Please standby, we are about to begin. Good day. And welcome to the GATX 2021 Fourth Quarter Conference Call. Today’s conference is being recorded. At this time, I’d like to turn the conference over to Ms. Shari Hellerman, Director of Investor Relations. Please go ahead.

Thank you, Jen. Good morning, everyone. And thank you for joining GATX’s fourth quarter and 2021 year-end earnings conference call. I’m joined today by Brian Kenney, President and CEO; Tom Ellman, Executive Vice President and CFO; and Bob Lyons, Executive Vice President and President of Rail North America. Please note that some of the information you’ll hear during our discussion today will consist of forward-looking statements. Actual results or trends could differ materially from those statements or forecasts. For more information, please refer to the risk factors included in our earnings release and those discussed in GATX’s 2020 Form 10-K and 2021 Form 10-Q. GATX assumes no obligation to update or revise any forward-looking statements to reflect subsequent events or circumstances. I will provide a quick overview of our 2021 fourth quarter and full year results and then Brian will provide additional comments on 2021, as well as our outlook for 2022. After that we will open the call up for questions. Earlier today GATX reported 2021 fourth quarter net income from continuing operations of $61 million or $1.69 per diluted share. It compares to 2020 fourth quarter net income from continuing operations of $17.8 million or $0.50 per diluted share. The 2021 fourth quarter results include a net positive impact of $4 million or $0.11 per diluted share related to Tax Adjustments and Other Items. For the full year 2021, GATX reported net income from continuing operations of $143.1 million or $3.98 per diluted share. This compares to net income from continuing operations of $150.2 million or $4.24 per diluted share in 2020. The 2021 and 2020 full-year results include net negative impacts of $1.08 per diluted share and $0.35 per diluted share, respectively, associated with various Tax Adjustments and Other Items. These items are detailed on page 13 of our earnings release. Total 2021 investment volume was $1.1 billion, as we continue to find attractive opportunities to invest in our businesses across the globe. Additionally, in 2021, GATX repurchased about 131,000 shares for approximately $13 million. As of December 31, 2021, we have approximately $137 million remaining under our existing repurchase authorization. Lastly, as noted in the earnings release, we currently expect 2022 earnings to be in the range of $5.50 per diluted share to $5.80 per diluted share. With that, I will now turn the call over to Brian.

