Thank you for standing by. My name is Greg, and I will be your conference operator today. At this time, I would like to welcome everyone to today's GATX Corporation 2025 Third Quarter Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. I would now like to turn the call over to Shari Hellerman, Head of Investor Relations. Shari?

Good morning. And thank you for joining GATX Corporation's 2025 third quarter earnings call. I'm joined today by Robert C. Lyons, President and Chief Executive Officer; Thomas A. Ellman, Executive Vice President and Chief Financial Officer; and Paul F. Titterton, Executive Vice President and President of Rail North America. As a reminder, some of the information you'll hear during our discussion today will consist of forward-looking statements. Actual results or trends could differ materially from those statements or forecasts. For more information, please refer to the risk factors included in our earnings release and those discussed in GATX Corporation's Form 10-Ks for 2024 and our other filings with the SEC. GATX Corporation assumes no obligation to update or revise any forward-looking statements to reflect subsequent events or circumstances. Earlier today, GATX Corporation reported 2025 third quarter net income of $82.2 million or $2.22 per diluted share. This compares to 2024 third quarter net income of $89 million or $2.43 per diluted share. The 2025 third quarter results include a net positive impact of $5.3 million or $0.15 per diluted share from tax adjustments and other items. The 2024 third quarter results include a net negative impact of $2.5 million or $0.07 per diluted share from tax adjustments and other items. Year-to-date 2025 net income was $236.3 million or $6.46 per diluted share. This compares to $207.7 million or $5.68 per diluted share for the same period in 2024. The 2025 year-to-date results include a net positive impact of $5.3 million or $0.15 per diluted share from tax adjustments and other items. The 2024 year-to-date results include a net negative impact of $9.9 million or $0.27 per diluted share from tax adjustments and other items. These items are detailed in the supplemental information section of our earnings release. I'll briefly address each of our business segments. After that, we'll open the call up for questions. In North America, demand for our existing fleet remains stable. GATX Rail North America's fleet utilization remained high at 98.9%. Our commercial team continues to successfully increase renewal lease rates while extending lease terms. The renewal rate change of GATX Corporation's lease price index was positive 22.8% for the quarter, and the average renewal term was sixty months. While tariff and macro uncertainties have affected customers who use the most economically sensitive car types, demand for the large majority of car types in our fleet is holding up well. An encouraging sign in the North American market is the continued strength of the secondary market. As we offer select packages for sale, we're seeing very strong demand for GATX Corporation assets from a diverse and deep buyer pool. We generated over $60 million in remarketing income during the quarter, bringing the year-to-date total to approximately $81 million, and we expect that we'll finish the year with a strong fourth quarter. Regarding the pending acquisition of Wells Fargo's rail operating lease assets, we continue to expect closing to occur in 2026 or sooner. Turning to Rail International, GATX Rail Europe fleet utilization was 93.7% at the end of the quarter, reflecting ongoing market challenges in Europe. Despite these conditions, we continue to renew leases for many car types at rates higher than those of expiring leases, demonstrating the market's resilience. In September, we announced an agreement to acquire approximately 6,000 railcars from DB Cargo, a major European rail freight operator, through a sale-leaseback transaction. Closing is expected by 2025, subject to customary regulatory approval. In India, rail freight volume remains robust, and demand for railcars is very strong despite trade uncertainty. During the quarter, GATX Rail India took delivery of 600 new cars and placed them with customers. Fleet utilization was maintained at 100% at quarter end. Engine leasing performed very well this quarter, driven by continued high demand for aircraft spare engines. This demand is manifesting itself in high utilization, attractive lease rates, and opportunities to sell engines at compelling valuations. At the same time, we identified attractive opportunities to increase our direct investment in aircraft spare engines, acquiring seven additional engines for $147.1 million during the quarter. The RRPF affiliates also continue to expand their portfolios, with total investment already exceeding $1 billion year-to-date. Finally, as we noted in the earnings release, we continue to expect 2025 full-year earnings guidance to be in the range of $8.50 to $8.90 per diluted share. This guidance excludes any impact from tax adjustments or other items and also excludes any impact from the Wells Fargo transaction. And those are our prepared remarks. I'll hand it back to the operator so we can open it up for Q&A.

All right. It looks like our first question today comes from the line of Ben Moore with Citigroup. Ben, please go ahead.

Yes, hi. Good morning. Thanks for taking our questions. To get to your midpoint of your guide, you would need 4Q EPS at $2.39 versus consensus at $2.25. Can you discuss how you plan to close that gap on both revenue and margin drivers, please?

