Good afternoon, everyone. My name is Bow and I will be your conference operator today. At this time, I would like to welcome everyone to CPKC's Second Quarter 2024 Earnings Conference Call. The slides accompanying today's call are available at investor.cpkcr.com. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. I would now like to introduce Chris de Bruyn, Vice President, Capital Markets, to begin the conference. Chris, please go ahead.

Thank you, Bow. 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, in the press release, and in the MD&A 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, their supplemental Q2 combined revenue and operating performance data is available at investor.cpkcr.com, which some of today's discussion will focus on. With me here today is Keith Creel, our President and Chief Executive Officer; Nadeem Velani, our Executive Vice President and Chief Financial Officer; and John Brooks, our Executive Vice President and Chief Marketing Officer. The formal remarks will be followed by Q&A. In the interest of time, we'd appreciate if you limit your questions to one. It is now my pleasure to introduce our President and CEO, Mr. Keith Creel.

Thanks, Chris, and good afternoon. Before we get into the results, on behalf of our CPKC family, I want to extend our heartfelt prayers and condolences to Pat Ottensmeyer's family and friends. Our family mourns this tragic passing. We extend our deepest condolences to his fiancée Deanne, his entire family, and his many friends and former colleagues. Pat's vision and leadership played a monumental role in the great history of Kansas City Southern as he helped reshape the railway industry. We've lost a truly remarkable leader and a cherished friend. All who knew him as a professional and a railroader had nothing but respect and admiration for the meaningful impact he made across so many aspects of our industry. If you had the honor to enjoy a friendship with Pat—as I did—words will never capture what a classy gentleman and human being he was. Pat's legacy lives on, and it can be seen in the work we'll do every day at CPKC. I'm also pleased to be hosting this call in Kansas City at our brand-new state-of-the-art US Operations Headquarters. This facility is just one small example of what would have never been possible without Pat's vision and strength as a leader. His contributions as a railroad leader and as a person will never be forgotten. Moving on to the quarter, I'd like to first start by thanking the 20,000-plus strong CPKC family for their efforts in the second quarter. As a leader, it's always my honor to represent the results we're going to cover on behalf of this team, which I'm extremely proud of. In the second quarter, the family delivered revenues of $3.8 billion, which is up 8%, strong volume growth, an increase of 6%, operating ratio of 61.8%, which is a 280 basis point improvement versus last year, and EPS of $1.05, a 27% increase. I am certainly extremely pleased with these results. These numbers that I just walked through do not happen by accident but through execution. So on the operating front, I applaud Mark and his operating team for their continued strong operating performance across this network. They delivered significant improvement across a number of our key operating metrics. Unfortunately, Mark had an unexpected procedure yesterday, so he's not with us today. So I'm going to cover his results and his body of work. Average terminal dwell declined 9% in the quarter. Average train speed improved 6%. Locomotive productivity was up 10%, and fuel efficiency improved 2%. All of these results reflect a network that's fluid, running well, and delivering strong service to our customers as we carry that momentum into the second half. From a safety perspective, train exits were down 4% and personal injuries showed an astounding 38% improvement. I'm extremely proud that our teams continue to focus on safety each and every quarter. Commercially, John and his team continue to bring on business that fits our network well, working in close collaboration with our operating and service design team. The team continues to price the value of the service that this new network uniquely offers. The team is executing on the vision we had when we first proposed putting these networks together, and it's leading us to a differentiated outcome. While it has been well publicized, the freight environment continues to be challenging. We're not making excuses; we're leaning into the challenge and creating opportunities that are uniquely enabled by this new network. So in closing, let me say I'm extremely pleased with the first half of the year. I'm even more excited about what the second half holds. We're in a position of strength, carrying momentum into the second half that we're going to build on. As I said in January, we're positioned to deliver an exciting year of value creation, and that is exactly what this team is delivering. We're uniquely positioned to deliver strong value in '24 and more importantly, for years to come. So with that said, John, I'm going to hand over to you to provide some color on the markets, and then the team will elaborate on the numbers.

