Q4 2023 GATX Corp Earnings Call

Speaker Change: Hello, and welcome to the G. A T X 2023 fourth quarter earnings call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session and if you would like to ask a question. During this time simply press star one on your telephone keypad I will now turn the conference over.

I will now turn the conference over to Shari Hellerman, Head of Investor Relations. Please go ahead.

Her to Shari Hellerman head of Investor Relations. Please go ahead.

Thank you Sarah.

Shari Hellerman: Thank you for joining GATX's 4th Quarter and 2023 Year-End Earnings Conference.

Good morning, and thank you for joining Gatx's fourth quarter, and 2023 year end earnings conference call.

Shari Hellerman: I'm joined today by Bob Lyons.

I'm joined today by Bob Lyons.

Robert C. Lyons: President and Chief Executive Officer

Robert C. Lyons: Does it end and Chief Executive Officer, Tom.

Robert C. Lyons: Tom Ellman, Executive Vice President and Chief Financial Officer.

Bob Lyons: Tom Ellman, Executive Vice President and Chief Financial Officer.

Speaker Change: and Paul Chitterton, Executive Vice President and President of Rail North America.

Speaker Change: And Paul Tudor Jones, Executive Vice President and President of rail North America.

Speaker Change: As a reminder, some of the information you'll hear during our discussion today will consist of forward looking statements.

Speaker Change: As a reminder, some of the information you'll hear during our discussion today will consist of four looking statements.

Speaker Change: Actual results or trends could differ materially from those statements or forecasts.

Speaker Change: Actual results or trends could differ materially from those statements or forecast.

Speaker Change: Thank you for more information.

Speaker Change: For more information please refer to the risk factors included in our earnings release and those discussed in Gatx's Form 10-K for 2022 and in our other filings with the SEC.

Speaker Change: Thank you.

Speaker Change: and those discussed in GATX's Form 10-K for 2022 and in our other filings with the SEC.

Speaker Change: GATX assumes no obligation to update or revise any forward-looking statements.

Speaker Change: G. A T X assumes no obligation to update or revise any forward looking statements to reflect subsequent events or circumstances.

Speaker Change: to reflect subsequent events or circumstances.

Speaker Change: I'll provide a quick overview of our 2023 fourth quarter and full year results.

Speaker Change: I'll provide a quick overview of our 2023 fourth quarter and four-year results.

Speaker Change: and then I'll turn it over to Bob for additional commentary on 2023 as well as our outlook for 2024.

Speaker Change: And then I'll turn it over to Bob for additional commentary on 2023 as well as our outlook for 2024.

Robert C. Lyons: After that we'll open the call up for questions.

Robert C. Lyons: After that, we'll open the call up for questions.

Robert C. Lyons: Earlier today G. A T X reported 2023 fourth quarter net income of $66 million or $1 81 per diluted share.

Robert C. Lyons: Earlier today, GATX reported 2023 fourth quarter net income of $66 million, or $1.81 per doula to share.

Robert C. Lyons: This compares to 2022 fourth quarter net income of $48.4 million, or $1.36 per doula share.

Robert C. Lyons: This compares to 2020 to a fourth quarter net income of $48 4 million or $1 36 per diluted share.

Robert C. Lyons: The 2023 fourth quarter results include a net positive impact from tax adjustments and other items of $0.07 per diluted share.

Robert C. Lyons: The 2023 fourth quarter results include a net positive impact from tax adjustments and other items of seven cents per diluted share.

Robert C. Lyons: The 2022 fourth quarter results include a net negative impact from tax adjustments and other items of 18 cents per doula to share.

Robert C. Lyons: The 2022 fourth quarter results include a net negative impact from tax adjustments and other items of 18 cents per diluted share.

Robert C. Lyons: For the full year 2023, GATX reported net income of $259.2 million, or $7.12 per doule to share.

Robert C. Lyons: For the full year 2023 G. A T X reported net income of $259 2 million or $7 12 per diluted share.

Robert C. Lyons: This compares to net income of $155.9 million, or $4.35 per doula share, in 2022.

Robert C. Lyons: This compares to net income of $155 9 million or $4.35 per diluted share in 2022.

Robert C. Lyons: The 2023 full year results include a net positive impact from tax adjustments and other items of five cents per diluted share.

Robert C. Lyons: The 2023 full-year results include a net positive impact from tax adjustments and other items of $0.05 per doula share.

Robert C. Lyons: The 2022 four-year results include a net negative impact from tax adjustments and other items of $1.72 per doula to share.

Robert C. Lyons: The 2022 full year results include a net negative impact from tax adjustments and other items of $1 72 per diluted share.

Robert C. Lyons: These items are detailed in the supplemental information section of earnings release.

Robert C. Lyons: These items are detailed in our supplemental information section of our earnings release.

Robert C. Lyons: In 2023 total investment volume was over $1 $6 billion as we increased investment in rail North America rail International and our wholly owned engine portfolio.

Robert C. Lyons: In 2023, total investment volume was over $1.6 billion as we increased investment in Rail North America, Rail International, and our fully owned engine portfolio.

Robert C. Lyons: In the coming year, leases for approximately 19,400 tank and freight cars and approximately 1,900 boxcars in North America are scheduled to be renewed.

Robert C. Lyons: In the coming year.

Robert C. Lyons: He says for approximately 19400 tank and freight cars and approximately 1900 box cars in North America are scheduled to be renewed.

Robert C. Lyons: These renewal levels are similar to those we've had in recent years.

Robert C. Lyons: These renewal levels are similar to those we've had in recent years.

Robert C. Lyons: Lastly, as noted in the release, we expect 2024 earnings to be in the range of $730 to $770 per diluted share.

Robert C. Lyons: Lastly, as noted in the release.

Robert C. Lyons: Was that 'twenty 'twenty four earnings to be in the range of 730 to 770 per diluted share.

Robert C. Lyons: With that, I will now turn the call over to Bob.

Robert C. Lyons: With that I will now turn the call over to Bob.

Robert C. Lyons: Thank you, Shari. And thank you all for joining the call today. For those of you that follow us closely, you know we are generally very brief.

Robert C. Lyons: Thank you Sherry.

Robert C. Lyons: Thank you all for joining the call today for those of you that follow US closely you know we are generally very brief.

In our opening remarks, but given that we're at year end.

Robert C. Lyons: and our opening remarks, but given that we're at year-end,

Robert C. Lyons: We thought it would be helpful to spend a little bit more time.

Robert C. Lyons: We thought it would be helpful to spend a little bit more time.

Robert C. Lyons: So I appreciate you bearing with me as we go through some of the details. I'm going to provide some brief comments on 2023.

Robert C. Lyons: So I appreciate you bearing with me as we go through some of the details I'm going to provide some brief comments on 2023.

Robert C. Lyons: Performance versus the outlook we had coming into the year.

Robert C. Lyons: Performance versus the outlook, we had coming into the year.

Robert C. Lyons: and then I'll add some additional color to the 2024 guidance that was included in today's press release.

And then I'll add some additional color to the 2024 guidance that was included in today's press release.

Robert C. Lyons: but before diving in

Robert C. Lyons: But before diving in.

Robert C. Lyons: First I want to thank our employees for their focus and their efforts this past year in particular.

Robert C. Lyons: First, I want to thank our employees for their focus and their effort this past year. In particular,

Robert C. Lyons: are employees who work in our maintenance network and who work in our shops, both in North America and Europe.

Robert C. Lyons: Our employees, who work in our maintenance network and who work in our shops, both in North America and Europe.

Robert C. Lyons: Once again, they did an outstanding job in the face of very high demand for shop services.

Robert C. Lyons: Once again, they did an outstanding job in the face of very high demand for shop services.

Robert C. Lyons: and I'm very pleased that our safety record in the shops in 2023 was excellent.

Robert C. Lyons: And I am very pleased that our safety record in the shops in 2023 was excellent.

Robert C. Lyons: Our shop management and the employees continue to strive for efficiency, while focusing on safety.

Robert C. Lyons: Our shop management and the employees continue to strive for efficiency while focusing on safety,

Robert C. Lyons: and that's what matters most.

Robert C. Lyons: And that's what matters most.

Robert C. Lyons: So, a thank you to all of our employees on the shop floor who really make this company tick.

So thank you to all of our employees on the shop floor really makes this company tick.

Robert C. Lyons: Looking more broadly at our business segment performance is I'm pleased with the contribution across the board whether it was rail North America Rail Europe, India, our engine leasing activities.

Robert C. Lyons: Looking more broadly at our business segment performances, I'm pleased with the contribution across the board, whether it was Rail North America, Rail Europe, India,

Robert C. Lyons: our engine leasing activities.

Robert C. Lyons: are tri-fleet. Everyone performed at a very high level this past year and I fully anticipate continuing this momentum through 2024.

Our Tri fleet, everyone performed at a very high level this past year and I fully anticipate continuing this momentum through 2024.

Robert C. Lyons: Our broad goals at GATX remain unchanged and they're very straightforward.

Robert C. Lyons: Our broad goals with <unk> remain unchanged and they are very straightforward.

Robert C. Lyons: Operate safely.

Operate safely.

Robert C. Lyons: grow our global businesses in a disciplined manner, be a good corporate citizen.

Robert C. Lyons: Grow our global businesses in a disciplined manner being a good corporate citizen.

Robert C. Lyons: Be good stewards of our shareholders' capital and generate an attractive risk adjusted return for our shareholders.

Robert C. Lyons: Be good stewards of our shareholders' capital and generate an attractive, risk-adjusted return for our shareholders.

Robert C. Lyons: And on that note, I'm pleased that in 2023, our total shareholder return was 15.2%.

Robert C. Lyons: And on that note I am pleased that in 2023, our total shareholder return was 15, 2%.

Robert C. Lyons: and very important to us, the 10-year return, because we think very long-term, the 10-year return was 11.4%.

Robert C. Lyons: And very important to us the 10 year return because we think very long term 10 year return was 11, 4%.

Robert C. Lyons: So looking back on 2023, and we came into the year expecting EPS in the range of $6 50 to $6 90 per diluted share.

Robert C. Lyons: So looking back on 2023, we came into the year expecting EPS in the range of 650 to 690 per diluted share.

Robert C. Lyons: As reported today, we exceeded that guidance, and it really boils down to a few factors.

As reported today, we exceeded that guidance and it really boils down to a few factors.

Robert C. Lyons: First, Rail North America's segment profit came in below our original expectations.

Robert C. Lyons: First rail North America's segment profit came in below our original expectations.

Robert C. Lyons: primarily due to increased demand and net maintenance expense in our shops. I'll go into more detail on that in a moment.

Primarily due to increased demand and.

Net maintenance expense in our shops I'll go into more detail on that in a moment.

Robert C. Lyons: but by every commercial metric.

Robert C. Lyons: But by every commercial metric.

Robert C. Lyons: such as the LPI, utilization, renewal success rate, and investment levels. We had a great year at Rail North America.

Robert C. Lyons: Such as the L. P I utilization renewal success rate and investment levels, we had a great year at rail North America.

Robert C. Lyons: Rail International performed in line with our positive expectations coming into the year.

Robert C. Lyons: Rail International performed in line with our positive expectations coming into the year.

Robert C. Lyons: and the biggest source of variance versus our expectations on the positive side were results at portfolio management, which incorporate all of our engine leasing activities.

Robert C. Lyons: And the biggest source of variance versus our expectations on the positive side were results at portfolio management.

Robert C. Lyons: Corporate all of our engine leasing activity.

Robert C. Lyons: The recovery in global air travel occurred much faster than original expectations, and our results reflected that.

The recovery in global Air travel occurred much faster than our original expectations and our results reflected that.

Robert C. Lyons: Looking specifically at Rail North America in 2023.

Robert C. Lyons: Looking specifically at rail North America in 2023.

Robert C. Lyons: First, the lease rate environment for existing rail cars was very favorable.

Robert C. Lyons: First the lease rate environment for existing railcars was very favorable.

Robert C. Lyons: Customers remain focused.

Robert C. Lyons: Customers remain focused.

Robert C. Lyons: On holding onto the cars that they had in their existing fleets and our commercial team did an outstanding job of it.

Robert C. Lyons: on holding on to the cars that they had in their existing fleets.

Robert C. Lyons: and our commercial team did an outstanding job of working closely with our customers to meet their needs. Lease revenues came in well ahead of expectations.

Robert C. Lyons: Working closely with our customers to meet their needs lease revenues came in well ahead of expectations.

Robert C. Lyons: Importantly, we were also able to establish lease terms in excess of 60 months on renewals.

Robert C. Lyons: Importantly, we were also able to establish lease terms in excess of 60 months on renewals.

Robert C. Lyons: meaning that we have locked in those committed, attractive, high-quality cash flows for years to come.

Robert C. Lyons: That we have locked in those committed attractive high quality cash flows for years to come.

Robert C. Lyons: While revenues came in ahead of our original expectations.

Robert C. Lyons: While revenues came in ahead of our original expectations,

Robert C. Lyons: Not by a large enough margin to offset the impact of increased maintenance expense and higher interest expense.

Not by a large enough margin to offset the impact of increased maintenance expense and higher interest expense.

Robert C. Lyons: The interest expense component was actually largely driven by a positive long term factor that being our investment volume was well ahead of plan.

Robert C. Lyons: The interest expense component was actually largely driven by a positive long-term factor, that being our investment volume was well ahead of plan.

Robert C. Lyons: We identified more attractive investment opportunities than expected. We executed on those, and I view this as continuing to build our foundation for the future.

Robert C. Lyons: We identified more attractive investment opportunities unexpected we executed on those and I view this as continuing to build our foundation for the future.

Robert C. Lyons: On the maintenance side demand for shop capacity and services was north of what we planned key.

Robert C. Lyons: On the maintenance side, demand for shop capacity and services was north of what we planned.

Robert C. Lyons: Key driver to that was we experienced a higher volume of cars due for regulatory service.

Robert C. Lyons: A key driver to that was we experienced a higher volume of cars do for regulatory service.

Robert C. Lyons: It is always really difficult to estimate exactly when those cars are going to come into the shop because the customer oftentimes controls that decision. And frankly, we undershot and underbudgeted for that in 2023.

Robert C. Lyons: It is always really difficult to estimate exactly when those cars are going to come into the shop because of the customer oftentime controls that decision and frankly, we undershot in under budgeted for that in 2023.

Robert C. Lyons: Additionally, and this is a net positive as reflected by our lease revenue performance this past year,

Robert C. Lyons: Additionally, and this is a net positive as reflected by our lease revenue performance this past year.

Robert C. Lyons: We ran the fleet at extremely high utilization. So any cars that were returned by customer A, for example,

Robert C. Lyons: We ran the fleet at extremely high utilization. So many any cars that were returned by customer a for example.

Robert C. Lyons: went through our shop and on to customer B very quickly.

