Element Fleet Management Q3 2023 Earnings Call Transcript

Quartr
Provided by Quartr
November 7, 2023

There are 7 speakers on the call.

Operator

Good morning, ladies and gentlemen, and welcome to Element Fleet Management's Third Quarter 2023 Earnings Call. At this time, all participants are in listen only mode and you are reminded that this call is being recorded. Following the prepared remarks, the company will invite questions from analysts. Element wishes to caution listeners that today's information contains forward looking statements, The assumptions on which they are based and the material risks and uncertainties that could cause them to differ are outlined the company's year end and most recent MD and A as well as its most recent AIF. Although management believes that the expectations expressed in the statements A reasonable actual results could differ materially.

Operator

The company also reminds listeners that today's call references certain non GAAP and supplemental financial measures. Management measures performance on a reported and adjusted basis and considers both to be useful in providing readers with a better understanding of how it assesses results. A reconciliation of these non GAAP financial measures IFRS measures can be found in the company's most recent MD and A. I would now like to turn the conference over to Laura Dottore Tonazio, President and Chief Executive Officer of Element. Please go ahead.

Speaker 1

Thank you, operator. Good morning, everyone, and thank you for joining us. I am really proud of our Element team for delivering another standing quarter demonstrating the strength of our strategy and the momentum we continue to enjoy and regenerate. We have delivered record revenue growth at over 15% on a year over year basis, a rapidly expanding client base with yet another record by welcoming 55 new clients, of which 22 were self managed fleets And we're increasing our common dividend by 20%. This is a result of our resilient business model, which speaks to the quality of our clients and the hard work and focus of our team.

Speaker 1

In addition to delivering strong financial and operating results, We continue to deliver a superior client experience. We maintained our strong global Net Promoter Score above 40 With a continued 99% client retention rate, we outperformed on our targeted EV acceptance rate And we had $1,900,000,000 of new vehicle orders from our clients, representing a 29% year over year increase. Our confidence in our growth trajectory is further bolstered by the recent prioritization of opportunities to scale our business and make targeted investments that will drive our future performance. We announced 3 strategic initiatives that we have underway. They are centralizing accountability for our U.

Speaker 1

S. And Canadian leasing operations, establishing a strategic sourcing presence in Asia and advancing digitization and automation, all of which will unlock future growth for us. The first is centralizing accountability for our U. S. And Canadian leasing function at a new Element office in Dublin, Ireland, A recognized Global Leasing Center of Excellence, this new office will be operational beginning in mid-twenty 24.

Speaker 1

A number of long term benefits to both clients in our business support this decision. So let me elaborate. Our experience has been that assigning accountability for the performance of each of our service products to individual senior leaders has driven focus that resulted in accelerated growth. In each of the last seven quarters, services revenue has grown as a result of this Our intention is to replicate this proven model of centralized accountability and apply it to our leasing function. It will be led by Chris Gittens, one of our very seasoned executives who in his past has successfully run Element's Canadian business as a whole Endy built our strategic relationship business for MegaSleep, including Armada.

Speaker 1

Most recently, Chris has served as our Chief Information Officer. Chris and approximately 70 employees will be based in Dublin. The centralized accountability for this function will elevate our clients' leasing experience, optimize related operations and improved pricing discipline, all to maximize the value of our portfolio. Now secondly, we will establish a small yet Strategic sourcing and relationship management presence in Singapore next year. This decision will further enhance our global procurement capabilities.

Speaker 1

This move is crucial for us to further strengthen our existing ties with Asian OEMs and foster valuable new sourcing relationships. This will provide us with an opportunity to expand and improve our clients' access to new vehicles and provides our business with the economic benefits of And given Asia's global leadership position in the development and production of EVs, it's also aligned with our clients' These 2 strategic initiatives to contribute profitable revenue growth and operational efficiencies that Frank will speak to. Now our 3rd strategic initiative is prioritizing and investing in increased digitization and automation In order to further optimize and scale our business, for now, this comes in the form of having recruited 2 important new executives to Element. Joining our leadership team are David Attard in the role of Chief Digital Officer and Yu Jin as our new Chief Information Officer. David will accelerate efforts to scale our business and deliver consistent Sure.