All right. Thank you, Keith, and good afternoon, everyone. I'm extremely pleased with the strong top-line growth the team delivered this quarter. This franchise is creating the unique opportunities we've talked about since day one. Our operations are strong, and we're pricing to the value of the differentiated service we are providing our customers. Now, looking at our results on a combined basis, we delivered freight revenue growth of 8% on a 6% increase in RTMs. Revenue per RTM was up 2% with strong pricing and a slight tailwind from FX, partially offset by mix. Now taking a closer look at our second quarter revenue performance, I'll speak to FX adjusted results on a CPKC combined basis. Starting with bulk, grain revenues were up 17% on 15% RTM growth. US grain volumes grew 17% over the prior year. Our franchise is benefiting from strong shipments of corn to P&W, Mexico, and Alberta, along with increased shipments of soybeans and wheat to Mexico, which remains a strong area of synergy growth for CPKC. Canadian grain volumes were up 13% in the quarter as we saw a stronger-than-expected spring and summer sales program emerge as farmers reduced their on-farm inventory in preparation for the upcoming harvest. Looking forward, early indications are that this harvest will be more aligned with our five-year average, if not stronger. That, coupled with our regulated grain pricing of approximately 6.5%, has us well-positioned in Canadian grain. Now, moving on to potash, revenues were up 24% on 11% volume growth. We moved higher volumes of potash with Canpotex to their Portland terminal as we overcame the impact of their ship loader outage back in April '23. Looking ahead, the potash supply chain is performing very well, and export demand is sold out for the second half of the year. We are on pace to set a record all-time tonnage with Canpotex this year. Coal revenue was up 3% on a 2% decline in volume. Lower natural gas prices weakened demand for our US coal franchise, and that weakness was partially offset by more export Canadian coal to Vancouver and Thunder Bay. On the merchandise side, energy, chemicals, and plastics revenue grew 10% on a 14% volume growth. The volume growth in the quarter was driven by higher crude as we reconciled some outages last year and growth from synergies across nearly all of the ECP portfolio, including LPGs, plastics, renewable diesel, and refined fuels. We are excited about the wins we've captured in this space as we are connecting markets from Alberta to the Gulf Coast and into Mexico with our single-line haul service. Looking forward, the ongoing ramp-up of these synergies puts us in a solid position for the second half of 2024 in ECP. In the forest products area, we were down 1% in revenues on a 1% decline in volumes. Forest product volumes continue to be challenged by a soft macro environment impacting both our paper and lumber products. However, we are largely offsetting this headwind with synergy growth and extended line haul, shipping more lumber from Canadian producers down to our franchise in Texas and the Gulf markets. Metals, minerals, and consumer products revenue was down 3% on a 9% volume decline. Volumes in the quarter were impacted by weak frac sand demand, driven by lower natural gas prices but also a labor disruption at the ArcelorMittal steel facility in Mexico. Looking forward, although we expect weakness in frac to continue, the labor disruption has ended, and we expect Arcelor to ramp up production in the latter half of the year. In automotive, we produced another record quarter with revenues up 28% on 21% volume growth, an exceptional performance by the team. Our auto franchise is benefiting from higher longer-haul volumes out of Mexico as our closed-loop model service solution continues to ramp up. I'm also pleased to share that our new Dallas auto compound, located at our Wylie, Texas, Intermodal terminal opened in late June. This compound is part of our playbook that unlocks an entirely new supply chain model for the OEMs, giving them competition, service, and capacity certainty like they've never had before. Our auto business continues to deliver differentiated growth, and we expect a strong performance as we move through the second half of the year. Now on the intermodal side, revenue was down 7% with a 3% volume decline. Starting with domestic intermodal, volumes were up 3%, despite a soft base demand environment. Our MMX of 180/181 cross-border service continues to perform extremely well in what I would consider a very challenging domestic market. Volumes on this service are up 50% since our exit rate at the end of 2023, and we have a strong pipeline of opportunities stacked up for the latter half of the year. This includes new wholesale opportunities, new retail opportunities, temp control service operating, and new joint line routes into both the Southeast US and the Ohio Valley markets. Moving on to the international side, volumes were down 9%, primarily due to lingering strike uncertainty and the timing of some share shifts in business. With new business ramping up and a solid outlook for demand, we are well-positioned across all our ports for the second half of the year. To close, the volumes in the first half came in slightly better than expected, and we're off to a strong start in Q3. While the macro remains challenging in some areas, overall demand has stabilized, and more importantly, we continue to have line of sight to strong differentiated growth from synergies, self-help initiatives, and disciplined pricing. The operations team is delivering reliable, resilient service to our customers, and my team is laser-focused on selling into that service and taking advantage of our expansive new network. I'm excited about what we've accomplished so far this year and even more thrilled for the opportunities ahead. So with that, I'll stop and pass it over to Nadeem.