Robert C. Lyons: Went through our shop and onto customer B very quickly.

Robert C. Lyons: Now, we incur a shopping event and cost when that occurs, but net-net, it's a positive as the car is back out on a long-term lease, earning revenue, instead of sitting idle for an extended period.

Robert C. Lyons: Now we encourage shopping event in cost when that occurs but net net it's a positive as the cars back out on a long term lease earning revenue instead of sitting idle for an extended period.

Robert C. Lyons: In summary, versus our expectations coming into the year.

Robert C. Lyons: In summary versus our expectations coming into the year.

Robert C. Lyons: Rail North America had higher lease revenue, which was offset by higher maintenance and interest

Robert C. Lyons: Rail North America at higher lease revenue, which was offset by higher maintenance and interest.

Speaker Change: We always get questions on remarketing income, too, so I'll just add that remarketing income came in generally in line with our expectations entering the year.

Robert C. Lyons: We always get questions on remarketing income too. So I will just add that remarketing income came in generally in line with our expectations entering the year.

Speaker Change: Demand for our rail cars in the secondary market was very robust, and we used the opportunity to continue optimizing the fleet.

Robert C. Lyons: Demand for our railcars in the second secondary market was very robust and we use the opportunity.

Robert C. Lyons: Opportunity to continue optimizing the fleet.

Robert C. Lyons: Looking at rail International segment profit was up nicely in 'twenty, three versus 22 and right in line with our expectations.

Speaker Change: Looking at Rail International, segment profit was up nicely in 23 versus 22 and right in line with our expectations.

Speaker Change: We saw a very strong demand for existing assets in Europe and India.

Robert C. Lyons: We saw very strong demand for existing assets in Europe and India.

Robert C. Lyons: But we were also able to invest close to $400 million across these markets a record level.

Speaker Change: But we were also able to invest close to $400 million across these markets, a record level.

Speaker Change: We continue to grow our European and Indian fleets.

Robert C. Lyons: We continue to grow our European and Indian fleets.

Speaker Change: and our teams there are operating at a very high level.

Robert C. Lyons: And our teams there are operating at a very high level.

Robert C. Lyons: As I mentioned, the largest source of outperformance from 'twenty three versus original expectations.

Speaker Change: As I mentioned, the largest source of our performance in 23 versus original expectations.

Speaker Change: was within our engine leasing activity.

Robert C. Lyons: It was within our engine leasing activities.

Robert C. Lyons: Global Air travel recovered in 2023 at a pace far quicker than any one planned.

Speaker Change: Global air travel recovered in 2023 at a pace far quicker than anyone planned.

Robert C. Lyons: As a result, we had higher engine utilization at our joint venture our RPF.

Speaker Change: As a result, we had higher engine utilization at our joint venture, our RPF.

Speaker Change: at higher than planned lease rates and fewer customer issues and bad debt expense.

Robert C. Lyons: At higher than planned lease rates and fewer customer issues and bad debt expense.

Speaker Change: Importantly, we're also seeing the income benefit from our direct investment in engines, and we made another direct investment in 2023 for $260 million.

Robert C. Lyons: Importantly, we're also seeing the income benefit from our direct investment in engines and we made another direct invest another direct investment in 2023 for $260 million.

Robert C. Lyons: These factors led to a sharp increase in.

Speaker Change: These factors led to a sharp increase.

Speaker Change: and Segment Profit within Portfolio Management.

Robert C. Lyons: And segment profit within portfolio management.

Robert C. Lyons: The last comment I'll make on 2023 is that we had a record year for investment volume exceeding $1 6 billion with every business segment contributing.

Speaker Change: The last comment I'll make on 2023 is that we had a record year for investment volume, exceeding $1.6 billion with every business segment contributing.

Speaker Change: Even in a rising interest rate environment, we were able to identify very attractive investment opportunities.

Robert C. Lyons: Even in a rising interest rate environment, we were able to identify very attractive investment opportunities.

Robert C. Lyons: And I would encourage everyone to keep in mind, we are acquiring 2030 and 40 year assets.

Speaker Change: and I'd encourage everyone to keep in mind we are acquiring 20, 30 and 40 year assets and I'm confident that these investments will provide our investors

Robert C. Lyons: I am confident that these investments will provide our investors.

Speaker Change: with a growing global platform with very attractive risk-adjusted returns.

Robert C. Lyons: With a growing global platform with very attractive risk adjusted returns.

Speaker Change: So I'm very pleased with 23, but I'm even more excited about where this positions us for 2024 and beyond. So let's get into 2024.

Robert C. Lyons: So I am very pleased with 23, but I'm, even more excited about where this positions us for 2024 and beyond so let's get into 2024.

Speaker Change: At Rail North America, we anticipate demand for the existing fleet will be solid, with utilization remaining in the 99% range.

Robert C. Lyons: At rail North America, we anticipate demand for the existing fleet will be solid with utilization remaining in the 99% range.

Speaker Change: We see renewal success continuing at the high levels experienced in 2023.

Robert C. Lyons: We see renewal success, continuing at the high levels experienced in 2023.

Speaker Change: and we anticipate the LPI will be in the range of plus 30% in 2024.

Robert C. Lyons: And we anticipate the <unk> will be in the range of plus 30% in 2024.

Speaker Change: Again, with very attractive terms attached.

Robert C. Lyons: Again with very attractive terms attached.

Speaker Change: Coupled with new additions to the fleet, we expect lease revenue to increase 80 to 90 million in 24, verse 23.

Robert C. Lyons: Coupled with new additions to the fleet, we expect lease revenue to increase $80 million to $90 million and 24 <unk> 23.

Speaker Change: Interest expense will continue to increase.

Robert C. Lyons: Interest expense will continue to increase reflecting the compounding effect of rising interest rates over the past 18 months and our growing asset base.

Speaker Change: reflecting the compounding effect of rising interest rates over the past 18 months and our growing asset base.

Speaker Change: So we see interest rates increasing $40 to $50 million at rail North America.

Robert C. Lyons: So we see interest rates interest rates, increasing 40% to $50 million at rail North America.

Speaker Change: in 2024.

Robert C. Lyons: In 2024.

Speaker Change: Net Maintenance Expense

Robert C. Lyons: Net maintenance expense.

Speaker Change: We anticipate a very modest increase in 2023. We will see some uptick in regulatory compliance work.

Robert C. Lyons: We anticipate a very modest increase in 2023.

Robert C. Lyons: We will see some uptick in regulatory compliance work.

Speaker Change: but also a benefit from overall shop operating efficiency.

Robert C. Lyons: But also a benefit from overall shop operating efficiencies. So therefore, we see net maintenance coming in flat to plus $10 million in the year ahead.

Speaker Change: So therefore, we see net maintenance coming in flat to plus $10 million in the year ahead.

Robert C. Lyons: As for Remarketing income, we again expect a very robust demand for our assets and in fact, we've seen <unk>.

Speaker Change: As for remarketing income, we again expect a very robust demand for our assets, and in fact, we've seen steady inquiries from potential buyers and a lot of interest in the packages that we've already taken out to market.

Robert C. Lyons: Eddie inquiries from potential buyers and a lot of interest in the packages that we've already taken out to market.

Speaker Change: Following a very busy calendar for asset sales in the past few years, in 2024, we currently expect to market slightly fewer cars, resulting in remarketing income being 10 to 20 million less than 23's level.

Robert C. Lyons: Following a very busy calendar for asset sales in the past few years and 2024, we currently expect to market slightly fewer cars, resulting in remarketing income being $10 million to $20 million less than 20 threes level.

Robert C. Lyons: This would place remarketing income in the $90 million to $100 million range for 2020 for a very solid year.

Speaker Change: This would place free marketing income in the $90 to $100 million range for 2024, a very solid year.

Speaker Change: I'll also add a bit of a disclaimer that this is another element of our forecast that's really hard to pinpoint.

Speaker Change: I'll also add a bit of a disclaimer that this is another element of our forecast that's really hard to pinpoint.

Speaker Change: The level of sales activity is always tough to gauge coming into a year, but as I said, from where we sit today, this is the best estimate, and as we always do, we'll try to keep you updated as the year progresses.

Speaker Change: The level of sales activities always tough to gauge coming into a year, but as I said from where we sit today. This is the best estimate and we as we always do we will try to keep you updated as the year progresses.

Speaker Change: The net result of all these factors, after incorporating some minor line items, is that we see segment profit at rail North America being up between $10 and $20 million.

Speaker Change: The net result.

Speaker Change: <unk> of all these factors after incorporating some minor line items is that we see segment profit at rail North America being up between 10 and $20 million.

Speaker Change: in 2024.

Speaker Change: In 2024.

Speaker Change: At Rail International, we expect segment profit up $10 to $15 million in 2024, with the main drivers being continued growth in our European lease fleet.

Speaker Change: At rail International we expect segment profit up $10 million to $15 million in 2024 with the main drivers being continued growth in our European lease fleet.

Speaker Change: and in India. In fact, in Europe, we will surpass 30,000 rail cars in our fleet this year.

Speaker Change: And in India in fact in Europe, we will surpassed 30000 railcars in our fleet this year.

Speaker Change: and we expect to see rising lease rates on many of those car types.

Speaker Change: And we expect to see rising lease rates on many of those car types.

Speaker Change: While the economic outlook in Europe is muted with.

Speaker Change: While the economic outlook in Europe is muted,

Speaker Change: With low single-digit GDP forecasts, demand for rail services continues to be solid.

Speaker Change: With low single digit GDP forecasts demand for rail services continues to be solid.

Speaker Change: In India, we have the benefit of GDP growth that's forecast to be in the high single digits, one of the strongest outlooks in the world.

Speaker Change: In India, we have the benefit of the GDP growth that is forecast to be in the high single digits, one of the strongest outlooks in the world.

Speaker Change: India is going to continue to build out its infrastructure, including roads, homes, hospitals, schools, government buildings, and so on.

Speaker Change: India is going to continue to build out its infrastructure, including roads homes hospitals schools government buildings and so on.

Speaker Change: and to do so

Speaker Change: And to do so.

Speaker Change: There will be a growing need for cement, steel, and other materials that move by rail. You couple that with the focus by the Indian Railway,

Speaker Change: There will be a growing need for cement steel and other materials that move by rail.

Speaker Change: Couple that with the focus by the Indian Railways to.

Speaker Change: continue building out dedicated freight rail capacity, and we should see strong fleet growth at GATX India.

Speaker Change: To continue building out dedicated freight rail capacity and.

Speaker Change: And we should see strong fleet growth at GH ex India.

Speaker Change: In fact.

Speaker Change: In fact,

Speaker Change: In 2024, GATX Rail India's fleet will likely go over the 10,000 rail car mark. Quite an achievement, given that we were the first rail car leasing company in India.

Speaker Change: In 2020 for Gatx's rail India's fleet will likely go over the 10000 railcar Mark quite an achievement given that we were the first railcar leasing company in India.

Speaker Change: and 10 years ago we had a fleet of just a few hundred cars and all the credit goes to our outstanding team in India.

Speaker Change: And 10 years ago, we had a fleet of just a few hundred cars and all the credit goes to our outstanding team in India.

Speaker Change: for our engine leasing investments within portfolio management.

Speaker Change: For our engine leasing investments within portfolio management.

Speaker Change: We expect to see strong demand as global air travel continues to recover to pre-pandemic levels and beyond.

Speaker Change: We expect to see strong demand as global Air travel continues to recover to pre pandemic levels and beyond.

Speaker Change: We're expecting segment profit.

Speaker Change: We're expecting segment profit.

Speaker Change: To be up $5 million to $15 million in 2024, and very nice performance, especially given the sharp increase we saw just this past year and 23 over the prior year.

Speaker Change: to be up $5 to $15 million in 2024, a very nice performance, especially given the sharp increase we saw just this past year in 23 over the prior year.

Speaker Change: Looking at SG&A, like most companies, we're experiencing rising labor costs.

Speaker Change: Looking at SG&A like most companies, we're experiencing experiencing rising labor costs.

Speaker Change: We pair that with a slight increase in headcount, which I'll point out is primarily to support our international growth.

Speaker Change: You pair that with a slight increase in head count, which I'll point out is primarily to support our international growth.

Speaker Change: and we're forecasting SG&A to be up between 10 and 15 million in the year ahead.

Speaker Change: And we are forecasting SG&A to be up between 10 and $15 million in the year ahead.

Speaker Change: We're entering the year on the heels of a record investment volume of $1.6 billion in 2023. The good news is, based on committed investments and opportunities we anticipate seeing during the year, we expect to be close to the same range in 2024.

Speaker Change: We're entering the year on the heels of a record investment volume of $1 6 billion in 'twenty three and base. The good news is based on committed investments and opportunities we anticipate seeing during the year, we expect to be close to the same range in 2024.

Speaker Change: That bodes very well.

Speaker Change: That bodes very well for.

Speaker Change: for 2024 and the years beyond.

Speaker Change: For 2024 and the years beyond.

Speaker Change: All of the factors just discussed form the basis of our current estimate of $7.30 to $7.70 per diluted share.

Speaker Change: All of the factors just discussed form the base of basis of our current estimate of $7 30 to $7 70 per diluted share.

Speaker Change: Before a closing comment, I'd like to mention the dividend. We routinely get asked about dividends on the January call.

Speaker Change: Before a closing comment I would like to mention the dividend we routinely get asked about dividends on the January call.

Speaker Change: Gatx's paid dividends continuously now for over 100 years, and we understand the importance of the dividend to our shareholders.

Speaker Change: GATX has paid dividends continuously now for over 100 years, and we understand the importance of the dividend to our shareholders.

Speaker Change: We have a regularly scheduled GATX board meeting this Friday, so please take a look for an announcement on the dividend on that day.

Speaker Change: We have a regularly scheduled <unk> board meeting this Friday. So please take a look for an announcement on the dividend on that day.

Speaker Change: Lastly,

Speaker Change: Lastly.

Speaker Change: GATX celebrated a couple of major milestones this past year, most notably our 125th anniversary and the 25th anniversary of our partnership with Rolls-Royce.

Speaker Change: <unk> celebrated a couple of major milestones this past year, most notably our 125th anniversary and the 25th anniversary of our partnership with Rolls Royce.

Speaker Change: GATX is a very different company, a far stronger company.

Speaker Change: <unk> is a very different company a far stronger company.

Speaker Change: than we were 125 years ago, 25 years ago, or even five years ago.

Speaker Change: Then we were 125 years ago, 25 years ago, or even five years ago.

Speaker Change: We continue to expand our global footprint and rail and we are the leading global lessor of rail assets.

Speaker Change: We continue to expand our global footprint in rail and we're the leading global lessor of rail assets.

Speaker Change: Contributions from Europe and India and rail add diversity and stability to our cash flow and our earnings.

