Q1 2023 Element Fleet Management Corp Earnings Call
[music].
Okay. Thank you for standing by this is the conference operator welcome to the element Fleet management first quarter 2023 financial and operating results conference call.
As a reminder, all participants are in listen only mode and the conference is being recorded.
After the presentation there'll be prepared Martin pardon me after the prepared remarks, there will be an opportunity to ask questions from analyst to join or rejoin the question queue. You May Press Star then one on your telephone keypad.
Should you need assistance during the conference call in May signal, an operator by pressing star zero.
Element wishes to remind listeners that some of the information in todays 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 its year end and most recent M D.
N a as well as its most recent Aif.
For a description of these risks uncertainties and assumptions, although management believes that the expectations reflected in the statements are reasonable it can give no assurance that the expectations reflected in any forward looking statements will prove to be correct.
Elements earnings press release financial statement M. D N. A supplementary information document quarterly industrial presentation and today's call include references to non-GAAP measures, which management believes are helpful to present, the company and its and its operations.
That are useful to investors.
Reconciliation of these non-GAAP measures to I F. R. S measures can be found.
In the M D N a.
I would now like to turn the call over to Jay Forbes, President and Chief Executive Officer of elements. Please go ahead.
Thank you Robert and good evening to all of you joining us to discuss elements Q1 results and our improved outlook for the business this year.
I would first like to spend a bit of this time speaking to help fund a whole bunch of stuff over the last five years.
Hamed This is Kurt Barton and all the business is heading before turning things over to four right.
In 2018, a number of US myself included are suffering quite special.
I believe you provided us with the impetus encourage a watch a three pronged strategy to transform the core fleet management business, that's coming it's voltage deliberate.
It's just a superior client experience too.
To deleverage and strengthen the balance sheet and to read the company's noncore distractions.
Not too long after launching this transformation strategy are starting to notice the change.
The wind shifted.
Head on to an angle we could catch.
Momentum began to build in the right direction.
Well, we know that the firm's transformation would've been born earlier, but for the pandemic the OEM production shortages.
Reported to transformation and it's going to grow.
Perfectly positioned to make 2023, another record year in which we can fully harnessed the power of the tailwind, but now propel us forward.
The policy the momentum we adults is readily sustainable thanks to the strong commercial capabilities, we've developed the scalability of our operating platform.
Additive differentiators such as strategic consulting.
By elements and most importantly, our client facing people.
Momentum is sustainable thanks to that best in class leadership team that we have in place or committed to see the existing proven strategy.
Paul.
Well I think about our investments in our commercial capabilities and our scalable operating platform.
With the favorable market dynamics of consolidation taking place in this industry.
I have every reason to believe law and the leadership team is sustained and indeed build off our current momentum for years to come.
Laura is exactly the right leader to ensure this organization does so.
But especially the boards.
Intention to retire from the CEO role I made clear that it was not working towards a specific end date.
Instead I want to ensure we found the right successor with a strong cultural fit.
We needed someone with experience managing a large and complex balance sheet and experience with the <unk> commercial strategy.
However, perhaps wholesale requirement from my perspective with summer.
Embrace and being embraced by our organization.
Well, it's an exhaustive search for patients paid off we found that proverbial needle in the haystack with Lora.
Not only does she possesses the requisite capabilities more importantly, she understands the importance of preserving and enhancing elements unique culture.
Our culture of client Centricity.
Operations and continuous improvement is the backbone of this organization and has been foundational to every success we've achieved over the last five years.
One of my Fondest memories of my time here and bolstering that spirit of collaboration and continuous improvement in action.
It was early 2020.
The ANZ leadership team traveled to Mexico to understand the incredible success of the Mexican commercial growth strategy.
I'll never forget the humility and curiosity better leaders models first in Washington, and then wording and then importing those learnings to apply them in ANZ in 2020, and later that same year and so the U S and Canada.
This habit of best practice sharing is something that we continue to foster.
One of the many benefits of working in a global organization.
Our continuous improvement mindset is another example of how far we've come.
We are a high performance organization, we constantly challenge ourselves to be better.
Whether it be our employee experience our client experience all of the businesses itself.
This is especially true in our commercial groups, where we're constantly scrutinizing and evolving our sales and marketing practices to ensure that we can capture outsized share of opportunities and the fleet management market.
Whether this is winning clients from competitors or advancing herself managed mandate.
Our continuous improvement mindset insurers, we have best in class commercial approaches across all markets.
In short we've built an organization that is experiencing tremendous positive momentum through the combination of investment.
And our people processes systems and culture and.
The opportunity.
Well established market leadership in three regions that are experiencing very favorable dynamics for organic growth.
The strength and stability of the company.
The positive outlook, we have for its future provide me with both the satisfaction and confidence to bring my time with element to a close.
