Good afternoon. My name is James, and I will be your conference operator today. I would like to welcome everyone to CPKC's Fourth Quarter and Full Year 2023 Conference Call. The slides for today's call are available at investor.cpkcr.com. All lines have been muted to eliminate background noise. Following the speakers' remarks, there will be a question-and-answer session. I would now like to introduce Chris De Bruyn, Vice President, Capital Markets, to start the conference.

Thank you, James. Good afternoon, everyone, and thank you for joining us today. Before we begin, I want to remind you this presentation contains forward-looking information. Actual results may differ materially. The risks, uncertainties, and other factors that could influence actual results are described on Slide 2, and in the press release, filed with Canadian and US regulators. This presentation also contains non-GAAP measures outlined on Slide 3. Please note, in addition to our regular quarterly financials, there is supplemental Q4 and full year combined revenue and operating performance data available at investor.cpkcr.com, which some of today's discussion will focus on. With me here today is Keith Creel, President and Chief Executive Officer; Nadeem Velani, our Executive Vice President and Chief Financial Officer; John Brooks, our Executive Vice President and Chief Marketing Officer and Mark Redd, our Executive Vice President and Chief Operating Officer. The formal remarks will be followed by Q&A. In the interest of time, we would appreciate if you limit your questions to one. It is now my pleasure to introduce our President and CEO, Mr. Keith Creel.

Hi. Thanks, Chris, and thanks, everyone, for joining us today. This gives us a chance for the team to share our fourth quarter results as well as our view for this exciting year ahead in 2024 that we have to create value for our shareholders, for our customers, and our CPKC family. So with that, we will speak to the results. For the quarter, this team delivered revenues of $3.8 billion, which is up 4% with volume growth of 4%, an operating ratio that represents 220 basis points of improvement versus last year to 58.7%, core EPS of $1.18 which is also up 4% versus last year. And for the full year, revenues were $13.9 billion, up 5%, with volume growth of 1%. It's a very unique industry story, an operating ratio of 62%, core EPS of $3.84 also up 2% versus last year. So, standalone, certainly unique and impressive results, even more so when you think about this being railroaders in the early stages of an integration working against a challenging macro environment all at the same time. Here we are 10 months into this fair story of CPKC, and I can tell you I'm extremely proud of the progress this team has made across the organization, operationally, in sales and marketing, finance, and all areas of the business. This is a team that’s committed to creating value. As we said, we were doing exactly what we said we would do. I can tell you a tremendous amount of work went into preparing for this merger for this combination, and even more has gone into executing it. This leaders, I believe this, we're not here to sustain performance; we're here to leave it better. We're here to make an impact to improve the product. And that's exactly what this team has been doing for the last 10 months. We've launched new services and market solutions across the industry that this transaction has uniquely enabled, be it our 180/181 service or our Mexico Midwest Express, which is recognized as the gold standard in the industry, despite what anybody else might say, trying to imitate it. It's best-in-class, delivering fast, reliable, single-line service across a very fluid and always open border. The closed-loop service solution for the automotive industry provides a differentiated level of service and reliability that the OEMs are embracing and recognizing the value it creates in the reliable supply chains. Connecting origins to destinations of ECP and CE forest products, again, with a unique single-line service across all three nations. We've made gains in operational efficiency, reduced assets, increased velocity, reduced dwell, and eliminated redundant handles. We've also made strong progress on the labor side. On the US side, we've expanded our very unique hourly agreements, which provides a competitive advantage not only to serve our customers but also to attract and retain the best railroad talent in the industry. In Mexico, we're establishing trust and respect with our single union, working towards agreements that not only improve service but also benefit the employees. So it's truly a win-win for Mexico, for employees, as well as our customers that utilize our service. Also, throughout the year, while we're doing all that, we continue progress on our Hydrogen Locomotive program. We now have two low-horsepower hydrogen locomotives servicing customers every day in Calgary, come rain, come shine, come snow, producing zero emissions for Calgary customers in that market. We also fabricated our first high-horsepower locomotive, which we completed late last year and will be putting into service later this year in a closed-loop with the cycling coal between the coal mines of British Columbia and other destinations in British Columbia in partnership with our largest customer, Tech Coal, creating a green corridor. Above all that, while doing all that, we have continued to make vast improvements in our safety performance as a combined company, building upon CP's long history of industry-leading safety performance. So, all of that to say, we've entered 2024 in a position of strength, with industry-leading results, and we're going to continue to build upon that. While Mother Nature has humbled us a bit in the first month, it’s a challenge, not an excuse. We’re well-positioned to recover. We have regained our momentum that we started the year with, and we’re in a great position to continue that through this quarter and into the balance of the year. Let me close by saying 2023 was a very special year. We brought two great companies together, CP and KCS, to create a very unique industry-leading and most relevant rail network in CPKC. We've connected a continent in a way that has never been done before, and I would suggest, never to be done again across three nations. Since the combination took effect in April, we’ve seen steady momentum build, and I can tell you we’re just getting started. 2024 is shaping up to be an even more exciting year than 2023. So that said, let me hand it over to Mark. I want him to expand on some operational points, John will provide color on the markets, and Nadeem will bring us numbers, and then we’ll open up for questions. So, over to you, Mark.

