Q3 2020 Element Fleet Management Corp Earnings Call
[music].
Thank you for standing by this is the conference operator, welcome to the oldest fleet management third quarter 2020 financial and operating results conference call.
A reminder, all participants are in listen only mode and the call friendship being recorded.
After the prepared remarks, there will be an opportunity for analysts to ask questions in order to afford all analysts the opportunity talk a question elements kindly request that analysts limit themselves to two questions and lives dialogue with management.
Should any analyst have additional questions. Please rejoin the queue.
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Element wishes to remind listeners that some of the information in today's call includes forward looking statements.
These statements are based on assumptions that are subject to significant risks and uncertainties and the company refers you to the cautionary statements and risk factors in this year and and most recent mdna as well as its most recent yeah yeah.
For a description of these risks uncertainties and assumptions, although management believes that the expectations reflected in these statements are reasonable it can give no assurance that the expectations reflected in any forward looking statements will provide oh prove to be correct.
Elements, earning press release financial statements Mdna supplementary information document quarterly Investor presentation, and todays call include references to non I FRS measures, which management believes are helpful to prevent the company and its operations in ways that are useful to investors are weak.
So you should have these non IRS measures to I ever us.
Measures can be found in the Mdna Oh.
I would now like to turn the call over to Jay ports, President and Chief Executive Officer of element. Please go ahead.
Thank you operator.
Thanks to all of you for joining us this evening to discuss our third quarter results.
Our achievement of long standing strategic objectives, as well as our thinking and progress on their recent strategic priorities now that transformation is coming to an end.
And our capital allocation strategy, namely the plan return of capital to shareholders by way of dividends and share buybacks.
Before we begin with our results I want to express immense gratitude.
Everyone at Ultimate fleet management to the healthcare professionals and so many other essential workers on the front lines of the COVID-19 pandemic.
These are difficult challenging times, and we're fortunate to have such selfless caring people putting themselves in harms way to assist those in need.
[noise] [noise] [noise] thankfully everyone here at element is keeping well.
Well our business is not going to escape by the circumstances credit by COVID-19, our blue chip client base diversified across industries, and geographies and our resilient business model underpinned another solid quarter, both operating and financial performance.
Our adjusted operating income increased 16% quarter over quarter, and 1% year over year.
We produced 22 cents of adjusted EPS in the quarter three cents more than the prior quarter and flat to prior year.
And we generated $108 million or 25 cents per share in free cash flow in the quarter, an 80% increase from Q3 2018, when we first began this transformation journey.
Peter will walk you through our results in greater detail, but I'm proud to say that they were they are reflective of an organization that is remains centered on its purpose in spite of the relentless challenges for from COVID-19.
Our people have remains singular in their focus delivering a consistent superior client experience as a kept our clients fleets and drivers safer smarter and more productive.
Our clients are hugely appreciative and sewing Meyer.
[laughter] delivering that consistent superior client service experience has been the bedrock of our transformation program, which is now.
Over two years running and just two months away from a very successful conclusion.
Q3 elements are passed or transformation in gold of actually $180 million in annual run rate pre tax profitability improvement with a cumulative $189 million of such initiatives actioned by quarter end.
And while we May have mentioned that indeed surpassed our year end objective.
We think there is a bit more gas left in the tank and so we will keep our foot firmly on the accelerator to bring transformation to a strong and successful close in December.
Converting action items into bottom line improvements is of course, the real measure of success and in Q3, we delivered $35 million of operating income benefit and expect to have delivered $130 million in total by year end.
That's a $130 million of benefit to be realized in 2020 against $189 million of action to improvements to September thirtyth, meaning there is approximately $60 million of additional bottom line enhancements to be delivered in our income statement the 2021.
Beyond through higher revenue through higher earnings free cash flow and operating leverage.
And while it transformation and our signal significant investment to achieve same will cease at the end of the year. The cultural shift that it has been fostered within the organization will live on.
Our people.
Our more curious they ask more questions say probe the test long held beliefs. They are better equipped with both tools and mindsets to analyze and address the opportunities that they can now surface on their own.
To sustain an advance this culture of continuous improvement, we stood up and offer a center of operational excellence and you can read about this in the Mds this quarter.
And about a few of the early quick wins that this center for operational excellence has been able to deliver.
The second objective we've had since the fall of 2018 is to strengthen elements financial position.
Our target tangible leverage ratio of just below six represents the optimal point for elements balance sheet to remain squarely investment grade without being in efficiently under levered.
Im delighted to report that we achieved this objective in the third quarter attaining a five dot nine to tangible leverage ratio.
No we would do so.
A clear line of sight to additional opportunities for debt reduction in the fourth quarter.
We redeemed $172.5 million series G preferred shares further maturing our capital structure by eliminating our most expensive tranche of preferred shares.
We believe it is important to seize the opportunity to redeem these preferred shares given the window for doing so efficiently only off opens once every five years.
That said, we remain on plan to end the year with a sub six times tangible leverage ratio.
Based on the clear pathway to success on all three of our initial strategic objectives, we elected to accelerate elements pivot to growth in both North North America, and Australia New Zealand.
And while these are early days, we're seeing evidenced by way of client wins and renewals that reinforce our confidence in the success of this organic growth strategy.
When I joined element in mid 2018, Aaron Baxter and his talented team in Australia, and New Zealand, where we go to market as custom fleet.
We're well down the road with a local transmission of their own operating model.
We quickly aligned our ambitions under the element global transformation strategy rapidly advancing custom fleets activities by making support of onetime investments from our global transformation budget there.
The result was effectively a fully transformed custom fleet by the end of 2019.
And thus a readiness to aggressively pivot for organic growth at the beginning of this year.
As you may recall from last quarter's disclosures by mid year custom fleet has secured the business of two of Australia's largest supermarket chains. The primary being coals for whom were building what is effectively by local market standards a mega fleet.
In August the team was awarded a sole supplier of the Salvation Army is Australia fleet, one of the largest not for profit operations in that part of the world.
And as part of this arrangement, we executed a sale and lease back with the charity providing them with a cash infusion from the sale of their vehicles and given them financial capacity, but taking their assets onto our balance sheet.
We also had a substantial service when AMC in the corner, which is detailed in our disclosures I will just call out that it's a 7800 unit fleet, but we're going to be servicing which is a large scale enterprise account, even by North American standards.
I couldn't be more pleased with the EGR embracing the decisive action of the growth strategy that Aaron and the team have displayed.
Since all the more impressive when you consider Australia has been battling while wildfires in January and.
In the Corona virus as early as February of this year.
