Canadian Pacific Kansas City Limited (CP) Earnings Call Transcript & Summary

This is Justin Long with Stephens. I want to welcome everybody back to our next fireside chat with Canadian Pacific Kansas City, CPKC. It's been a very exciting year for the company. We're thrilled to have them here at the conference. Sitting next to me, representing the company is Nadeem Velani. He's CFO. Nadeem, thanks for your support. And this will be a fireside chat format. So I'll start with some questions, open it up to any questions from the audience, and then we'll go from there.

But Nadeem, maybe to just get things kicked off, could you just provide a state of the railroad, how things are playing out now that we're halfway through the quarter relative to what you were expecting coming into 4Q?

Yes. So first of all, thank you, Justin, for hosting us and inviting CPKC. It's been 7 months now into the CPKC journey, and I can tell you that, first of all, I'm thrilled to be here to represent our 20,000 employees. It's been a tireless and a very exciting 7 months of CPKC, and I couldn't be more proud of what the teams delivered when you think about integrating systems, putting the team together, putting 3 cultures of Mexico, Canada, U.S. together. Advancing our safety agenda, improving on our industry-leading safety metrics. You think about what we've done in terms of investing and supporting growth near term and the future and investing that capital successfully and providing competitive options that certainly is stirring the market to provide even more competitive options. So it's an exciting time. We laid out our 5-year plan, our 5-year agenda at Investor Day not too long ago, and we see an opportunity that's unique in the industry, high single-digit revenue growth. We see the opportunity to improve our margins, double-digit EPS growth over that longer-term horizon over the 5 years through 2028. And free cash flow, which I think is maybe an underappreciated part of the story of free cash conversion about 90% plus. So excited about what the long term holds and excited about the team that we have, the network that we have and I couldn't be more excited for what CPKC is going to deliver. And going to your question on the near term. We're trending around 1.5% growth in RTMs quarter-to-date. Overall, there's some pluses, the potash and coal story on met coal, have been kind of in line with what we expected, strong performance year-over-year with some pretty easy comps. Our energy, chemical, plastic area is growing tremendously. We've got some synergy opportunities that we're starting to ramp up on that with a new contract from Shell. We're seeing growth in automotive. That's been an area that we expect to continue to grow through the end of the year. We're -- we have some new contract wins there that are also going to ramp up starting in 2024. But near term, those are kind of the strong areas. There are a few challenges. It's been consistent with what we've seen so far this year is on the domestic intermodal side. I think that's a story I'm sure your conference has shared just the challenges in that sector that we've seen, and we haven't been immune to some of those near-term challenges. And then on the Canadian grain side, we're seeing some variability in terms of volume. The Canadian farmers specifically are being challenged in terms of selling into the markets near term. So the way I look at that, though, is probably a bit of a shift of volume. So shifting from '23 into '24. The crop is going to move. Our part of the crop is certainly less favorable than maybe the north. We had some drug conditions in part of the southern parts of Alberta specifically. And so what doesn't move this year will move next year. So I think that's been more of a shift in volumes timing-wise. So overall, the quarter is playing out not too differently than we anticipated. I'd say that volumes are maybe 1 point or 2 lower than we thought they'd be, but nothing to be concerned about from a cents per RTM, we're doing better. So the yields are going to be stronger. And from a cost point of view, and we're certainly in line with what we expected. I mean we talked about sub-60 type of OR for the quarter. And I don't see any reason why we won't be able to deliver that. September was very strong. We ended Q3 the right way with a very good operating ratio in October was also very strong. So I think we're starting to hit our stride from a cost point of view, hitting our stride as the network has improved and service has improved, and we're going to finish 2023 strong and enter 2024 kind of on a very high note.

Okay. Great. Well, that's a good way to start. And there's some puts and takes. It sounds like right now on yields being a little bit better than you thought, what's driving that? Is that just a function of mix? Is price better than you thought? Is it both?