Contributions from Europe, and India in rail add diversity and stability to our cash flow and our earnings.

Speaker Change: Likewise, our investments in aircraft engines have proven to be great additions to the GATX portfolio.

Speaker Change: Likewise, our investments in aircraft engines have proven to be great additions to the gtx portfolio.

Speaker Change: While the Covid era was a challenge.

Speaker Change: Well, the COVID era was a challenge.

Speaker Change: It proved once again that air travel is remarkably resilient.

It proved once again that air travel is remarkably resilient.

Speaker Change: aircraft engines are high quality service-based assets

Speaker Change: Aircraft engines are high quality service based assets that are a great store of value and with our partner Rolls Royce we enjoy a very unique and valuable position in the engine leasing market.

Speaker Change: that are a great store of value.

Speaker Change: and with our partner Rolls-Royce, we enjoy a very unique and valuable position in the engine leasing market.

Speaker Change: So our growing international rail businesses, along with our growing air aircraft engine investments.

Speaker Change: So our growing international rail businesses along with our growing aircraft engine investments.

Speaker Change: are outstanding compliments.

Our outstanding compliments to the leading rail leasing franchise, we have and will continue to grow in North America.

Speaker Change: to the leading rail leasing franchise we have and will continue to grow in North America.

Speaker Change: So thank you all for enduring my somewhat lengthy comments on 2023 and the outlook for 2024.

Speaker Change: So thank you all for enduring my somewhat lengthy comments on 2023 and the outlook for 2024.

Speaker Change: And with that, we will go to questions.

Speaker Change: And with that we will go to questions.

Speaker Change: Thank you. If you have a question, please press star 1 on your telephone keypad. To withdraw your question, simply press star 1 again.

Speaker Change: Thank you if you have a question. Please press star one on your telephone keypad to withdraw your question simply press Star one again.

Speaker Change: Your first question comes from the line of Justin Long with Stevens. Your line is open.

Speaker Change: Your first question comes from the line of Justin Long with Stephens. Your line is open.

Justin Long: Thanks, and good morning.

Justin Long: Thanks and good morning.

Justin Long: Good morning.

Justin Long: Good morning.

Justin Long: Maybe to start, I was wondering if you could share the absolute lease rate trend sequentially that you saw in the fourth quarter, and when we think about the LPI guidance to be in that 30% range, what does that assume for how lease rates will trend over the course of the year on a sequential basis?

Justin Long: Maybe to start I was wondering if you could share the absolute lease rate trends sequentially that you saw in the fourth quarter and when we think about DLP.

Operator: I will now turn the conference over to Shari Hellerman, Head of Investor Relations.

Justin Long: Guidance to be in that 30% range, what does that assume for how lease rates will trend over the course of the year on a sequential basis.

Shari Hellerman: Please go ahead.

Shari Hellerman: Thank you for joining GATX's 4th Quarter and 2023 Year-End Earnings Conference. I'm joined today by Bob Lyons.

Justin Long: Sure.

Justin Long: Sure, I'll take that. This is Paul Titterton. Thanks for the question. And what I would say broadly to start is lease rate performance in North America has been quite strong for quite some time right now. We are seeing in an absolute sense a relatively flat environment versus the prior quarter. But as indicated by the LPI, relative to expiring rates, we are expecting continued positive performance. And so overall, we would say in an absolute sense, the leasing market for most car types in North America remains quite strong.

Justin Long: I'll take that this is this is Paul and thanks for the question.

Shari Hellerman: President and Chief Executive Officer, Tom Ellman, Executive Vice President and Chief Financial Officer, and Paul Chitterton, Executive Vice President and President of Rail North America. 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. Please contact us for more information. Thank you, and those discussed in GATX's Form 10-K for 2022 and in our other filings with the SEC. GATX assumes no obligation to update or revise any forward-looking statements to reflect subsequent events or circumstances.

Paul: What I would say broadly to start is lease rate performance in North America has been quite strong for quite some time right now.

Paul: We are seeing an absolute sense.

Paul: Relatively flat environment versus the prior quarter.

Paul: But as indicated by the LTI.

Paul: Relative to expiring rates, we are expecting continued positive performance and so overall, we would say in an absolute sense the leasing market for most car types in North America remains quite strong.

Speaker Change: Got it. Thanks. And maybe one on the RRPS contribution in the fourth quarter. There was a pretty significant step up sequentially. I was wondering if you could break out that fourth quarter contribution between remarketing and just the core operating results. And maybe you could talk about those two buckets progressing in 2024 in terms of what you're baking into the guidance there.

Speaker Change: Got it thanks, and then maybe one on the Rps contribution in the fourth quarter. There was a pretty significant step up sequentially. I was wondering if you could breakout that fourth quarter contribution between remarketing and just.

Shari Hellerman: I'll provide a quick overview of our 2023 fourth quarter and four-year results, and then I'll turn it over to Bob for additional commentary on 2023 as well as our outlook for 2024. After that, we'll open the call up for questions. Earlier today, GATX reported 2023 fourth-quarter net income of $66 million, or $1.81 per doula share. This compares to 2022 fourth-quarter net income of $48.4 million, or $1.36 per doula share. The 2023 fourth quarter results include a net positive impact from tax adjustments and other items of $0.07 per diluted share. The 2022 fourth quarter results include a net negative impact from tax adjustments and other items of 18 cents per doula. For the full year 2023, GATX reported net income of $259.2 million, or $7.12 per doule. This compares to net income of $155.9 million, or $4.35 per doula share, in 2022. The 2023 full-year results include a net positive impact from tax adjustments and other items of $0.05 per doula share.

Speaker Change: Core operating results and maybe you could talk about those two buckets progressing in 2024 in terms of what you're baking into the guidance there.

Speaker Change: Yes, Hi, Justin this is Tom so what I would tell you is that for the fourth quarter. It was about 60% operating income about 40% remarketing.

Speaker Change: Yep. Hi, Justin. This is Tom. So what I would tell you is that for the fourth quarter, it was about 60% operating income, about 40% remarketing. As you know, having followed us for a long time, it's really difficult to predict exactly how that remarketing piece will move over the course of any given year. But something in the range that we saw for the full year, which was about 55% operating income and 45% remarketing, wouldn't be...

Speaker Change: As you know, having followed us for a long time, its really difficult to predict exactly how that.

Speaker Change: Remarketing piece will will move over the course of any given year.

Speaker Change: But something in the range that we saw for the full year, which was about 55% operating income and 45% remarketing wouldnt be unreasonable.

Justin Long: Okay, understood. I'll leave it there. Thanks for the time and congrats on the results.

Speaker Change: Okay understood I'll leave it there thanks for the time and congrats on the results.

Speaker Change: Thank you.

Thank you.

Speaker Change: Your next question comes from the line of Matt Elkott with TD Cowan. Your line is open.

Speaker Change: Your next question comes from the line of Matt Alcott with TD Cowen Your line is open.

Matt Elkott: Good morning, Thank you.

Matt Elkott: Good morning. Thank you.

Matt Elkott: I was wondering if you can talk about the addition

Matt Elkott: I was wondering if you can talk about the additions to the fleet in 2024, you see the <unk>.

Matt Elkott: to the fleet in 2024. Do you see the best opportunities in the secondary market or in the new car market?

Matt Elkott: Best opportunities in the secondary market or in the new car market.

Matt Elkott: So this is Paul. I'll take that again. And, you know, what I would say right now is overall, we've seen higher quality investment opportunities.

Matt Elkott: So this is Paul I'll take that again in what I would say right. Now is overall, we have seen higher quality investment opportunities in a variety of areas within rail North America. They are certainly had been opportunities in secondary markets and syndications that we've taken advantage of but I will also say and the primary market and our originations of new car leases were all.

Shari Hellerman: The 2022 four-year results include a net negative impact from tax adjustments and other items of $1.72 per doula to share. These items are detailed in the supplemental information section of the earnings release. In 2023, total investment volume was over $1.6 billion as we increased investment in Rail North America, Rail International, and our fully owned engine portfolio. In the coming year, leases for approximately 19,400 tank and freight cars and approximately 1,900 boxcars in North America are scheduled to be renewed. These renewal levels are similar to those we've had in recent years.

Paul: in a variety of areas within Rail North America. There certainly have been opportunities in secondary markets and syndications that we've taken advantage of, but I will also say in the primary market, in our originations of new car leases, we're also seeing very attractive opportunities. So really, from an investment standpoint in North America, there are quality opportunities both in primary originations and in secondary markets and syndications.

Matt Elkott: Also seeing very attractive opportunities so really from an investment standpoint in North America. The there are up quality opportunities both in primary originations in the secondary markets and syndications.

Speaker Change: Good to know. And then one question on India. You guys basically started this market for privately held.

Speaker Change: Got it and then one question on India, you guys were basically started this.

Market for.

Speaker Change: It's privately held.

Speaker Change: freight car lessors in India. Can you give us an update on the competitive landscape right now? Are you still the biggest operator there? Do you see interest from potential new entrants as the growth prospect proves to be strong and sustainable?

Freight car lessors in India.

Speaker Change: Can you give us an update on the competitive landscape right. Now are you still the biggest operator, there do you see interest from potential new entrants as the growth prospects proves to be.

Shari Hellerman: Lastly, as noted in the release, we expect 2024 earnings to be in the range of $730 to $770 per diluted share. With that, I will now turn the call over to Bob.

Strong and sustainable.

Thank you, Shari.

Speaker Change: Sure, Matt. It's Bob. We are far and away the largest private owner of rail cars in India. There are some other competitors.

Robert C. Lyons: Sure Matt its Bob.

And thank you all for joining the call today. For those of you that follow us closely, you know we are generally very brief in our opening remarks, but given that we're at year-end, we thought it would be helpful to spend a little bit more time.

Robert C. Lyons: We are far and away the largest private owner of railcars in India.

Robert C. Lyons: There are some other competitors.

Speaker Change: that periodically appear,

Robert C. Lyons: That periodically appear.

Speaker Change: but they don't have anything of size in terms of fleet.

Robert C. Lyons: But they don't have anything of size in terms of fleet.

So I appreciate you bearing with me as we go through some of the details.

Speaker Change: or from what we see a significant, you know, foothold in the marketplace. The one area we would compete.

Robert C. Lyons: Or from what we see is significant.

I'm going to provide some brief comments on 2023 performance versus the outlook we had coming into the year, and then I'll add some additional color to the 2024 guidance that was included in today's press release, but before diving in, first, I want to thank our employees for their focus and their effort this past year. In particular, these are employees who work in our maintenance network and who work in our shops, both in North America and Europe. Once again, they did an outstanding job in the face of very high demand for shop services, and I'm very pleased that our safety record in the shops in 2023 was excellent. Our shop management and employees continue to strive for efficiency while focusing on safety, and that's what matters most. So, a thank you to all of our employees on the shop floor who really make this company tick. Looking more broadly at our business segment performances, I'm pleased with the contribution across the board, whether it was Rail North America, Rail Europe, India, or our engine leasing activities, which are tri-fleet.

Robert C. Lyons: Foothold in the marketplace, but one area we would compete.

Speaker Change: So I don't want to give you the impression that it's just unfettered prospects because our customers have alternatives, and one of those would be bank financing.

Robert C. Lyons: So I don't want to give you the impression that it's just.

Robert C. Lyons: Unfettered.

Robert C. Lyons: Prospects because there is.

Robert C. Lyons: Our customers have alternatives and one of those would be bank financing.

Speaker Change: or owning the assets outright themselves. These are big, formidable, you know, large,

Robert C. Lyons: Or owning the assets outright themselves. These are big formidable large.

Speaker Change: entities. So they can buy as well, just like here in North America.

Robert C. Lyons: Entities, so they can buy as well just like here in North America.

Speaker Change: But from a leasing standpoint, we are far and away the largest and I think generally recognized as the leader and certainly recognized by the Indian Railway.

Robert C. Lyons: But from a leasing standpoint, we are far and away the largest and I think generally recognized as the leader in certainly recognized by the Indian railway.

Speaker Change: as the most advanced in the market.

Robert C. Lyons: As the most advanced in the market.

Speaker Change: Okay, so it's more of a question of how much traction the business model you guys introduced into the market gets versus other ways of acquiring assets.

Speaker Change: Okay. So it's more of a question of how much traction the business model and you guys introduced into the into the market guests versus other ways of acquiring assets.

Speaker Change: That's good to know. And I think you mentioned, just a quick clarification, you mentioned over 10,000 cars at the end of 2024, you think your Indian fleet will be? Yes, if we meet our investment targets for this year, that would be the expectation.

Speaker Change: That's good to know so.

Speaker Change: I think you mentioned just the quick clarification, you mentioned over 10000 cars at the end of 2024, you think your Indian fleet will be yes.

Speaker Change: Yes, if we meet our investment targets for this year.

Speaker Change: That would be the expectation.

Speaker Change: What about the overall fleet globally in Europe and in the U S. Do you expect that to grow as well at the end of 'twenty four.

Speaker Change: What about the overall fleet globally in Europe and in the U.S.? Do you expect that to grow as well at the end of 24?

Everyone performed at a very high level this past year, and I fully anticipate continuing this momentum through 2024.

Speaker Change: India we would expect for sure because it continues to be such a growing market and in fact in certain card types the Indian Railway has pretty sizable orders in to expand its own fleet.

Speaker Change: India, We would expect for sure because it's continues to be such a.

Our broad goals at GATX remain unchanged, and they're very straightforward: operate safely, grow our global businesses in a disciplined manner, and be a good corporate citizen.

Speaker Change: A growing market and in fact in fact in certain car types. The Indian railway has pretty sizeable orders and to expand its own fleet.

Speaker Change: The issue really in India is not so much as the growth there, it's the ability to get the wagons.

Speaker Change: The issue really in India is not so much as the growth there, it's the ability to get the wagons.

We will be good stewards of our shareholders' capital and generate an attractive, risk-adjusted return for our shareholders. And on that note, I'm pleased that in 2023, our total shareholder return was 15.2%, and, very important to us, the 10-year return, because we think very long-term. The 10-year return was 11.4%.

Speaker Change: and to continue to diversify into different card types and different customers.

Speaker Change: And to continue to diversify into different car types and different customers.

Speaker Change: The growth pool, you know, based on the prospects today is there.

Speaker Change: The growth will based on the prospects today is there.

Speaker Change: The European market is a little bit more, I would say, akin to North America in terms of maturity. So we wouldn't anticipate any and are certainly not banking on any significant growth in the overall fleet in Europe.

Speaker Change: The European market is a little bit more I would say it came to North America in terms of maturity.

Speaker Change: So we wouldn't anticipate any and are certainly not banking on any significant.

So looking back on 2023, we came into the year expecting EPS in the range of 650 to 690 per diluted share.

Speaker Change: Growth in the overall fleet in Europe.

Speaker Change: Thank you very much, Bob. Thanks, everyone.