With gradual economic recovery, starting sooner in that region than here in North America, and with our colleagues at custom fleet, having been at the ready to capitalize on opportunities. The success that they're enjoying today was really only a matter of time.
We feel the same way about our commercial efforts here in Canada, and the US Q2 featured a number of sizable client wins and renewals some of which we shared with you in our July disclosures.
Our large successes in the us and Canada in the third quarter were on the retention front. This.
This is as crucial as any other plank in our growth strategy most important prerequisite for growth in the first place thus, ensuring we don't shrink.
For the quarter and since Weve remained aggressively active on all four domestic fronts of our growth strategy.
Better managing client profitability, improving sales force effectiveness, converting self managed fleets and target market segments into element clients and maintaining best in class client retention.
We continue to build momentum towards new client wins.
At the ready to seize these opportunities as they present themselves and to create new opportunities for our business.
That's a good economy recovers and prospective clients find their feet, our compelling value proposition will gain traction.
We are seeing that already in the activity levels of our commercial marketing and strategic consulting teams and in the tone and substance of the virtual meetings that we're having with business and government leaders.
Opportunities as we have.
Illustrated in the past are significant.
With over $3 billion of annual net revenue available to be earned just by converting self managed fleets and familiar and adjacent markets into element clients the potential upside is undeniable.
Mexico is another proof point for us as you may recall it was elements business in Mexico that originated the strategy that we're using in the rest of North America and in AMC.
Our business in Mexico continues to fire on all cylinders notwithstanding the relatively late arrival of COVID-19 in that geography.
Originations in local currency are up 14% year to date compared to the same period last year.
Mexico built our current growth strategy has proven its effectiveness many times over and continues to drive outsized growth as a result of that strategy.
AMC is now proving the models portability into different marketplaces, and we're executing diligently in the us and Canada with the right leadership, the right people the right incentives and the right sales support system.
Given the strong self financing organic growth prospects for element in all three of our operating regions. A successful transformation program that is drawing to a close the proven attainability of our sub six tangible leverage target the scalability of our transformed operating platform.
Form the successful expansion of our syndication program and the support of a capital lighter business model and given our outlook for strong perspective earnings and cash flow growth that will result from all of the aforementioned.
We think that we're at a point, where the highest potential for additional value creation is returning excess equity to shareholders via regular dividend increases and share repurchases.
My leadership team will always reinvest in our business as needed to sustain and optimize elements consistent superior client service experience.
However, the onetime investments we've been making over the last two years to enable transformation will no longer be required next year.
And our platform has modest ongoing reinvestment requirements, our annual sustaining capital expenditures largely technology related are expected to be plus or minus $45 million and annually.
We've also been reinvesting cash in the business over the last two years as part of deleveraging our balance sheet.
Yes in quarterly cash flow to rapidly reduce liabilities has accelerated our journey to sub six times tangible leverage.
We expect to be back below six times tangible leverage by the end of this year and we do not intend to delever much further as a result reinvestment of cash into the business for this purpose will effectively Ses this year.
We also have our syndication capabilities to find growth advancing our capital lighter business model enhancing return on equity and ensuring ample cash flow available for distribution to shareholders.
With transformation completed and.
And the balance sheet strengthened element will enter 2021 with strong growth prospects and a scalable operating platform that will combine to deliver growth in earnings and cash flow.
Neither of which will be encumbered by transformation investments or debt repayments added burden the last two years.
We believe the highest potential for value creation is to return the resulting free cash flow to common shareholders by way of dividends and share buybacks.
Driving free cash flow is now at the heart of how element thinks about creating value for our shareholders.
We will focus on the Libors mentioned, including growth scalability and syndication to.
To continue to drive increasing cash flows that we can share with our investors.
This focus will take the form of three clear strategic priorities in 2021 and beyond.
The first priority is to see an aggressive pursuit of organic growth across our footprint.
And the demonstration of elements operating platform scalability, as we magnify, 4% to 6% annual revenue growth.
Into high single digit to low double digit annual operating income growth.
The second of our priorities is to advance a capital light or business model that enhances return on equity.
Of course this means our syndication program will continue to grow and expand.
But there is also focused on increasing the breadth and penetration of our service and solution offerings, which represent high ROI sources of revenue for this organization.
Our third strategic priority is to achieve high single digit to low double digit annual growth in free cash flow.
And predictably return excess capital to common shareholders by way of dividends and share buybacks.
You will hear more about our concerted efforts to protect and grow our element because cash flows in future quarters.
With that introduction I will turn the floor over to Vito to give you his insights on our third quarter results and take a deeper dive into some of the areas that I've shared.
No.
[laughter].
Thank you Jay and good evening, everyone. It's a pleasure for me to step through the highlights of our Q3 operating results.
And also expand on several other important areas, including RM, all deep relationship with our model.
How we're thinking about our capital lighter business model and why we believe it's value accretive.
Our free cash flow and of course, our return of capital plans.
Overall, I must say that we continue to be very pleased with our operating results pretty well across the board.
Q3 represents our second full quarter to quarter.
And the results the insights and learnings we continue to glean all point to continued confidence in the fundamentals of our business in the future prospects for our firm.
Let me first begin by speaking to the performance of our crediting collections functions and related key metrics in the quarter.
Simply said, we couldn't be more pleased.
Our reported delinquencies at quarter end, our in line with pre coated levels.
And our impaired receivables at quarter end are now lower than they were pre coding.
We reduced our reported delinquencies by 70% from $35.3 million at the end of Q2.
10, and a half million as at September Thirtyth.
A significant improvement and keep in mind that those reported delinquencies values reflect the aggregate net investment in Anthrasil was attributable to the clients will account for much more than the amount and declining and liquid non <unk>.
The actual total amount outstanding from clients in arrears at quarter end was $900000, which.
Thus far below pre coded levels and an incredible income thanks.
Thanks to the hard work of our collections team.
And the cooperation of course number respected plants.
Our credit team delivered results that were equally impressive in the quarter.
Total impaired receivables declined by $78 million or 69% quarter over quarter.
The resulting impaired receivables balance at quarter end was $34 million approximately $20 million improvement on prequaled levels of impairment in 2018.
This reduction was made possible by three clients emerging from bankruptcy in Q3 and.
And repayments from clients and asset sales across the remainder of the imparity counts.
Section 10 of our supplementary gives you a monthly view of our progress over the course of the quarter.
We had no material write offs in Q3, and we do not expect any material credit losses on the accounts that remain impaired.
For the time being given the continued uncertainty regarding the duration of the pandemic. We're remaining conservative in terms of our allowance for credit losses. It stands as of Q3, just under 19 million and its materially unchanged from where we started the quarter.