Speaker 1

Necessary to ensure that Element can compete and create great clients and employee experiences. The time I've spent with our team members, our clients and our suppliers over the past 9 months has made clear The importance of enhanced digitization and automation to build the growth momentum our investors have come to expect from Element. Our people are motivated and excited about our future. That energy is translated into the exciting strategic initiatives we're implementing to enhance our value proposition and grow our earnings and free cash flow per share. Moving forward, you can expect us to continue Working hard to generate strong results by delivering for our clients.

Speaker 1

I want to thank our Element team members for your commitment to our clients and the I'll hand it over to Frank and look forward to your questions.

Speaker 2

Thank you, Laura, and good morning, everyone. We posted another Strong set of results for the Q3, including several new record highs. We continue to benefit from our commercial capabilities and investments in strengthening those as well as robust client demand and improved originations driven by improving OEM production. Our performance underscores the trust and confidence our clients have an element and the value that we deliver. In addition, this strong performance and solid outlook provides us the opportunity to continue returning capital to shareholders.

Speaker 2

In this regard, we are pleased to have announced an increase in our annual common dividend by 20% to $0.48 per share annually. In addition, we anticipate redeeming our remaining outstanding preferred shares as they come due this year and next. Finally, we have reauthorized our NCIB to be able to utilize additional excess capital to repurchase common shares over the next 12 months. Before I get into our Q3 results, let me elaborate on the strategic initiatives that Laura spoke to. Echoing her comments, we expect our leasing, strategic sourcing and digitization and automation initiatives to yield significant intermediate to long term benefits.

Speaker 2

We anticipate the leasing and strategic sourcing initiatives to contribute profitable revenue growth and operational efficiencies beginning in 2025, which will conservatively scale to between $40,000,000 $60,000,000 of run rate net revenue and $30,000,000 to $50,000,000 of run rate AOI by full year 2028, With these leasing initiatives representing the significantly larger portion of these benefits, we will incur approximately $25,000,000 to $30,000,000 in aggregate of non recurring setup costs related to these strategic initiatives. These setup costs will be recorded in operating expenses through Q2 2024 with $3,900,000 incurred and accounted for in our G and A this quarter. We will continue to call out these nonrecurring setup costs And next quarter, when we report our full year 2023 results, we will provide you more detail as to the expected quarterly amounts and cadence of this spend. These non recurring setup costs are related to recruiting, relocation, office setup, IT, severance and professional fees associated with the leasing and sourcing strategic initiatives. The setup costs have an estimated 2.5 year payback period based on conservative estimates of the quantum and timing of run rate benefits we're creating.

Speaker 2

These are exciting times at Element and we are investing to benefit our clients, our business, our people and ultimately our investors. Lastly, before I move on from this topic, I want to be clear that our full year 2023 2024 results guidance Do not include these non recurring setup costs related to both the leasing and sourcing strategic initiatives because the setup costs are short term and temporal in nature and do not increase Element's run rate expense base. Turning to our 2024 results guidance, we expect continued strength in originations growth, As you saw in our disclosure materials, we expect full year 2024 to deliver the following financial results: Net revenue of between $1,365,000,000 and $1,390,000,000 adjusted operating margins of 5% to 55.5 percent, adjusted operating income of $750,000,000 to $770,000,000 Adjusted EPS of between $1.41 $1.46 and free cash flow of $1.75 to $1.80 per share. Our per share metrics are based on a full year weighted average share count of approximately 3 97,000,000 common shares for 2024, reflecting the conversion of our convertible securities into common shares upon their maturity mid year 2024. Regarding 2023 guidance, before the non recurring setup costs associated with the strategic initiatives, We expect to report full year results on our key financial metrics that are near, at or above the high end of the various guidance ranges we provided previously.