In doing so I'd like to take this opportunity to say a heartfelt. Thank you.
2500 strong team here across all of our locations.
Frontline staff to our executive group and board of directors all of them have done so much to drive our success over the last five years.
It has been incredibly satisfying for me to be part of this organization I will truly miss a sense of belonging and camaraderie that I've experienced store in my time with element.
I've led many organizations.
Turnarounds and transformations and not.
It had been at a special or a successful as this one.
Recent farthest the success is undoubtedly the people that make up our company and their willingness to engage and to be challenged in pursuit of the ambitious objectives that we set forth.
Watching this play out over the past five years has been the highlight of my career.
As I step out of the CEO role and move into my role as a strategic advisor Tomorrow I do so with great confidence and peace of mind.
Nomura is as committed to our strategy and to the people that make it a reality.
I have them.
But that bar.
Floor is yours.
Okay.
Good morning, everyone and thank you for joining us on this call. This evening.
When we discuss our first quarter results I do want to express my gratitude to Jay for his leadership and his dedication to our company under his guidance elements has become a market leader and a client centric world attention.
Our clients investors and team members are deeply appreciative of JV contribution.
Now during my comprehensive Onboarding program over the past three months I focused on our three strategic priorities.
First achieving profitable organic revenue growth the second advancing our capital light business model and thirdly, our approach to capital allocation, which really consists of appropriate investments in our business followed by return of capital to our shareholders.
Regarding our first priority of profitable organic revenue growth.
Did spend time with our clients commercial leaders and sales teams in each country. We serve to understand how we can expand our share of wallet with existing clients and attract new ones.
And with our talented team and culture I do believe 6% to 8% annual organic growth is very achievable.
Regarding our second priority of advancing a capital letter business model for services revenue growth and through syndication.
I see ample room for services revenue growth within our existing client base and the self managed fleet market.
And as proven this quarter, our access to the U S market for vehicle lease syndication remains robust and as you would have seen our first quarter results are impressive we at eight 9% net revenue growth quarter over quarter margin expansion record pre tax return on equity.
<unk> and double digit free cash flow per share growth.
But I'll be Frank to provide more details on these numbers.
As we look ahead I'm confident in our strategy and ability to continue generating value for our stakeholders.
We have pent up demand for fleet vehicles that remained strong across our client base. Our order backlog is expected to remain at elevated levels through 2023 and into 2024 and that's despite increasing origination.
This is a direct reflection of that pent up demand from existing clients combined with the ongoing success of our commercial and operating teams at winning and Onboarding new clients.
Consumer demand for new vehicles, it's also relevant cause any weakening that could happen there could lead to further OEM allocation to the fleet segment.
Which of course would benefit elements.
Our momentum coupled with current market dynamics has us updating our outlook for this year.
Not only is our near term outlook, improving but our clients and our prospects continued interest in the shift towards hybrid and battery electric vehicles.
That's a long term runway of growth opportunity for us.
Through further expanding our arc by elements services well.
We'll continue to provide our clients with innovative solutions that meet their evolving needs in this area and with that I'll turn it over to Frank for more details on our first quarter results and the year ahead.
Frank.
Thank you Laura and good evening, everyone Q.
Q1 was another record quarter, and it's great to be demonstrating elements ability to deliver on our client value proposition and generating growing value for shareholders. The recurring revenue nature of our business combined with our resilient model. Despite my macro and microeconomic impact continues to allow us to deliver growth and strong financial <unk>.
In this environment.
As I take you through Q1, I'm going to say growth measures in constant currency. The U S dollar strengthened significantly against the Canadian dollar between the first quarter of last year, and this year, which materially benefited this quarters results constant currency eliminates those benefits, making for cleaner comparability year over year.
And to a lesser extent quarter over quarter as always we want to be transparent about the underlying business.
Even after you control for the impact of foreign exchange, our first quarter results are near the high end of our long term growth guidance and extremely strong on an absolute basis.
We grew net revenue eight 9% over Q1 last year to $304 million, which is a quarterly record adjust.
Adjusted operating income grew seven 2% over Q1 last year, despite increased investment in our commercial capabilities to fuel continued long term growth at our 6% to 8% annual net revenue trajectory.
Operating margin was 54, 4% for the quarter.
Adjusted earnings per share were a record 31 cents a share a four penny where 15% improvement over Q1 last year free cash flow per share was 37 cents, which is a six penny or 19, 4% increase over Q1 last year and our capital lighter business model expanding our.
Pre tax return on common equity to a record 18, 8%.
Zooming in on a year over year net revenue growth. It was driven primarily by services revenue and net financing revenue growth.
Services revenue is a pillar of our capital lighter business model and our services to clients are at the apex of our value proposition driving long term sticky client relationships services revenue was up 11, 8% from Q1 last year, reflecting all three forms of share of wallet growth, which are in order of importance.