All right. So, first of all, thank you, Keith. Good afternoon. I’d like to just, first of all, thank the operating team for their continued hard work in delivering safe, reliable service across this great network. If I think about bringing two networks together, certainly this isn’t easy, and there’s still a long list of opportunities out there, but I’m pleased with the progress we’re collectively making. Also, I’d like to acknowledge this team’s effort on the combined CPKC network as we enter 2024 in a place of strength, as Keith noted. While we've dealt with some weather during the first part of the year, we are well-positioned to rebound quickly, and we have done so. As I look at safety, I would remind you that I’d like to recognize the entire team for the tremendous safety results we've had. I'm extremely proud to say again that in 2023 we had the lowest effort in train accident frequency on Class 1 railroads, building on CP’s 17 consecutive years of excellence in the industry. This impressive milestone highlights the team's dedication to excellence while ensuring safety remains our top priority. It also showcases the strong commitment to safety from both KCS and CP that have been brought together in this merger. As I look at the operating performance year-over-year for the quarter, the FRA personal injuries landed at 1.10, which is a 15% improvement. The FRA train accident frequency was 1.08, which is a 23% improvement. Locomotive productivity improved 13%, our train speed increased 6%, our fuel efficiency was 2% better, and our average terminal dwell was down 11%, a strong indicator of how well our network is performing. Looking at our safety initiatives, we have 27 subdivisions and around 2,600 miles of dark territory now protected with CPKC's broken rail detection system, and we plan to add eight more additional subdivisions in 2024. Furthermore, we are implementing additional detection capabilities across the network with acoustic bearing systems. As I talk about our capital projects for the year 2023, we serviced three new sidings and will construct five more in 2024. This is all part of the $275 million merger commitment that we have. Currently, the Laredo Bridge is 45% complete and remains on target to finish by the end of the year. We’re also investing in Mexico to increase capacity and fluidity across the North-South corridor between Laredo and San Luis Potosi. All these projects will support growth and further improvement in the network performance, and as I look ahead to 2024, we’ll continue to build on the momentum generated in 2023. We’ll continue to work closely with John’s team to provide service and involve industry-leading growth that this network can achieve. With that, I’ll turn it over to John.