Last quarter, you heard me speak to them very modest payment deferrals, we granted to clients.
And Im pleased to report that they have largely been repaid.
There was only $6 million remaining receivable at the end of the quarter out of the $23 million that we extended.
There have been no departures from remit payment plans along the way.
And there have been no further extensions granted.
In a nutshell very very pleased with the cross collections in credit performance.
Let me now turn to our Q3 operating results.
Just that operating income for the quarter was $129 million and that's equivalent to 22 cents on a per share basis.
Thats, a 16% or $18 million increase over last quarter.
Adjusted EPS is up three cents.
And on a year over year basis, we achieved a $1.3 million airline increase from Q3 2019.
The first item that I would like to address.
Turning to results in servicing income.
Before doing so it's important that I pause and highlight the changes to our model business arrangement.
As we shared in a written disclosures today that client relationship is growing its deepening its maturing and evolving none of which comes as a surprise you.
You will recall that early last year now, let me began working with their model to quickly build from scratch. We'll soon be one of the largest commercial fleets in North America.
Typically relative to its rapid expansion, we develop the resource the marrying of operational financial capability to address our models unique needs.
Having achieved quick success belong to the client's mission vision and with the better part of two years of experience working together, we have aligned on changes to our operating relationship that we'll see our motto own self finance vehicles, they will order from element going forward.
While we focused solely on the provision of a growing set of fleet solutions or Mona.
This evolution of the amount of relationship aligns with our strategic designs on a capital later element business model that enhances return on equity.
Our motto collection to self finance obviates, the necessity of our 1 billion US dollar dedicated credit facility for our motto, which required up to approximately 150 million us dollars a balance sheet equity to preserve our tangible leverage ratio.
The only material impacts on this evolution in our relationship with our model in 2020 will be as follows the substantial reduction of debt and the corresponding reduction in equity required as we wind down the dedicated credit facility, which will materially reduce tangible leverage and the acceleration of income of approximately.
$8.8 million, which is recorded in this quarters Q3 servicing income.
In 2021 and beyond we expect this evolution to have the following impacts.
The elimination of as much as a billion us dollars of interim financing requirements.
Expansion in the number of units under management and the opportunity to expand the breadth of service offerings for this growing fleet.
And the loss of syndication revenue on the sale of our modern assets to third parties, which will be partially offset by the planned increase in syndication and other client assets more on this later.
We will focus on the design and delivery of sophisticated fleet services and solutions for our models already sizeable and still growing fleet, which is currently the single largest consumer of element to services.
We expect this to remain the cases are modest sneaking its consumption of elements services continue to grow for years to come.
With this as important background and context, let's turn back to discussing our servicing income results for the quarter.
We generated $124.7 million of servicing them.
10.2 million more than last quarter and $2.6 million more than Q3 2019.
As I mentioned 8.8 million on the servicing income in the quarter was accelerated income, resulting from our models purchase of the vehicles owned by element not yet syndicated.
Excluding the accelerated 8.8 million servicing income increased 1.4 million quarter over quarter in Q3.
That's in spite of an approximately 4% headwind from the strengthening of the Canadian dollar against the US dollar in the corner.
As you look at our Q3 earnings I would remove the $8.8 million from servicing from the servicing income base going forward and accordingly, it's fair to knock off on ascent and think of our run rate adjusted operating income for Q3 as 21 cents in LP reported 22 cents.
In terms of year over year performance servicing income excluding our model in Q3 was down 5%, which is an improvement on last quarter's 8% year over year decline.
Overall, we continue to generate stable recurring revenues across our portfolio of claims services approach.
Roughly one third of our servicing income is subscription based and therefore less variable with the balance being driven by clients vehicle usage.
Contributions the servicing income or marginally higher quarter over quarter from maintenance fuel golden violations in remarketing file.
While accident and related revenue and telematics contribute contributors and decreased slightly.
Section eight of our supplementary information document provides more detail.
It is encouraging to see improvement on average in the clients vehicle usage as well as re marketing performance over the course of Q3.
That's helpful and with the noteworthy exception of remarketing, the reversion towards 2019 activity levels continues to be gradual.
We're pleased with the trajectory.
And as confident as a business can be right now that these improvements will continue but.
We'll we'll stop too short and trying to forecast the rate of change.
Let's now turn to net financing revenue.
Financing revenue increased $2.7 million year over year, and 2.6 million quarter over quarter.
The year over year increase represents particularly strong performance for two reasons.
Net earning assets decreased by 13% over the same period and secondly, our Q3 2019 net financing than we anticipated and $9.2 million contribution from 19th capital.
Non core business, we were running off in the pipeline and looking to exit at this time last year and of course, we've successfully done so.
Excluding the 19th capital net financing revenue contribution from prior year Q3 results net commencing in Q3, this year increased 11.9 million or 13% on a comparable leases.
Net financing revenue increased 2.6 million quarter over quarter, despite syndication, resulting in a 6.3% decline in many earning assets over the same period and.
And this increase is largely due to improved interest expense management.
And improved gain on sale revenue driven by both increased volume and further pricing improvements.
We continue to experience a strong secondary market vehicles across all of our geographies.
Again, we provide additional data points in section 8.3 of our supplementary information Bachman.
Let's turn to our syndication results for the quarter.
Our syndication revenue in Q3 was 15.2 million.
48% increase over prior quarter.
We syndicated $600 million of assets in this quarter, including $89 million to new buyers.
The 600 million volume was 20.8% decrease from the prior quarter, resulting in a meaningful improvement in our syndication revenue as a percentage of assets syndicated from 1.36% in Q2, two 2.53% in Q3.
The syndication market remains wide open to us and demand for our assets is robust business have been the case all year.
The most significant factor driving improved Q3.
Our Q2 performance with the gradual lowering on investor hurdle rates over the course of the quarter.
In addition, we were able to syndicating improved mix nonsense in Q3 versus the prior quarter.
This is an opportune time for me to expand on what I noted earlier, referring to our capital Inliner business model going forward.
While both secured and unsecured financing will remain centerpieces of our funding structure. We are advancing the capital letter strategy that will reduce the amount of equity required to support the assets We fund.
Who we will become capital lighter through the greater use of syndication in the financing solution for our clients. The sale of our fleet assets to a third party on a nonrecourse thesis, which allows us to reduce the amount of financing both debt and equity we carry on our balance sheet, while still retaining the client relationship and.
And the opportunity to deliver a full suite of fleet servicing solutions.
I've already spoken to how the change in the amount of business arrangement will be a perfect example of the benefits of being Kathleen lighter.
In capital letter not only for use of cash for distribution to shareholders. It also amplify the impact.