Sure. I think it's a combination partly. Currency has helped so the Canadian dollar has depreciated and so that certainly as we translate some of our revenues back to Canadian dollars, that's helping. Our pricing has been strong. As contracts come up, we're still seeing favorable pricing above inflation as those contracts turn. And so that's been a positive as well. And I'd say that mix generally has been favorable as well in the near term. So overall yield is going to continue to show strength.

Okay. Great. And maybe to just get this one out of the way, there was some news last week in Mexico on passenger rail. I think that's driven some weakness in the stock here recently. But I don't know if that was too much of a surprise for you. So could you just elaborate on the potential impact that announcement could have? And any other thoughts you have?

Sure. Yes. So first of all, it's -- was not a surprise. I think I've been surprised by how the markets reacted to be honest with you. Right after day 1, Keith and John Orr and Oscar, our President of KCSM, spent time with AMLO and Mexican government and officials and offered to look at some of their rail infrastructure projects that they had -- were investigating and looking at themselves, and we offer to provide some of our expertise. They shared that they wanted to look at passenger rail between Queretaro and Mexico City. And so we offered to perform a feasibility study, which we're in the midst of doing as we speak. We should have that complete by first half of 2024. And so we're working with the government to look at what that could look like in terms of passenger rail. So it's certainly no surprise. I'd say that when you think about how passenger rail and freight rail work together on the continent, we work alongside passenger rail across our network. You think about the Canadian network and from Montreal to Toronto, there's be it a rail passenger rail in and around Toronto and Southwestern Ontario. There's metro links. There's [indiscernible]. There's all kinds of passenger rail that operates on both Canadian networks. When you think about the U.S. with Amtrak, we've been 7 years straight years at CP, the best-performing service provider for Amtrak and even metro, our performance in the Chicago area for metro going on our track is high 90s level of service. So this isn't a surprise, number one. Number two, we don't see it as a near-term issue whatsoever, and we'll see what happens with the Mexican government and where their priorities are. And as things evolve next year with the new election, once they get the results of the feasibility study and they digest that and see what priorities they see. We'll continue to work with them. But right now, we don't see this as a huge concern whatsoever.

And do you have any insight into the areas geographically in Mexico that they're most focused on in terms of growing passenger rail potentially?

They've looked at for our line that segment within Mexico City and Queretaro. I know they've talked about -- they've introduced the Mayan Train and some of that. But that's what I'd speak to, I couldn't speak to more of other parts of other rail networks.

Okay. Fair enough. Well, maybe we can go back to the KCS merger, as you mentioned, 7 months in. So it's still fairly early. But if you were to take a step back and assess where we are in terms of kind of revenue synergies, cost synergies and the base business performance for KCS are those kind of 3 buckets, where are we tracking relative to what you thought at the onset of the deal?

Sure. Yes. So we're 1 company, 1 entity. So it's -- I won't speak too much in terms of dissecting CP versus KC, the legacy companies. But I would just say that KCS performance has been in line from a top line point of view with what we expected when we looked at the opportunity to acquire that entity. And when we look at from a synergy point of view, I think we're -- our current run rate is in excess of USD 350 million and ramping. We're ahead of the game in terms of synergies, more opportunities unfolded as we dug deeper and looked at -- peeled back the onion and looked at the customer opportunities and the market opportunities. So that's advancing extremely well. We're going to be patient. I mean this is a marathon. It's not a sprint. So we're not going to try to overcommit. Part of why we -- when we had looked at the synergy opportunities, we wanted to make sure that we could service it. We wanted to make sure we're not impacting any of our existing KCS or CP customers. So there's some capital investments that's required from a car point of view, from a infrastructure point of view, siding point of view. So we're going to be patient. But at this point, we are ahead of the game in terms of revenue opportunities. And we have a lot of confidence, I think, over the next 5 years that our original billion dollars of revenue target that we had outlined over the first 3 years is going to be bigger and longer. So we highlighted that at our Investor Day. From a cost point of view, we're pretty much in line. I'd say that as you get more opportunities from a volume point of view, as you grow the volume higher than where we are today, which is flat to plus 1% type of levels for the year, you're going to get more opportunities on the synergy front. So the G&A side from a head count point of view is going to be a part of it, and we're realizing that today. But when you look at some of the sourcing opportunities and procurement that's something that as contracts come up and as you start negotiating with your vendors, it does take time. So we're starting to see some of those benefits here as we stand here today. But those are going to take a little bit of time for some of those opportunities to come up. Bottom line, we're confident with the synergies, are confident it's going to have a longer tail and the size of the price is going to be a bit larger.