Thanks, Shari. Good morning, everyone. I'll provide a brief overview of our 2021 performance and then discuss our 2022 guidance in more detail. Shari shared the numbers, so I won't repeat them. However, we consistently exceeded our expectations throughout the year, particularly in Rail North America. As noted in the press release, lease rates have risen for six consecutive quarters, resulting in our lease pricing index being nearly flat at negative 0.7% for the quarter. I will discuss our 2022 lease pricing outlook shortly. The pricing strength was fueled by solid demand, our diversified fleet, and the outstanding efforts of our commercial team. As the year progressed, they took calculated risks, pushed lease rates, and achieved high lease renewal success, which contributed to lower fleet churn than we anticipated. Additionally, reduced railroad repairs and our ongoing efforts to conduct more repairs in-house led to much lower maintenance costs than originally expected. Another contributing factor for 2021 in North America was the high asset values; the railcars we sold in the secondary market achieved the values we initially planned, and persistently high scrap prices resulted in scrap gains for 2021. Overall, it was a very strong year for Rail North America, and our team effectively capitalized on the improving market conditions. Moving on to International Rail, we anticipated a significant increase in profitability in 2021, which they delivered, boosting their segment profit by over $21 million from 2020—a 25% increase. This performance was driven by sustained strong underlying markets and increasing earnings from our substantial investments over recent years. Furthermore, they did not face the foreign exchange challenges present in 2020. In Portfolio Management, profit from our Rolls-Royce and Partners Finance joint ventures decreased by $40 million from the prior year, which we expected, as this joint venture continues to navigate a challenging long-haul air travel market. The decline in segment profit was largely due to significantly lower asset remarketing gains compared to the previous year. Regarding our acquisition of Trifleet, the tank container leasing business also exceeded our expectations this year. The global tank container market strengthened throughout 2021. Initially, we expected Trifleet to dilute earnings by $0.10 in 2021 due to accounting related to purchase price holdbacks and retention agreements, but it ultimately proved to be slightly accretive. In summary, 2021 demonstrated excellent financial performance across our businesses. As Shari mentioned, we invested over $1 billion in 2021, with $360 million dedicated to railcar deliveries we were obligated to take under our supply agreements in North America. This leaves over $770 million in proactive investment opportunities with our customers, achieved despite rising asset prices throughout the year. This accomplishment reflects extraordinary performance by our team. As mentioned in the last earnings call, justifying speculative investment has become increasingly challenging due to high asset prices, so our team needed to secure customer commitments in advance, agree to higher lease rates, and in many cases, longer lease terms to make these investments financially viable. Their success illustrates the strength of our customer relationships and the solid demand for our new assets. Now, let’s turn to the 2022 outlook. We have a solid balance sheet, excellent access to capital, and favorable market conditions in our expanding International Rail businesses. For the first time in years, the market for our largest segment, Rail North America, appears to have turned a corner, allowing the GATX fleet to gain pricing leverage. Historically, Rail North America has dealt with an oversupply situation, particularly since the collapse of the crude-by-rail boom in early 2015. Over the last two years, we've observed a gradual recovery in this market due to natural fleet attrition, which stems from decreased railcar manufacturing and the scrapping of older cars. Given our well-structured and diverse fleet, we believe market conditions have improved sufficiently to expect positive lease rate changes upon renewal in 2022. We currently anticipate our lease price index to reflect a positive change of 5% to 15% this year, marking the first positive annual change since 2015. We also foresee higher renewal success and slightly lower utilization this year, leading to a modest revenue increase for Rail North America compared to last year. On the maintenance expense front, we have exceeded expectations in this area for three consecutive years. Throughout 2021, we actively transferred more work from third-party facilities to our own network, resulting in lower-than-expected costs. However, since over 90% of our tank car and covered hopper maintenance is now performed in-house, further efficiency gains will likely slow in 2022. With the current labor disruptions from COVID and rising material costs, we anticipate that net maintenance expense will remain relatively flat in 2022. Another important aspect for Rail North America is asset disposition income. The secondary railcar market in 2021 was very strong, allowing us to achieve significantly higher gains from asset sales compared to the previous year. Asset prices remain elevated and investor interest is strong, primarily owing to widespread access to low-cost capital. High scrap steel prices suggest that we can expect another strong year for asset gains within Rail North America, possibly at levels similar to or slightly higher than 2021 as we continue to optimize our fleet. As always, we will adjust our disposition plans based on market conditions and will act economically. Consequently, we project 2022 segment profit for Rail North America to increase by $15 million to $25 million relative to 2021. Now, moving on to International Rail—specifically, GATX Rail Europe. As we've stated in recent years, the European rail wagon leasing market is as strong as we've seen since entering the market in the early 1990s, and we expect these favorable conditions to persist as we invest further in that market. In 2022, we plan to add over 1,400 wagons at attractive lease rates while continuing to secure modest renewal rate increases on the existing fleet. This combination of new investments and strong performance from the existing fleet is expected to generate profit growth of $4 million to $6 million for Rail Europe in 2022. In Rail India, fleet growth was again affected by manufacturing shutdowns due to another COVID wave last spring, and while that risk remains, we anticipate significant growth in our Indian fleet this year, including over 1,200 new wagons expected to be added. They're diversifying their car types and customer base, which should drive profit growth ranging from $3 million to $5 million this year. Therefore, when combined with GATX Rail Europe, total expected segment profit growth for Rail International in 2022 is projected to be in the $7 million to $11 million range. As mentioned earlier, the RRPF joint venture with Rolls-Royce continues to be impacted by the decline in long-haul air travel. We've stopped trying to estimate when air travel will fully recover since it appears highly dependent on the pandemic's fluctuations, but we remain confident in the eventual recovery of this market. In the meantime, we'll continue focusing on enhancing the joint venture's performance and identifying investment opportunities, such as the $350 million in direct engine investments made by GATX in 2021. For 2022, we expect Portfolio Management segment profit to decline by $5 million to $7 million, primarily due to reduced asset remarketing activity at RRPF. Lastly, Trifleet's tank container leasing market improved throughout 2021 and remained strong as we entered 2022. We have increased Trifleet's investment in this business due to the strong market along with GATX’s greater access to low-cost capital. As such, we expect Trifleet's profit to rise in the range of $2 million to $3 million this year. Looking at SG&A and other corporate costs, we're experiencing the same pressures as everyone else regarding employee wage inflation, compounded by growth-related hiring in Rail International. However, this should be offset by the absence of certain corporate costs that occurred in 2021. Therefore, we expect SG&A and corporate costs to remain essentially flat in 2022. Regarding our tax rate, it's projected to decrease by one or two points this year due to tax adjustments last year that will not be repeated. The overall effect of increased segment profit, stable SG&A and corporate costs, a slightly lower tax rate, and an expected return to share repurchases in 2022 results in our expectation that earnings per share will be between $5.50 and $5.80 this year, assuming no significant COVID-related disruptions in 2022. Finally, I want to remind everyone that 2022 will mark our 104th consecutive year of paying dividends, a remarkable achievement that few can match. The GATX Board will meet this Friday to discuss our 2022 dividend plans, and we will announce that decision afterward. The Board recognizes the importance of dividends, and I believe our century-long streak demonstrates our commitment to our shareholders and our long-term success. Once again, I want to emphasize that GATX employees executed our plan exceptionally well in 2021, and I am confident that our investments, combined with the positive revenue trends in our largest business, will continue to reward our shareholders' trust in us for years ahead. That's all I had. Operator, you may now open the floor to questions.