On revenue growth and operating leverage by enhancing return on equity.
Let me now turn to free cash flow.
Our free cash flow per share tends to exceed our adjusted EPS by a healthy margin.
Section 2.1 of our supplementary outlines the underlying drivers of this over the last several quarters.
Free cash flow per share in Q3 was 25 cents again ahead of our reported adjusted EPS of 22 cents.
On a quarter over quarter basis free cash flow per share was essentially flat and this was primarily driven by the timing of cash tax payments.
Inflection to clean one of the supplementary you'll see an unusually low cash tax paid last quarter and an unusually high cash taxes paid this quarter.
This is driven by comps payment deferrals granted last quarter by governments in response to the economics and that impacts of course.
Those tax payment deferral windows closed this quarter, so we're playing catch up.
I'm paying close to twice the cash taxes, we normally would.
Normalizing Q2 in Q3 free cash flow for this tax timing you can free cash flow per share would have been 24 cents last quarter.
And 26 cents per quarter and this quarter.
Solid results, reflecting improving business performance.
Let me now move on to a brief discussion of originations so.
Our originations volume in Q3 of $1.28 billion was essentially flat quarter over quarter, particularly when accounting for the FX impact in the Canadian dollar strengthening against the U.S dollar.
Digging further however, there are some encouraging trends.
If you exclude our model volumes from this quarter and prior periods originations in the us and Canada increased more than 11% quarter over quarter on a flat year over year.
Further adjusting for FX the quarter over quarter growth was approximately 50%. So some very nice growth X amount of there.
Origination volumes in the quarter were partly driven by unfilled orders and pent up demand from Q2, when the OEM production facilities were closed.
And compliance delayed fleet vehicle replacement, while they focus on other aspects of the business impact from Covance.
US and Canadian originations growth, excluding our moana in the quarter was also partly driven by the gradual recovery we have been seen in our domestic client base, which is slower in some parts of the country to another parts.
In Mexico, although originations declined 20% quarter over quarter as coal that arrived in that region. The groundwork later than elsewhere in North America, We expect a quick recovery and already seeing positive signs and subsequent to quarter end.
Year to date September Thirtyth originations in Mexico were up 14% over the same period in 2019.
And then in the origination volumes increased 22% quarter over quarter as customer who continues and swift recovery from the impacts of code 90.
Importantly, we have seen no meaningful increase in instances of DCT across our client base.
This tells us that while some client demand for new vehicles, either practically delayed for consciously deferred right now there's no decline in the need for fleets.
That underpins our confidence in the gradual recovery origination volumes over the next few quarters.
You'll note a decline in our assets under management in Q3, even with steady originations since Q2.
And this of course is the effect of amortization and what's important to keep in mind is that this doesn't represent fewer vehicles and it doesn't represent lower servicing income.
As you can see in section four point, probably the supplementary the amortization of aliens outpaced our origination volume in the quarter contributing to the $700 million.
Ooh OEM decline from Q2 on a constant currency basis.
The simplest explanation for this is our motto.
When you originated particularly large volumes of vehicles for ammonia in the second half of last year in the first quarter. This year.
That was the proverbial pig in the Python.
And as our motto origination volumes had slowed in the last two quarters, which we knew was coming amortization of the large volume of existing vehicles continues and has begun to outpace new origination.
Before I move to the last major component of my prepared remarks, our capital distribution story, let me highlight a couple of housekeeping matters.
You may have noticed the different acronym than simply our own E. Throughout our disclosures today and matters PR owes the extensive work pre tax return on common equity.
We believe the formula behind our pre tax return on capital of common equity metric is an improvement on our historical calculation of our early in two respects first.
First we use a trailing four quarter average in the new marine with to better represent true trending business performance by reducing the impact of individual quarterly results.
And secondly.
The Numerators, though is the trailing four quarter average at pre tax adjusted operating income.
Which better represents true business performance by eliminating the non cash impact of our effective tax rate for each year on the numerator.
Why is pre tax ally a better representation of elements true business performance, because as a material difference between one the performance impact the tax implied by our effective tax rate again, a non cash back.
And to the the performance impact up or real cash tax expense, which is a much slower.
Due to the accelerated tax depreciation treme will feed assets on our balance sheet. Our earnings are significantly shielded from cash income tax obligations are.
The largest component of the cash taxes that element does pay as the article 6.1 tax on our preferred share dividends.
As we continue to mature our capital structure those preferred share dividends the balance will decrease.
Reducing our cash tax cost even further.
Hi, calculated the return on our common equity using pre tax numerator quarter to quarter variances are more accurate representation of elements to this performance.
In terms of effective tax rate, while in 2020, our estimated effective tax rate will likely fall in the 18% range.
I'd like to guide you to model, 21% to 22% in 2021.
Reflecting variances in our year over year income.
And other tax related adjustments.
Again, all the more reason to focus on free cash flow per share.
Lastly, topic I want to speak to this evening of course is our return of capital plans and expand on what Jay has said give.
Given the clear path to fulfillment of our 2018 strategic ambitions the scalability of our transformed operating platform the strength of our burgeoning syndication program.
The enhanced clarity in the company's relationship with our model.
The scale of the opportunities presented by our accelerated pivot to growth across our footprint.
And the ensuing outlook for strong perspective earnings and cash flow growth.
We have arrived at that point with the highest potential for additional value creation Leiden return mechanical.
Access of that required to maintain our target sub six tangible leverage ratio to common shareholders by way of dividends and share buybacks and today. We are pleased to announce a 44% increase the company's common dividend from 18 cents to 26 cents annually per share effective immediately.
And therefore to be reflected in the Q4 2020 common dividend authorized and declared today to.
To be paid in respect of Q4 2020 in January 2021.
With this increase elements common dividend represents approximately 30% of the Companys last 12 months adjusted earnings per share, which.
Which is the midpoint of the 25% to 35% payout range, we plan to maintain going forward.
And secondly, we are announcing the elimination of our drip program and the establishment of a normal course issuer bid to repurchase ZFN common shares over the next 12 months.
Our first year of what we envisioned to be a regular ongoing program subject, the TSX approval and the terms and limitations applicable to such bit.
Those are the end of my prepared remarks, operator in with that agenda are very much looking forward to.
The questions and further discussion so back to you operator.
Thank you well now begin the analysts' question and answer session. As a reminder, in order to Florida, all analysts the opportunity to ask questions elements kindly request that analysts limit themselves to two questions and line dialogue with management.
Certain analysts have additional questions. Please rejoin the queue.
Joining our rejoining the question can you May press Star then one on your telephone keypad. So was there a tone acknowledging your request if the rise of the speakerphone. Please pick up your handset before pressing normalcy.