Thanks, John. It's a great report. Let me start by sharing my enthusiasm for the strong performance for the quarter. Our success is driven by the hard work and dedication of CPKC's railroaders, and I'm proud of what the team is accomplishing. Looking at the quarter, CPKC's reported operating ratio was 64.8%, and the core adjusted combined operating ratio came in at 61.8%. Earnings per share was $0.97, and core adjusted combined earnings per share was $1.05, up 27%. Similar to what we shared in previous quarters, our combined operating expenses in 2023 illustrate the effects of the acquisition for the second quarter since the acquisition closed on January 1, 2022. I will speak to FX adjusted combined operating results in these prepared remarks. Now taking a closer look at our income statement. Reported operating expense is provided on Slide 11, and combined operating expenses on Slide 12, where I'll focus my comments. Excluding adjustments, compensation and benefits expense was $610 million. The year-over-year decline in compensation and benefits was driven by reduced stock-based compensation as well as efficiency gains from reduced overtime, improved fluidity, and engineering productivity gains. This was partially offset by inflation, volume-driven increases from higher GTMs, and higher current service costs from our defined benefit pension plan due to a lower discount rate at year-end 2023. Looking to the rest of 2024, we continue to expect average headcount to be roughly flat on a year-over-year basis, driving further labor productivity gains as we grow volumes. Fuel expense was $466 million, up 9%. The increase was primarily driven by a $24 million, or 4% increase in fuel price, along with volume-driven increases from higher GTMs. Increases from price and volume were partially offset by a 2% improvement in fuel efficiency, resulting in $9 million in savings. Another area where we are seeing network efficiency gains translate directly into margin improvement. Excluding adjustments, material expense was $95 million. The decline in the quarter was driven primarily by the timing of locomotive and freight car maintenance as activity schedules across the network were aligned. Equipment rents were $82 million, down 5% year-over-year. The decline was driven by reduced car hire payments and receipts, along with efficiency gains from improved cycle times and increased network velocity. Depreciation expense was up 6%, resulting from a higher asset base. Excluding adjustments, purchased services and other expense was $581 million. Costs of inflation and terminal service costs were partially offset by a year-over-year decline in casualty expense. So overall, top-line growth in the quarter coupled with strong cost control and execution resulted in a 17% increase in core adjusted combined operating income and a 280 basis point improvement in our core adjusted combined operating ratio to 61.8%. Moving below the line on Slide 13, other income was $40 million, driven by higher equity income along with a gain on some debt repurchases in the quarter. Other components of net periodic benefit recovery were $88 million in Q2. This reflects a lower discount rate compared to 2023, partially offsetting the headwinds to compensation and benefits from current service costs. Net interest expense was $200 million, or $195 million, excluding the impact of purchase accounting. The decline was driven by a reduced debt balance. Income tax expense was $292 million, or $328 million on a core adjusted combined basis. We still expect CPKC's core adjusted effective tax rate to be approximately 25% for the year. Turning to slide 14, we are generating strong cash flow, with cash provided by operating activities of $1.278 billion in Q2. Capital investments in safety and growth remain our priority. In this quarter, we reinvested $808 million, in line with our expectation to invest approximately $2.75 billion in 2024. We continue to make strategic investments in capacity across our network, positioning us to efficiently absorb the growth that the merger has enabled. On the quarter, we generated $526 million in adjusted combined free cash flow and continued to repay debt. Our leverage ratio was 3.2 times, and we still expect to reach our target leverage in early 2025, at which point we will evaluate shareholder returns with our Board. In reviewing the quarter, the team delivered another strong volume growth ahead of expectations, along with continued discipline on price and cost control. Synergies continue to ramp as the network performs well. We continue to gain momentum on our expense synergies. Improvements in velocity as well as locomotive and car productivity are generating operating savings. We are also gaining procurement savings through consolidating agreements across the company, as well as savings in G&A by combining processes and functions. We're well on track to deliver double-digit core adjusted combined earnings growth, driven entirely from the business and without any help from shareholder returns. This network is delivering strong and profitable growth, and I'm excited about the opportunities ahead. With that, let me turn it back over to you, Keith.

That's great, guys. Let's open it up for questions.

Hey, thanks. Good afternoon, guys and condolences to the CPKC family and certainly to Pat's family as well. He'll be missed. If I could maybe start a little bit on the synergy side, the revenue synergy side, maybe if we could get a sense of how that's progressing. And as we think about the back half of the year, could we see an acceleration in activity? I guess I want to get a sense of what we're thinking about in terms of revenue synergy progress and maybe what we think the exit rate could look like as we get through the end of '24?