Sure. Good morning, Ben. Thanks for your question. This is Robert C. Lyons. I'll take that one. So as indicated, the full year, just to kind of take a step back, has largely played out as we anticipated. Certainly some puts and takes on various line items, which is not unusual, but the overall results and the overall environment are very consistent with what we thought coming into the year. And we would expect that to continue into the fourth quarter. As Shari noted in her opening comments, we have a very strong pipeline of assets that we have for sale in the secondary market. We're seeing really strong demand, so we would expect really solid remarketing income in the fourth quarter. And that will be largely the biggest driver in Q4 relative to Q3.

Great. Appreciate that. Maybe just as a follow-up on the remarketing you mentioned. Looking into the next couple of years, longer term, would you still expect sort of elevated remarketing levels at the roughly $100 million to $110 million through 2027, maybe kind of driven by inflation from the U.S. Administration's policies and also more freight car mix from your Brookfield JV versus the roughly $50 million level that we saw back in the pre-COVID levels?

Yes. Well, it's a bit difficult to predict many years out into the future. But based on everything we're seeing today, there is no reason to believe or no reason for us to feel that the secondary market is going to adjust materially downward. Demand is really strong, and we are very encouraged by the sheer number of buyers and their appetite for the assets that GATX Corporation has on lease. So we see a really positive market and environment for remarketing income in the years ahead. I think also supporting that is what we've talked about frequently over the last couple of years, the supply side thesis. That new car supply and capacity manufacturing capacity in North America is more in line with true underlying demand for new cars. So as investors and current competitors in this market look for ways to grow and to build their fleets, the secondary market becomes a very, very good alternative, and we're seeing that.

Great. Really appreciate the time and insights. Thank you.

Thanks, Ben.

And our next question comes from the line of Bascome Majors with Susquehanna. Bascome, please go ahead.

Thanks for taking our questions here. To the GATX Corporation and Wells Fargo deal, you've talked about that being modestly accretive in the first full year. When we go through the pro forma historic financials, you filed recently, you know, it's indicating some modest dilution on a look-back adjusted for financing and other items. Can you help us square where we get to accretion under your ownership versus this historic look-back and where those just wouldn't add up similarly to what you're seeing on a go-forward basis? Thank you.

So Bascome, first of all, it's important to note what we issued. So that 8-K is looking at what happened if the transaction for income statement purposes closed on January 1, 2024, and then for balance sheet purposes, closed on June 30, 2025. So obviously, it didn't close on either of those dates. The other thing that it does is it takes the actual results of both companies and then kind of puts them together. So two things it does not do. It doesn't make allowances for the fact that the combined SG&A of the two companies is going to be a bigger number than what the SG&A would be for GATX Corporation on a consolidated basis. The other thing it ignores is any kind of management fee. And there is a variety of other items just because of the nature of how those statements come together that don't find their way in. But those are two big things that would take you from the dilutive numbers that you saw in those reporting versus the modestly accretive numbers that we've talked about several times.

Yeah. And Bascome, I would just add too to Tom's two key points. There is no SG&A synergy in there. That's an easy one you can pick right off of the financial statement that was filed with the 8-K. You can see what the SG&A is for Wells Fargo Rail and then for the combined entity, and there's no benefit given to synergies. There's no management fee. We haven't broken that out yet. When the transaction closes and we provide guidance going forward, we'll give you some more clarity on the management fee, but that's not an immaterial number and that's not reflected in the financial numbers. And then nor is any other type of synergy that GATX Corporation may generate from the combined entities. So it's really just a financial roll-up, not a snapshot of the go-forward scenario.

Thank you for that. And to the DB deal in Europe, any thoughts on whether that will be needle-moving next year from a financial standpoint? Or is that really more of a long-term investment in growing the European fleet? Thank you.

Yes. It's Bob again, Bascome. It's more of a long-term play. From an accretion dilution standpoint, it's not material one way or the other in the first year of ownership. It is a longer-term investment, but one that we're very excited about. To be able to do a transaction like this, it starts out as a net lease. Likely, we'll convert over time to full-service leases as those initial leases roll over. Also likely to convert at some level to full-service leases versus the net, as mentioned. So the DB deal, I think, is a very good example of what we're seeing begin to form in Europe. They have a fleet of 70,000 wagons themselves. Like other railroads in Europe, DB is looking for ways to enhance their cash flow. They don't necessarily need to own all of their rolling stock, and so we think there may be opportunities elsewhere across Europe for similar type transactions. And we're certainly out in the marketplace looking for those opportunities as well.