The chart your question please.
Our 10-Q.
Our first question comes from Paul Holden said.
Well Scott.
Hi, good evening.
Hi, guys good.
Big question I would like Oh here is.
How we get a better sense.
Back on Earth.
Rich nations and syndication volume given the change.
In the Armada relationship and maybe the starting question for me is.
How is it Q3, a good indication of what.
Syndication might look like.
Our model going forward.
Hi, good afternoon Paul.
In terms of volumes origination and syndication, how they might be impacted by armada.
Even though we're not going to finance our modest vehicles on a go forward basis, we are going to procure those vehicles for those for that entity and so these will constitute originations by our organization.
As we enter them into our.
Service unit count and so expect Armada.
Acquisitions to constitute originations if you will on a go forward basis in terms of syndication volumes.
With the final syndication activity that will take place most.
Mostly through the share there shouldn't be much if any carry over into Q1.
That will end, our our financing activities with our model as it relates to their fleets and thus any syndication of their particular units that said as we have identified in the past we've been able to grow the syndication market grow the appetite for our core fleet assets and it would be our intent.
To maintain syndication volumes at that two and a half.
Billion dollars annual volume level.
We had previously guided the market too so expect that to the whatever.
Shortfall in volumes that might arise from our model will be made up in terms of syndication of non armada assets.
That is very helpful. Thank you for that.
Second question that I guess I'm still related to our motto is just to get a little bit of a better sense around that servicing income.
Opportunity.
Did you say that that servicing income relative to assets would be in line with the rest of the of your A.U.M. or is currently a little bit lower with an opportunity to grow it to a number that's more in line with the rest of the way.
Mm.
As you know we're under confidentiality agreement with this entity of <unk> and hence the use of use of our model.
As part and parcel of our Descript or for this organization.
Let's just say that.
As we entered that relationship and introduce the scale and the economies of scale that come with the purchasing power that we have given the size of fleets that we administer.
Given the reach that we have in terms of a national network of service providers that can service a very diverse driver base side, our model would have.
The people the processes and systems that we put in place over decades to ensure this all works in a coordinated smooth.
Manner.
That that is a real substantial value proposition.
Thats Armada.
Has been introduced to has appreciated and has made very good use of over the course of the last two years. So its our expectation Paul that as we continue to work with that organization as we continue to deepen the relationship as they continue to.
To better understand what direct ownership of their fleet will entail that will create more and more opportunities for us to.
Juan expand the array of service offerings that we provide them to alleviate their own unique pain points and secondly, as they continue to grow with the strategic initiative both in the us and in other jurisdictions that there is ample opportunity for us to participate in that growth.
And so we see and from a servicing income perspective and opportunity to materially grow the volume.
Transactions by virtue of.
The increase in the unit count to the fleece.
That we have the privilege of managing coupled with the breadth of service offerings that we can device and provide to that organization.
And lastly, I would say, yes, my economic and strategic point of view.
For very pleased with the way the nature and extent of the relationship that we have been able to create with this organization over the course of the last 20 months.
Right great. Okay. That's my two so I'll jump back in the queue. Thank you.
Thank you.
The next question comes from body on Mendonca with TD Securities. Please go ahead.
Good evening, Jay if we can go to a guidance you've offered in the past about expenses you talked about how $180 million felt like the right amount of investment spending and that anything above that amount would not be treated as non core. So this quarter. Obviously you saw some opportunities and you took advantage of them how do I, how do we look at Q4.
Or is that another quarter, where investment spending could be well in excess of and to an aggregate of $180 million originally targeted and then dropping out because zero in Q1 2021.
Yes, good afternoon, Merial and perhaps just to align here on on this point.
When we spoke to the 180 million of benefit run rate profitability improvement that we intended to action. We also spoke king in concert with that benefit a one time cumulative cost of $180 million.
And and set that one aid that onetime investment that we're making in this transformation would all fall below the line up that philosophy that guidance that we provided from the outset, we've held true to that and so all costs solve onetime investments that we're making in respect to transformation will fall below the.
Line in 2020.
And so to the extent that there are some incremental.
Run rate profitability improvements that can be made in the fourth quarter end and they in turn demand some incremental one time investment whatever that is in the fourth quarter will indeed.
Fall below the line.
As part of that onetime investment.
That program the transformation of this organization the attainment of what is now clearly going to be more than $189 million of run rate profitability improvement and the associate at one time investment will end up.
In December of this year.
We will start the next year, there will be no onetime investment requirements whatsoever. Instead, we will have to be very positive legacy of $130 million of impact that and 2020 that will carry forward andrs, yes.
$60 million of of action, but not yet realized benefits that will flow into 2021 in subsequent years.
So those actions are converted into realize bottom line enhancements.
Before I go to my second question I, just want to be clear, though that we are looking at a number that is it will be in excess of 180, because you're at 188 million now presumably there'll be more in Q4 I why the credit I am looking at the right numbers like the number now cumulatively is 188 that right.
That is correct, yes, absolutely.
Let me go to my second question then it really is a much more sort of broad question, you talk about 4% to 6% revenue growth.
Looking forward and.
And say low or high single digit low double digit operating earnings growth on a go forward basis, but.
In a way I look at it is there is there are a lot of changes in his company.
Not the least of which is this change with Armada when you offer that outlook of 46% revenue growth and high single digit low double digit operating earnings growth.
Is that something that you think we can apply in 2021.
Given all the changes that are underway, but not the least of which obviously is COVID-19 as well is that something we can apply to 21 or would you have I think of that as a longer term goal.
Yes, thats applicable for 2021.
Thank you.
Thank you.
Your next question comes from Jeff Kwan with RBC. Please go ahead.
Hi, Good evening, I'm, just going back to the Armada disclosures that you have you seen the press release, you expect the relationship to continue to grow for years to come in.
Putting it in the press release would it be fair to say that.
Based on your discussions with Armada.
They're willing to partner with with element secrecy services, calling on them over a multiple year basis.
Absolutely, yes, absolutely no. This is a you know as as we have offered up as a characterization of relationships in this industry.
They are multi year end, it's it's probably as common as it is uncommon to see multi decade relationships for all intents and purposes as a business process outsourcing. So there is absolutely the financing component, but then there is the.
The interesting.
All that functionality of managing a productive fleet operation that is being outsourced to a fleet management company like ourselves and so.
Yeah, you enter into these rate arrangements.
The full beliefs that they're going to be multi year.
And a reasonable expectation that that could be multi decade and that was the construct of the arrangement that we that we envisioned with our motto and does evolving quite nicely.