All right. Thank you, Mark, and good afternoon, everyone. Having now wrapped up our third quarter as a combined CPKC, I’m as excited as ever about the opportunities that sit in front of this company. It's a unique franchise. The year and quarter ended on a strong note, and we are well-positioned to continue delivering differentiated growth in 2024. Now, looking at our results, on a combined basis, we had record freight revenue growth of 4% on 4% RTM growth versus pro forma CPKC a year ago, in line with what we spoke about during our third quarter call. Since our RTM was flat year-over-year with fuel and other freight offsetting strong pricing. Looking at our fourth quarter revenue performance, I’ll speak to the FX adjusted results on a comparison versus CPKC had the combination occurred in 2022. Starting with bulk, grain revenues were down 3% with a 7% decline in RTMs. Canadian grain volumes were down 15% year-over-year due to a weaker harvest for the 2023-2024 crop year, particularly in our CPKC drought territory. Additionally, we saw the Canadian farmers being more price-sensitive and holding onto more of their crop, which added to the weakness in volume for the quarter. While this was a headwind for closing out 2023, ultimately, this grain will still move and provides some modest upside into 2024. That being said, we still expect weakness year-over-year in Canadian grain to persist until we get to the new crop. US grains were up 3% as we benefited from a solid harvest, steady market demand, and growth from synergies as we connected new origination and destination pairs across our new network. Furthermore, we continue to see investments in growth in our 8,500-foot model, and by the end of 2024, 60% of our franchise in Canada will be 8,500-foot capable, including all the 8,500-foot elevators that Richardson International is developing across our network. We continue to roll out this model and work with customers down in the United States and ultimately into Mexico to roll out this high-efficiency operating model. Moving on to potash, revenues were up 16% with 20% volume growth. The volume increase was driven by strong supply chain performance and higher volumes of export potash with Canpotex as we worked together to find additional outlets for volume given the Portland terminal outage during the first two months of the quarter. In early December, the Portland terminal came back online, and we were able to quickly return to a full run rate by the end of the year. We are well-positioned for strong potash growth in 2024. For coal, revenue was up 32% with 33% volume growth driven by favorable comparisons following last year's outages at Teck’s Elkview Mine. Now, moving on to the merchandise franchise. ECP revenue grew 6% with 3% volume growth. Refined petroleum products and asphalt grew driven by new market share and growth also within plastics to the Midwest. We will continue to benefit from the new business wins that started up in Q3 and Q4 of last year, although some of this growth was muted by a facility outage and a slower ramp-up. With solid demand fundamentals, ongoing ramp-up of these business wins, and continued synergy gains, we are setting up for a strong 2024 in ECP. In forest products, revenues were up 2% with a 1% increase in volumes. Despite softer demand in our base business in this area, we have seen nice synergy wins as customers take advantage of our new single-line haul network connecting new markets. The metals, minerals, and consumer products portfolio was up 3% on flat volumes. We continue to see strong growth in steel from our production facilities supporting industrial and infrastructure growth across North America. However, this quarter was somewhat offset by weakness in frac sand in the Bakken and the Permian Basin, as we saw an earlier seasonal downturn and some growth in in-basin sand. Automotive revenues continue to perform strongly, up 22% with 19% volume growth, marking another record quarter for our automotive franchise. Our automotive franchise benefits from new business, solid continued production from our OEMs, and steady equipment supply driven by improved operations and cycle times, particularly in Mexico. We're pleased with the new agreements we have developed that enable closed-loop service solutions, providing this industry with service reliability that it has never had in the past. This includes the use of our new auto compound in the Dallas Metro area, linking customer traffic between the US, Canada, and Mexico via our single-line haul service. For automotive, 2024 is positioned to be an exciting year as we see a path to record volume on our franchise. On the intermodal side, revenue was down 11% with flat volumes. Domestic intermodal continues to be challenged by lower retail volumes and ample truck capacity, as well as some general market softness. Meanwhile, our MMX180/181 cross-border service continues to perform well. This truck-like service provides safe, reliable border crossing between Mexico and the US. We saw growth in this service in the fourth quarter, particularly across our North Long volumes. While the base demand in domestic intermodal is something that myself and my team are watching closely, especially across Canada, there will still be opportunities for cross-border intermodal as we seek steady synergy growth from over-the-road conversions and new customer solutions as we move throughout the year. Additionally, we are excited to break ground in February on the new Americold facility co-located in our intermodal terminal in Kansas City. This partnership with Americold is another step in creating new rail options for shippers in a market that is dominated by trucks. Regarding our International Intermodal, after a challenging third quarter, this business has picked back up. We ended the quarter with volumes up 2%. Although we remain cautious on our outlook for 2024 in this space, we are certainly encouraged by the recent trends. We're also optimistic about progress at Lázaro Cárdenas, which saw TEU growth of 30% in 2023, while CPKC’s volumes grew by 35% versus 2022. Our customers are enthused as we continue to develop this service and educate them on this supply chain alternative. When combined with our 50% ownership in the Panama Canal Railroad, we are excited about the unique solution CPKC can offer ocean carriers and their beneficial cargo owners. In closing, despite early weather challenges in January, we are entering the year with strong momentum. While we have known headwinds from Canadian grain, and the macro backdrop remains uncertain, we have strong line of sight to remain uniquely positioned to deliver long-term growth. Our synergies in 2024, combined with base self-help initiatives and a disciplined pricing approach, will continue to be an exciting story and differentiator for us in this industry. With that, I’ll stop, and I’ll pass it over to Nadeem.