Okay. Great. And when you think about that $350 million of revenue synergies that you've locked in already, what's the rough split between intermodal and non-intermodal within that number?

Yes. So we introduced that Chicago to Mexico service, the MMX train, the 1 train -- 180, 181, The anchor customers on that train are Schneider and Knight-Swift. And their business is ramping up on that existing train. So I put that around $100 million type of revenue. We announced the ordering of 1,000 reefers, refrigerated units that are starting to come into the network and size of that prize is about $150 million type of revenue number. That's going to ramp up. We're not at that run rate today. But that's going to involve proteins going south and then coming back with produce coming north from Mexico. So that's an area, I think, that will start ramping up later this year. We announced some -- a deal with Americold. That's going to take time for that development to occur on the network on the land that we've allocated towards that. But when you look at overall of the existing $350 million, you're probably looking at about 40% of it existing today about intermodal and the rest, you've got automotive, ECP and some of the metals business as well. And so yes, that's the way it's splitted up.

And when you think about the opportunity for revenue synergies longer term, do you think the split of that pie will look similar, 40% intermodal, 60% everything else?

I think the intermodal piece, we -- our original view was probably we underappreciated the opportunity on the intermodal side. So I think our initial view is probably less than that, but I think that 40-60 split as we stand here as I just mentioned, I think that's a fair estimate of 5 years down the road, what it could look like. Because I think the intermodal conversion opportunity and truck conversion opportunity is certainly larger. And as you think about what it means from a customer point of view to shift truck as a part of their transportation solution over to rail. I think that's going to be the easier conversion overall. So I think a 40-60 split is probably a fair estimate.

Okay. That's helpful. Maybe I'll ask one more, and then I'll pause for questions for a moment. But you talked on the earnings call about an expectation for double-digit earnings growth in 2024. There's still a lot of uncertainties about the economy and the freight market, but you've got a lot of company-specific tailwinds that we've been talking about. So can you just speak to your level of visibility in that forecast for next year and some of the key drivers that inform that?

Sure. Yes. So number one, as I mentioned, we're really starting to hit our stride here from a margin point of view, from a synergy point of view. So a lot of the self-help type of non macro-driven opportunities that are unique to CPKC, we'll -- we're starting to see those and realize that. So we're going to take a bit of a more of a bearish view of what the macro is going to deliver. So it's difficult to call that. I do like seeing some of the CPI numbers that we've seen this week and what that could mean for rate hikes or rate cuts for the next year. So that could be supportive to the consumer. But overall, it's difficult to predict the economy. That being said, when we factor in what we think is on the table for us as far as our key markets, I think we have high level of confidence on what we can deliver from a revenue point of view. The pricing that we've been able to lock in this year and recently as well as the new contracts that are going to be coming up. I think it's going to be very favorable to overall yields. And then when we look at how we're operating, we've gone through 7 months of the integration. We've seen some real improvement over our operating metrics for the last, call it, 3 months. And you see that momentum building and what that could mean to overall operating leverage. I think it's exciting for what it means as far as what we can do from a margin point of view and from an overall earnings point of view. So I have a high level of confidence in terms of generating double-digit EPS growth. We'll see what happens with winter. It's pretty mild right now in Canada, but winter usually lasts about 5 months. So difficult to predict that either. But I think overall, when we look at our key end markets. We think about how we're operating, think about what we can control and what that means our overall earnings visibility, I'd say it's very high level of view of delivering double-digit earnings. And that doesn't include any sort of buyback or any sort of other self-help financially.