Speaker Change: Got it thank you very much Bob thanks, everyone.

As reported today, we exceeded that guidance, and it really boils down to a few factors. First, Rail North America's segment profit came in below our original expectations, primarily due to increased demand and net maintenance expense in our shops. I'll go into more detail on that in a moment, but by every commercial metric, such as the LPI, utilization, renewal success rate, and investment levels, we had a great year at Rail North America. Rail International performed in line with our positive expectations coming into the year, and the biggest source of variance versus our expectations on the positive side were results in portfolio management, which included all of our engine leasing activities. The recovery in global air travel occurred much faster than original expectations, and our results reflected that. Looking specifically at Rail North America in 2023, first, the lease rate environment for existing rail cars is very favorable. Customers remain focused on holding on to the cars that they have in their existing fleets, and our commercial team did an outstanding job of working closely with our customers to meet their needs.

Speaker Change: Your next question comes from the line of Allison Poliniak.

Speaker Change: Your next question comes from the line of Allison Pardon me.

Allison Poliniak: Poliniak with Wells Fargo. Your line is open.

Allison: Linea <unk> with Wells Fargo. Your line is open.

Allison Poliniak: Hi, good morning. Maybe starting bigger picture, you know, utilization, this is focused on rail in North America. Utilization is really high. You know, you have the rails improving service, really focused on trying to capture growth. We'd just love to get your perspective. I guess, one, you know, do you think the equipment market is investing enough at this point, just given where utilization is for that potential inflection? And then, two, I guess, how is GATX sort of managing that potential dynamic? Just anything.

Allison: Hi, good morning.

Allison: Starting bigger picture utilization. This is Lucas on rail North America, Italy, Utilizations really high any of the rails, improving sarbanes really focused on trying to capture growth would just love to get your perspective against one.

What do you think the market the equipment markets investing enough at this point, just given where utilization is for that potential inflection and then two I guess, how would how does gtx sort of managing that potential dynamic just any thoughts there. Thanks.

Allison Poliniak: Sure. So it's a good question, Allison. This is Paul. I'll take that. So, you know, what I would say right now is investment continues at a kind of slightly above replacement pace in North America overall. So with core car loads, we measure them maybe low single-digit percentage year over year. You know, that's an investment pace that should be adequate to keep pace with demand in the context of somewhat improving service. And I will say, indeed, we hear from our customers that service is improving, and the metrics of dwell time and velocity that are reported would bear that out. So, you know, with modest growth, modest service improvements, and a modest level of investment, that speaks to a pretty balanced market. One of the nice things about the market that we see right now, frankly, is unlike past tight rail car markets, we haven't seen that enormous build wave. You know, if we look back at the ethanol boom or the crude boom. We saw build years where the industry would produce upwards of 80,000 cars, and then there would be a huge hangover after that excess production. You know, this tight market, we're seeing industry-wide production in North America, you know, top out in the 40s. And so that speaks to, I think, a much more balanced, much more disciplined market, which, you know, should be good for all parties.

Speaker Change: Sure so.

Speaker Change: Good question Allison. This is Paul I'll take that so what I would say right. Now is investment continues at a kind of slightly above replacement pace in North America overall so.

Paul: With core carloads, when we measure them up maybe low single digit percentage year over year.

Paul: That's an investment pace that shouldnt be adequate to keep pace with demand in the context of somewhat improving service and I will say indeed, we hear from our customers that service is improving and the metrics of dwell time and velocity that are reported.

Paul: Would would bear that out so with modest growth modest service improvements at a modest level of investment.

Lease revenues came in well ahead of expectations. Importantly, we were also able to establish lease terms in excess of 60 months on renewals, meaning that we have locked in those committed, attractive, high-quality cash flows for years to come. While revenues came in ahead of our original expectations, not by a large enough margin to offset the impact of increased maintenance expense and higher interest expense. The interest expense component was actually largely driven by a positive long-term factor, that being our investment volume was well ahead of plan. We identified more attractive investment opportunities than expected.

Paul: Speaks to a pretty balanced market one of the nice things about the market that we see right. Now frankly is unlike past tight railcar markets. We haven't seen that enormous build wave. If we look back at the ethanol boom of the crude boom, we saw build years, where the industry can produce upwards of 80000 cars and then there would be a huge hangover after that excess production.

Paul: This tight market, we're seeing industry wide production in North America, and a top out in the <unk> and so that speaks to I think a much more balanced and much more disciplined market, which should.

Paul: It should be good for all participants.

Speaker Change: Got it. Thank you. That's helpful. And then on other revenue around North America, Bob, I know you mentioned sort of the speed to get sort of those cars back on lease and so forth. Should we expect that to be elevated again in 24? Like, how should we be thinking that? Sorry if

Speaker Change: Got it. Thank you that's helpful and then on other revenue in North around North America, Bob I know, you mentioned sort of the speed to get cars back on Liza four should we expect that to be elevated again in 'twenty four and like how should we be thinking that sorry, if I missed any commentary there.

We executed on those, and I view this as continuing to build our foundation for the future. On the maintenance side, demand for shop capacity and services was north of what we planned. The key driver for that was we experienced a higher volume of cars due for regulatory service. It is always really difficult to estimate exactly when those cars are going to come into the shop because the customer often controls that decision. And frankly, we undershot and underbudgetted for that in 2023. Additionally, and this is a net positive as reflected by our lease revenue performance this past year, we ran the fleet at extremely high utilization. So any cars that were returned by customer A, for example, went through our shop and on to customer B very quickly.

Speaker Change: Are you speaking specifically to the other revenue line in the other revenue sorry, yes, yes, we're not anticipating any significant growth any any out.

Speaker Change: Are you speaking specifically to the other revenue line? Yeah, the other revenue, sorry. Yeah, we're not anticipating any significant growth, you know, any abnormal growth in that line item in 2024. It should grow right along in line with lease revenue. Yeah, and Allison, just to put some perspective on that, really what you need to do is look at that in conjunction with the maintenance line. So really I'd guide you to Bob's comments on net.

Speaker Change: Normal growth in that line item in 2024 should grow right along in line with lease revenue.

Speaker Change: And Alison just to put some perspective on that really what you need to do is look at that in conjunction with the maintenance line. So really I'd guide you to Bob's comments on net maintenance.

Speaker Change: The biggest component of other revenue is essentially repairs billed back to the customer.

Somewhere between flat and up 10 million, yes, the biggest component of other revenues is.

Speaker Change: Essentially repair is billed back to the customer.

Speaker Change: Got it. Thank you.

Speaker Change: Got it thank you.

Speaker Change: Your next question comes from the line of Bascom Majors with Susquehanna. Your line is open.

Speaker Change: Your next question comes from the line of Glasgow Majors with Susquehanna. Your line is open.

Now, we incur a shopping event and cost when that occurs, but net-net, it's a positive as the car is back out on a long-term lease, earning revenue, instead of sitting idle for an extended period. In summary, versus our expectations coming into the year. Rail North America had higher lease revenue, which was offset by higher maintenance and interest. We always get questions on remarketing income, too, so I'll just add that remarketing income came in generally in line with our expectations entering the year. Demand for our rail cars in the secondary market was very robust, and we used the opportunity to continue optimizing the fleet. Looking at Rail International, segment profit was up nicely to 23 versus 22 and right in line with our expectations.

Bascom Majors: Thanks for taking my questions. Going back to your thoughts on the North American secondary market and a very high level of P&L from that historically, but a little downfall.

Thanks for taking my questions.

Glasgow Majors: Back to your thoughts on the North American secondary market.

Glasgow Majors: Very high level of P&L from that historically, but a little down from where you were last week can you talk a little bit maybe qualitatively about the depths of the market the buyers and just.

Bascom Majors: can you talk a little bit maybe qualitatively about the depth of the market the buyers and just you know anecdotally how that feels today versus how it's felt over the last couple of years and then you know maybe a little more precisely just

Glasgow Majors: Anecdotally, how that feels today versus how its felt over the last couple of years and then maybe a little more precisely just any thoughts on how that profit assumption correlates to your plan to sell fewer railcars or is it really just.

Bascom Majors: Any thoughts on how that profit assumption correlates to your plan to sell fewer rail cars or is it really just the gains on individual units coming down a little bit from where they were in the last few quarters?

Glasgow Majors: The gains on individual units.

Glasgow Majors: Coming down a little bit from where they were in the last few quarters. Thank you.

Bascom Majors: Sure. So this is Paul. I'll take that. And yeah, I mean, bottom line for the secondary market is it has been robust.

Glasgow Majors: Sure. So this is Paul I'll take that and yes, I mean.

We saw very strong demand for existing assets in Europe and India, but we were also able to invest close to $400 million across these markets, a record level. We continue to grow our European and Indian fleets, and our teams there are operating at a very high level. As I mentioned, the largest source of our performance in 23 versus original expectations was in our engine leasing activity. Global air travel recovered in 2023 at a pace far quicker than anyone had planned.

Paul: Bottom line for the secondary market is it has been robust and it continues to be robust we continue to see.

Speaker Change: Thank you very much.

Paul: A large number of participants on the buy side a lot of depth.

And whenever we see packages, whether it's our own packages or other packages in the market.

Paul: The response has continued to be robust, and we anticipate that robustness continuing. You know, to the second part of your question, really, for us, we're trying to make good portfolio decisions, and so, ultimately, we're really looking at the economics of the transaction more than we are the accounting gains. We're really trying to optimize the portfolio, either from a credit or asset or market or term standpoint, and really, we're using those sales in the secondary markets to balance out that portfolio and ensure we've got a diverse and attractive portfolio along all of the dimensions that I just mentioned.

Paul: The response has continued to be robust.

Paul: And we anticipate that robustness continuing.

Paul: To the second part of your question really for US we're trying to make good portfolio decisions and so ultimately we're really looking at the economics of the transaction more than we are the accounting gains were really trying to optimize the portfolio either from a credit or asset or market or term standpoint, and really were.

As a result, we had higher engine utilization at our joint venture, our RPF, at higher than planned lease rates and fewer customer issues and bad debt expense.

Paul: Using those sales in the secondary markets to balance out that portfolio and ensure we've got a diverse and attractive.

Importantly, we're also seeing the income benefit from our direct investment in engines, and we made another direct investment in 2023 for $260 million. These factors led to a sharp increase in revenue and Segment Profit within Portfolio Management. The last comment I'll make on 2023 is that we had a record year for investment volume, exceeding $1.6 billion with every business segment contributing. Even in a rising interest rate environment, we were able to identify very attractive investment opportunities, and I'd encourage everyone to keep in mind that we are acquiring 20, 30 and 40-year assets, and I'm confident that these investments will provide our investors with a growing global platform with very attractive risk-ad So I'm very pleased with 23, but I'm even more excited about where this positions us for 2024 and beyond.

Paul: <unk> portfolio of them all.

All of the dimensions that I just mentioned.

Speaker Change: Yeah, asking my dad, you know, we did come into this year, I think, into 2023, that is.

Paul: Bascom I'd add we did come into this year I think.

Paul: Into 2023 that is <unk>.

Speaker Change: Feeling in a rising interest rate environment that the secondary market condition was probably more uncertain.

Paul: Feeling whether in a rising interest rate environment that the secondary market condition was probably more uncertain.

Speaker Change: but it remained really strong throughout the entire year. Continues to be strong and I think it's

But it remained really strong throughout the entire year.

Continues to be strong.

Paul: Think its speaks to the quality of the underlying asset.

Speaker Change: Thank you for joining us.

Paul: Railcars are proven over time to.

Speaker Change: to be great stores of value and very good assets to hold long term. So even with interest rates up where we thought, well, maybe the buyer universe would shrink a little bit,

Paul: It'd be great stores of value and very good assets to hold long term, so even with interest rates up where we thought well maybe the buyer universe would shrink a little bit.

Speaker Change: Still there, still great depth.

Paul: Still there still great depth still a lot of a lot of activity.

Speaker Change: There's still a lot of activity.

Paul: I appreciate the responses on both of those.

Speaker Change: I appreciate the responses on both of those.

Speaker Change: I believe you mentioned that you expected to put a similar amount of capital to work this year from where you sit today as you did last year.

So let's get into 2024. At Rail North America, we anticipate demand for the existing fleet will be solid, with utilization remaining in the 99% range. We see renewal success continuing at the high levels experienced in 2023, and we anticipate the LPI will be in the range of plus 30% in 2024, again, with very attractive terms attached. Coupled with new additions to the fleet, we expect lease revenue to increase 80 to 90 million in 24, verse 23. Interest expense will continue to increase, reflecting the compounding effect of rising interest rates over the past 18 months and our growing asset base. So we see interest rates increasing $40 to $50 million at rail North America in 2024. Net Maintenance Expense, We anticipate a very modest increase in 2023.

Paul: I believe you mentioned that you expected to put a similar amount of capital to work. This year from where you sit today as you did last year, which was.

Speaker Change: 1.6, 1.7 billion, a fairly large number. Can you talk a little more about the opportunities you see? I think it was maybe 60% of that went to North America, 20-25% international, and the rest in some of your other businesses. Is your opportunity set in where you see investments?

Paul: Thank you $1 six $1 7 billion a fairly large number can you talk about about a little more about the opportunities you see I think it was maybe 60% of that when the North America, 2025% International and the rest in some of your other businesses. It was your opportunity set and where you see investments this year look a lot different than.

Speaker Change: This year looked a lot different than what we've seen over the last 12 to 18 months.

Paul: What we've seen over the last 12 to 18 months.

Speaker Change: Yeah, it's not a lot different, Bascom. In fact, it's pretty similar to what we saw this year, whether it would be at...

Paul: Yes, it's not a lot different basket.

Paul: In fact.

Paul: Pretty similar to what we saw this year, whether it would be at.

Speaker Change: Within GATX engine leasing, that's within portfolio management. We invested about $267 million this past year for 10 engines. We were anticipating being right in that same range.

Paul: Within Gatx's engine leasing thats within portfolio management, we invested about $267 million. This past year for 10 engines, we were anticipating being right in that same range.

Speaker Change: and based on the outlook we have for Rail North America and internationally, those markets should be very similar to where we were last year. Rail North America was north of $970 million.

Paul: Based on the outlook, we have for rail North America and internationally those markets should be very similar to where we were last year at rail North America was north of $970 million.

We will see some uptick in regulatory compliance work but also a benefit from overall shop operating efficiency. So, therefore, we see net maintenance coming in flat to plus $10 million in the year ahead. As for remarketing income, we again expect a very robust demand for our assets, and, in fact, we've seen steady inquiries from potential buyers and a lot of interest in the packages that we've already taken out to market. However, following a very busy calendar for asset sales in the past few years, in 2024, we currently expect to market slightly fewer cars, resulting in remarketing income being 10 to 20 million less than 23. This would place free marketing income in the $90 to $100 million range for 2024, a very solid year. I'll also add a bit of a disclaimer that this is another element of our forecast that's really hard to pinpoint.