Great. Thanks, John, and good afternoon. First, I'd like to thank the CPKC family of railroaders for working tirelessly throughout the year to bring our two companies together. 2023 was truly historic, and I'm extremely proud of the hard work and dedication the team has displayed. Looking at the quarter, CPKC's reported operating ratio was 61.8%, and the core adjusted operating ratio led the industry for the second quarter in a row, coming in at 58.7%, which was a 220 basis point improvement versus Q4 of 2022. Earnings per share was $1.10, and core adjusted combined earnings per share was $1.18, up 4%, which was also the industry best in the quarter. On a full year basis, CPKC’s reported operating ratio was 65%, and the core adjusted combined operating ratio came in at 62%. Earnings per share was $4.21, and core adjusted combined earnings per share was $3.84, up 2% year-over-year. Now, taking a closer look at our income statement, reported operating expenses for Q4 and full year are provided on Slide 14. Combined operating expenses for Q4 are on Slide 15. Similar to what we shared last quarter, our combined operating expenses illustrate the estimated effects of the acquisition for the fourth quarter as if the acquisition had closed on January 1, 2022. I will only speak to FX adjusted fourth-quarter operating results in these prepared remarks. Full year results have been included in the appendix for records. We’ll start with compensation and benefits; its expense was $637 million, up 2% versus the combined comp and benefits expense a year ago. This includes $7 million of integration-related expenses. The increase was driven primarily by wage inflation, increased incentive compensation, and higher volumes. Average headcount was down slightly sequentially in Q4. Looking to 2024, we expect headcount growth to be below volume growth on a year-over-year basis, partially offsetting the increase with lower current service costs in the defined benefit pension plan resulting from higher discount rates and lower stock-based compensation. Looking to 2024, we expect to have a $16 million headwind from the lower discount rates, which is more than offset below the line. Fuel expense was down 8% year-over-year, primarily driven by a 10% decline in combined fuel prices along with a 2% improvement in fuel efficiency, partially offset by a 5% increase in GTMs year-over-year. Materials expense was down 9%, largely driven by reduced locomotive maintenance material expenses. Equipment rents was $76 million, down 1%; improvements in efficiency and an increase in receivables drove the improvement, partially offset by inflation and lower use of CPKC intermodal equipment by other roads. Depreciation and amortization expense was up 6%, resulting from a higher asset base. Purchased services and other was relatively flat year-over-year, with a reduction of casualty expenses and gains in efficiencies offset by volume-related increases from inflation. Before moving below the line, I will make a couple of comments on inflation. This past year, we were not able to reprice our entire book to offset the impact of inflation on our cost structure, which created a headwind to our operating ratio throughout 2023. As we move into 2024, the impact of inflation on our expenses is moderating. Additionally, the pricing environment remains strong, and we will reprice a portion of our contracts that did not renew during the period of higher cost inflation in 2022 and 2023. Putting these together, we should see some catch-up in a tailwind to operating ratio in 2024 from the inflation dynamics. Moving below the line, other expenses were up $12 million in the fourth quarter. Other components of net periodic benefit recovery decreased $34 million, reflecting higher discount rates compared to 2022. We expect this line to increase by approximately $23 million in 2024, offsetting the headwind in compensation and benefits from the current service costs. Net interest expense totaled $206 million, or $200 million on an adjusted basis; the decline was driven by a reduced debt balance. Income tax expense came to $275 million and $354 million on a core adjusted combined basis. Looking ahead to 2024, we expect CPKC's core adjusted combined effective tax rate to be approximately 25%. Turning to Slide 17, we continue to generate strong cash flow with cash provided by operating activities of $1.3 billion in Q4. Our first call on capital continues to be the business and growth. We reinvested just over $700 million in the year, in line with our outlook to invest $2.7 billion of capital on a combined basis. For 2024, we will remain disciplined in our approach to capital allocation and we expect capital spending to be $2.75 billion for the year. This reinvestment in the business builds off of record capital investment as a combined company in 2023, and our network is well-positioned from a capacity perspective to absorb the growth ahead of us. We generated $785 million in adjusted combined free cash flow in the quarter, totaling just under $2.2 billion in 2023. Our adjusted combined leverage was 3.4 times at the end of the year on our path back to our target leverage of 2.5 times. We expect to reach this target in late 2024 or early 2025, at which point we will evaluate shareholder returns with our Board. Looking ahead, despite known headwinds in grain, as John mentioned, and the macro environment remaining somewhat uncertain, we expect to deliver double-digit core adjusted combined earnings growth from the core business in 2024. We also anticipate generating strong free cash flow while making record investments in the network to sustain future growth and returning to our target leverage. Overall, CPKC offers a truly differentiated investment profile, and I’m excited to continue delivering on the commitments we have made to our shareholders. Looking back, we ended 2023 with strong momentum and advanced in industry earnings results, with the best still to come. The network is performing well, synergies are ramping, and we are well-positioned for a strong 2024. It's an exciting time to be railroading at CPKC. With that, let me turn it back over to Keith.