Okay and then just my second question is how would you describe the progress and your confidence right now about.
Elements ability to win these self managed to end Mega fleets and how would you say that's changed.
Versus the past one to two quarters.
I'd say on.
Still remain very confident.
And the confidence is rooted and the knowledge of the size of the unaddressed market. So anywhere from half to three quarters of the markets that we currently served our Unpenetrated by fleet management companies. Those fleets are owned and they are operated by organizations.
Businesses governments.
Fast haven't entertained and outsourcing of either the financing or the operation of those fleets and and again as we think about the world in which we're living in.
And all the economic difficulties that businesses are having in terms of securing alternative access to capital securing cash are driving out operating costs three fundamental tenets of our value proposition, we think that it will have.
Even more appeal and given the circumstances.
The current economic environment.
And.
As we've talked before that which gives rise to perhaps an even more compelling value proposition also in full disclosure unfairness introduces a bit of a headwind in that gosh, it's going to be more difficult to engage more difficult to build a relationship more difficult to interact with.
On a counterparty some prospective clients.
Given the limitations of interpersonal.
Interactions and so on.
Net net net we feel that the current circumstances favor.
And and add if you will to an even more compelling value proposition and then it comes to if that is the realism.
Of the situation.
Then it comes to what is our belief in our ability to execute.
And I think you know over the last two years you have seen this organization a SAS embrace in March forward.
In a way and I think in a in a balanced thoughtful manner.
Towards the accomplishment of many difficult objectives, and and methodically overcome and realized on each one of those objectives and so I think our ability to to figure.
Away to maximize our opportunities in the self managed fleet.
Our very strong there.
Thirdly, I would point to you know obviously, we have to have a track record of well established track record of doing so in Mexico, we have a very early track record interest.
Interesting proof point of the portability of this concept into the Australian and New Zealand market.
And as we've shared with you.
By virtue of the investments that we made in the first half was to be magical and the us and Canada.
That were set up for success and I am getting some early feedback that would say, yes, we are.
Definitely on the right track so you know as.
As a as we always want to do.
We will coach this solid and these are early days, but.
But no were every bit as encouraged.
As we would have been six months ago, as we would have been a year ago, and perhaps more encouraged than a year ago given the progress that we early progress that weve shown in AMC and the fact that a lot of the heavy lifting to position us for success has been done in the Western Canada.
Perfect. Thank you.
The next question comes from John Aiken with Barclays. Please go ahead.
Good evening was hoping to get a little more color around the normal course issuer bid that that you've announced.
You've given us your goal in terms of the payout ratio for the dividend, but is there any sort of a cap or any sort of minimum that youre looking in terms of the buyback augmenting the return of our cash or capital back to shareholders could you know the the increase in the dividend is only about 30% in terms of the of the payout ratio.
I have to look on a similar calculation in terms of free cash flow. We are running below 25%. So is there any any indication in terms of level that you're willing to to return capital through the through the buyback and what type of parameters that that may be under.
Yes, good evening, John No. We havent provided any parameters in terms of TNC, IP, and a minimum or maximum or even a target as to what we would like to accomplish I will say that we intend to.
Think TSX approval.
Immediately and we would time the program to go live.
To coincide with the reinstatement of the sub six times tangible leverage that we are planning on for the end of this year.
And then I would say too.
Issue as you contemplate that range in your own mind solving for X. I keep in mind that youre, having attained the six times tangible leverage and having.
Line of sight to doing so again by year end.
It is our goal to.
Be at that six times tangible leverage hereafter, and so that that is going to inform.
Yes.
In a not in a significant way.
Just how much capital is going to be available to allocation to shareholders and having set the dividend policy.
Yes, you can products solve for X. in terms of the range of share buyback. So we would contemplate executing and in any given year.
Understood. Thanks, Jay and I think I put myself in the group of people that are not trying to rush and Vito out the door, but are you able to give us an update in terms of how the board searches going for his replacement as CFO.
Oh, yes, thank you I am as well well and we have engaged as an external party have been working with them over the course of the last two months.
And I would say too.
It's an international search and.
There's usually a little bit of a learning curve to climb in terms of and tourists organization and as they begin to learn more about our industry. This company within this industry and the journey, we've been on and perhaps as importantly, the jury new journey that we're embarking on.
Theres a tremendous amount of interest so yes, we'll try and keep you apprised of that as we go forward.
Great. Thank you Robert I'll re queue.
Thank you.
Your next question comes from Stephen Poland with Raymond James. Please go ahead.
Oh. Good evening first first question is just back on or model not I'm not sure. If you you mentioned why our model is going to self finance going forward is topical oh, they have a I guess, a better cost of capital or.
Is there something to do with their fleet the ownership of their fleet out in the market as some of the new intellectual receivables out there I'm. Just wondering if you. If you did mentioned that I don't remember hearing though.
No we didnt and.
I guess it would somewhat depend on who you would speculate armada is in the future.
Again, depending on who it is if they ended up with a in a credit.
And we are a triple b credits.
Mike to some.
Suggests that their cost of capital would indeed look different than ours, and perhaps would offer a.
Better set of economics.
As compared to us being the middle man in the syndication transaction.
Okay, and just like as part B to that does that mean like if that was the gain scale do they need your procurement services to deal with the Oems, It's they're still doing the same volume going forward.
[noise] I'm.
Yes, so regardless of how big they girl they would still not even cost due to small competitor to element in terms of number of units under management and that unit counts matters.
In terms of scale as we've discussed in the past, it's it's a it's a true.
Barrier to entry into the industry and and thus its a true barrier.
For organizations to realize the full economic benefit of owning even though you don't bye bye.
Comparative standards.
A large fleet in comparison to the size fleet that we have not we are able to.
Procure vehicles parts services.
At a far more attractive rates further.
As you think about it it's it's not only the absolute economic value that is derived in terms of that purchasing power, but its ability to coordinate so we have qualified thousands.
Of service providers parts suppliers across the United States and so we can.
Quickly point their driver network to those preferred suppliers that can provide aid economic benefits be.
Better service in terms of front of the Q.
Positioning and.
Comfort that their vehicles are going to get a speedy turnaround and as a consequence will have low down downtime.
The other piece of this is just the whole coordination of all this.
And as you think about thousands of vehicles scattered across.
All the different states and needing to maintain those to fuel those too.
Two.
Get those vehicles to the drivers to get those vehicles from the drivers and to auction.
Back coordination in and of itself is no small feat and on the expertise that we have developed the Oh, yes, the the people and their experience these supporting processes and systems that we put in place.
Aren't easy to replicate and so.