Yeah, Chris, so it's John here. I'm super pleased with the progress. We've seen out of the gates really strong last year and a number of announcements, and piled up pretty good exit rate in the 350 range, which we've talked about at the end of 2023. Just to get to the point, I fully expect—we said we'd double that, but I fully expect that we're on a run rate that could get us closer to that $800 million type number as we exit 2024. Half of that would come from intermodal—so international, domestic, automotive. The other half is split pretty evenly between our bulk franchise, as we've really seen here this summer, and our grain shipments into Mexico accelerate. I'm quite pleased with where we sit so far here, and I expect again a pretty good ramp-up as we move through the second half of '24.

Thanks very much. Good afternoon, everyone. John, sticking with you, you spent a bit of your time talking about the Dallas auto compound opening and some of the opportunities there. Can you talk a little bit about the capacity there? How much you could ramp it up, how quickly it could come on? If you could frame it quantitatively even better, just curious to hear what the upside is on that particular line?

Yeah. Walter, I'm really excited about this one. This is an opportunity similar to the playbook in Canada where we identified the land available down in Wylie and aggressively pursued that opportunity. In terms of capacity, we're looking at a facility that will do approximately 160,000 to 180,000 units annually. We utilized about 35 acres or so there. Right now, we've got three OEMs that are signed on and actively shipping into the facility. My sense is those three, probably at full run rate will also get us to 75% capacity roughly in that neighborhood. We have two or three other potential clients that I'm excited about coming on, potentially this year but certainly into 2025. The great thing about that location is that it is expandable. We can add some capacity there, and it's going to provide a pretty unique solution. I also think as production grows in the Eastern US with connections to the NF and CSX, that becomes a big opportunity for the future.

Yeah. I would just add to that, that entire opportunity is well beyond our Investor Day guidance and wasn't in the base plan. We've got 430 acres left to expand into. So we have the capacity, we have the land. I think we're going to have business opportunities. We've got great partners with CSX and the NF to reach all of their markets and feed traffic down into that Dallas corridor and into Mexico. So I think it complements our network uniquely.

If anyone is going to be in Dallas in September, we're going to be doing a tour there.

Yes, we're happy to show that facility off in September.

Yeah, good evening. Before taking my question, Keith, maybe can you give us an update on the labor situation? I wanted to ask you, John, typically your second half tends to be a little bit stronger than the first half from a volume perspective, given the difficult seasonality. How are you seeing some of the diversion we've experienced in the second quarter and are experiencing now stabilizing? Do you think there is potential for more headwinds on that front as we look into the third and fourth quarter?

Hey, Fadi, you cut out on the question. Can you just repeat the first part?

Well, the first part is just about an update on the labor situation if you can just give us a little thoughts on that?

Okay. Well, as we all know, we've been trying our best to keep our customers updated and all key stakeholders. The CRIB addressed the question that the Minister of Labor posed relative to a potential threat to Canadian safety. We're awaiting a ruling on that question. We expect by the end of August to have an update. We've requested some time for our customers to plan so they can responsibly wind down their operations and avoid chaos. That said, while we are staying at the table, we remain far apart. I'm being transparent: it's going to be a challenge. We've offered to enter into binding arbitration given we understand the potential damage to the Canadian economy and the impact on our employees, those that might be on strike and those that aren't. It's not a good outcome for anyone. But, at this point, I remain cautiously optimistic. It's most probable we will have a work stoppage from both railroads. My best guess is, we will likely have a work stoppage sometime at the end of the month.

Yeah. Fadi, a few things here, I would say. I feel better about where I thought it would be at this point of the year. I do have quite a bit of optimism surrounding the run rate as we think about the back half of the year. That being said, we still have to get through what is likely going to be a strike. There is a level of uncertainty. Plus, if we have an election year, there is a macro environment that isn't great in some areas. That said, maybe the counterbalance to that is, as I mentioned, I think we're shaping up for a pretty good grain season. We are well-positioned in the Western corridor in terms of our capacity and the service we provide our grain shippers.

I think everyone should take away that our guidance assumes a work stoppage. Unless it's long-lasting, that is more than two weeks, we are planning for that. It's not going to impact our guidance. Once we get beyond that, we'll be in a position to have a much better outlook for the year.