Okay. Thanks, gentlemen. Operator, let’s open up the line for questions.

Thank you. We'll take our first question from Walter Spracklin, RBC Capital Markets.

Thank you, operator. Good afternoon, everyone. Regarding the double-digit earnings growth, Nadeem, that's in line with what you shared at Investor Day in July. Later that day, you indicated that earnings growth could double by the end of that multi-year period, suggesting mid-teens EPS growth in the early years, and then potentially ramping up once the buyback is activated. Is that still the expectation for year one with mid-teens growth, followed by an increase, or have changes in conditions altered that outlook?

Well, since we gave our guidance in June, Walter, nothing has changed other than I would point out that we had a grain crop that came in maybe a bit weaker, starting in the grain crop starting in August. So that’s going to hurt us near-term a little bit probably in Q2 of this year. Other than that, the model remains the same. We're going to support the business with base organic growth. We'll have the benefits of synergies, since we're ahead of schedule on that. And then we're going to see continued margin improvement and in the outer years, the benefit of share buybacks and shareholder returns. So, nothing has changed on that thesis. We’ve guided to double-digit for this year. We’re obviously not going to get a benefit from buybacks in any fashion. We're not going to buy back stock until we get our target leverage back. So, that’s the only change. I’d say that the macro environment is probably a little bit weaker still in terms of the mobile side that John mentioned. But other than that, we're right on track, right on our plan of that guidance we gave you.

Okay, I'll keep it to one. Thanks very much.

Our next question will come from Tom Wadewitz with UBS.

Great, thanks. Good afternoon. I wanted to see if you could give a little bit of perspective on what's underneath the earnings guidance, just in terms of how you're thinking about RTM growth. Do you think of mid-single digits? What kind of ballpark should we be in? And then how do you think about the magnitude of improvement in operating ratio that would fit into a base case? Thank you.

No, Tom, that's a great question. I'll tell you this. This is what we're expecting: most single-digit RTM growth, double-digit EPS growth, and margin improvement. Now, tell me what the back half of the year looks like, tell me what the macro is going to do. We've taken, I believe, an appropriately conservative approach considering surprises and some of the weaknesses Nadeem spoke of, be they domestic, or perhaps a normalized grain crop, or a little better, then there's some upside there. But we've taken a modest approach, a responsible, reasonable conservative approach, and we expect to hit these results. And again, if we get a couple of things that might turn our way, then we certainly have an opportunity to exceed them.

Okay, great. Thank you.

Our next question will come from Fadi Chamoun with BMO.

Yes. Good evening. Thank you. At the June Analyst Day, you indicated you had $240 million of kind of actual annualized revenue synergies, and you suggested you had a pipeline line of sight to $950 million. I'm just wondering, as we stand today, what does it look like? And how do you feel about the pipeline of 2024 in terms of the revenue synergies?

Hey, Fadi, it's John. I feel really good. I think we have made great progress in the first 10 months. I can tell you, we've got some contracts and wins in 2023 that we haven’t fully realized yet; we're just starting to ramp up, and I think we’ll see a progression with those. I still think we can tail on the 180/181 product as we move through 2024. Hopefully, we see some of the domestic intermodal trends and macro trends moving in our favor a little bit. Honestly, that includes Lázaro too. It's been quite an educating process with the steamship lines and beneficial cargo owners around what that port can offer. I had expected that’d be a quicker startup, but we are starting to gain traction there. So I think we guided to CAD 350 million, and I feel comfortable we’re on that pace. I would tell you right now that we've slightly exceeded that and we're well on the way to those numbers we talked about at Investor Day.

Thank you.

Our next question will come from Chris Wetherbee with Citi.

Thanks. Good afternoon. Maybe a question on pricing. So, you guys noted that there’s a little bit of catch-up going on in 2024 in terms of some of the contracts. You didn’t get a shot to renew during the last couple of years, and you have moderating inflation. That’s a little bit different than what we’ve heard from some of the players in the space, particularly some of the US names. So, put a bit of color around the pricing environment you're seeing and is there upside opportunity in the US versus Canada, any differences in the contract renewals that are coming in?