And lastly, you've already commented on the secondary market in North American rail and really seeing no need or driver for that to change from the favorable situation it's been in for the last couple of years. Can you speak a little bit to the sequential performance in lease rates? Certainly, the LPI is still very positive. You had a slight tick down in utilization in North America. LPI is a little lower than it was in previous quarters. Just, I mean, is there any sequential just gradual weakening going along? And any thoughts on just the market here and now versus six, nine, twelve months ago? Thank you.

Sure, Bascome. This is Paul, and I'll be happy to take that one. So what I would say overall, despite all the macro uncertainty, the North American railcar market is holding up pretty well. And so when we look across the fleet in general, lease rates remain at healthy levels, and that continues to be the case. We've seen sequentially quarter over quarter rates across most car types flat to perhaps down very, very slightly. But in general, Bob alluded to the sort of supply-led market thesis that we've had for quite some time that is really proven itself out. I think that's where this period of macro uncertainty from a lease rate standpoint is really quite different from past periods. If you think about, for example, the lead-up to the Great Recession or the lead-up to the COVID recession, I'm not comparing necessarily this period to those periods, but those are periods where we started to see macro uncertainty and there was a very large negative market response from a lease rate standpoint. We really don't see that here. And again, that's really because the market hasn't been overbuilt. And so fleets remain fairly highly utilized. And so again, a little bit of quarter-to-quarter deterioration, but overall across the fleet, for the most part, rates are holding up well.

And I'll add to that, Bascome, too. I think Paul can elaborate on this. But one of the additional drivers to that we're seeing, scrap rates are holding up really well. And with the market largely in balance, any temporary imbalance in a specific car type appears to be rectifying itself very quickly from a scrapping standpoint. So supply and demand are not getting out of balance for any extended period of time in any car type.

Thank you all.

Thank you, Bascome. And our next question comes from the line of Andrzej Zenon Tomczyk with Goldman Sachs. Andrzej, please go ahead.

Everybody. Thanks for taking my questions. I just wanted to touch a little bit about the maintenance expense within North America. I know that jumped up a little bit sequentially, and we've been talking about increasing maintenance expenses in North America. I'm just curious on a go-forward basis, is that sort of a good dollar level to sort of be at in terms of North America maintenance? Or should we continue to expect increases from here? Thanks.

So this is Paul speaking. I'll just contextualize it before I get directly to your question. So fundamentally, as you know, over the last really five to seven years, we've made tremendous investments in our owned maintenance capability, and that's because we have a very substantial marginal cost advantage working cars in our own network versus in the contract network. And really, that's been borne out over time. This year, from a mix standpoint, we do a great deal of work to try to forecast the mix of work coming into our facilities. This was a mix that really filled up our shops at a higher clip than we had forecasted. And as a result, we had to put more work into the contract network, which is more expensive. We're not going to guide for 2026 yet because obviously, traditionally with GATX Corporation, we don't do that until the next earnings call. So I can't really comment specifically on '26. But what I can say is over the long run, we are on track with our objective of continuing to put more work into our own shops and control our costs. And we remain of the view that we can achieve that going forward.

Understood. And just maybe a little bit on the combined nature of the Wells Fargo deal as we move forward if that goes through. You mentioned the SG&A synergies, the management fees as well, but should we be thinking of longer-term synergies on other line items like maintenance as well?

I'll take that one, Andrzej. Thank you for the question. Yes, is the short answer to that question. There will be synergies in other line items as well. Maintenance is one area that we have talked about a little bit more publicly because Wells Fargo, as a bank, is not allowed to own maintenance facilities directly. They do all of their work through third-party shops. As Paul mentioned, we are at full capacity in our shops today. So when this transaction closes, it's not an immediate opportunity to bring work on those cars into the GATX Corporation shop. We'll continue using the third-party network that Wells has effectively established over the years. But longer term, absolutely, we will look for opportunities to bring more of that work in-house at GATX Corporation.

Understood. Appreciate the context. Maybe just shifting a little bit to the spare engine leasing side of the business. It seemed like a good strong quarter there again. Just curious if you could share the breakout between the gains and the core EBIT this quarter and maybe how you expect to trend into year-end?