Speaker Change: You know, maybe it's not right on top of that number, but it's certainly in that neighborhood.

Paul: Maybe it's not right on top of that number, but it's certainly in that neighborhood.

Speaker Change: and then GRE, GATX, Royal Europe and India were both about combined about 400.

Paul: And then GRE, our Gtx rail Europe, and India were both about combined about 400.

Speaker Change: We're looking at about the same again this year.

Paul: We're looking at about the same again this year yes.

Speaker Change: Yeah, and Bascom, I'd just remind you of Bob's comments of some of the challenges of getting the assets, particularly in India. That's one of the things that causes us to have a little uncertainty on exactly how

Speaker Change: Yes, and basket about just remind you of Bob's comments of some of the challenges of getting the assets, particularly in India. So that's one of the things that causes us to have a little.

Speaker Change: A little uncertainty on exactly how much we can do.

Speaker Change: Lastly on that do you see any more assets, where you could start to build a platform.

Speaker Change: Lastly on that, do you see any more assets where you could start to build a platform?

Speaker Change: Maybe invest in assets related to what you've done before but aren't markets you're currently in or...

Speaker Change: Maybe invest in assets related to what you've done before with our markets you're currently in or.

Speaker Change: Do we expect it to look a lot more like it has looked.

Speaker Change: Do we expect it to look a lot more like it has looked pretty early?

The level of sales activity is always tough to gauge coming into a year, but as I said, from where we sit today, this is the best estimate, and as we always do, we'll try to keep you updated as the year progresses. The net result of all these factors, after incorporating some minor line items, is that we see segment profit at rail North America being up between $10 and $20 million in 2024. At Rail International, we expect segment profit to be up $10 to $15 million in 2024, with the main drivers being continued growth in our European lease fleet and in India. In fact, in Europe, we will surpass 30,000 rail cars in our fleet this year, and we expect to see rising lease rates on many of those car types. While the economic outlook in Europe is muted, with low single-digit GDP forecasts, demand for rail services continues to be solid. In India, we have the benefit of GDP growth that's forecast to be in the high single digits, one of the strongest forecasts in the world.

Speaker Change: Per your earlier comments.

Speaker Change: Well, our focus on long-lived, widely used assets with a service component where you need intense asset knowledge to succeed will not change.

Speaker Change: While our focus on long lived widely used assets, where the service component, where you need intense asset knowledge to succeed will not change.

Speaker Change: We see pretty much every M&A opportunity out there remotely related to the leasing world.

Speaker Change: We see pretty much every M&A opportunity out there.

Speaker Change: Remotely related to the leasing world.

Speaker Change: But you have to pass those four criteria because that's what works for GATX. That's where we generate the best return for our shareholders.

Speaker Change: But you have to pass those four criteria because thats what works for Gatx's, Thats, where we generate the best return for our shareholders. We.

Speaker Change: We did add Tri-Fleet, one of the largest tank container lessors in the world, a few years ago to the portfolio.

Speaker Change: We did add try fleet the largest one of the larger tank container lessors in the world a few years ago to the portfolio.

Speaker Change: That asset meets all of those criteria. It's a good platform that's scalable, but we continue to integrate that into our operations overall.

Speaker Change: That asset meets all of those criteria. It's a good platform that's scalable.

Speaker Change: But we continue to integrate that into our.

Speaker Change: Into our operations overall.

Speaker Change: Bye.

Speaker Change: But we.

Speaker Change: We pass on far more than we pursue, and that will not change. That discipline won't change.

Speaker Change: Now we pass on far more than we pursue.

Speaker Change: And that will not change that discipline and won't change.

Speaker Change: and with a billion six of investment volume this past year,

Speaker Change: And with $1 billion of investment volume this past year.

Speaker Change: and a similar outlook for 2024, there's a lot of opportunity for us right in the markets we're in today.

And a similar outlook for 2024.

A lot of opportunity for us right in the markets we're in today.

Unnamed Speaker: India is going to continue to build out its infrastructure, including roads, homes, hospitals, schools, government buildings, and so on, and to do so, there will be a growing need for cement, steel, and other materials that move by rail. You couple that with the focus by the Indian Railways on building out dedicated freight rail capacity, and we should see strong fleet growth at GATX India. In fact, In 2024, GATX Rail India's fleet will likely go over the 10,000 rail car mark. Quite an achievement, given that we were the first rail car leasing company in India, and 10 years ago, we had a fleet of just a few hundred cars, and all the credit goes to our outstanding team in India for our engine leasing investments within portfolio management.

Speaker Change: Thank you for the time.

Speaker Change: Thank you for the time.

Speaker Change: Yes.

Speaker Change: Yes.

Speaker Change: Your next question comes from the line of Justin Berkner with Gabelli Fund. Your line is open.

Speaker Change: Your next question comes from the line of Justin Bergner with Gabelli funds. Your line is open.

Justin Long: Good morning, Bob.

Good morning, Bob Tom Paul and Sherry.

Speaker Change: Paul and Shari

Speaker Change: Morning, morning.

Justin Bergner: Good morning, good morning.

Speaker Change: First question relates to the secondary market.

Justin Bergner: First question relates to the secondary market.

Justin Bergner: On the one hand, you are indicating the secondary market is strong and pricing is strong on the other hand, youre seeing a lot of opportunities to put money to work. So can you just sort of reconcile those.

Paul: On the one hand, you're indicating the secondary market is strong.

Speaker Change: Thank you for joining us.

Speaker Change: you sort of reconcile

Speaker Change: Thank you.

Two aspects of the market.

Speaker Change: Yeah, I mean, really, for us, it comes down to portfolio management. As I said earlier, we're using the secondary market to optimize our portfolio. And at the same time, the fact that we're able to generate attractive both economic and book gains in the secondary market doesn't change the fact that there is also high-quality investment available to us on the buy side. And so, really, for us, every decision we make, whether it's to sell into the secondary market or to originate in the primary market or buy in the secondary market, we're making that on the basis of deploying and harvesting our shareholders' capital in the optimal way possible. And so, in the current market right now, on the sell side, we are certainly seeing lots of attractive opportunities where the market is valuing certain parts of our portfolio on the buy side higher than we value it on the hold side. At the same time, we're seeing tremendous opportunity to put capital to work. Where there are attractive returns available. So, you know, that's really the mindset we have. We're constantly looking at ways to optimally deploy and harvest our shareholder capital.

Justin Bergner: Yes.

Speaker Change: For us it comes down to portfolio management as I said earlier, we're using the secondary market to optimize our portfolio.

Speaker Change: And at the same time, the fact that we're able to generate attractive both economic and book gains in the secondary market doesn't change. The fact that there is also high quality investment available to us on the buy side and so really for US every decision, we make whether it's to sell into the secondary market or to originate in the primary market or buy in the secondary market, we're making that.

Unnamed Speaker: We expect to see strong demand as global air travel continues to recover to pre-pandemic levels and beyond. We're expecting segment profit to be up $5 to $15 million in 2024, a very nice performance, especially given the sharp increase we saw just this past year of 23 over the prior year. Looking at SG&A, like most companies, we're experiencing rising labor costs. We pair that with a slight increase in headcount, which I'll point out is primarily to support our international growth, and we're forecasting SG&A to be up between 10 and 15 million in the year ahead. We're entering the year on the heels of a record investment volume of $1.6 billion in 2023.

Speaker Change: On the basis of deploying and harvesting our shareholders' capital and the optimal way possible and so in the current market right now on the sell side. We are certainly seeing lots of attractive opportunities where the market is valuing certain parts of our portfolio on a buy on the buy side higher than we value. It on a whole side at the same time, we're seeing tremendous opportunity to put capital to work.

Speaker Change: Where there are attractive returns available so.

Speaker Change: That's really the mindset, we have we're constantly looking at ways to optimally deploy and harvest our shareholder capital and on the buy side and the sell side, Hey, Justin and also I would remind you that we have the most diversified fleet in the industry and some we've talked about before is the car types. We're selling are not the car types we're buying.

Speaker Change: on the buy side and the sell side. Hey, Justin, and also I would remind you that we have the most diversified fleet in the industry, and something we've talked about before is, you know, the car types we're selling are not the car types.

Unnamed Speaker: The good news is, based on committed investments and opportunities we anticipate seeing during the year, we expect to be close to the same range in 2024. That bodes very well for 2024 and the years beyond. All of the factors just discussed form the basis of our current estimate of $7.30 to $7.70 per diluted share. Before a closing comment, I'd like to mention the dividend.

Okay got it so.

Justin: Okay, got it.

Justin: Is it?

Is it.

Justin: are you buying a very balanced set of car types and selling more specific?

Are you buying a very balanced set of car types and selling more specific.

Justin: and a set of car types or

Speaker Change: Set of car types or.

Justin: and many more.

Both very tailored to specific.

Justin: I would say they're both very tailored to specifics.

Speaker Change: Yes, I would say, they're both very tailored to specific.

Unnamed Speaker: We routinely get asked about dividends on the January call. GATX has paid dividends continuously now for over 100 years, and we understand the importance of the dividend to our shareholders. We have a regularly scheduled GATX board meeting this Friday, so please take a look for an announcement on the dividend on that day. Lastly, GATX celebrated a couple of major milestones this past year, most notably our 125th anniversary and the 25th anniversary of our partnership with Rolls-Royce.

Justin: and keep in mind too, you know, when we're in the market on the sell side, we're typically selling in very small lots.

Speaker Change: And keep in mind too we're in the market.

Speaker Change: On the sell side, we're typically selling in very small lots.

Justin: We don't sell 2,000 cars at a time or 1,000 cars at a time. It tends to be 50 or 100.

Speaker Change: We don't sell 2000 cars at a time or 1000 cars at a time it tends to be 50 or 100.

Justin: and so it's very

Speaker Change: And so it's very.

Justin: Very targeted, very specific. And with a fleet our size, we can do that. And with the diversity we have, we can do that. We can really pick and choose. Likewise, on the buy side.

Speaker Change: Very targeted very specific and with a fleet our size, we can do that and with the diversity. We have we can do that we can really pick and choose likewise on the buy side.

Justin: We don't have to buy anything.

Speaker Change: We don't have to buy anything.

Justin: That's always a good position. I always like being in that position.

Speaker Change: That's always a good position I always like being in that position. We don't have to buy anything we don't need anybody's customer base or platform or anything else. What we're looking for is a very targeted.

Justin: We don't have to buy anything. We don't need anybody's customer base or platform or anything else. What we're looking for is a very targeted...

Unnamed Speaker: GATX is a very different company, a far stronger company, than we were 125 years ago, 25 years ago, or even five years ago. We continue to expand our global footprint in rail, and we're the leading global lessor of rail assets. Contributions from Europe and India and rail add diversity and stability to our cash flow and our earnings. Likewise, our investments in aircraft engines have proven to be great additions to the GATX portfolio. Well, the COVID era was a challenge.

Justin: Asset type.

Speaker Change: Asset type.

Justin: and we saw some of those opportunities last year.

Speaker Change: And we're seeing we saw some of those opportunities last year.

Justin: and we think we'll continue to see some of those this year. I'll let Paul add anything to that he wants. Yeah, and I will just say, too, I mean, that's really the advantage of having such a liquid secondary market and so many participants within the North American secondary market is you're going to have different participants that have different appetites for different assets. A great example is assets trending towards end of life where there may be smaller lessors that specialize in those assets where we may decide we're going to be in harvest mode there and some of those buyers may offer us very attractive pricing. We will then reinvest the proceeds in modern, either new or nearly new assets that fit our long-term portfolio approach. And that's just one example of the many ways we think about buying and selling.

Speaker Change: And we are we think we will continue to see some of those this year and I'll, let Paul add anything to that he wants yes, and I will just say to I mean, that's really the advantage of having such a liquid secondary market in so many participants within the North American secondary market as.

Paul: Youre going to have different participants that have different appetites for different asset is a great example is assets trending towards end of life or there may be smaller lessors that specialize in those assets, where we may decide we're going to be in harvest mode. There in some of those buyers may offer us very attractive pricing. We will then reinvest the proceeds in modern either.

Unnamed Speaker: It proved once again that air travel is remarkably resilient, aircraft engines are high-quality service-based assets that are a great store of value, and with our partner Rolls-Royce, we enjoy a very unique and valuable position in the engine leasing market. So our growing international rail businesses, along with our growing aircraft engine investments, are outstanding compliments to the leading rail leasing franchise we have and will continue to grow in North America.

Paul: New or nearly new assets that fit our long term portfolio approach and that's just one example of the many ways, we think about buying and selling.

Speaker Change: Got it. Thank you for that.

Speaker Change: Got it thank you for that.

Speaker Change: On the Rolls-Royce joint venture,

Speaker Change: On the Rolls Royce joint venture.

Speaker Change: How does the 55% operate?

How does the 55% operating income versus 45% remarketing income mix that you saw this or in 2023 and expect to see in 2024 compared to longer term.

Speaker Change: versus 45% Remark.

Speaker Change: saw this or

Unnamed Speaker: So, thank you all for enduring my somewhat lengthy comments on 2023 and the outlook for 2024. And with that, we will go to questions.

Speaker Change: Yes.

Speaker Change: Yeah.

Speaker Change: So, Justin, it clearly moves around just because of how much that remarketing piece can change year to year, but at least the most recent history, it was similar in 2000.

Speaker Change: So Justin it clearly moves around just because of how much that remarketing piece can change year to year, but at least the most recent history. It was it was similar in 2022.

Unnamed Speaker: Thank you. If you have a question, please press star 1 on your telephone keypad. To withdraw your question, simply press star 1 again.

Justin Long: Your first question comes from the line between Justin Long and Stevens.

Justin: Yeah, the other thing I would remind folks of is that

Justin: Yes, the other the other thing I would remind.

Unnamed Speaker: Your line is open.

Justin Long: Thanks and good morning.

Justin: Folks have is that.

Justin: Remarketing activity or asset sales activity on the engine leasing side is very different than remarketing activity at North American Rail where we're selling

Unnamed Speaker: Good morning.

Justin: Remarketing activity or asset sales activity on the engine leasing side is very different than re marketing activity at North American rail, where we're selling.

Justin Long: Maybe to start, I was wondering if you could share the absolute lease rate trend sequentially that you saw in the fourth quarter, and when we think about the LPI guidance to be in that 30% range, what does that assume for how lease rates will trend over the course of the year on a sequential basis?

Justin: Lots of

Justin: Lots of.

Justin: Lots of different types of assets and, you know, at a lower starting net book value. Engines are expensive assets. So one or two sales in a given year, three sales, what have you, in a given quarter has a much bigger impact than, you know, the kind of the steady drumbeat of sales we do at Rail North America.

