in the immediate term.

Yeah. And to follow on Paul's point, you know, we renew roughly 20,000 cars in a given year. That's a lot of at-bats with that 800 plus customers that we have in North America. And we survey them and talk to them all the time. If there was a clear direction we could pull from that, we'd share it with you. But it's, as Paul said, it's kind of getting 800 different opinions at this point in time.

No. Makes sense. Appreciate that. And also thanks for the tariff comments earlier in the opening remarks. I just wanted to clarify if you are seeing new railcar prices currently going higher already and, you know, given these tariffs on steel inputs. And then how much are you able to pass through to customers if that is the case or if that will become the case? Thank you.

Sure. Yeah. So what I would say is the general and I'm gonna talk, by the way, about the general level of new car prices as opposed to the prices GATX Corporation specifically pays because obviously our contracts with the builders are confidential. But the general level of new car prices right now, we do see at relatively high levels, I would say, for some freight car types, we're seeing them pretty close to record highs. For tank cars, not as close to record highs, but certainly close. And, you know, for context, we look at both hot rolled coiled steel and plate steel, we're seeing input prices that are certainly at 12-month highs and are quite high relative to history. So you are definitely seeing the general level of new car prices quite high these days. You know, in terms of the ability to pass it on to customers, you know, what I would say is most of the pricing events in our fleet are in our existing fleet. And so the relationship between the new car price and the price on the existing fleet is very indirect. It absolutely has an effect because of course some of our customers, the alternative to renewing our cars is procuring a new car. So there's certainly a relationship there. But it's indirect.

You know, in terms of the relationship between the new cars we're buying and the price we're getting, what I'll say is we continue to earn reasonable returns on our new car deployments. And I would say those returns maybe are a little bit compressed relative to where they've been but they're still in the acceptable range.

Yeah. And I think it's fair to say renewing cars in this market obviously, at 80 plus percent renewal success rate, we're doing very well on that front. New car placements, it's more competitive. It's definitely more challenging. And the fact that you have other lessors and the builders all pursuing a limited pool of new power opportunities. So the pricing's a little more aggressive on that front.

Got it. And then lastly for me, just on the secondary market, you know, valuations, have they gone higher on the back of those new car commentary? And then what are the expectations for the remainder of this year for remarketing and income? Is it still down year over year just to bake in some conservatism, or is that still the expectation? Thanks.

Well, we actually did not necessarily we forecast or we budgeted a modest a very, very modest decrease in remarketing income, but essentially, we budgeted a year that was gonna be a lot like last year from a remarketing standpoint. So we budgeted as though this was going to be a good remarketing year, and we continue. Valuations in the secondary market have held up nicely and whether that's a direct result of the fact that new car pricing is high is difficult to say, but that very likely has something to do with it. But in general, we are still seeing a good number of participants in the market. So the breadth and the depth of the market is good. We get good responses to the packages we put into the market. So overall, at this point, I would say we continue to see a very supportive secondary market within North America.

Yeah. In 2024, we had roughly $120 million of remarketing. We came into the year and said we thought that number would be between $100 and $110 million this year. Still feel very good about that. And that is a very, very healthy remarketing year for us. So optimistic about that.

Thanks. Appreciate the time.

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

Great. Good morning, everybody. Thanks for taking my question. Here. Just wanted to start off with the engine leasing business. Looks like a really strong quarter here. I wanted to tie that into your CapEx guidance. I think you were looking for about $1.4 billion heading into 2025. Just curious if kind of the macro uncertainty gives you pause on that front, I guess, both from a railcar perspective and also from the engine spare aircraft engine perspective.

Yeah. For direct investments in engines, coming into 2025, our forecast was similar to 2024, which it was right around $250 million. For direct investment in engines. Still expect somewhere to be somewhere in that range. It could move around a little bit depending on Rolls Royce's sales activity as well. On top of that, I would add that we expected, Rolls Royce and Partners Finance, our joint venture, activity, those investments don't show up directly in our cash flows. It's all through the JV. They were anticipating a really strong year of north of $800 million. And as I mentioned in my opening comments, that pipeline is really strong. So I think we'll be there or above at the JV level. So, really, good year of investment activity. One nuance about that business even in uncertain times, if air travel declines and it happens over a protracted period, oftentimes, you see airlines look for liquidity. And so sale leaseback opportunities with airlines actually increase during more challenging times. So I'm sure our team at Rolls Royce and Partners Financial be on the lookout for that. Overall investment in volume for the year, you hit the number on the head. We expect it coming in to be at $1.4 billion. We did just under $300 million in the first quarter totally across GATX Corporation. Still expect to be in that same level, that same $1.4 billion. And at Rail North America, we were in the $800 million range for 2025 on our expectation. Still see that occurring. May come off. I mean, part of that's depending on secondary markets, so it could come off a little bit. But anything up in that, you know, $800 million range is a really by historical standards, a really strong year for North American Rail.

Great. That's helpful. I appreciate the color. And maybe just from a demand perspective, you know, you mentioned if we see a pullback in international travel that could impact the business, but can you tie that into maybe how the how or I guess maybe can you discuss how that ties into the contractual, you know, mandated maintenance schedule of these assets? I think it's every three to five years or so, you know, that there's mandated maintenance.

Are we talking about on the engine side? Of the vehicle? Yes. Yeah. We don't see any significant change in the maintenance profile or expectations for maintenance activity within the engine leasing side, whether directly owned or at RRPF. So no significant change there.

Okay. Okay. And switching gears, just wanted to talk about the balance sheet. I know you maintain a very strong balance sheet, investment-grade ratings, and I saw, you know, recourse leverage tick down in the first quarter. Are you comfortable with where interest expense is now and guess, what interest rate environment is really baked into the guidance for this year?