Thank you. And we’ll go first to Allison Poliniak with Wells Fargo.

Thanks. Hey. On, I guess, the LPI, obviously, positive direction here. Could you maybe give a little color in terms of, obviously, absolute lease rates are going to be renewing higher than what’s being renewed. But relative to what you guys view as normal? Could you give us any perspective on where we are with that at this point?

Allison, it is. Bob. I’m happy to take that question for you. As Brian mentioned in his opening comments, for the sixth consecutive quarter, we saw absolute lease rates move up. And as we look into 2022, with regard to the LPI, we have, for the first time in a very long time, both elements working in our favor, which is the average expiring rate is actually ticking down a little bit and the average expected renewal rate is going up. So that puts us in that positive 5% to 15% range. Where we are with regards to normalized long-run lease rates, particularly with regards to the tank car fleet, we’re getting closer to that equilibrium line; still some to go and the variability in freight is typically much higher than it is in tank, but all signs are moving in the right direction.

Great. Brian, I want to revisit a comment you made regarding your perspective and outlook. You noted the high renewal rate and positive lease rate, but mentioned that the lease rate renewal is expected to be lower. This suggests that your percentage, which has been high over the last two quarters, might decrease. Do you have any insights on this and your reasoning? Additionally, regarding maintenance being flat, I initially thought that would be higher. Is this because of the cars that are being retired at this point? I'd appreciate your thoughts on that.

Well, what I said was renewal success would be similar in 2022. I did say we might have a slight drop in fleet utilization. Honestly, the only way it can go down when you’re at 99.2%. So it could be a slight drop there. But we expect similar renewal success in 2022 as we had in 2021. On the maintenance side, Bob, did you want to?

Sure. I think a couple of things are going on the maintenance side, and again, to reiterate what Brian said in his opening comments, overall, we expect the net maintenance line to be relatively flat with where we were in 2021. So we are facing some pressures with regards to both labor rates and material costs, many of the things that other folks in our industry and in all industries are facing. We will be able to hold the line overall in costs because of the number of efficiencies that we’ve been able to realize, the number of cars we’re running through our own network relative to where we were in years past. So we’re essentially offsetting some of those macro pressures with the things we’ve been able to do in our network over the course of the last few years.

Understood. Thank you.

We’ll go next to Justin Long with Stephens.

Thanks and good morning. I wanted to circle back to Allison’s question about absolute lease rates. Are you able to share the percent increase that we saw in the fourth quarter in absolute lease rates? And then circling back to the assumption on remarketing income, just because that’s something that can swing results around so significantly in North America, any color you can give us on the cadence quarterly of that remarketing income that we should expect in 2022?

Sure. Justin, it is Bob. I’ll take the first one. With regards to absolute lease rates between third quarter and fourth quarter, tank and freight combined, you’re looking at a number about 7% or 8% sequential increase. And again, what’s most powerful there is that, six quarters in a row with a positive number in front of it. That’s what it takes in this industry is consistent performance like that overall to turn rates and turn the tide, and we’re definitely seeing that.

With regards to remarketing income, always difficult to predict quarter-to-quarter, just because of the timing of transactions and the number of transactions we have in the secondary market. Where we sit today, I think we’ll get the year off to a pretty good start in the first quarter and second quarter. So it may be a little bit more weighted towards the front end, but again, always hard to predict.

Understood. And secondly, I wanted to follow up on capital allocation, and Brian, you alluded to the over $1 billion investment in each of the last two years. Any thoughts around what that number could look like in 2022 just based on what you’re seeing in the market and valuations and maybe you could touch on buybacks as well? It sounds like we’re restarting things on that front, so curious how much that’s factored into the guidance?

We currently see strong investment opportunities in the market, and I believe we can achieve another $1 billion in 2022. We've managed to do this without engaging in speculative investments, as we have customers ready in advance. Specifically, Rail North America secured over $200 million in customer investments beyond their committed supply agreement in 2021. Our team is effectively identifying such opportunities, indicating strength in the underlying market. I feel confident we can reach $1 billion again this year. Tom, would you like to address the share repurchase aspect?