Speaker 2

Before I walk through our 3rd quarter results, let me level set by highlighting the following. First, as previously We benefited from $17,000,000 of non recurring net revenue in Q3 of last year. Excluding that $17,000,000 from year over year comparisons represents what we call organic growth, so I'll be citing growth on that basis. 2nd, the growth measures I cite are in constant Because the strengthening of both the U. S.

Speaker 2

Dollar and the Mexican peso benefited our Q3 results as reported. Our 3rd quarter results were very strong. We grew net revenue at 15.6% year over year to a record 333 $800,000 for the quarter. Adjusted operating income, also a record, grew 16.1% on the same year over year basis Despite increased investment in our commercial capabilities, adjusted operating margin was 55.4% for the quarter. Adjusted EPS were $0.35 which is a 20.7 percent improvement year over year and free cash flow per share was 0 point 42 dollars is a 7.7% improvement year over year.

Speaker 2

Looking more closely at our net revenue growth, it was driven by services revenue and net financing revenue. Service revenue growth is the first pillar of our capital lighter business model and services revenue was up 18 0.2% year over year driven by share of wallet growth, namely increased penetration and utilization in the U. S. And Canada As well as double digit growth in Mexico and modest growth in A and C Services revenue streams. Net financing revenue grew 11.7 percent driven by net earning asset growth with gain on sale growth also contributing.

Speaker 2

Now I'll briefly turn to the 2nd pillar of our capital lighter financial strategy, which is syndication. We syndicated a record $1,000,000,000 of lease assets in the 3rd quarter and generated $17,300,000 of revenue As well as freeing up excess equity, which we can invest in the business and return to shareholders through dividends and buybacks. Turning now to adjusted operating expenses. The year over year increase was largely driven by inflation, capacity needs on Commercial capabilities and client facing functions and strategic investment decisions. As I mentioned earlier, Q3 adjusted operating expenses included $3,900,000 of non recurring setup costs related to the strategic initiatives.

Speaker 2

A larger portion of the increase is our ongoing investments in commercial These are paying off handsomely with resulting net revenue contributions outpacing the adjusted operating expense growth that these investments represent. This has given us positive operating leverage and a 55.4% adjusted operating margin for the 3rd quarter before the non recurring expenses. The combination of common share buybacks and dividends saw us return $188,000,000 in cash to our investors in 2023 year to date. That return of capital will remain generous going forward given yesterday's announcement of our 20% common dividend increase $0.48 per share annually. This dividend is at the midpoint of our 25 35% payout range based on last 12 months free cash flow per share.

Speaker 2

Before we take your questions, Let me highlight 2 housekeeping items. In 2024, we anticipate $100,000,000 to $110,000,000 of total capital investments required With approximately $75,000,000 of sustaining capital and the remainder to fund our digitization and automation and other growth initiatives. This is roughly consistent with our 2023 forecasted spend of $100,000,000 with a modestly heavier weighting to growth initiatives. 2nd, we anticipate a cash tax rate of approximately 10% this year 2023, growing to an estimated 12% to 13% for 2024, which remains well below our adjusted effective tax rate of about 25%. In closing, let me say it's great to see the hard work of our people continuing to pay off for our clients, our business and our investors.

Speaker 2

Our collective efforts have brought us to this point and we're incredibly optimistic about what lies ahead. That concludes our prepared remarks for this morning. I'll turn this call over to the operator for your questions.

Operator

Thank you. The first question comes from Geoff Kwan with RBC Capital Markets. Please go ahead.

Speaker 3

Hi, good morning. My first question is with respect to your customers, they've obviously gone through a number of years where vehicle replacements have been Relatively modest. I'm just wondering like if we kind of go down the route of a recession, does that their appetite to replace the vehicles or is it from a total cost of ownership perspective, is it still cost effective to replace the aging vehicles Right now rather than just try and hold on to them longer. And are there exceptions where that may not be the case?