That all combines into a value proposition that is really quite compelling and further gets tailored to serve the very unique needs of this organization in a manner that again would be very difficult to replicate.
Okay and just my second question just on or the the acceleration of that 8.8 million in service revenue related to our motto is that just doesn't make you whole on a on a gain of sale or a fee that you would have earned on syndicating those apart they're part of their fleet to them or what is that that 8.8 related to.
Typically.
Peter do you want to.
Yeah happy to Jay I mean, I think and I think it's important again were down by confidentiality stop short of giving you detailed in respect to our pricing arrangements.
With our modern or any other.
Client that we called out the 8.8 of course, because it is associated with the acquisition of those though and the eventual sale back or buy out back to Armada and it's a fairly significant amount and we wanted to call that out and of course it represents.
For those that were effectively not exclusively but effectively in the funnel.
In a quarter and accordingly, it was very important to recall it out and and guide you to remove it from your base. If you will but we'll stop short of characterizing the components of our of our contractual arrangement of course with clients.
Okay. Appreciate it thanks.
Thank you Mike.
Your next question comes from gaming Glenn with the National Bank Financial. Please go ahead.
Thank you good Daggett evening.
First question is related to the net interest margin are up.
More than 30 basis points in the quarter it.
It looks like a bunch of that was driven by some pretty good success on the gain on sale income for AMC assets I'm. Just wondering if you can quantify maybe some of the.
Let's call them, one time items that are that we are factoring into this quarter and this is the sustainability of that and then recurring amount from Q3.
Yes, I'll, let Pete will get into a few details on this Jamie but.
Stepping back you've seen a very positive progression in terms of our net interest margin for the organization and I think that reflects a number of different factors and some of which manifests itself in the continuing expansion that you're seeing here. So one is mix.
And a greater proportion of higher yielding assets out of Mexico and agency as part of.
The interest net interest revenue being generated by the business.
A second key component. It is again this is part of the transformation. We had mentioned that while opex is going to be.
Beneficiary in terms of some of the run rate profitability improvement actions that we take so our direct costs and in particular cost of financing and under his leadership has continued to tear this apart better understand our capital structure I understand.
They are the most cost efficient means of financing our assets and and improve.
Improve the velocity of our cash flow.
And as a consequence, you're seeing a lower cost of capital against.
System revenue streams.
Which is leading to this NIM expansion Peter.
Peter just to add any other thoughts that you might want to offer.
Thank you Jay you talked about the.
Interest expense management.
As you've alluded to kudos to the industry trade routine a deal in relation to gain on sale.
And with that we the board an update today.
As we were talking about.
Our business.
The market the market remains strong we've been very very strategic about how we've been managing a remarketing efforts, including targeting distribution channels. So I have a high degree of confidence that on what we can see.
Remarketing.
Both from a volume and a pricing perspective will carry into next year.
And the only other item I'd mention that we didn't call other than our disclosures is it geographic mix. If you will a little bit more Mexico, a little bit of more than the a little less of USA, Canada relation to the earning less than base also helps and then percentage.
Great.
Thanks, and the second question is.
With respect to the syndication revenue.
Or the gas side, the syndication yield can you give us any color on on how that performed early in that in Q4 on a on October or syndicated volumes is that to 50 level as that sort of like a baseline for go forward core fleet assets in syndicated or should we expect.
The further rebound that size those hurdle rates.
Increase or is this more or less the run rate.
Yeah, maybe just to talk about Q3 and big picture. So Q3, as we seek those part of our Q2 disclosure.
We saw a strengthening of the syndication market demand has always been there. So every day every week every month of 2020, so there hasn't been an issue there and in fact, we've been actually able to grow demand and expand.
The.
Based on the syndication investors quite nicely and have transacted with say so demand has remained very strong for us and continues to be strong in Q3, what we did see in Q3.
Again, we had a forecast it was.
Return to more normal fee levels as the restrictions that have been put in place in the second quarter by a number of our investors in this group.
Were relaxed or or suspended so.
Let's say that Q3 was.
Sending back to normal quite nicely for us and then as we go forward acknowledging that our motto is no longer going to provide a deal flow for us in terms of syndication, we intend to make that up by through the syndication of non Armada assets and you know we guide the market too.
Remained at that two dot for two dot $5 billion worth of transaction volumes in any given year.
Your next question comes from.
The next question comes from Tom Mackinnon the CMO capital. Please go ahead.
Yes, thanks, very much meaning I'm, just going back to the evolution of the Armada relationship as I see it yeah think losses syndication revenue associated with Armada, you've got some potential for other services associated with it but you.
You also mentioned that evolution of the new relationship will lead to an expansion in the number of units under management with our model is that what what would be driving that is it does that mean that they would like to have more units with Armada. Then you would have had you can see the syndicate.
The assets on behalf of our motto is how should we be thinking about that.
No no. It's a it is armada is rapidly building out their fleet from scratch and as consequence, the unit count she.
We'll expand rapidly and our ability to provide them with us with the existing services would obviously grow and our opportunity to provide them with new services is also up there so no it.
There is no.
Unit costs.
<unk> growth that comes as a consequence of.
The cessation of syndication activities.
It's just that you mentioned in the release that element expects the olivine evolution had the following impact and one was an expansion in the number of units. So I take it that's the evolution.
At an evolution or no evolution, you would still have the same kind of expansion in the number of units under management and with that Armada, regardless is that correct, yes, sorry, if that was a bit confusing. So let me let me restate as you know as we manage this organization holistically.
And recognize that we have a large balance sheet put a lot of capital to work for our clients. We want to make sure that that capital is earning a fair rate of return.
And so as we look at the provision of financing or whether its interim financing as we bridge from origination to syndication or whether that's financing as we.
Hold that asset on balance sheet for the entirety of the term we want to make sure that.
That our shareholders are receiving a fair rate of return and this client we had you know plus or minus a billion and a half worth.
Fourth a capital datum equity I was being deployed in support of financing activities as we originated.
Through the syndication.
And so.
We will no longer syndicate those assets, we will still originate those assets order those assets per assess those assets and deliver those assets to our model, but our matter, we'll now take ownership of those assets and find out source assets.
Which will obviously bring to an end our syndication activities and we'd expect the bulk of that to occur in Q4.
In terms of bringing that to a close.
So we will be relieved of revenues cash revenue, but will also be relieved the necessity to keep a large bridge financing and the attendant equity in support of that bridge financing.
Which will give us an opportunity to de lever the balance sheet and have X.
Excess cash available.
For redeployment on the operating side of things.
Again, we began working with this organization in February of 2019.
We originated and.
And serviced the first tranche of assets and 29 teams.