Yes, Chris. John. A couple of thoughts on that. One is, I'll tell you, Q3 and Q4 were quite strong. Some of the best rail pricing that I’ve seen. And again, I think part of that was through the year, kind of catching up to some of those inflationary numbers. So, we’re going to get a tailwind on that. There’s been a fair amount of repricing, and as we’ve dug into the bulk of the new company, some contracts rolled over. We’ve found opportunities to repricing that book. I’ll remind you, we took control in April of last year, so a lot of the contracts leading up to that time, KCS standalone have renewed on their own. My team is getting a first look at a number of those contracts that rolled over to start this year. And the results, most importantly, continue following what we saw in Q4. So, again, my expectation is the first half of this year will remain strong on that front, and we’ll see what the back half brings.

Great, thanks very much.

Our next question will come from Steve Hansen with Raymond James.

Yes, good evening, guys. Thanks. Look, your network-wide improvements in speed and dwell have been pretty outstanding over the past several months, notwithstanding the last week or two. I’m hoping you could point to where these gains have been coming from more specifically on a geographic basis and what that might imply for some of the prior congestion issues you've acknowledged in Mexico. Ultimately, what does it mean for bringing on the revenue synergies down there as well? Thanks.

Steve, great question. Let me say this: the improvements are not singular; they're diversified. Mark has done a phenomenal job in Canada regarding driving dwell down and train speed up; our 100-series trains have never run better. The focus and intensity on improving train speed, asset turns, locomotive velocity, and fuel efficiency have been outstanding. At the same time, we've taken this challenge, which comes with growth, and turned it into an opportunity. John’s team has focused on process, bringing PSR principles, and improving resource utilization. We work with our customers to identify what's possible and strive to achieve the art of the possible. It's all about asset turn, speed, and velocity. Through strategic investments, similar to past PSR playbooks, we’re creating capacity and resiliency to eliminate bottlenecks and improve productivity. John, any highlights from Mexico to share?

Yes. Looking at the 100 Series in Canada, we've shortened some of the trains up slightly to increase throughput across the network. This has helped us produce more efficient trains for John to sell to the marketplace. We have deployed workers in KCSR, leveraging switching yards and enhancing mechanical operations. Going into 2024, we plan to execute in-house overhauls in our diesel shops, improving our engineering gains across the network. Looking at Mexico’s improvements, we had significant efforts in stabilizing operations, specifically around the automotive hub. Teams embedded to improve dwell time and overall service. Cycle times on larger customers in steel and metals will be our focus as we maximize improvements and apply best practices post-merger.

We initiated a boots-on-the-ground effort to stabilize and improve Mexican operations in 2023. The task force worked on improving our dwell time and resource utilization in key areas. We’ve embedded best practices that we’ve inherited from the merger, and we’re pivoting our focus to improving cycle times in complex business segments, all of which is reflected in our 2024 capital allotment.

It’s brilliant, guys. Thanks.

Our next question will come from Scott Group with Wolfe Research.

Hey, thanks. Afternoon. John, with everything going on at Suez and Panama, just curious your thoughts on whether Vancouver or Lázaro may be better positioned to benefit from that. And then just separately, Keith, I know we've got labor negotiations going in Canada. Any update you can give us on how to think about that? Thank you.

Let me start with the labor update. I remain cautiously optimistic, but I'm a realist at the table. We are reengaging with TCRC through the end of this week; I believe he is doing the same thing. I’m optimistic we can reach a negotiated settlement. If not, both parties can file for conciliation, creating a 96-day public notice process before the potential strike occurs at the earliest. My main point to make is that it’s best for everyone involved, including our employees and customers, to maintain working relations, and I hope that’s what happens. Regarding Suez, Panama, and Lázaro: Lázaro is significantly closer to Panama than Prince Rupert, which enhances our strategic advantage. Over to you, John.

Lázaro offers unique potential as a tool in our toolbox, and I'm pleased to share that volumes have recovered strongly in Vancouver. However, we view the value proposition of diverse port options and the ability to capitalize on the Panama Canal as an opening for growth. The East Coast labor situation remains an area we’re watching closely and could present more opportunities for us.