Speaker 1

Good morning, Jeff. It's Laura. So I would say generally speaking given how aged our clients' vehicles are That it is generally still cost effective just to replace them. So we expect that to continue to happen. That said, in a recession, we would expect to see some of our clients looking to see how they could pare back on the number of vehicles that they have.

Speaker 1

And that is something that we work closely with our clients with. So all about how to make what they do the most cost effective. So takeaway is they're going to continue to replace the vehicles just given how aged they are, they need to do that, which is why we're comfortable with the originations and guidance that we've provided, but there will be some depending upon whether we go into a recession, what it's like, Some pullback in terms of overall numbers of vehicles in fleet.

Speaker 3

Okay. Thanks for that. My second question was just On self managed, just wondering if you can give an update progress on that front, both Qualitative comments on what's happening there, but also if there's anything you can do in terms of say, for example, kind of quantifying the revenues, not just What you've got so far with the embedded financing revenues because those vehicles, if you are getting wins, don't come into revenues right away. And if you're able to give some sort of context of what's been done over the past couple of years since you started to focus on that segment more.

Speaker 1

Yes. Well, I can't go into all the specifics and those details. What I will tell you is for the work that started a few years It's really starting to pay off. As you would have heard, not just this quarter and last quarter, we're really starting to see A pickup in terms of self managed fleets that we're bringing on with 22 having been brought on just This quarter and directionally we're seeing that our win rates are also up a lot this year relative to last So the work that our commercial team is doing led by David Madrigal is really paying off And it's looking good. And we do think, as we've talked about in the past, with the electrification of vehicles And the desire of our clients to decarbonize that we're seeing a lot more interest from self managed fleets to look at getting advice from companies such as ours.

Speaker 1

So we expect to continue to perform well in this space.

Speaker 3

Okay, great. Thank you.

Operator

The next question comes from Paul Holden with CIBC. Please go ahead.

Speaker 4

Thank you. Good morning. First question is for Frank. Any kind of Guidance you can give us on medium term expectations for the net financial margin, obviously, you've been expanding over time, but a little bit of I'll pull back this past quarter, where roughly should that stabilize?

Speaker 2

Yes. So Paul, I would expect there to be Some modest margin compression driven by, in particular, Gain on sale. And so gain on sale will moderate as we've said before coming off these very strong And that has contributed to the expansion. That being said, we don't expect any material downturn in gain on sale, But even a moderation or flat would have some pressure on that net finance margin. Additionally, We will see, call it, roughly $13,000,000 of incremental costs, which is strictly geography For refinancing the preferreds out of the that are now show up below the line With that and those will now come up above the line.

Speaker 2

So that will give you some modest margin compression. And then obviously there will be slightly higher funding spreads as we term out Some of the VFN and or do more senior note deals from that perspective. So That will be offset in part by growth in higher jurisdiction interest rate environments like Mexico and AMC.

Speaker 4

Got it. And then how should we be thinking about the financial leverage of the balance sheet In consideration of the optimization through 2024,

Speaker 3

I. E,

Speaker 4

where should the leverage sort of shake out at the end of the year? And I'm assuming obviously you've talked to the rating agencies about this and don't expect any change there. But Has the I guess the question I'm trying to ask is like, has the targeted financial leverage changed Increased to a point where the credit rating agencies are comfortable with higher leverage?

Speaker 2

Yes. So our targets have not changed at all, Paul. I think where you'll see the change is in our As reported numbers and so obviously those have been running below 6 times. Our target is Plus or minus 6.5 times and as we take out those preferreds, we will drive closer to our Targeted levels, which are materially below any ratings triggers. And so that is not something that we're very concerned at.

Speaker 2

And yes, we talk To the rating agencies consistently, and they are very comfortable with our plan, and from a leverage perspective, And again, significant cushion before any rating triggers would actually even become under consideration.

Speaker 4

Great. Okay. And then last question from me in terms of Those strategic initiatives you highlighted this morning, is there anything embedded in your guidance Or the future increase in revenue for the digitization and automation piece? If it's not, can you give us a sense at least qualitatively of how that might provide a financial benefit over time?