We had a second large tranche of assets and 2020, and it's our expectation that will be new tranches of assets you know for for years to come and that will have the privilege of servicing on their behalf and that will provide that growing stream of five.
Existing services to a growing pool of units and afford us the opportunity to go deeper in that relationship and generate new solutions and new sources of revenue for this organization.
So that's that clarify for you Tom.
That's very good thanks, and the second question is just with respect to the attack guidance, 21% to 22% for 2021 I assume that if that at U.S. does that increase corporate taxes from the 21% range to 28% we are that that that that guidance would show.
It is and if the corporate taxes do increase from 20, 28% does that have any impact on the cash taxes, you pay or any impact on your free cash flow.
And I'll I'll all I offered the the answer this the second to allow for you to comment on the first.
No. These are effective tax rates. So these are for accounting purposes. The the only material cash tax that we pay is in respect to part 6.1 on their preferred shares and having redeemed $172.5 million worth of those shares then obviously the preferred dividends.
Go forward are going to be less and the parts 6.1, Texas that they have.
That they generate and then related expenditure will lessen as a as we go forward Pete I'll, let you weighed in in terms of U.S. elections effective tax rates and potential changes.
Yeah, I think the second part of the of your question Tom is a more important one the one that kid drops. So we don't anticipate any changes to the free cash flow tax profile, which is important and you're absolutely right in respect to the guidance that.
We provided there the 21 to 22, but it seems large growth occurring tax regime.
Regime. If you will in there is it does not contemplate any changes to corporate tax rates in the U.S. and train cars of course, both of them are lumping in criminal.
All right, Thanks, and just as a comment.
Really really think we get in terms of your free cash flow is that exhibit 2.1 in your supplement on your operating results I think is that more and more emphasis comes on free cash flow will be good to see how this exhibit could tie directly to the to the cash flow statement in the financial statements.
You know just with the the beginning and ending cash position that I think that we just provided.
Providing a little bit more clarity as to.
On the the movements in cash so just some comments there maybe you've got something to say about that or maybe that's in the works.
Yes, no good suggestion and we actually were given that some consideration of thanks for the push in that direction.
Great. Thanks.
Thanks, Tom.
Next question comes from Paul, Although it's likely see <unk> go ahead.
Hi, Thanks have a one follow up and see.
Our 6.1 taxes comp at least a couple of times on this call now.
Maybe you can give us a sense.
Of what your target capital allocation would be including Pref shares like do they have a.
Permanent home in the capital structure for our men or is it something you will look to completely eliminate and your course as redemptions or perhaps it's come up.
Yeah, Paul I think you know the team has done a great job of evolving the balance sheet in short order and and and allowing us to truly be the investment grade.
Balance sheet that we have we had aspire to.
And you know I think the step that we talk to you.
No sooner as we got into the sub six tangible <unk> leverage ratio and what was our first action boss to take out the series G. Pref shares recognizing their high costs recognized in the cash tax associated with them and recognizing.
As this balance sheet has matured as we have become a U.S.
Debt market issuer that type of expensive capital has a less of a role to play.
And as I said, we've taken out which I think is if we're over a billion dollars now of high cost capital and we will continue to seek opportunities go forward to mature the capital structure drive down our total cost of capital and and have a balance sheet that is truly representative of the investment grade entity.
We are.
Thank you.
Our next question comes from Medea Mendonca with it keeps the clarity could go wrong.
Evening I'll try to be quick because I know, we're getting a little late here the.
When you talk about the revenue growth for the company and looking forward I can't help but look at the <unk>.
The main source of that revenue, which is still your car, earning assets and also the core fleet assets under management.
In the in the case of earning assets that numbers, obviously been coming down it's down something like almost $3 billion in sometime in 2018.
And the core and that fleet assets under management have also been shrinking for the last couple of quarters. So it's difficult to see whether where the growth comes from one two major sources of balance sheet growth.
Or maybe Bob balance in the case of assets under management are growing so help me think through these here in the case of running assets would I be correct in saying that that number likely trend down from here and back originations really ramp up.
Yes.
Don't want to get into specific guidance on that Marriott, but you know as we have articulated we envision the five point growth strategy that it it means improving the yield on the existing asset base and with existing clients as well as expanding our reach into those self managed fleet markets like we have done.
And in Mexico, like we are doing and Nancy.
In which we have begun to do it.
In the U.S. and Canada, and so you know for US again, recognizing that our revenue is net revenue.
We look at the revenue growth.
In the context of those opportunities I just mentioned, we look at continuing to drive down our cost of capital and expansion of of our net interest margin.
And and.
And.
Through that we would expect that we're going to be able to actually grow net finance revenue as we go forward.
Even with an enhanced level of syndication of assets, but would have otherwise have been on book.
And then service revenue again.
<unk> has been a for our growth there has been a function of both unit count as well as.
Revenue per unit, if you well in improving the yield on.
Each one of those assets in terms of our pricing in terms of the value proposition.
So yes, we.
We look at the 4% to 6% growth is.
Yeah in the mid to long term as a very modest objective.
We will have some headwind going into 2021.
With a loss of our modest syndication revenue that will obviously be a drag but we are anticipating a you know obviously a continued recovery from the Corona virus and a a more normal stream.
Originations in 2021 than what has been the case this year. So yes, there's some.
Happy to go through this in greater detail with you, but as you look at Uh Huh.
The recent.
Recent history, and what Weve been able to do when we have turned our attention towards growth.
You know I think you'll see the 4% to 6% is.
Readily achievable, Okay, and just one final point of clarification, you said that the originations for a model will continue to be reported as origination in your fleet assets under managements I understand that but.
Those originations, obviously won't become Activations I guess, that's the way to think about it the b.
Basically.
Okay I got it now.
Yes. So they will you know when you think about it they will be originated and they will be solved so they'll be in that would but they will as you say constitute part of your you know theoretically the under your assets under management in that we are providing the services for those assets.
But yes, we will be charged.
Charged with the procurement.
Yeah interim find financing and ultimately the delivery of those vehicles or to the drivers on behalf of our motto, who will then take full ownership of those vehicles.
I think the reconciling I didn't mean to really understand it was it doesn't flow through activation, but least clearly we'll see in in originations I think I got it now.
Yeah, you got it exactly right.
I understand thank you.
No not at all.
This concludes the question and answer session I would like to turn the call back over to Mr. farms for any closing remarks.
Thank you operator, and just want to say thank you appreciate you stay in light.
Appreciate your interest in the organization and.
And we'll look forward to going a little bit deeper on some of these topics with you in the coming days all the best to you and yours.
This concludes today's conference call you may.
This comes from the line. Thank you for participating on how the club.
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