Yeah. So just to reiterate what both Shari and Brian talked about, we have $137 million remaining on our authorization from the Board and we purchased about $13 million worth of stock in 2021. As Brian indicated in his openings, we’re able to find considerable amounts of attractive investment, and we expect to be able to continue to do so going forward as evidenced by the $1 billion number Brian just talked about. But it is something where in 2021 we repurchased the stock on volatile trading days, and we would look to continue to do that going forward. Our capital allocation framework always calls for us to prioritize those investment opportunities, and we consistently talk with our Board of Directors about stock buyback decisions. In terms of our guidance, we have over the last few years purchased anywhere between $0 of buyback and $150 million, and the range that we’ve provided allows us for being somewhere within that historical framework.

Okay. That’s helpful. I appreciate the time.

We’ll go next to Matt Elkott with Cowen.

Good morning. Thank you.

Hi, Matt.

Good to see the average terms rise to their highest level in two years. I believe they remain low compared to past recoveries. Given the ongoing trend in rates over the last six quarters, do you think terms could continue to increase throughout this year? Any insights on where we might end the year, and whether we could be approaching the $40 a month range, would be appreciated.

Sure. Matt, it is Bob. We will hesitate to put a number on that because it also can move around from quarter to quarter. I mean, 2021, it moved anywhere from 29 months up to 37 months, as you saw in the fourth quarter. Now anytime you have a renewal success rate close to 90% and you have lease rates going, finally, in the right direction, in certain car types, we will push term. But broadly speaking, we’re still in the phase where we’re really trying to focus more attention on making sure we’re getting rates up to the right level and then we’ll concentrate more on term. But with a fleet as diverse as ours, there are certainly pockets of car types where we’re already trying to stretch those terms out.

Okay. That’s very helpful, Bob. A year and a half into this recovery, does it feel like, does it feel like a prolonged recovery, your earnings cycle kind of lags the actual recovery on lease rates? Is this starting to feel more like a multiyear earnings recovery to you guys?

Right. It does, and the feeling of this recovery, quite frankly, is better than ones we’ve felt before because when you look back to 2013 or 2014 or even the mid-2000s, some of the accelerants in the market, the spikes that we saw and incredible demand for very small pockets of car types, the crude boom, what have you. They’re real beneficial in the short term, but long-term, they can cause some damage. This recovery seems very different, more fundamental, and I think, hopefully, we’ll have much longer legs to it than prior ones.

Okay. I believe Brian mentioned that the segment profit for Rail North America should be in the range of $15 million to $20 million, if I understood correctly. You are not expecting significant changes, rather expecting gains to be in line with or slightly above this year. So, the $15 million to $20 million improvement is mainly from lease rate enhancements and cost control measures based on your assumptions?

Yeah. I think that’s a fair assessment, Matt.

Okay. And just one last question, if I could, can you guys remind us of your existing supply agreements with manufacturers and what needs to happen this year for you guys to consider significant manufacturing orders or have orders become somewhat of a necessity at this point, in order to be able to serve your customers, given the near full utilization you have?

Sure. We have two supply agreements totaling 3,000 cars a year. That runs through the end of 2023. So we’re very well covered on the supply agreements. And just for reference, currently, the nearest available supply agreement availability is in the third quarter of 2022. Our commercial team has done a real nice job of placing those cars well in advance of when they’re scheduled to deliver. And no real comment yet, Matt, on where we’ll go with the supply agreement post-2023. It’s important for us to have a supply agreement in place for a base load, particularly on the tank car side, but no determination has been made yet on extension beyond 2023.

Got it. Thank you very much.

We’ll go next to Bascome Majors with Susquehanna.

Yeah. I want to follow up on the earlier question about term versus rate. Can you talk about how you structure your sales incentives for 2022 in North American Rail to balance those? Is there any historic corollary of, if you look back at year X or year Y, will look a lot like restructuring those for this year? Thank you.

It's Bob responding to your question, Bascome. I won't go into too much detail but I want to emphasize that our sales incentive plans allow our commercial team the flexibility to make annual adjustments. This helps us aim for our desired outcomes. In challenging times, our focus is on utilization, whereas in stronger market conditions, we aim to ensure our sales team is motivated to secure term agreements. We are still in the early stages of gaining leverage on lease rates, and I believe we haven't yet reached a point where we should aggressively pursue term agreements, although this might be feasible in certain vehicle segments. Currently, our primary goal is to increase those rates in line with market trends, and we intend to take the lead in that effort. I apologize, and I believe you had a second question.