Thank you. Our next question comes from Benoit Poirier with Desjardins Capital Markets.

Yes, Thank you very much. Good afternoon, everyone. With respect to the situation in Mexico with the decree now being enforced and given the fact that you’ve submitted your feasibility study to the Mexican government, what are the next steps? And if you could talk a bit about the benefits of the second bridge in Laredo and the positive impacts we should expect on volume dwell velocity? That would be great. Thanks very much.

Hey Benoit, great to hear from you. Regarding the Laredo Bridge, it’s a big deal, obviously as it doubles our capacity and ability to create a double track across the border point. This will allow trains to pass through without needing to stage in a queue. Previously, we have driven improvements, cutting queues from 12 hours or 8 hours down to 4 hours, but going from 4 hours to no hours is a material improvement. Additionally, as I've said from day one, Mexico's ambitions for faster passenger rail service will not impede or hinder our freight operations. We are firmly committed to work with the Mexican government to define needed capacity to ensure both freight and passenger achieve their respective goals. The strong relationships we've built with the government will be instrumental as we pursue these objectives. We submitted our intentions to the Mexican government on January 15, indicating we want to support this dual-track vision combining freight and passenger efficiently. Following my engagement with President AMLO, I’m confident we'll develop solutions that enable a win-win outcome for everyone involved in this transformative change.

That's a great answer, Keith. Thanks for your time.

Our next question will come from Jon Chappell with Evercore ISI.

Thank you. Good afternoon. John, you mentioned doing a little bit better than the $350 million of revenue synergies. I assume that it's not completely linear; there are probably some areas where you're doing better than you initially thought and others where there have been challenges. Could you speak to the latter part, where things may have been a bit harder? Do you think you will eventually reach your initial projections, or is there something structural that may prevent you from hitting that point due to macro headwinds?

Let me just say it's macro and timing, Jon. I feel good about the synergies and hitting them. I think I mentioned earlier that I thought we would see a quicker ramp-up on Lázaro, but it has been an education process with steamship lines and beneficial cargo owners on what that port can offer. I can tell you that there has been a lot of hard work involved, and I’m confident we will deliver. We expect this to build in 2024. We’ve had some success in automotive, particularly from new agreements that have driven performance.

Yes, very helpful. Thank you, John.

Our next question will come from Konark Gupta with Scotiabank.

Thanks operator and good evening, everyone. I just wanted to understand, if the new free synergies you reported within your 2023 earnings what would 2024 earnings look like?

Say that again.

So, I'm thinking in terms of how to portion out the double-digit EPS growth for 2024. Maybe more for Nadeem and John, if we increase 2023 synergies you realize, how much of 2024 earnings would grow without growing synergies?

We are not giving that granular guidance at this point. We’ve given you an indication of where we see our synergies. We’ve mentioned that we are at a $400 million run rate, and we’re on pace to achieve that over the first three years. You can do the math yourself, but we can follow up if you want to connect with Chris and Ashley after the call. Maybe that is a clearer discussion.

Yes, thanks, Nadeem. Thank you.

Our next question will come from Ken Hoexter with Bank of America.

Great. Good afternoon, and thanks for the detailed answers so far. Maybe Nadeem, if I can follow up on the cost side synergies. There have been a lot of questions to John on the revenue side. Can you talk about how well you've executed your targets so far? Where do you see that going? Where can you find some of those synergy goals on the cost side? And then thinking about headcount, how do we think about that going forward relative to your RTM? I think you threw out there a low mid-single-digit RTM growth as part of the double-digit earnings growth. How does headcount play into that? Thanks.

Yes, great, Ken. If you think about what we had guided to on the EBITDA synergies on the expense side, we talked about $180 million in the first three years. It’s very much on target. The headcount piece was initially a big part of it, given near-term attrition; some of the senior team members opted not to continue with us. From a G&A perspective, we’re on track slightly ahead of schedule. For operating synergies, we expect to increase them in year two. Initially, we faced challenges on the US side of the network versus Mexico, thus delaying some of those gains. Looking at our performance in Q4, we’ve discussed substantial improvements on the performer KCSM and the KCSR to deliver strong operating results. I’m bullish for operating synergies in the remainder of the year.

And your thoughts on headcount relative to volumes going forward?

Headcount: we expect low single-digit type of RTM growth, showing flattish headcount for the year.

Our next question will come from Justin Long with Stephens.

