Element Fleet Management Q3 Earnings Call Highlights

Key Points

• 2027 growth is expected to slow: Element forecasts low-single-digit net revenue growth excluding foreign exchange, with the Mexican peso potentially creating an additional 2%–3% headwind. The company also expects 2026 originations below prior guidance and other metrics near the low end of their ranges.
• Third-quarter results improved: Net revenue rose 5% to $321 million, adjusted EPS increased 6% to $0.35, and free cash flow per share grew 7% to $0.45. Originations, however, declined 2% to $1.7 billion.
• Commercial execution is the key challenge: Element is changing sales leadership and processes after underperforming in the U.S. and Canada, and expects the benefits to build through 2027 given long sales cycles. It is also targeting about $20 million in annualized savings starting in 2027 and plans to renew its share buyback program, subject to approval.

Element Fleet Management TSE: EFN expects revenue growth to slow in 2027 after commercial execution fell short of its expectations, even as the fleet manager reported higher third-quarter earnings and cash flow.

The company expects 2027 net revenue growth in the low single digits, excluding foreign exchange translation, Chief Financial Officer Heath Valkenburg said on its third-quarter earnings call. He estimated that translation of the Mexican peso could create an additional 2% to 3% headwind to reported growth, depending on exchange rates.

Element also expects full-year 2026 originations to fall below its previously published guidance range, with other financial metrics at or near the lower end of their respective ranges. Formal 2027 guidance is due with fourth-quarter results in February.

Commercial Changes to Take Time

President and CEO Laura Dottori-Attanasio said commercial performance, particularly in the U.S. and Canada, had not met the company's expectations. She said sales efforts had become too concentrated on a small number of large opportunities rather than a balanced pipeline that included mid-market and self-managed fleets.

Element changed its commercial leadership, organization and processes during the third quarter. The company is emphasizing pipeline quality, sales effectiveness and accountability, while reviewing incentives, Dottori-Attanasio said.

With typical fleet sales cycles running 130 to 250 days, she expects the revenue contribution from those changes to build through 2027, with a more meaningful impact thereafter. Early evidence should appear in pipeline quality and activity before it shows up fully in vehicles under management or revenue, she said.

Dottori-Attanasio said client revenue retention remained in the 97% to 98% range and that the company saw no evidence it was losing market share. Economic and trade uncertainty has also prompted some clients to take longer to replace or expand fleets, she said, but described commercial execution as the biggest issue within Element's control.

Valkenburg said Element had also fallen short on product penetration, with services per vehicle flat in its U.S. and Canadian business. The company added 49 clients in the quarter, up from 38 a year earlier, with more than half coming from self-managed fleets.

Revenue and Earnings Rose in the Quarter

Third-quarter net revenue increased 5% year over year to $321 million. Adjusted earnings per share rose 6% to $0.35, free cash flow per share increased 7% to $0.45, and adjusted return on equity reached 20.2%, Valkenburg said.

Services revenue rose 5% to $164 million, supported by 3% growth in vehicles under management and higher revenue per vehicle. Net financing revenue increased 6% to $138 million, while syndication revenue fell 6% to $19 million. Originations declined 2% to $1.7 billion.

Core net financing revenue yield reached 5.76%, helped by leasing economics, lower funding costs and foreign exchange. Valkenburg said some quarter-specific items also lifted the yield and pointed to the first-half average of just over 5% as a reference for normalization in coming quarters.

Orders rose 31% in the third quarter, but much of that reflected orders expected earlier in the year, Valkenburg said. Some of the resulting originations are expected in 2027 rather than 2026 because of the time between ordering and origination.

Cost Savings and Buybacks

Adjusted operating expenses rose 8% year over year to $139 million, outpacing revenue growth, although expenses declined from the prior quarter for the second consecutive period. The adjusted operating margin was 56.8%.

Element remains on track for approximately $20 million in annualized run-rate savings beginning in 2027, Dottori-Attanasio said. Valkenburg said the company expects expense growth to moderate next year and is focused on restoring positive operating leverage.

The company repurchased nearly 11 million shares in the first nine months of 2026 and intends to renew its normal course issuer bid after it expires in November, subject to Toronto Stock Exchange approval. Dottori-Attanasio said Element sees value in its shares and expects to be more active under the buyback program.

Waymo and Payment Products

Element is preparing to operate a Waymo depot in San Diego in 2027, providing services including charging, cleaning and maintenance. Dottori-Attanasio said operations could begin around the end of the first quarter or beginning of the second, although the timing could change. Revenue is expected to build progressively as vehicle volumes increase.

The partnership has also expanded to Toronto, where Element will initially support mapping and validation activities. First riders are targeted for 2028.

Dottori-Attanasio said Element Pay, its vehicle-based payment solution, remains early in commercialization and is not expected to materially change near-term growth. She said all client proof-of-concept trials completed to date had resulted in requests to use the product.

About Element Fleet Management (TSE:EFN)

Element Fleet Management TSX: EFN is the largest publicly traded pure play automotive fleet manager in the world and a global leader in intelligent fleet and mobility solutions. Guided by our Purpose to Move the world through intelligent mobility, we help clients manage the vehicles, data, technology, and decisions that keep their businesses moving. Fleet is our foundation, and intelligent mobility is how we lead. By combining deep fleet expertise with connected technologies, data driven intelligence, and strategic partnerships, Element helps clients lower total cost of ownership, improve uptime and driver experience, and build more resilient operations.

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