Speaker 2

Sure. So, there's 2 components to that. 1 is, first I would say, very clearly, we haven't baked a lot in for the benefits of that digitization and automation at this point. And she's spoken quite eloquently about that since she's arrived here as we move forward. And so bringing on a Chief Digital Officer in David Attard will help us to push that more further.

Speaker 2

So he is doing that evaluatory On where that we're going to get the biggest bang for the buck from that perspective. I think there will be 2 benefits ultimately financially and I believe we will recognize This year are beginning to start to realize those. One is just from the commercial perspective, Having a better product and ease of use from a driver perspective in regards to the digitization of our products. The second component is on the automation side, driving more efficiencies through which will improve our operating leverage overall. But again, I wouldn't expect very large impacts this year.

Speaker 2

We have looked at the costs, so the costs are built in for that evaluation, but and we should see some benefits, but I don't think they will be outsized

Operator

The next question comes from Jaeme Gloyn with National Bank Financial. Please go ahead.

Speaker 5

Yes, thanks. First question, just in terms of the order backlog and the excess Order backlog that we're in today, in terms of your guidance, how much of that excess order backlog is assumed to unwind through 2024? Will it fully unwind or is it expected to persist?

Speaker 2

Yes. Those are always something that's a little bit hard to call, but yes, we expect some unwinding Of that order backlog through 2024 and depending on the pace of OEM production, we would anticipate That will have a big impact on, does it all unwind or do we have some rolling over into 2025, which I don't think would be an unrealistic assumption Where we sit here now. The other thing that I would just add is that when you look at our orders, we do have The clients that are still on allocation from an order perspective. And so that could continue to either drive higher originations And that's getting healthier as we move forward. So we're still not near the original, let's call it, 2019 normalized order to delivery cycle that we've seen back then.

Speaker 2

And until we get back to those levels, that will really be When we know that we are back to normal and that backlog has unwound.

Speaker 5

Got it. In terms of the capital structure outlook, the commentary was very clear In discussing the redemption of the preferred shares, it seemed to not be as clear with the converts. So can you just reeducate us on your plan for the converts? Is it to redeem or is it to convert them to equity Or just continue to hold or refinance. And what's the plan there?

Speaker 2

Yes. So the converts, given where they are in the money, they will convert into equity. And so that is where our assumption in my prepared remarks that we believe $397,000,000 of common shares outstanding for the full year is based on that conversion of those converts into equity. Got it. And last

Speaker 5

Why Dublin? Why was Dublin so much more attractive than say Canada or somewhere in the U. S. Where you're already currently located? If you could elaborate on that part of the decision process and then I'll turn it over.

Speaker 5

Thanks.

Speaker 1

Yes. Hi, Jamie. What I'd tell you is We considered quite a few locations. We thought about Toronto, thought about Minneapolis, and we Considered a host of other countries, ultimately, we landed on Ireland as we felt there were more compelling reasons Ireland is recognized as the global center of excellence for leasing. There's almost I think almost 5,000 leasing companies That are based out of Ireland.

Speaker 1

It's also closer to our vol, our global alliance partner. And we like that it really gets us access The industry leading resources. So in Ireland, there is top leasing talent. And so we think that can help strengthen our product development capabilities. So all of that setting it up separately, we think, gives us just better visibility, more control around optimizing our revenue and Overall performance and we think this approach is really going to drive the most incremental value for our shareholders.

Speaker 1

Does that help?

Speaker 6

Thank you.

Operator

The next question comes from Graham Ryding with TD Securities. Please go ahead.

Speaker 5

Good morning. Maybe I could just start with the utilization Side of your servicing has been a healthy driver of your growth rate there. If we do go into a recession or a soft landing backdrop, is that one area of your business where we could see some impact or softness, just clients utilizing their fleets or your services Less because lower demand for their services?