Okay. And I know you're exiting this year, it sounds like at a sub-60 OR. There'll be some seasonality. There will be some weather. Realized that, but it feels like that's something that's baked into the forecast for next year, a continuation.

Why don't we get -- why don't we wait until January for that.

Okay. Correct.

Thanks, Justin.

And any questions from the audience? We'll go right here and then over to the right.

[indiscernible]

Sure. Yes. So I'd say that when we looked at the transaction and what it means in terms of generating significant revenue growth, we looked at the base infrastructure, making sure -- ensuring that the sidings, the network and support PSR can support the growth that we have in front of us can support our service design. And so even prior to day 1 on the CP network, we were investing in the base infrastructure. KCS, while they were in trust, they invested in base infrastructure. And so when we look at what it means in terms of incremental capital, we were talking about $250 million, $300 million of pure incremental CapEx. Now offsetting that, that's a net number. We're also offsetting it with some synergies on the capital side. So when you combine the 2 networks. So it's not significant. We've guided on our 5-year Investor Day to CapEx of $2.6 billion to $2.8 billion, and that's supportive of the growth profile that we highlighted kind of mid-single-digit RTM growth over that period.

A question over here?

[indiscernible]

Right. So in terms of -- when you think about the inflation we've based in our industry. Obviously, labor was a huge increase in inflation that we saw this year. Now you can't time all your contracts to be able to mitigate that labor inflation that same period. So I would put it this way. In 2023, we saw a huge jump in inflation, primarily labor but even some of the purchase services and some of the raw inputs that we have in our industry. So with inflation closer to 7%, 7.5% type of number. Whereas pricing, you can't get all your contracts, your 100% of your revenue to price in any given year. So there's a bit of a lag effect, right? So 1/3 of our contracts would come up. You can price above inflation. And then 1/3 of the contracts have annual escalators, but they're also there sometimes there's a lag. So what we face this year, speaking CPKC was higher inflation than we were able to price timing-wise. But now as these contracts roll in, we can over the near term and into 2024, and you can price above those -- that level of inflation. And so higher than that 7%. And then you factor in when we look at 2024, I certainly don't think we're going to have inflation anywhere near that level. I think we're probably closer to the 4% type of level when we look at what we have in front of us from a labor point of view. From key materials and inputs. So I think we're going to see the benefit in 2024 of being able to price inflate above inflation. There's going to be a wider gap and then you're going to get that lag benefit in 2024. So that's how I foresee it.

And then by '25 [indiscernible]

Exactly.

Question in the back?

[indiscernible]

Yes. So absolutely. So yes, we were caught by surprise to an extent about -- from a macro point of view, but also it was also by design. We're not going to enter the first Class I merger in 20 years with -- and being short on people, especially in this environment that we've seen in the last several years of trying to hire and train and the challenge that, that's created on service. Last thing we want to do was hurt our customers and hurt our ability to provide the service that we have high expectations for. That can support the pricing I just described. So we intentionally -- we're going to be long on employees. And then you factor in the macro weakness that was probably worse than expected, we became extra long on employees. That being said, we're in that midst of, right now, looking at near term and into 2024, what's the right level of employees. And I think we have the opportunity to not hire as much, to slow down some of that pipeline of new hires, and we can take some of the employees that we have on guarantees and we can put -- invest in them to make them engineer. So we've been kind of pre-investing and prepaying on the labor front. And again, I think that gives you another opportunity to why it can be accretive into 2024 is you're not going to have that level of headwind that we saw in the past, call it, 12, 18 months.