Sure. So for the quarter, the operating income was about 85% of the total, and the remarketing was about 15%. So year-to-date, we're at about three-quarters, one-quarter. Much like Paul's commentary about 2026, we usually don't try to get too specific on individual quarters because that's challenging, particularly given the lumpy nature of the way remarketing comes in, whether it's aircraft engines or railcars. But the three-quarters, one-quarter is a little higher on the operating income side than we've historically been. So if history is a guideline, you would see a little bit more on the gain side on the remarketing. But there's no guarantee of that.

Understood. And then lastly for me, I did notice that the renewal success rate in North America jumped up to 87% from 84% last quarter and 82% last year. I'm just curious, like sequentially, if that increase is anything to read into relative to the certainty around tariffs. Is there any increased certainty from your customers? And is that leading to increased renewal success rates? Thanks.

I would say, I wouldn't so much characterize that as driven by increased certainty by our customers, but much more just as we mentioned earlier, the fleet overall remains fairly tight. And obviously, it's in our interest and the customer's interest to renew. It reduces costs for both of us to the extent that demand is still there. So in a relatively tight fleet, as long as lessor and lessee are acting rationally and we price to the market, we should have a very high renewal success rate. But I wouldn't necessarily read into that number anything from a macro standpoint.

Appreciate it.

Thanks, Andrzej.

Thank you for your questions. And our next question comes from the line of Brendan Michael McCarthy with Sidoti. Brendan, please go ahead.

Great. Good morning, everyone. Thanks for taking my questions here. I wanted to circle back to a point on the supply side dynamics. I think you mentioned the market remains in balance, really supported by some of the higher scrapping rates. I guess, do you see any room or capacity for new car builds just stemming from any different economic variables that may shift in the future, such as a lower interest rate environment?

Fundamentally, I would say the answer is no. We don't foresee a big uptick in build absent some spike in demand that we can't predict. What I will say is it's not just a question of financing costs. The builders have really rationalized capacity right now. And so if we think back to the crude boom, which is the last big boom in railcar production, the builders were producing at an 80,000 car a year clip. They couldn't ramp up to anything close to that number right now without a Herculean effort. So fundamentally, I think the supply side has right-sized quite a bit. And so, I think a dip in financing cost is unlikely to have a hugely material impact on new car production.

Got it. That's helpful. And really absent any factors driving overbuilding on the car build side, I guess, do you see any reason why lease rates can't continue to remain above the 20% threshold?

Well, eventually, you will work your way through that pool of cars that were priced at much lower rates. So over the longer term, we will get to a point where you're renewing more and more cars that are put on at today's market rates. But we're still a ways off from that.

Yes. So as Paul mentioned earlier, we'll give more guidance next quarter. But order of magnitude, we're probably about halfway through remarketing those.

Okay. I wanted to transition to the engine lease business, really strong quarter there. Are you seeing any hesitancy from customers on the engine leasing side or anything within Rolls Royce affiliates, just resulting from, you know, uncertainty around tariffs or anything like that?

So again, the short answer is no. The recovery post-COVID in aviation has been great. And we continue to see very high demand for the engines and don't expect any changes there. Of course, tariffs or general macroeconomic activity, certainly we'll keep an eye on that for possible signs of what it might do to demand. But to date and in the near term here, we expect that business to continue to be very strong. And we've been encouraged by the investment volume and opportunities that we've seen, particularly within the joint venture itself. Our RRPF, the team there, we came into the year expecting around $800 million roughly in total investment volume. And through the third quarter, we've already gone just north of $1 billion. So they're having an outstanding year in terms of putting capital to work at really attractive returns.

Great. That's helpful. And then on the internal portfolio, GEL looks like I believe I saw seven engines were purchased in the quarter. Is there anything to comment on related to the purchasing pattern there? I know there were no engines purchased in the first half of the year. Was there any outsized read-through there for this quarter?

No, nothing in particular. What I will comment on, I think might be helpful to kind of take a look back. When we first started doing direct investments in engines, it was during the depths of the COVID downturn. And at that point in time, Rolls Royce's financial results were pretty stressed, and the capital markets in general were really in a state of flux, and there was not a lot of capital flowing into aerospace, whether it be aircraft in terms of airframes or engines. So that presented GATX Corporation with a really unique opportunity to step in and buy engines directly, support Rolls Royce in doing so, and invest in some very attractive assets for GATX Corporation for the long term. We now have over $1 billion of direct investment in engines, and they will pay dividends for years to come. We also knew at the same time that Rolls Royce's financial performance would strengthen, their credit profile would strengthen, and more capital would flow back into aerospace investments as it always does. It's the epitome of capital flowing in and out depending on cycles. But it certainly has flowed back in, and Rolls Royce, we knew, would always look at their most effective way to sell engines, whether it be into the JV or GATX Corporation directly. Fact of the matter is they have a lot more options available to them today. We knew that. And so I think our investments going forward will be directly will be much more opportunistic than they are programmatic.