Speaker 2

Yes. I think the way to think about utilization is it's directly tied to miles And so in a recession, if those miles driven or the hours of use engine Time on those vehicles were to decrease, they would need less maintenance, less tires, etcetera. So that would be what would impact that utilization rate.

Speaker 5

Okay, correct. You highlighted earlier in 2023 some mega fleet wins. Are those Fully ramped up now and in your numbers that we're seeing today in the run rate? And then any other mega fleet wins that you would flag perhaps

Speaker 1

Well, I'll start. We have had mega fleet wins last quarter, And it does take time. So again, as you know, when we bring new clients on depending upon what they've What they're doing with us, whether it's leasing our services, it does take quite a delay for all of that to show in our numbers. So you will see that represent in our numbers over time. But I'd say we're making some really good progress without going into any specific names, But we're making really good progress in that segment as well.

Speaker 1

And go ahead, Frank, if you wanted to

Speaker 2

Yes. The two things I would say, Graeme, are first, remember on the leasing component, those mega fleet wins take 4 years roughly to ramp up. So you're just seeing a small component of that and probably not even a full quarter of it yet as we've gotten onboarded those clients, etcetera. 2nd, in regards to the services component, I've said before, if all if the services take 6 to 9 months to get those vehicles on, Obviously, you only get about a half a year of those services. There are circumstances with certain clients where parts of their We take a bit longer to come on.

Speaker 2

A good example of that is clients that are doing merger integration or otherwise and need To deal with some of their internal complexity before bringing those additional units on. So there's also some of that. So The answer to your question is, there's more to come in regards to those wins that we've discussed over the last 3 or 4 quarters.

Speaker 5

Okay, understood. And one last one if I could. Just not sure if I missed it, but did you give any Guidance or expectations for your origination volumes in 2024 versus this year or Any commentary there?

Speaker 2

No, we did not. But the commentary I can provide you on that is we Typically look to grow syndications consistent with growth in originations. And so as we see originations pick up, You should see syndications pick up because they are a critical component of the funding piece of it. And the real strength is that as we syndicate Those lease assets, we keep all of the services revenue associated with those assets And additionally, then have capital to put into the next transaction and therefore self fund the growth from that perspective. So Just think about growing originations business, which we believe will continue strongly over the next several years, both as the Backlog unwinds and as consumer as client demand stays strong and then syndications growing in lockstep with that.

Speaker 5

Okay. That's it for me. Thank you.

Operator

The next question comes from Tom MacKinnon with BMO Capital Markets. Please go ahead.

Speaker 6

Yes, thanks very much and good morning. I'm wondering if you could talk about some of the pricing improvements you expect for leasing as a result The accountability initiative in Dublin, I mean you currently have these Chesapeake funding vehicles. I assume are they going to stay in place? You're going to roll them into something else? What is it that you roll them into that and why are those better?

Speaker 6

And so just some color with respect to how that's going to improve some pricing that you had noted too?

Speaker 1

Hey, good morning, Tom. I'm going to start and then I'll hand it over to Frank. So what I alluded to in my remarks on pricing had to do with actual Lease pricing in terms of how we run the business. And so in centralizing U. S.

Speaker 1

And Canadian leasing And looking at doing more standardization automation processes, cleanup, etcetera, we expect to be in a position where we're more So that was my comment as it related to pricing and we do expect to do better, which will translate into better performance in our numbers, which was part of The numbers that Frank gave when he spoke about the $40,000,000 to $60,000,000 run rate of net revenue starting in 2028. To your second question on what we're thinking as it relates to how we fund ourselves overall In Europe compared to Canada, I'll hand that over to Frank for his views recognizing that it's still early days.

Speaker 2

Yes. So in the grand scheme of things, we see no material impact to our funding no impact to our funding or to our Lender base, so those lenders will be a critical part of our new funding structures as we move over there. We will be putting together a VFN in Ireland, but again with the existing U. S. Lenders And doing that to facilitate growth there.