Justin: Lots of different types of assets and at a lower starting netbook value engines are expensive assets.

Justin: One or two sales in a given year three sales what have you in a given quarter has a much bigger impact.

Sure, I'll take that.

Justin Long: This is Paul Titterton.

Thanks for the question.

And what I would say broadly to start is lease rate performance in North America has been quite strong for quite some time now. We are seeing, in an absolute sense, a relatively flat environment versus the prior quarter. But, as indicated by the LPI, relative to expiring rates, we are expecting continued positive performance.

Justin: Is that kind of a steady drumbeat of sales we do at rail North America.

Speaker Change: Great, thank you. Just if I could get one more in. Do you expect the maintenance level in 2024

Speaker Change: Great. Thank you just if I could get one more in do you expect the maintenance level in 2024 to be above normalized levels.

Speaker Change: and many more.

Speaker Change: Jimmy It was also above normalized levels in 2023.

Speaker Change: was also

Speaker Change: Uh, I, I...

Justin Long: And so overall, we would say, in an absolute sense, the leasing market for most car types in North America remains quite strong.

Speaker Change: Aye.

Speaker Change: What we expect for rail North American net maintenance expense in 2024 is either flat to up $10 million.

Speaker Change: What we expect for rail North American net maintenance expense in 2024 is either flat to up $10 million.

Speaker Change: Um,

Unnamed Speaker: Thanks.

Justin Long: And maybe one on the RRPS contribution in the fourth quarter.

Speaker Change: As what we have already baked into our guidance for the year, which is a little bit of an elevated level of regulatory compliance.

Speaker Change: is what we have already baked into our guidance for the year, which is a little bit of an elevated level of regulatory compliance.

Unnamed Speaker: There was a pretty significant step up sequentially.

Justin Long: I was wondering if you could break out that fourth quarter contribution between remarketing and just the core operating results.

Speaker Change: That should pair back in years ahead, but this year, 2024 and likely 2025, we're kind of in this range of regulatory activity.

Speaker Change: That should pair back in years ahead, but this year 2024, and likely 25 were kind of in this range of regulatory activity.

Unnamed Speaker: And maybe you could talk about those two buckets progressing in 2024 in terms of what you're baking into the guidance there. Yeah.

Speaker Change: Great, thank you for taking my questions.

Speaker Change: Great. Thank you for taking my questions.

Speaker Change: Your next question comes from the line of Brenda McCarthy with Tedoti. Your line is open.

Speaker Change: Your next question comes from the line of Brendan Mccarthy with Sidoti Your line is open.

Tom: Hi Justin.

Unnamed Speaker: This is Tom.

Tom: So what I would tell you is that for the fourth quarter, it was about 60% operating income and about 40% remarketing.

Brendan Mccarthy: Good morning.

Brenda McCarthy: Good morning, everybody, and thanks for taking my question.

Brendan Mccarthy: And thanks for taking my questions.

Speaker Change: Morning. Morning. Morning.

Brendan Mccarthy: Good morning, good morning, good morning.

Speaker Change: I'm just wondering, first off, if you can touch on the lower income tax expense and what drove that in the fourth quarter of 23.

Unnamed Speaker: As you know, having followed us for a long time, it's really difficult to predict exactly how that remarketing piece will move over the course of any given year.

Brendan Mccarthy: Just wondering first off if you can touch on the lower income tax expense and what drove that in the fourth quarter of 'twenty three.

Speaker Change: Yes, so one of the things that.

Speaker Change: Yep, so one of the things that can be a little challenging is to take out the normalizing items from the effective tax rate. So if you look at where we were in 2022, we were just below 26%. If you look at the normalized tax rate, including share of affiliates,

Speaker Change: It can be a little challenging is to to take out the normalizing items from the effective tax rate. So if you look at where we were in 2022, we're just below 26%. If you look at the normalized tax rate, including share of affiliates we expect.

Tom: But something in the range that we saw for the full year, which was about 55% operating income and 45% remarketing, wouldn't have been...

Unnamed Speaker: Okay, understood.

Justin Long: I'll leave it be.

Unnamed Speaker: Thanks for the time and congrats on the results.

Speaker Change: We expected to be around the same level in 2023, and indeed we were, almost identical. So 22, 23, and our expectations for 23 were all almost exactly the same.

Justin Long: Thank you.

Speaker Change: To be around the same level in 2023, and indeed, we were almost identical so 22 23 and our expectations.

Matt Elkott: Your next question comes from the line of Matt Elkott with TD Cowan.

Unnamed Speaker: Your line is open.

Matt Elkott: Good morning.

Speaker Change: Expectations for 'twenty three we're all almost exactly the same.

Unnamed Speaker: Thank you.

Matt Elkott: I was wondering if you could talk about the addition to the fleet in 2024.

Speaker Change: We talked about some of the other normalizing events in the past, but in this quarter, there were two items which are worth your attention and can help you explain that difference. During the year, there were a number of states that enacted statutory tax reductions, which had the impact of reducing our deferred taxes by about $3 million. Also, on an annual basis, we evaluate the realizability of our state net operating losses and the associated valuations.

Speaker Change: We talked about some of the other normalizing events in the past, but in this quarter there were two items, which.

Do you see the best opportunities in the secondary market or in the new car market?

Speaker Change: Our work Youre attention and can help you explain that difference during the year. There were a number of states and enacted statutory tax reductions, which had the impact of reducing our deferred taxes by about $3 million also on an annual basis, we evaluate the realize the realize ability of our state net operating losses.

Matt Elkott: So this is Paul.

I'll take that again. And, you know, what I would say right now is that overall, we've seen higher quality investment opportunities in a variety of areas within Rail North America.

Matt Elkott: There certainly have been opportunities in the secondary market and syndications that we've taken advantage of, but I will also say in the primary market, in our originations of new car leases, we're also seeing very attractive opportunities.

Speaker Change: <unk> and the associated valuation losses. This year's analysis resulted in a tax benefit of $2 3 million. So that $5 3 million tax benefit you have to work in and that will explain the vast majority of your fourth quarter difference and the estimate for 2024 incorporates the tax level.

Speaker Change: This year's analysis resulted in a tax benefit of $2.2 billion.

Speaker Change: So that $5.3 million tax benefit, you have to work in and that'll explain the vast majority of your fourth quarter debt.

So really, from an investment standpoint in North America, there are quality opportunities both in primary originations and in secondary markets and syndications.

Speaker Change: and the estimate for 2024 incorporates the tax level at a similar and effective tax rate normalized basis similar to 2023. Yep, so we expect it to be another year in that 26%.

Matt Elkott: Good to know.

Bob: And then there was one question on India.

Matt Elkott: You guys basically started this market for privately held freight car lessors in India.

Speaker Change: An effective tax rate normalized basis similar to 2023 so.

Speaker Change: We expect it to be another year in that 26% range. Thank you.

Bob: Can you give us an update on the competitive landscape right now?

Great. That's helpful. Thank you.

Speaker Change: Great, that's helpful. Thank you.

Matt Elkott: Are you still the biggest operator there?

Speaker Change: Secondly, I know you mentioned the higher debt level kind of being a function of the investment volume.

Speaker Change: And then secondly, I know you mentioned the higher debt level kind of being a function of the investment volume.

Bob: Do you see interest from potential new entrants as the growth prospect proves to be strong and sustainable?

Speaker Change: Just kind of wondering if you could touch on the weighted average rate on your debt and what are your assumptions for the interest rate environment, you know, heading into 2024 in general?

Speaker Change: Just kind of wondering if you could touch on the weighted average rate on your debt and what are your assumptions for the interest rate environment heading into 2024 in general.

Matt Elkott: Sure, Matt.

Bob: It's Bob.

Bob: We are far and away the largest private owner of rail cars in India.

Speaker Change: Yes, so so in general what I would tell you is the environment that we're seeing right now is our general expectation for what we see going forward.

Speaker Change: Yeah, so in general, what I would tell you is the environment that we're seeing right now is our general expectation for what we see going forward. You know, over time, just like we do on the asset side, we really look to take advantage of the cycle. And we had many, many years of strong debt markets. And over the past decade, we took our average debt rate from over 8% – I'm sorry, over 6% to under 4%. And we'll look, you know, to continue to take advantage where we can going forward. But for specifically 2024, I would expect our guidance anticipates similar levels.

Bob: There are some other competitors that periodically appear, but they don't have anything of size in terms of fleet or, from what we see, a significant, you know, foothold in the marketplace. The one area we would compete in. So I don't want to give you the impression that it's just unfettered prospects because our customers have alternatives, and one of those would be bank financing or owning the assets outright themselves. These are big, formidable, you know, large entities.

Speaker Change: Over time, just like we do on the asset side, we really look to take advantage of the cycle and we had many many years of strong debt markets and over the past decade, we took our average debt rate from over 8% I am sorry over 6% to under 4%.

Speaker Change: And.

Speaker Change: We will look to continue to take advantage, where we can going forward, but for specifically 2024, I would expect our guidance anticipates similar levels to today.

Bob: So they can buy them as well, just like here in North America.

Speaker Change: Got it. Okay. And then kind of switching gears to the portfolio management segment, what percentage through the post-COVID global recovery in international air travel would you say?

Speaker Change: Got it Okay, and then kind of switching gears to the portfolio management segment.

Bob: But from a leasing standpoint, we are far and away the largest and, I think, generally recognized as the leader and, certainly, recognized by the Indian Railway as the most advanced in the market.

Speaker Change: What percentage through the post Covid global recovery in International Air Travel would you say.

Speaker Change: Yeah, we're at this point, I guess, as of the end of 2023.

Speaker Change: We're at this point I guess as of the end of 2023.

Bob: Okay, so it's more of a question of how much traction the business model you guys introduced into the market gets versus other ways of acquiring assets.

Speaker Change: So I'll let Bob add additional color if he'd like, but my short answer is that we're recovered. Yeah, domestic is actually a little bit above where we were pre-pandemic and international is just below.

Speaker Change: So I'll, let Bob add additional color if you'd like but my short answer is that were recovered yes domestic domestic is actually a little bit above where we were pre pandemic and international was just below.

Matt Elkott: That's good to know.

Bob: And I think you mentioned, just a quick clarification, you mentioned over 10,000 cars at the end of 2024. Do you think your Indian fleet will be? Yes, if we meet our investment targets for this year, that would be the expectation. What about the overall fleet globally in Europe and in the U.S.? Do you expect that to grow as well at the end of 24? India, we would expect for sure because it continues to be such a growing market and, in fact, in certain card types, the Indian Railway has pretty sizable orders to expand its own fleet. The issue really in India is not so much as the growth there; it's the ability to get the wagons and to continue to diversify into different card types and different customers. The growth pool, you know, based on the prospects today, is there. The European market is a little bit more, I would say, akin to North America in terms of maturity. So we wouldn't anticipate any and are certainly not banking on any significant growth in the overall fleet in Europe. Thank you very much, Bob.

Speaker Change: Yes.

Robert C. Lyons: Okay, okay. And I would also add, in the depths of the pandemic,

Robert C. Lyons: Okay. Okay.

Robert C. Lyons: I would also add in the depths of the pandemic.

Robert C. Lyons: You know, on a best case scenario, you would say that recovery would be in 2025, late 2024.

Robert C. Lyons: On a best case scenario, you would say that recovery would be in 2025 late 2024. So.

Robert C. Lyons: You know, the air travel is

Robert C. Lyons: The air travel is.

Robert C. Lyons: recovered well ahead of that plan.

Robert C. Lyons: Recovered well ahead of that plan.

Robert C. Lyons: Okay.

Robert C. Lyons: Okay.

And I know you mentioned portfolio management segment profit potentially up $5 million to $15 million.

Robert C. Lyons: And I know you mentioned portfolio management, second profit, potentially up $5-15 million. What are the assumptions in the wholly owned GEL portfolio?

What are the assumptions in the wholly owned Geo portfolio. My guess is I think it's I think there's 29 engines in the portfolio as of end of 'twenty three what are your assumptions for acquisition activity going forward.

Robert C. Lyons: 29 engines in the portfolio at the end of 23. What are your assumptions for acquisition activity going forward?

Robert C. Lyons: Similar to what we did this past year in 2023, we acquired 10 engines for $267 million, we have forecast a similar investment level on a similar number of engines for 2024.

Robert C. Lyons: Similar to what we did this past year in 2023, we acquired 10 engines for $267 million. We have forecast a similar investment level and a similar number of engines for 2024.

Speaker Change: Got it, okay. And then one more for me, just looking at the

Speaker Change: Got it Okay and then one more for me just looking at the.

Speaker Change: Investment volume in Rail North America, I think there were a little over 1,600 cars added.

Speaker Change: Investment volume in rail North America, I think there were a little over 1600 cars added.

Matt Elkott: Thanks, everyone.

Your next question comes from the line of Allison Poliniak.

Speaker Change: which is a nice nice uptick from the past two quarters just wonder if you can comment on that and you know what can we think about looking forward to demand in 2024?

Speaker Change: Which is a nice nice uptick from the past two quarters. Just wondering if you can comment on that.

Unnamed Speaker: Poliniak with Wells Fargo.

Your line is open.

Speaker Change: Yes.

Unnamed Speaker: Hi, good morning.

What can we think about looking forward to demand in 2024.

Maybe starting with a bigger picture, you know, utilization; this is focused on rail in North America.

Speaker Change: So the investments that we've made in the quarter and for the year include both secondary market acquisitions as well as, of course, our ongoing supply agreement purchases from our multi-year supply agreement. And, you know, what I would say is we are continuing to see additional investment in 2024 in both of those areas.

So the investments that we've made in the quarter and for the year include both secondary market acquisitions as well as of course are ongoing.

Utilization is really high. You know, you have the rails improving service, really focused on trying to capture growth.

We'd just love to get your perspective. I guess, one, you know, do you think the equipment market is investing enough at this point, just given where utilization is for that potential inflection? And then, two, I guess, how is GATX sort of managing that potential dynamic? Just anything.

Supply agreement purchases from from our multi year supply agreement.

And what I would say is we are continuing to see additional investment in 2024 and both of those areas.

Sure. So it's a good question, Allison. This is Paul. I'll take that. So, you know, what I would say right now is investment continues at a kind of slightly above replacement pace in North America overall. So with core car loads, we measure them maybe at a low single-digit percentage year over year. You know, that's an investment pace that should be adequate to keep pace with demand in the context of somewhat improving service.

Okay. Okay.

Speaker Change: Okay, okay. That's all from me. Thank you.

Speaker Change: That's all for me thank you.

Speaker Change: Thank you.

Speaker Change: You.

Speaker Change: There are no further questions at this time. I will turn the call back to Shari Hellerman.

Speaker Change: There are no further questions at this time I will turn the call back to Shari hellerman.