So I guess, building on that point, that was actually one of my questions. If we get into an environment in 2024, where volume growth is, let's call it, mid-single digits in that ballpark. Does head count grow low single digits? Can it be relatively flat, given what you've just mentioned and the synergy opportunities?

Yes, I think it can be -- if we were to generate mid-single-digit volumes, RTMs, I think flat to low single-digit employee head count growth is in line.

Okay. Great. And cost per employee, I believe on the last call, you gave guidance to be up mid-single digits. Was that on a sequential basis in the fourth quarter? And maybe you could talk about the opportunity in that area going forward.

Yes. So my comments were more year-over-year, sequential. The comp per employee is one of those that can be a bit difficult because year-over-year, you get the pension impact. So our current service costs, depending on discount rates. So next year, I can't guide to that until December 31 when we lock in our discount rates on our pension plan. That being said, stock-based comp is also one of those variables, right? So we mark-to-market each month. So each quarter, depending on what occurs there, that can be a headwind or a tailwind. So right now, it's going to -- as we stand here today, it's going to be a big tailwind for Q4. I'm optimistic it won't be a tailwind for Q4, but just something to keep in mind that, that stock-based comp is always a moving part and it can have a meaningful impact on comp per employee. So...

Okay. Question over here.

[indiscernible]

Yes. So there's some easy wins on the intermodal side in terms of -- as we've seen with our service and offering a service that didn't really exist in the market, right, alone is -- we've seen a step function in growth and this opportunity with the 180, 181. We can add additional train pairs, that's certainly something that we can do that can allow for growth pretty easily. Then if you think about the terminal capacity. That's a key part as well. We have a deal maybe 4 years ago, with the Tollway, 3 years ago in Bensenville. So we have investment in Bensenville that we have in front of us, the can support the terminal capacity that's needed to grow into that end market. We have plans and opportunities in Vaughan in Toronto as well, where we can grow. We have existing capacity today. We have existing capacity in Montreal. So for us, when we look at our key locations, key terminals, we're in a very, very good spot. Where there's been some need in terms of other, call it, capacity requirements to support growth is we've got the land. We've talked about some of our land philosophy in some of the South West parts of our network. So that's going to be something that we can do a deal like we did with Americold, where they can put in the capital, we can give them the land and they can provide an opportunity to grow with them. And then lastly, it's the cars, right? So investing in reefers, for example, investing in other railcar assets that are required for the growth would be the last thing. So I think from all of those pieces, I think we have a strong plan to be able to grow pretty significantly over the next 5 years.

Question, Dave?

[indiscernible]

Yes. So when you look at kind of the mix of business, it can be very different, right? When we look at the CP network very bulk centric, very well run 8,500-foot grain trains. We've been investing in coal, which is long trains in potash as well, which is significant. So that capacity and those sidings aren't necessarily as comparable, but there are some commonalities. We're going to introduce our 8,500-foot grain model into the U.S. grain side on the KCS network. So that's an opportunity over the next 2 years that we'll be able to work with Bartlett and others to introduce into the KCS network. Over that 3-year period that we had highlighted over the -- in our application. We'll get the sidings in place that are required that we think are going to optimize the network, improve train speed, improve overall service, reduce kind of capital needs elsewhere in terms of locomotives and railcars to just support overall asset utilization. So I'd say we're probably -- because some of it was done pre day 1. We're probably at that 40% level as we speak by the end of the year. And so we're kind of on track in that 3-year period to be able to have the sidings in place.

[indiscernible]

Correct.

Go ahead.