Understood. I appreciate the detail. That's all for me.

Yep.

Alright. Thank you, Brendan. And our next question comes from the line of Justin Laurence Bergner with Gabelli Funds. Justin, please go ahead.

Good morning, Bob. Good morning, Tom. Good morning, Shari. Morning. Morning. Few questions here. I just wanted to make sure I heard correctly on the mix of operating and remarketing income within the Rolls Royce JV. It seems like the, you know, JV income stepped up from $30 million in 1Q then dipped to $22 million in 2Q and $53 million in 3Q. But I think you indicated that the share of remarketing income was less than the year-to-date.

Yeah. That's correct, Justin. And part of the reason for that is one of the items that we called out was the insurance recovery. What that insurance recovery is, is back in 2022, we had an impairment for the JV for engines that were in Russia as the Russia-Ukrainian conflict got going. And we did not anticipate being able to get those engines out. And there was some uncertainty about what would happen from an insurance standpoint. As it turned out, this year we had a recovery of insurance proceeds, and that shows up in the operating income line. So that's part of the reason for that relatively higher number in Q3.

Okay. That's helpful. I see an $8.2 million adjustment net of taxes for the affiliate income. Does that correspond to the $53 million, or do they need to gross it up to be pretax?

So yeah. I'm not totally sure where you're getting the $53 million, but that is a tax number. And that relates directly to the insurance proceeds that Tom just mentioned. So we normalized for that.

Oh, sorry. It was $53.4 million, but the $8.2 million is apples to apples on a tax basis with the $53.4 million. I need to gross it up to be pretax.

Yes, Justin. That's the pretax number for the share of affiliates' earnings from RRPF. So that includes the sorry. That's the third quarter.

Yes. And that includes the insurance proceeds that Tom was alluding to. So you would need to use the pretax number to adjust for that $53.4 million figure.

Okay. I think I do I is there a pretax number given? I think I only see the post-tax number of $8.2 million.

It is, yes. It's in the engine leasing section of the earnings release. It is $10.9 million pretax and then $8.2 million after tax.

Oh, thank you. Sorry about that confusion. With respect to your guidance for the year then, should I maybe infer that within the unchanged guidance your engine leasing view is somewhat stronger, your gains on dispositions may be slightly stronger? And you know, Rail North America ex-gains and Rail International a touch lower?

Yes. Justin, when we took up guidance in 2Q, we mentioned that it was primarily because of the outperformance in the engine business. If you look at where both Rail International and Rail North America are relative to the guidance we gave at the beginning of the year, they're kind of both within the range but at the lower end of that range. So that was the case when we took guidance up. And that's the case where we are right now. So really unchanged quarter to quarter.

Great. Thank you. One or two more if I may. It looks like the gain per car on asset dispositions in Rail North America was a lot lower this quarter. Is that simply related to the mix of cars you sold? Or should I read anything into it about the strength of pricing in the secondary market?

It's really the mix of cars, Justin, which changes quarter to quarter. It's not just the cars, but the underlying lease is also a big driver of the value ascribed to any particular car in the secondary market. So if you're selling cars with a Class one railroad with a ten-year lease stream attached to it, the secondary market is going to really value that highly. So given the volume of cars we sell in a given year, it moves all over the map.

Gotcha. And then just lastly, to clarify, the increased maintenance expense, was that purely due to kind of volume of maintenance events and the need to outsource? Or was there anything in terms of operational execution in your own facilities that may have also weighed on the margin?

It's really just volume and mix fundamentally. As Bob said, we have filled up our network of work, and that is, of course, on the heels of the substantial investment and increased capacity we've had over the last few years, and whatever is left over that we can't fill has to go into the contract network.

Got you. And was there any kind of lumpy nature of tank car requalifications this quarter?

Not noticeably so. No.

Okay. Thank you so much for all the questions.

Yeah.

Thank you.

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

Thanks, Shari. And again, ladies and gentlemen, that concludes today's call. Thank you for joining, and you may now disconnect.