Well, we're right in the zip code of what we baked in for the year. So, you know, maybe and so no significant, you know, pickup or degradation from where rates are today versus what we thought coming into the year? Total interest and depreciation last year was just over $500 million. We expected that number to go up meaningfully in 2025 in the magnitude of $40 million. And we're still on course for that. So we did anticipate interest rate increase in 2025. In the first quarter, nothing in the first quarter would change it. Our estimate of where we're gonna end on a full-year basis. Overall balance sheet yes, still in very, very strong condition. Leverage is at a very good spot. You know, our investment-grade rating is extremely important to GATX Corporation. We're mindful of that all the time. It gives us great flexibility in funding. And so we're gonna keep leverage kind of right near where we're at today.

Great. And one more question for me. Just wanted to take a look at Rail Europe. I think I saw that there was a pretty sizable amount of railcars coming up for renewal in 2025. Can you touch on the renewal success rate there and maybe how that ties into the outlook for Rail International?

Yeah. The lease terms in Europe are always shorter than they are in North America. So where we turn maybe a fifth or so of our fleet in a given year in North America, it's about a third that turns every year in Rail Europe. So that's typical of that market. It's just historically that and that's industry-wide. That's not unique to GATX Rail Europe. It's a two to three-year lease market. Nothing out of the ordinary there. Our renewal success rate was pretty high. Other than I would say in we continue to see significant challenges in the intermodal market. We've talked about that on prior calls. So our utilization in the intermodal fleet is lower than certainly lower than where we'd like it, and it's gonna take a while to come back. So that is putting some undue pressure on overall utilization at GATX Rail Europe. But we expected that coming into the year.

Got it. That makes sense. Thanks, everybody.

Thank you.

Next question comes from the line of Justin Bergner with Gabelli Fund. Please go ahead.

Good morning, Bob. Good morning, Paul. Good morning, Shari. Good morning.

Good morning, Justin. How are you?

Good. Thanks. The same for you guys. To start, are sequential lease rates still trending flat kind of on a spot basis?

Actually, this quarter, they were down slightly from where they were in the fourth quarter. Again, nothing that we didn't anticipate coming into the year. But on a sequential basis, down a little bit.

Okay. Gotcha. It seems like you were pretty bullish on the secondary market in the comments in your press release and the comments to start the call. Would you say that your view of the secondary market has strengthened from, you know, three months ago, or is it about the same?

I would say it's very much the same what we expected coming into the year. We didn't expect the macro volatility that's going on kind of whether it be tariffs globally, what have you. Interest rates moving pretty sharply from week to week. That we did not anticipate coming into the year. So I would say the fact that the secondary market has held up has continued to be as strong as it is, and the pipeline looks as good as it is, I think it speaks volumes about the quality of the underlying assets.

Yeah. And I'll just add too, you know, that there is capital that wants to invest in these assets and the new car market looks to be a pretty small market this year, that capital if it wants to invest is gonna flow into the secondary market. So that's one of the reasons for our confidence in the continued strength.

Okay. That makes sense. Just some quick cleanup questions. Your cash balance ending the quarter was higher than normal. Is that just money that you're getting prepared for investment needs later in the year?

Yeah. Certainly higher than normal. We did one bond offering during the first quarter. As we were looking out over the course of the year. You know, the bond market was fairly unpredictable during the first quarter. We're always looking long-term on our funding needs. We saw a relatively quiet period for over a course of a couple weeks. So we took that opportunity to do an $800 million issuance in advance of when, you know, I think historically, we would have done so. But the demand was great. We did both tens and thirties at a very good coupon. And essentially prefunded a pretty significant portion of our financing needs for 2025.

Okay. And then lastly, within the RRPF joint venture, I mean, the equity income was high. Was there an unusually high amount of secondary sales and gains on secondary sales in the joint venture this quarter?

No. We came into the year expecting our total income at the RRPF joint venture, you know, to be up $20 to $30 million versus where we were in 2024. Within engine leasing total. Excuse me. Not just within the RRPF. Baked into that was the expectation that the income mix at RRPF would be about 65% operating income and about 5% remarketing income. And that's almost exactly what it was in the first quarter.

Oh, okay. It was only 35% or so remarketing income in the first quarter.

Yes. Good to know. Well, thank you for taking all my questions.

Thank you, Justin.

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

Thanks for taking my follow-up. Justin just asked about the sequential lease rate trend. I think you said down a little bit. Is there any delineation between, you know, tank cars and freight cars in that? And, you know, maybe historically, you've kind of talked about your long-term lease rate expectations and whether car types by the way, you define them, you know, percentage that are above or below, just any update on how you look at the lease rate, attract in this, and then historical context over a little longer term. Thank you.

Sure. No significant delineation between tank and freight in the first quarter. In terms of the sequential change in the sequential rate. You know, overall lease rates, I would say, in the first quarter by and large came in as we expected. No significant deviation from the forecast we had in place. The LPI came in very consistent with what we thought. So and I would say on a historical basis, we're continuing to see lease rates at very, very attractive levels. And Paul can comment more on that.

Yeah. Relative to our model, you know, we have a long-run expectation for every car type in our fleet. And in general, across the fleet rates remain elevated relative to our long-term view. So and, you know, obviously, we're constantly refining and revising our model on a regular cadence to reflect additional data gathered. But, yes, rates continue to be strong relative to our view of long-run levels.

Thank you.

Thank you.

We will now turn the call back 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.

Ladies and gentlemen, that concludes today's call. You can now disconnect. Thank you, and have a great day.