No…

I think you’ve addressed it, Bob.

Okay.

To your other comments about the investment volume, hopefully, being another $1 billion year, you kind of made some directional comments about North American Rail in that response. It’s been a while since you’ve grown that fleet at least in unit terms, could this be a year where that happens if the investments do manifest as you predicted?

Yeah. I think overall, where we look today, the secondary market has been so strong the last couple of years that there’s been some, I’d say, above-normal sales activity in 2021, and likely, again, in 2022. And again, I want to be very clear about the fact that we are not chasing a car count. That can be a dangerous pursuit, and we’ve seen over the years some other folks in the industry who’ve gone that route. You can always add cars, but can you do it economically, that’s the most important factor we’re looking at. So I wouldn’t rule out the possibility that next fleet growth could occur in 2022. In the end, we’re going to do the right thing, Bascome, in terms of adding cars and in terms of optimizing the portfolio. We have massive scale in this business, and whether the fleet is 113,000 cars or 112,500 or 114,000, is less of a concern to me than generating the best possible return out of that portfolio.

Thanks for that, Bob. And if I could ask one more, I know you don’t take over as CEO for another three months here, and you’ve been with the company for a long time. The company’s remarkably consistent over a very long time. But is there anything that we should expect to see emphasize or focus on a little more under your leadership? If you could just give a preview of where your head is? I think that would be helpful. Thanks.

Sure. And I appreciate the question. As you noted, I’ve worked at GATX for 25 years, and the management team has been together here a very long time. I’ve had the benefit of working side-by-side with Brian for that 25 years. A lot of the strategies that you’ve seen in place and you’ve seen deployed here at GATX over those years, particularly the last 17 years under Brian’s leadership, I’ve been involved in a lot of those decisions, extremely supportive of the direction and the philosophy that we deploy. I wouldn’t endeavor to make any significant substantial changes in the way we think about how we deploy capital or the strength in the markets that we have. I am a firm believer in GATX being at its best when we’re in long-lived widely used assets with a service component and where we have asset knowledge that’s truly unique. That won’t change, and you’re going to continue to see that; you’re going to continue to see us try to leverage the expertise in the markets we have and to do so more broadly and globally.

Thank you.

And we’ll go next to Justin Bergner with Gabelli Funds.

Good morning, Brian. Good morning, Bob. Congratulations on the appointment. Good morning, Tom. Good morning, Shari.

Good morning.

Good morning.

Good morning.

Just to start, a couple of quick, just detail-oriented questions. There appeared to be a good chunk of other income in both Rail North America and Rail International in the fourth quarter. What was in that? Well, that reoccurs at one time?

Yeah. So I will take that. So in Rail North America, the primary uptick you saw was due to some insurance proceeds that came from a storm at one of our service centers. That was described on page 13 of the press release that Shari mentioned. In Rail International, the key driver there was what Brian mentioned about some of the FX issues we had between those Lahti and the euro last year, that didn’t occur this year. We also had some savings in our deal ratio expenses this year versus last year.

Okay. And then maybe a second, somewhat detail question, within RRPF, I mean, the absolute profit was still strong in the fourth quarter, I assume there are some asset gains in that number, and are you expecting asset gains to continue in the joint venture as you look into 2022?

As Brian mentioned in his opening comments, we anticipate that next year may see slightly lower gains compared to this year. Regarding the quarter's performance, the primary contributor to the increase in earnings from affiliates at Portfolio Management was the gains from asset remarketing and residual realization.

Okay. And then, as you look at your gains on asset disposition outlook for 2022, should I expect sort of it will look fairly similar in terms of the split between gains on scrappage and gains on rail cars sold or do you expect it to tilt even more towards scrappage versus sales of rail cars?

Yeah. So one thing to keep in mind is that when it comes to scrap prices, it’s really difficult to predict the rail industry as a whole; it is not really a key driver of what happens there. But as far as a baseline expectation, assuming something similar to this year is a reasonable assumption, but that scrap price can move around quite a bit.

Okay. Thank you. Lastly, should I be surprised that the guidance for other and Trifleet is not for more than a $2 million to $3 million increase looking into 2022? Are you still facing technical difficulties that impact the P&L, or how should I interpret that $2 million to $3 million increase?

Yeah. I can take that. Justin, it’s Brian. It is a healthy increase. Remember, the size of this business is actually pretty small. They have around $30 million in revenue and that, in 2021, about $10 million in segment profit. So you think about it like a 20% increase.

And at this time, there are no further questions. I’ll turn the call back to Shari Hellerman for closing remarks.

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

This does conclude today’s conference. We thank you for your participation.