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

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

Shari Hellerman: This concludes today's conference call. We thank you for joining. You may now disconnect your lines. Thank you. Thank you.

Shari Hellerman: This concludes today's conference call. We thank you for joining you may now disconnect your lines.

And I will say, indeed, we hear from our customers that service is improving, and the metrics of dwell time and velocity that are reported would bear that out.

Shari Hellerman: Okay.

So, you know, with modest growth, modest service improvements, and a modest level of investment, that speaks to a pretty balanced market. One of the nice things about the market that we see right now, frankly, is unlike past tight rail car markets, we haven't seen that enormous build wave. You know, if we look back at the ethanol boom or the crude oil boom, we saw build years where the industry would produce upwards of 80,000 cars, and then there would be a huge hangover after that excess production. In this tight market, we're seeing industry-wide production in North America top out in the 40s. And so that speaks to, I think, a much more balanced, much more disciplined market, which, you know, should be good for all parties.

Got it. Thank you.

Shari Hellerman: [music].

That's helpful. And then on other revenue around North America, Bob, I know you mentioned sort of the speed to get those cars back on lease and so forth. Should we expect that to be elevated again in 24? Like, how should we be thinking about that? Sorry if, Are you speaking specifically to the other revenue line? Yeah, the other revenue, sorry. Yeah, we're not anticipating any significant growth, you know, any abnormal growth in that line item in 2024.

Bob: It should grow right along in line with lease revenue.

Yeah, and Allison, just to put some perspective on that, really, what you need to do is look at that in conjunction with the maintenance line. So really, I'd guide you to Bob's comments on net. The biggest component of other revenue is essentially repairs billed back to the customer.

Got it. Thank you.

Unnamed Speaker: Your next question comes from the line of Bascom Majors with Susquehanna.

Your line is open.

Thanks for taking my questions. Going back to your thoughts on the North American secondary market and a very high level of P&L from that historically, but a little downfall, can you talk a little bit maybe qualitatively about the depth of the market the buyers and just you know anecdotally how that feels today versus how it's felt over the last couple of years and then you know maybe a little more precisely just, Any thoughts on how that profit assumption correlates to your plan to sell fewer rail cars or is it really just the gains on individual units coming down a little bit from where they were in the last few quarters?

Sure. So this is Paul. I'll take that. And yeah, I mean, the bottom line for the secondary market is that it has been robust. Thank you very much. The response has continued to be robust, and we anticipate that robustness will continue. You know, to the second part of your question, really, for us, we're trying to make good portfolio decisions, and so, ultimately, we're really looking at the economics of the transaction more than we are accounting gains.

We're really trying to optimize the portfolio, either from a credit or asset or market or term standpoint, and really, we're using those sales in the secondary markets to balance out that portfolio and ensure we've got a diverse and attractive portfolio along all of the dimensions that I just mentioned.

Bob: Yeah, asking my dad, you know, we did come into this year, I think, into 2023, that is, feeling in a rising interest rate environment that the secondary market condition was probably more uncertain, but it remained really strong throughout the entire year. Continues to be strong, and I think it's, Thank you for joining us, to be great stores of value and very good assets to hold long term.

Bob: So even with interest rates up where we thought, well, maybe the buyer universe would shrink a little bit. Still there, still great depth.

Bob: There's still a lot of activity.

I appreciate the responses to both of those.

I believe you mentioned that from where you sit today, you expected to put a similar amount of capital to work this year as you did last year. 1.6, 1.7 billion, a fairly large number. Can you talk a little more about the opportunities you see? I think maybe 60% of that went to North America, 20-25% international, and the rest in some of your other businesses. Is your opportunity set in where you see investments? This year looked a lot different than what we've seen over the last 12 to 18 months.

Bob: Yeah, it's not a lot different, Bascom. In fact, it's pretty similar to what we saw this year, whether it would be at... Within GATX engine leasing, that's within portfolio management. We invested about $267 million this past year in 10 engines. We were anticipating being right in that same range, and based on the outlook we have for Rail North America and internationally, those markets should be very similar to where we were last year. Rail North America was north of $970 million. You know, maybe it's not right on top of that number, but it's certainly in that neighborhood, and then GRE, GATX, Royal Europe, and India were both about combined about 400. We're looking at about the same again this year.

Yeah, and Bascom, I'd just remind you of Bob's comments about some of the challenges of getting the assets, particularly in India.

Bob: That's one of the things that causes us to have a little uncertainty on exactly how. Lastly, on that, do you see any more assets where you could start to build a platform?

Maybe invest in assets related to what you've done before but aren't markets you're currently in or... Do we expect it to look a lot more like it did pretty early on?

Bob: Well, our focus on long-lived, widely used assets with a service component where you need intense asset knowledge to succeed will not change.

Bob: We see pretty much every M&A opportunity out there remotely related to the leasing world. But you have to pass those four criteria because that's what works for GATX. That's where we generate the best return for our shareholders.

Bob: We did add Tri-Fleet, one of the largest tank container lessors in the world, to the portfolio. That asset meets all of those criteria. It's a good platform that's scalable, but we continue to integrate that into our operations overall.

Bob: Bye.

Bob: We pass on far more than we pursue, and that will not change. That discipline won't change, and with $ 0.6 billion of investment volume this past year and a similar outlook for 2024, there's a lot of opportunity for us right in the markets we're in today.

Thank you for your time.

Unnamed Speaker: Your next question comes from the line of Justin Berkner with the Gabelli Fund.

Your line is open. Good morning, Bob.

Unnamed Speaker: Paul and Shari, morning, morning.

The first question relates to the secondary market.

On the one hand, you're indicating that the secondary market is strong.

Thank you for joining us; you sort of reconcile. Thank you.

Yeah, I mean, really, for us, it comes down to portfolio management. As I said earlier, we're using the secondary market to optimize our portfolio.

And at the same time, the fact that we're able to generate attractive both economic and book gains in the secondary market doesn't change the fact that there is also high-quality investment available to us on the buy side.

And so, really, for us, every decision we make, whether it's to sell into the secondary market or to originate in the primary market or to buy in the secondary market, we're making that on the basis of deploying and harvesting our shareholders' capital in the optimal way possible. And so, in the current market right now, on the sell side, we are certainly seeing lots of attractive opportunities where the market is valuing certain parts of our portfolio on the buy side higher than we value it on the hold side. At the same time, we're seeing tremendous opportunities to put capital to work. Where there are attractive returns available, So, you know, that's really the mindset we have. We're constantly looking at ways to optimally deploy and harvest our shareholder capital, on the buy side and the sell side. Hey, Justin, and also, I would remind you that we have the most diversified fleet in the industry, and something we've talked about before is, you know, the car types we're selling are not the typical car types.

Unnamed Speaker: Okay, got it. Is it? Are you buying a very balanced set of car types and selling more specific? and a set of car types or many more.

I would say they're both very tailored to specifics, and keep in mind, too, when we're in the market on the sell side, we're typically selling in very small lots. We don't sell 2,000 cars at a time or 1,000 cars at a time. It tends to be 50 or 100, and so it's very, very targeted, very specific. And with a fleet our size, we can do that. And with the diversity we have, we can do that. We can really pick and choose. Likewise, on the buy side, we don't have to buy anything. That's always a good position. I always like being in that position. We don't have to buy anything. We don't need anybody's customer base or platform or anything else. What we're looking for is a very targeted...

Asset type, and we saw some of those opportunities last year, and we think we'll continue to see some of those this year. I'll let Paul add anything to that he wants.

Yeah, and I will just say, too, that's really the advantage of having such a liquid secondary market and so many participants within the North American secondary market is that you're going to have different participants that have different appetites for different assets.

A great example is assets trending towards end of life where there may be smaller lessors that specialize in those assets where we may decide we're going to be in harvest mode there, and some of those buyers may offer us very attractive prices. We will then reinvest the proceeds in modern, either new or nearly new assets that fit our long-term portfolio approach. And that's just one example of the many ways we think about buying and selling.

Unnamed Speaker: Got it.

Unnamed Speaker: Thank you for that. On the Rolls-Royce joint venture, how does the 55% operate? versus 45% Remark, saw this or, Yeah. So, Justin, it clearly moves around just because of how much that remarketing piece can change year to year, but at least in the most recent history, it was similar in 2000. Yeah, the other thing I would remind folks of is that remarketing activity or asset sales activity on the engine leasing side is very different than remarketing activity at North American Rail, where we're selling lots of different types of assets and, you know, at a lower starting net book value. Engines are expensive assets. So one or two sales in a given year, three sales, what have you, in a given quarter have a much bigger impact than, you know, the kind of steady drumbeat of sales we do at Rail North America.

Paul Titterton: And when we think about the LPI guidance being in that 30% range, what does that assume for how lease rates will trend over the course of the year on a sequential basis? Sure, I'll take that. This is Paul Titterton.

Paul Titterton: Thanks for the question. And what I would say broadly to start is that lease rate performance in North America has been quite strong for quite some time now. We are seeing, in an absolute sense, a relatively flat environment versus the prior quarter, but as indicated by the LPI, relative to expiring rates, we are expecting continued positive performance. And so, overall, we would say the leasing market for most car types in North America remains quite strong. Got it. Thanks.

Unnamed Speaker: Great, thank you. Just if I could get one more in. Do you expect the maintenance level in 2024, and many more, was also, Uh, I, I... What we expect for rail North American net maintenance expense in 2024 is either flat to up $10 million. This is what we have already baked into our guidance for the year, which is a little bit of an elevated level of regulatory compliance. That should pair back in years ahead, but this year, 2024, and likely 2025, we're kind of in this range of regulatory activity. Great, thank you for taking my questions. Your next question comes from the line of Brenda McCarthy with Tedoti.

Tom: And maybe one on the RRPS contribution in the fourth quarter. There was a pretty significant step up sequentially. I was wondering if you could break out that fourth quarter contribution between remarketing and just the core operating results, and maybe you could talk about those two buckets progressing in 2024 in terms of what you're baking into the guidance there. Yeah. Hi Justin.

Unnamed Speaker: Your line is open.

Unnamed Speaker: Good morning, everybody, and thanks for taking my question.

Tom: This is Tom. So what I would tell you is that for the fourth quarter, it was about 60% operating income and about 40% remarketing. As you know, having followed us for a long time, it's really difficult to predict exactly how that remarketing piece will move over the course of any given year. But something in the range that we saw for the full year, which was about 55% operating income and 45% remarketing, wouldn't be on. Okay, understood. I'll leave it there. Thanks for the time and congrats on the results.

Unnamed Speaker: Morning. Morning.

Unnamed Speaker: Morning. I'm just wondering, first off, if you can touch on the lower income tax expense and what drove that in the fourth quarter of last year.

Yep, so one of the things that can be a little challenging is to take out the normalizing items from the effective tax rate. So if you look at where we were in 2022, we were just below 26%. If you look at the normalized tax rate, including the share of affiliates, we expected to be around the same level in 2023, and indeed, we were almost identical. So 22, 23, and our expectations for 23 were all almost exactly the same. We talked about some of the other normalizing events in the past, but in this quarter, there were two items that are worth your attention and can help you explain that difference. During the year, a number of states that enacted statutory tax reductions, which had the impact of reducing our deferred taxes by about $3 million. Also, on an annual basis, we evaluate the realizability of our state net operating losses and the associated valuations.

Matt Elkott: Thank you. Your next question comes from the line of Matt Elkott with TD Cowen. Your line is open. Good morning.

Paul Titterton: Thank you. I was wondering if you could talk about the addition to the fleet in 2024. Do you see the best opportunities in the secondary market or in the new car market? So, this is Paul. I'll take that again, and you know, what I would say right now is, overall, we've seen higher quality investment opportunities in a variety of areas within Real North America. There certainly have been opportunities in secondary markets and syndications that we've taken advantage of, but I will also say in the primary market, in our originations of new car leases, we're also seeing very attractive opportunities. So really, from an investment standpoint in North America, there are quality opportunities both in primary originations and in secondary markets and syndications. One question on India.

This year's analysis resulted in a tax benefit of $2.2 billion. So that $5.3 million tax benefit, you have to work in, and that'll explain the vast majority of your fourth-quarter debt, and the estimate for 2024 incorporates the tax level at a similar and effective tax rate normalized basis similar to 2023. Yep, so we expect it to be another year in that 26%. Great, that's helpful.

Bob: You guys basically started this market for privately held freight car lessors in India. Can you give us an update on the competitive landscape right now? Are you still the biggest operator there? Do you see interest from potential new entrants as the growth prospects prove to be strong and sustainable? Sure, Matt. It's Bob.

Unnamed Speaker: Thank you. Secondly, I know you mentioned the higher debt level kind of being a function of the investment volume.

Just kind of wondering if you could touch on the weighted average rate on your debt and what your assumptions are for the interest rate environment, you know, heading into 2024 in general. Yeah, so in general, what I would tell you is the environment that we're seeing right now is our general expectation for what we will see going forward. You know, over time, just like we do on the asset side, we really look to take advantage of the cycle. And we have had many, many years of strong debt markets. And over the past decade, we took our average debt rate from over 8% – I'm sorry, over 6% to under 4%. And we'll look, you know, to continue to take advantage where we can going forward. But for specifically 2024, I would expect our guidance to anticipate similar levels.

Bob: We are far and away the largest private owner of rail cars in India. There are some other competitors that periodically appear, but they don't have anything of size in terms of their fleet or from what we see as a significant, you know, foothold in the marketplace. The one area we would compete in, So I don't want to give you the impression that it's just, you know, unfettered prospects because there are alternatives, and one of those would be bank financing or owning the assets outright themselves. These are big, formidable, large..., entities, so they can buy as well, just like here in North America.

Unnamed Speaker: Got it. Okay. And then, kind of switching gears to the portfolio management segment, what percentage of the post-COVID global recovery in international air travel would you say?

Bob: But from a leasing standpoint, we are far and away the largest and, I think, generally recognized as the leader and certainly recognized by the Indian Railways as the most advanced in the market. Okay, so it's more of a question of the, you know, how much traction the business model you guys introduced into the market gets versus other ways of acquiring assets. That's good to know.

Yeah, we're at this point, I guess, as of the end of 2023. So I'll let Bob add additional color if he'd like, but my short answer is that we're recovered. Yeah, domestic is actually a little bit above where we were pre-pandemic, and international is just below.

Bob: So, and I think you mentioned, just a quick clarification, you mentioned over 10,000 cars at the end of 2024. Do you think your Indian fleet will be? Yes, if we meet our investment targets for this year, that would be the expectation. What about the overall fleet globally in Europe and in the U.S.? Do you expect that to grow as well at the end of 24? India, we would expect for sure because it continues to be such a growing market and, in fact, for certain car types, the Indian Railway has pretty sizable orders to expand its own fleet.

Unnamed Speaker: Okay, okay. And I would also add, in the depths of the pandemic, on a best case scenario, you would say that recovery would be in 2025 or late 2024.