Speaker 2

Our senior line will remain in place with Likely Ireland added as a borrower there. And we should be able to we will be able to issue ABS term notes And do all of the funding that we do today. So that should be a relatively easy process or seamless process as we move over to Ireland.

Speaker 6

Yes. And just a follow-up, as you sort of centralize this lease pricing, None of the I assume you have people who are client facing and then they would say, well, okay, here's sort of what we're thinking about A disruption in a process or just help me think through that little scenario I just suggested. Thanks.

Speaker 1

Yes, absolutely, Tom. So we are not moving any client facing team members. All of our commercial team remains where they are. What we're moving is the operational part of leasing. And so it's 70 people.

Speaker 1

So we don't expect it to be, if you will, disruptive. And I'd say in the short term limited impact, most won't notice it's happening as it's an internal operation that we manage. What I would say is in the longer term, we do this right. As I mentioned earlier, we'll have more streamlined processes, more standardization, More pricing, discipline automation in terms of how we do things, it will be simplified and all of that will translate into better client leasing experience because it will be easier for our clients and our sales team when they're dealing with the leasing And all of that should be better returns for our shareholders. Does that clarify?

Speaker 6

Okay. That's good. Yes. And just as a last one here, just In terms of the S and PTSX kind of sector move here, I think it went from to industrials from finance. Can you remind us how that gets Initiated and what your why it was and what would the next steps be?

Speaker 2

Yes. So answer in reverse order, we don't necessarily have a say in those type of sector moves. And so We do not believe there will be any material impact on us or our share price as we move forward here. We have some modest Volume in some of those indices, which would, my understanding is, rebalance mid December.

Speaker 6

That was entirely initiated by the TSX and then they're not do they have any communication with you before they do that or ask for your input or anything like that or is that just not part of any of those discussions?

Speaker 1

Tom, we didn't have any discussions. We learned the news at the same time everyone else Learned the news and so we're digesting it alongside everyone else. And so maybe back to you and Everyone else on the call will be interested in your views post this call.

Speaker 6

Okay. Okay. Thanks so much.

Speaker 1

Thank you.

Operator

I would now like to turn the conference back over to Laura Dottore Itannacio for any closing remarks, please go ahead.

Speaker 1

Thank you, operator, and thanks to our analysts for your questions. And I'm thanking you in advance for the advice you'll share after this reclassification that we have. I wanted to just reiterate my gratitude to the Element team for all of your hard work delivering for our clients And as a result for our shareholders, as we shared when we started, we're really pleased with our Q3 performance and we're really excited about the And as Frank and I shared, we're very confident in our outlook for 2024. So we will finish this year strong and we look forward to sharing our next set of results with you in late February. Thank you again.

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Key Takeaways

  • Element delivered record 15.6% organic revenue growth in Q3, welcomed 55 new clients (including 22 self-managed fleets), and increased its common dividend by 20% to $0.48 per share, underpinned by a 99% client retention rate and an NPS above 40.
  • The company outlined three strategic initiatives—centralizing U.S. and Canadian leasing in Dublin; establishing a strategic sourcing hub in Singapore; and advancing digitization and automation with a new Chief Digital Officer and CIO—to unlock future growth and operational efficiencies.
  • Q3 results featured record net revenue of $333.8 million (+15.6% YoY), adjusted operating income up 16.1%, adjusted EPS of $0.35 (+20.7%), free cash flow per share of $0.42 (+7.7%), and a record $1 billion in lease asset syndications.
  • For full-year 2024, Element expects net revenue of $1.365–$1.390 billion, an adjusted operating margin of 55–55.5%, adjusted operating income of $750–$770 million, adjusted EPS of $1.41–$1.46, and free cash flow of $1.75–$1.80 per share.
  • Capital return remains a priority with a 20% dividend increase, plans to redeem remaining preferred shares, and a reauthorized NCIB for share buybacks, while identified strategic setup costs of $25–$30 million are expected to pay back within 2.5 years.
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Earnings Conference Call
Element Fleet Management Q3 2023
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