[indiscernible]

Yes. So that's a great question. So we've seen Canadian ports grow for many years, for over a decade, I'd say. Now near term, we've seen some challenges. I think the port strike certainly didn't help. And the way the government responded to that probably didn't help in Canada. I'd say that we've seen some near-term headwinds with the alliance that suspended their PN3 service in the Port of Vancouver through the end of the year. When you look at some of the steamship line earnings commentary, it's been pretty abysmal. And so certainly, when you think about the consumer, you think about the macro environment and hopeful that as inflation subsides and you start seeing rates maybe go the other way and some strength from the consumer. That's what I think it's going to take for that to recover. I don't think it's going to happen anytime in the near term. I think we're probably a year away from trying to see that. We're not seeing a peak season today, certainly by any stretch. That being said, when I think about -- when we looked at this combination, part of the benefit was the diversity. So reducing our reliance on Asian import/export, reducing our reliance on Vancouver getting exposure to other parts of the network. So Lazaro has been up 26%, and that's helped us mitigate some of the headwinds that we've seen in Vancouver. So part of that dynamic of diversification, I think we're seeing play out and supportive to CPKC.

So there are near-term challenges in intermodal, but earlier, you talked about the intermodal opportunity being underappreciated and it sounds like that's been one of the upside drivers to your revenue synergies going forward. I wanted to ask about the mix implications of that because if you go back historically with the rails, there's always been this narrative that intermodal margins and returns are well below everything else. Has that gap closed at all for your business? And as you think about the synergy opportunity going forward and incremental margins, incremental returns, how much does it matter if it's intermodal versus the other categories?

Yes. So when you look at, call it, the CPKC or the CP network. We always looked at intermodal. If you look at our average length of haul, it's closer to 1,600 miles. So uniquely, in Canada, we have a much longer length of haul, which I think is supportive for margins relative to maybe some of our U.S. peers. And it's no different when you think about what we're doing with the MMX train, Chicago and Mexico. It's a longer length of haul than what some of our peers have had. It's a longer length of haul than what KCS has had, right? So that was a lot of traffic that would kind of end at the border. And you don't get the full value and you don't get the full benefit of it. You don't get that density. So when we look at our intermodal opportunity, it's that longer length of haul that's going to create -- take trucks off the road that's going to create a value proposition to the customer. But you can also price it at not a big discount versus your average book of business. So I don't think that that's going to be margin dilutive to us growing intermodal.

Okay. Maybe we could talk about the balance sheet. I believe your target for leverage is 2.5x. Any update on when we could hit that target. And as we think about the potential for buybacks being reinstated at some point, is the plan to wait to get to that 2.5x before we restart that program? Or could we see something in the interim?

Sure. So we're going to wait until we get to 2.5x. Number one, I want to be -- when we told the market and told our debt holders, what we were going to do, told the rating agencies we plan on delivering that, which is to get back to the 2.5x. There's times when you look at the market, you say, well, it would be nice to have a buyback like today. But that being said, we're going to do the right thing. We're going to delever. We'll get there probably mid next year. Currency does have an impact, obviously, with the benefits we -- I spoke to on yield from the Canadian dollar depreciating also has the negative effect on the balance sheet, which hurts our overall leverage. So 2.5x kind of probably mid in 2024. And then we'll reassess, we'll certainly -- we've been strong components of buybacks. It can be supportive, it gives you flexibility and gives you a supportive times like this when you see a bit of a dislocation between your stock price and the intrinsic value. It's a good way of rewarding shareholders. And at the same time, our dividend or yield, gotten feedback from shareholders and that, that needs to be looked at. So I think you'll -- you can expect we'll go to our board with a recommendation of doing -- revisiting introducing a buyback program and also increasing our dividend.

Okay. Great. And you gave a range on CapEx for the next -- or going forward. One thing that came up on the earnings call, though, was I think Keith mentioned more of a focus on the locomotive strategy going forward, given your growth plans and ESG targets. Any color on what that could entail as it relates to both purchases of new locomotives and modernization. I'm just trying to balance that comment versus some of the cost opportunities you've discussed.