Yeah. Good afternoon, guys. Thanks for your time. If I'm listening to your recap, it sounds like you weren't operating in the Western corridor. One of your peers talked about a lot of congestion problems in the West. It raises questions about ultimate capacity. How do you feel you managed to escape the congestion issues faced by others? Do you feel like the capacity into key jurisdictions is still sufficient?

So, Steve, let me focus on CPKC. As I've said this all along, you can't oversubscribe your network. You've got to understand your capacity, and you sell to the strength of your franchise. You do not oversell it or oversubscribe it. You have to have the right number of locomotives, right number of cars, right number of crews, and understand the business coming on. At our railroad, we focus intently in a disciplined manner to ensure that we rightsize our assets and sell to our capacity. That's a discipline. If you let your aspirations get ahead of your capacities, you will eventually get in trouble. As an operating CEO, I'm intently focused on that. It’s a discipline moving into our DNA. As long as I have anything to do with this railroad, and anyone I train does, that's how CPKC will operate in Canada, the US, and Mexico. That’s the recipe for running a precision scheduled railroad that provides great service, controls costs, allows earned margins, and ensures sustainability for customers.

Yes, good afternoon. Keith, I wanted to ask how you think about— or John, how you think about capacity in some of the services you have? How do you aspire for 2025 to be a strong margin expansion year? For example, you probably still have a good amount of capacity on the 180/181 service.

Yeah, we're well-positioned from a capacity standpoint, Tom, it’s a great question. The 180/181 is a perfect example. We're currently overseeing some margin because we have that service out there. To John's point, it's up 50% since the beginning of the year, and that train is running at half capacity. We still have additional capacity to sell into and the margins will only improve once we cover our base costs. We’re building this network out to match synergies so that we can onboard this business without deteriorating our services or productivity.

Tom, we outlined our guidance for 2024 to 2028, with high single-digit revenue growth. We are right on track for that in year one, and we have plenty of capacity to support that revenue growth, which we will bring on at a low incremental cost.

Hey, thanks, good afternoon, and I echo the condolences on Pat from earlier. Nadeem, at the beginning of the year, you mentioned an inflation catch up. Can you update us on how that's playing out and same-store price trends? Additionally, John, the RTM carload spread is wide right now. How should we think about this going forward in light of the synergies?

Scott, you're right. We recognized there would be an opportunity to have some pricing catch-up with contracts. We're starting to see the cost side of inflation moderate around that mid-3, 3.5 level. We're seeing the strength of our service rewarded in the marketplace with pricing north of 5. The spread between pricing and inflation is widening, and I don’t see that changing.

On the RTM question, we believe RTMs are critical. They are the most important metric, particularly with this new expanded network. The spreads you’re seeing today are exaggerated because we haven't lapped the loss of short-haul low-profit business from the fourth quarter of last year. That was about 170,000 carloads lost. So, if you focus too much on carloads, you might miss the power of what's really occurring.

Thanks. Good afternoon, everyone. Our thoughts are also with the CPKC company as well. If I could ask about your guidance; are the costs in question purely about costs, or are you trying to quantify any potential diversion of volumes that you're seeing now?

We've faced some revenue headwinds in May before the labor disruption was delayed. I'm not necessarily factoring into any revenue related to the disruption. So I think it's more a cost element. There will be inefficiencies when the network is forced to a halt, and it takes time to ramp back up.

We cannot put a number to it, but we expect a push of volumes over to Q4 and likely into Q1 of the next year depending on the duration of the stoppage.

Thanks. I appreciate you guys fitting me in. I wanted to go back to pricing. There were still some legacy contracts pre-merger that were set to be repriced. Have you worked through all of that, or is there still some juice to squeeze on those contracts?

We are getting into the late innings of the base book. There's probably one more significant contract. For the most part, we have worked through it as timing-wise, most were annual contracts. We have been at this now for close to 1.5 years.

Let me close by thanking you for your time. I hope the comments provided some color on this unique network and the value creation that we're unlocking. Especially now in light of Pat's passing, I think about what we committed to together. We've enabled growth, created competition, and unlocked unique value for all stakeholders across the entire supply chain. That means good paying jobs for our employees, great service for our customers, and rail network capacity for our nation to grow for all three nations to enjoy prosperity and to increase trade together. We're doing exactly that. We look forward to sharing the next chapter in this growth story when we report our Q3 results. Until then, stay safe.

Thank you, Mr. Creel. Ladies and gentlemen, that does conclude today's CPKC's second quarter earnings call. Again, thanks so much for joining us everyone, and we wish you all a great evening. Goodbye.