Thank you. Good afternoon. Nadeem, you mentioned the assumption for low single-digit RTM growth this year. I'm assuming that includes a benefit from synergies. Is there a way to think about the organic volume growth that you're assuming for the business? Also, if possible, I’d like some insight into first quarter OR, given the weather disruptions we've seen thus far. I know you said you could make up a good bit of it, but curious to know how you expect that to net out to margins.

Yes. This year, the headwind on grain on the Canadian grain side will be mitigated by base growth. I’d say we’ll see almost flattish growth on the base organic side and then synergies driving low single-digit gains. As for the Q1 operating ratio, January started strong, and then winter hit with some challenges at ambient temperatures of minus 40 degrees. However, the network is recovering well. Depending on February's performance and how we end March, we believe we can achieve a more normal operating environment, with solid figures and a strong year-over-year operating ratio alongside strong earnings growth. We'll have to monitor the winter conditions; demand exists, and the network remains capable of executing.

Thank you very helpful.

Our next question will come from Cherilyn Radbourne with TD Cowen.

Thanks very much. Good afternoon. I was wondering if you could give us some color on crude by rail volumes in Q4 and whether you think that's an area which can have some upside for you, just with the completion of the TMX expansion running into another issue here?

Yes, Cherilyn, it's John. I think our Q4 numbers were down a little. We had some facility issues that really drove volumes lower in that area. I can tell you we have a stronger plan for 2024 in the crude by rail space; our ERU business is set to continue strong. However, we are not aggressively chasing this; if the right opportunity arises, we will pursue it. There might be some upside in the crude by rail area in 2024, but not massive.

Thank you.

Our next question will come from Brian Ossenbeck with JPMorgan.

Good afternoon. I appreciate the opportunity to ask a question. Could you provide an update regarding the recent headlines? I'm uncertain if we have the complete details from their review yet. It seems that KCS's experience a few years back didn't significantly affect them. I’d like to hear your updated perspective on this. Additionally, John, can you share the current status of the border crossing fluidity you referenced a couple of times with 181? Is that progress being reflected in conversions? Are shippers prepared to transport freight, especially with the second bridge in Laredo expected to open later this year?

To summarize, the regulatory body in Mexico that oversees competition is currently conducting an industry-wide review, which is not aimed specifically at CPKC, and we have not been served any notice. Our operations show that we are promoting competition by offering new services and reliability. We may not be charging enough for our premium service. There is no indication that this review will adversely affect us. As for border fluidity, it remains operational due to KCS's investments in creating a secure environment. The addition of a second bridge will further increase capacity and security, benefiting our customers and attracting more shipping volume by demonstrating the value we provide.

Understood. Thanks, Keith.

Our next question will come from Brandon Oglenski with Barclays.

Hey, and thanks, Keith, for letting me sneak in here. John, maybe I will close out with you on the low single-digit growth outlook this year. I mean, I get that there's a lot of uncertainty in the macro. You’ve given some upbeat commentary on merchandise. Can you talk about the incremental customer opportunities you see there playing out in 2024, and maybe where you see positive variance to the industry growth rate in merchandise?

Yes, Brandon. The legacy ECP franchise is our strongest merchandise area. The combination is proving to bring in immense strength specifically within that space. We’ve witnessed noteworthy improvements in the second half of 2023, particularly in the ECP franchise, where strong trip plan execution and local service contribute positively to our growth. Additionally, our steel franchise is seeing strong growth due to our production facilities in Mexico and Canada. We see lots of potential in this area, driven by investments and contracts won. I expect to see strong growth manifest in the merchandise sector as we move forward.

Thank you.

Great. Thanks, operator. Listen, again, thanks for joining us this afternoon. I hope that you leave this call understanding what we’ve set out in the very beginning. We're in the middle of creating history. We've created a very unique network bringing these two wonderful companies together. We’ve got a unique value-creating opportunity that’s been tested against time. In a difficult macro environment, we've shown growth. I’m not just talking about RTM growth, but also earnings and margins. We're never more invested to create a resilient supply chain at a time our three nations have never needed it more. This formula works; it's standing the test of time and will be here for generations to come. We’re on a journey with the best railroaders in the industry, one that provides a unique value-creating story for employees, communities, and shareholders alike. We look forward to rewarding your trust. Thank you, and have a safe and productive day ahead. We look forward to sharing our first-quarter results in the months ahead.

This does conclude today's conference call. You may now disconnect.