You know, air travel is recovering well ahead of that plan.

Unnamed Speaker: Okay. And I know you mentioned portfolio management, second profit, potentially up $5-15 million. What are the assumptions in the wholly owned GEL portfolio? 29 engines in the portfolio at the end of 23. What are your assumptions for acquisition activity going forward? Similar to what we did this past year, in 2023, we acquired 10 engines for $267 million. We have forecast a similar investment level and a similar number of engines for 2024. Got it, OK.

Bob: The issue, really, in India is not so much the growth there; it's the ability to get the wagons and to continue to diversify into different card types and different customers. The growth pool, you know, based on the prospects today is there. The European market is a little bit more, I would say, akin to North America in terms of maturity. So we wouldn't anticipate any, and are certainly not banking on, any significant growth in the overall fleet in Europe. Got it. Thank you very much, Bob. Thanks, everyone. Your next question comes from the line of Allison Poliniak. Poliniak with Wells Fargo. Your line is open. Hi, good morning.

Unnamed Speaker: And then one more for me, just looking at the Investment volume in Rail North America, I think there were a little over 1,600 cars added, which is a nice, nice uptick from the past two quarters. I just wonder if you can comment on that and you know what we can think about looking forward to demand in 2024? So the investments that we've made in the quarter and for the year include both secondary market acquisitions as well as, of course, our ongoing supply agreement purchases from our multi-year supply agreement. And, you know, what I would say is that we are continuing to see additional investment in 2024 in both of those areas. Okay, okay. That's all from me. Thank you. Thank you.

Paul Titterton: Maybe starting with a bigger picture, you know, utilization, this is focused on rail North America, utilization, utilization is really high, you know, you have the rails, improving service, really focused on trying to capture growth. Would just love to get your perspective, I guess, one question, you know, what do you think the market, the equipment markets, are investing enough at this point given where utilization is for that potential inflection? And then two, I guess, how would GATX sort of managing that potential dynamic? Just any thoughts? Sure. So, it's a good question, Allison. This is Paul.

Paul Titterton: I'll take that. So, you know, what I would say right now is investment continues at a kind of slightly above replacement pace in North America overall. So, with core car loads, we measure them maybe at a low single-digit percentage year over year. You know, that's an investment pace that should be adequate to keep pace with demand in the context of somewhat improving service. And I will say, indeed, we hear from our customers that service is improving, and the metrics of dwell time and velocity that are reported would bear that out. So, you know, with modest growth, modest service improvements, and a modest level of investment, that speaks to a pretty balanced market. One of the nice things about the market that we see right now, frankly, is unlike past tight rail car markets, we haven't seen that enormous build wave. You know, if we look back at the ethanol boom or the crude boom, we saw build years where the industry would produce upwards of 80,000 cars, and then there would be a huge hangover after that excess production.

Unnamed Speaker: There are no further questions at this time.

Shari Hellerman: I will turn the call back to Shari Hellerman.

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

Shari Hellerman: Thank you.

Unnamed Speaker: This concludes today's conference call.

Unnamed Speaker: We thank you for joining. You may now disconnect your lines.

Unnamed Speaker: Thank you.

Unnamed Speaker: Thank you.

Paul Titterton: In this tight market, we're seeing industry-wide production in North America top out in the 40s. And so that speaks to, I think, a much more balanced, much more disciplined market, which, you know, should be good for all producers. Thank you. That's helpful.

Bob: And then on other revenue around North America, Bob, I know you mentioned sort of the speed to get sort of those cars back on lease and so forth. Should we expect that to be elevated again in 24? Like, what should we be thinking about that?

Bob: Sorry if I missed any comments. Are you speaking specifically to the other revenue line? Yeah, the other revenue. Sorry. Yeah. We're not anticipating any significant growth, you know, any out, you know, abnormal growth in that line item in 2024 should grow right along in line with lease revenue. Yeah.

Bob: And Allison, just to put some perspective on that, really, what you need to do is look at that in conjunction with the maintenance line. So really, I'd guide you to Bob's comments on net, be in somewhere between flat and up $10 million. Yeah. The biggest component of other revenue is essentially repairs billed back to the customer.

Bascom Majors: Thank you. Your next question comes from the line of Bascom Majors with Susquehanna. Your line is open.

Paul Titterton: Thanks for taking my questions. Going back to your thoughts on the North American secondary market and a very high level of P&L from that historically, but a little down from where you were last week. Can you talk a little bit qualitatively about the depth of the market, the buyers, and just, you know, anecdotally how that feels today versus how it felt over the last couple of years? And then maybe a little more precisely, any thoughts on how that profit assumption correlates to your plan to sell fewer rail cars, or is it really just, you know, the gains on individual units coming down a little bit from where they were Sure, so this is Paul. I'll take that. And yeah, I mean, the bottom line for the secondary market is that it has been robust.

Paul Titterton: We continue to see a large number of participants on the buy side, a lot of depth, and whenever we see packages, whether it's our own packages or other packages in the market, the response has continued to be robust, and we anticipate that robustness will continue. You know, to the second part of your question, really, for us, we're trying to make good portfolio decisions, and so ultimately, we're really looking at the economics of the transaction more than we are accounting gains. We're really trying to optimize the portfolio, either from a credit or asset or market or term standpoint, and really, we're using those sales in the secondary markets to balance out that portfolio and ensure we've got a diverse and attractive portfolio along all of the dimensions that I just mentioned.

Bob: Yeah, Beth, can I add, you know, we did come into this year, I think, into 2023, that is, a feeling in a rising interest rate environment that the secondary market condition was probably more uncertain. But it remained really strong throughout the entire year, and continues to be strong, and I think it speaks to the quality of the underlying asset. Rail cars have proven over time to be great stores of value and very good assets to hold long term. So even with interest rates up where we thought, well, maybe the buyer universe would shrink a little bit. Still there, still great depth.

Bob: There's still a lot of activity. I appreciate the responses on both of those. You, I believe you mentioned that you expected to put a similar amount of capital to work this year from where you sit today as you did last year, which was, Goldman Sachs. This year looks a lot different than what we've seen over the last 12 to 18 months. Yeah, it's not a lot different, Baskin-Moye.

Bob: In fact, it's pretty similar to what we saw this year, whether it would be at... Within GATX engine leasing, that's within portfolio management, we invested about $267 million this past year for 10 engines. We would, we're anticipating being right in that same range. And based on the outlook we have for Rail North America and internationally, those markets should be very similar to where we were last year. Rail North America's revenue was north of $970 million. Maybe it's not right on top of that number, but it's certainly in that neighborhood, and then GRE, GATX Rail Europe, and India were both about combined about 400.

Bob: We're looking at about the same again this year. Yeah, and Baskim, I just want to remind you of Bob's comments about some of the challenges of getting the assets, particularly in India. That's one of the things that causes us to have a little uncertainty on exactly how much. Lastly, on that, do you see any more assets where you could start to build a platform? Maybe invest in assets related to what you've done before, but aren't markets you're currently in or... Do we expect it to look a lot more like it has looked pretty early on?

Bob: While our focus on long-lived, widely-used assets with a service component where you need intense asset knowledge to succeed will not change, we see pretty much every M&A opportunity out there remotely related to the leasing world. But you have to pass those four criteria because that's what works for GATX.

Bob: That's where we generate the best return for our shareholders. We did add Trifleet, one of the larger tank container lessors in the world, a few years ago to the portfolio. That asset meets all of those criteria. It's a good platform that's scalable, but we continue to integrate that into our operations overall. But we pass on far more than we pursue, and that will not change.

Bob: That discipline won't change, and with a billion six of investment volume this past year and a similar outlook for 2024, there's a lot of opportunity for us right in the markets we're in today. Thank you for the time.

Justin Bergner: Your next question comes from the line of Justin Bergner with the Gabelli Fund. Your line is open. Good morning, Bob, Tom, Paul, and Shari.

Justin Bergner: Morning. The first question relates to the secondary market. On the one hand, you're indicating the secondary market is strong and pricing is strong. On the other hand, you're seeing a lot of opportunity. Can you sort of reconcile...

Paul Titterton: Yeah, I mean, really, for us, it comes down to portfolio management. As I said earlier, we're using the secondary market to optimize our portfolio. And at the same time, the fact that we're able to generate attractive both economic and book gains in the secondary market doesn't change the fact that there is also high quality investment available to us on the buy side. And so really, for us, every decision we make, whether it's to sell into the secondary market or to originate in the primary market or to buy in the secondary market, we're making that on the basis of deploying and harvesting our shareholders' capital in the optimal way possible.

Paul Titterton: And so in the current market right now, on the sell side, we are certainly seeing lots of attractive opportunities where the market is valuing certain parts of our portfolio on the buy side higher than we value it on the hold side. At the same time, we're seeing tremendous opportunities to put capital to work where there are attractive returns available. So, you know, that's really the mindset we have. We're constantly looking at ways to optimally deploy and harvest our shareholder capital, on the buy side and the sell side. Are you buying a very balanced set of car types and selling more specific ones, or are they both?

Bob: Yeah, I would say they're both very tailored to specific needs. And keep in mind, too, when we're in the market on the sell side, we're typically selling in very small lots. We don't sell 2,000 cars at a time or 1,000 cars at a time. It tends to be 50 or 100. And so it's very, very targeted, very specific.

Bob: And with a fleet our size, we can do that. And with the diversity we have, we can do that. We can really pick and choose. Likewise, on the buy side, we don't have to buy anything.

Bob: That's always a good position. I always like being in that position. We don't have to buy anything.

Bob: We don't need anybody's customer base or platform or anything else. What we're looking for is a very targeted asset type, and we saw some of those opportunities last year. And we are we think we'll continue to see some of those this year. I'll let Paul add anything to that he wants Yeah, and I will just say too I mean that's really the advantage of having such a liquid secondary market and so many participants within the North American secondary market is You're going to have different participants that have different appetites for different assets A great example is assets trending towards end-of-life where there may be smaller lessors that specialize in those assets Where we may decide we're going to be in harvest mode there and some of those buyers may offer us very attractive pricing We will then reinvest the proceeds in modern either new or nearly new assets that fit our long-term portfolio approach And that's just one example of the many ways we think about buying and selling, Got it. Thank you for that. On the Rolls-Royce joint venture... How does the 55% operate?

Tom: The converse is 45% remarkable, saw this, or 2023. Yeah. So Justin, it clearly moves around just because of how much that remarketing piece can change year to year, but at least in the most recent history, it was similar in 2008. Yeah, the other thing I would remind folks of is that, You know, remarketing activity or asset sales activity on the engine leasing side is very different than remarketing activity at North American Rail, where we're selling, Watson, lots of different types of assets and, you know, at Engines are expensive assets, so one or two sales in a given year, three sales, what have you, in a given quarter have a much bigger impact than, you know, kind of the steady drumbeat of sales we do at Rail North America. Great, thank you. Just if I could get one more in.

Tom: Do you expect the maintenance level in 2024 to... Bye, assuming it was also above? I, What we expect for rail North American net maintenance expense in 2024 is either flat to up $10 million. That should pair back in years ahead, but this year, 2024, and likely 2025, we're kind of in this range of regulatory activity. Great, thank you for taking my questions. Your next question comes from the line about Brenda McCarthy with Tadoti. Your line is open.

Brenda McCarthy: Good morning, everybody, and thanks for taking my question. Good morning. Good morning. Good morning.

Tom: Just wondering, first off, if you can touch on the lower income tax expense and what drove that in the fourth quarter of 23. Yeah, so one of the things that can be a little challenging is to take out the normalizing items from the effective tax rate. So if you look at where we were in 2022, we were just below 26%. If you look at the normalized tax rate, including share of affiliate, we expected to be around the same level in 2023, and indeed we were, almost identical. So 22, 23, and our expectations for 23 were all almost exactly the same. We talked about some of the other normalizing events in the past, but in this quarter, there were two items which are worth your attention and can help you explain that difference. During the year, there were a number of states that enacted statutory tax reductions, which had the impact of reducing our deferred taxes by about $3 million. Also, on an annual basis, we evaluate the realizability of our state net operating losses and the associated valuations. This year's analysis resulted in a tax benefit of $2.3 million.

Tom: So that $5.3 million tax benefit you have to work in, and that will explain the vast majority of your fourth quarter difference, and the estimate for 2024 incorporates the tax level at a similar and effective tax rate normalized basis, similar to 2023. Yeah, so we expect it to be another year in that 26% range. Great, that's helpful, thank you.

Tom: And secondly, I know you mentioned the higher debt level, kind of being a function of the investment volume. I'm just kind of wondering if you could touch on the weighted average rate on your debt and what are your assumptions for the interest rate environment heading into 2024, in general. Yeah, so in general, what I would tell you is the environment that we're seeing right now is our general expectation for what we see going forward. Over time, just like we do on the asset side, we really look to take advantage of the cycle. We had many, many years of strong debt markets, and over the past decade, we took our average debt rate from over 8%, I'm sorry, over 6% to under 4%.

Tom: And we'll look, you know, to continue to take advantage where we can going forward. But for specifically 2024, I would expect our guidance anticipates similar levels. Got it.

Bob: Okay. And then I'm kind of switching gears to the portfolio management segment. What percentage through the post-COVID global recovery in international air travel would you say? Yeah, we're at this point, I guess, as of the end of 2023. So I'll let Bob add additional color if he'd like, but my short answer is that we're recovered. Yeah, domestic is actually a little bit above where we were pre-pandemic, and international is just below. Okay, okay. And I would also add, in the depths of the pandemic,

Bob: You know, on a best case scenario, you would say that recovery would be in 2025, late 2024, you know, air travel is recovered well ahead of that plan. Okay. And I know you mentioned portfolio management, second profit, potentially up to five to 15 million. What are the assumptions in the wholly owned GEL portfolio?

Bob: I guess I think it's I think there are 29 engines in the portfolio at the end of 23. What are your assumptions for acquisition activity going forward? Similar to what we did this past year, in 2023, we acquired 10 engines for $267 million.

Bob: We have forecast a similar investment level and a similar number of engines for 2024. Got it okay, and then one more for me just looking at the investment volume in rail North America. I think there were a little over 1,600 cars added, which is a nice uptick from the past two quarters. I'm just wondering if you can comment on that and what we can think about looking forward to demand in 2024. So the investments that we've made in the quarter and for the year include both secondary market acquisitions as well as, of course, our ongoing supply agreement purchases from our multi-year supply agreement. And what I would say is that we are continuing to see additional investment in 2024 in both of those areas.

Bob: Okay, okay. That's all for me. Thank you. Thank you. There are no further questions at this time. I will turn the call back to Shari Hellerman. 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 today's conference call. We thank you for joining. You may now disconnect your lines. Thank you for joining us. We hope to see you again soon.