Sure. Yes. So as we integrate the 2 companies, we're getting full value of putting the fleets together, putting locomotive fleets together. And so if we look at our growth profile, and if you look at the age of our locomotive units, we will see the need in a few years to start to potentially looking at either modernizations or acquiring Tier 4s. If the vendors are willing to come to the table, and we can see some benefits as well on the procurement side, we may have an opportunity to acquire some Tier 4 locomotives that will also help with our emissions targets and fuel efficiency. We're also looking at, obviously, our hydrogen locomotive strategy. So we're in the midst of building up that program. We announced the deal with CSX to look at conversion kits on diesel electric locomotives. We've announced the deal with Teck that we'll be testing some hydrogen locomotives on the coal loop in British Columbia. So we're excited about that opportunity in 2024. And we've done some -- we built our first high horsepower locomotive that's going to go out for testing shortly and [indiscernible] horsepower locomotives that have done some mainline testing, they're going to be doing some switching testing later this month. So a lot happening on the hydrogen side. We think that, that's kind of the natural opportunity to decarbonize and provide a sustainable solution in our industry. It's going to take some time, but that's going to take a bit of time and a bit of CapEx, which I think is going to be well earned back from our customer base as well. So -- what does it mean from a CapEx point of view, we guided to $2.6 billion to $2.8 billion of capital over that 5-year period through 2028. I don't think much changes on that guidance based on locomotive requirements.

Okay. That's helpful. Any final questions from the audience, Dave?

[indiscernible]

Yes. So certainly, when you look at volumes -- as an industry, we haven't seen huge surge in volumes since the 2021 levels at all. So we have room on our network. We have a room on the KCS network. And if you think about the benefits and the opportunities of the synergies as you combine the 2 entities and running longer, improving train speed and the value of the sidings we talked about earlier as well. We have plenty of capacity. I don't see any sort of capacity challenges from a network point of view, when you look out on that growth profile that we highlighted over the next 5 years of mid-single-digit RTM growth over that period. So there's your natural kind of pinch points that you can address in different areas of terminals and assets. But as far as overall network capacity, I don't see any challenges. We also have that second bridge that will come into effect over the next few years as well, which I think will help with overall capacity in North-South. And then when you think about some of the changes in dynamics of what's moving intermodal in the Mexico area, we could create additional capacity by others choosing to go short haul and reducing some of that short-haul traffic that's on our network, and that frees up capacity that we could sell at a much better yield and a much better market. So I think these are all positives overall to market to the value of our service and the value of our capacity.

Okay. Well, maybe I'll wrap things up with final question. One notable trend we've seen in the industry is the Class Is starting to come together more and collaborate. And I feel like every week, I wake up and there's a new service offering that's hitting my inbox with the press release. Can you just comment broadly on some of the opportunities and maybe the risks as well with some of the new service offerings that have been offered and your collaboration with the other Class Is?

Yes. So when we look at what we had mentioned on our integration and why it's important for customers and it's important for the economy. We said it was going to be induce and drive more competition into the industry, and we've seen some of that occur. And so to us, it's a complement, and I think it should be a huge complement to the chairman of the STB who made that decision supported this pro-competitive acquisition and deal. For us, when we look at where our opportunities are, we've announced the MNBR deal, which is subject to STB approval. We think that that's going to be a great opportunity to have a direct linkage between Southeastern U.S. and into the some of the Southwest part of our network into Mexico and Dallas. And so we think that unique offering is great for customers, great for kind of key end markets of autos, which I think CSX has 6 or 8 new auto plants coming online in their network. And we've announced a new auto compound that we're building in Dallas, which I think can be very favorable landing point for some of those automotive production facilities. So for us, there's some natural opportunities to work with that MNBR. But we're open for business to work with all the rails. It's something that when you can do things co-productive and can be supportive for customers, and it can be a very cheap and effective way to drive improved capacity and promote capacity on the existing rail network. We think that, that's a win-win for all. So we'll work with each of the key Class Is where there's opportunities. But that's the key one right now that we're focused on.

Okay. Great. We'll wrap it there, Nadeem, thank you so much for being here.

Thanks, Justin.

Appreciate it.