Impact this quarter.
<unk>.
Penetration with existing clients, who are increasingly turning to element for help managing their growing fleet operating costs in.
In this context service penetration can improve through increased service attachment rates for vehicle, where an increased number of a given clients vehicles being entrusted to elements for service.
Second the utilization of our services in particular, our vehicle maintenance management service this quarter.
Maintenance management entails working with clients to undertake more proactive vehicle maintenance in order to avoid the costly downtime they weren't otherwise suffer having to perform reactive repairs to their vehicle on an unplanned basis.
Third inflationary increases in the cost of parts and labor benefited our services revenue in the first quarter.
Beyond share of wallet there were two additional contributors to service revenue growth this quarter.
What's the services side of our business in ANZ driven by growth in our fuel and roadside assistant product take up as well as improved supply terms with existing and new partners in our network.
The second was the ongoing growth of our relationship with Armada and the U S, which includes developing innovative new products and services for them.
There remains growth opportunities for us in our relationship with Armada, both within and outside the U S.
In the latter category there is Mexico, where we began working with our model last year and officially hit the road this quarter, meaning Q2 of this year.
And of course, there's ANZ, where we won the mandate last quarter to work with our model. We anticipate the first armada vehicles in that region and on boarded by our custom fleet business and approximately three to four months.
Net financing revenue grew six 6% year over year, driven by strong volume as we took advantage of continued gain on sales strengthen ANZ and to a lesser extent, Mexico as well as average net earning assets growth as we benefit from the superior economics of holding certain assets, but for the near term.
Now I will turn to the second pillar of our capital light business model, which is syndication, we syndicated $690 million of assets in the first quarter and generated $14 9 million of syndication revenue that.
That represents a two 2% yield on the assets, we syndicated which is moderately better than our targeted 2% yield which targets should be kept in mind when modeling elements of syndication revenue.
The current environment of higher interest rates may create more variance in syndication yields quarter to quarter.
Notwithstanding we transacted on over 50% of the assets that we syndicated in Q1 within the last two weeks of the quarter.
While this is somewhat typical it also illustrates the depth of this funding source for us and the attractiveness of our assets to syndication investors.
In all economic environments banks, and insurance companies need to put their deposit basis to work and with corporate debt and lending slowing, thereby providing less supply the risk profile and tax benefit of our assets are very compelling to financial institutions.
As the rate environment stabilizes, we will likely increase our syndication volumes over the next 18 to 24 months to keep pace with originations.
As stated in our press release on access to cost effective capital last month elements maintains ready access to diversified sources of funding from a high quality roster of lenders and investors across markets. We are very pleased with the fleet ABS markets react reception to our term note offering last month.
This was materially oversubscribed and shows the enduring strength of our name in the market. Despite the high interest rate environment.
We are equally pleased with our lending syndicate partners appetite to expand their funding capacity commitments to elements.
Returning to our quarterly results.
Wanted to touch briefly on operating expenses.
While costs were down quarter over quarter, the year over year increase as a practical and strategic decision.
We are out of the Covid pandemic for all practical purposes, which was not the case in Q1 2022.
The current environment has allowed us to connect with our clients and our teams more effectively face to face.
With line of sight to materially more long term organic annual growth than we originally thought possible. We want to ensure our commercial teams are appropriately resource to take advantage of this trajectory, which means getting in front of prospects. We have already seen the fruits of this initiative pay off in Q4, and Q1 wins, which will manifest themselves in the second.
Half of 2023 results 2024 results and beyond.
We expect our vehicles under management for Q4 2023 to demonstrate healthy year over year growth for 2023 as a whole based on the growing number of commercial wins, we are securing.
That said, we're likely to see a modest decline in bomb or vehicles under management next quarter.
We have an end in our provision of white label services to a competitor and we will see the related vehicles come out of our vehicles under management count in the second quarter.
Commercial additions will be strong they may not be enough to offset that the party vehicles.
However, the economic impact to our business will be immaterial and it's been factored into all of our 2023 full year results guidance we've provided.
Regarding our order backlog last year, we were of the view that our backlog we begin to get worked through in the second half of this year.
When OEM production capacity returns to historically normal levels are.
Our view has evolved and it's good news as Laura said, we now anticipate our order backlog will remain at elevated levels through the end of this year and into 2024, despite increasing originations.
This is a direct impact of the commercial success, we've had in winning and Onboarding new clients as well as the strength in order patterns of our existing clients.
We're still gonna originate record volumes, which we have been consistently forecasting for 2023.
Q1 originations were up 24% year over year before foreign exchange and we anticipate full year volume to be up between 15, and 23% on a constant currency basis with upside if consumer demand for new vehicles weakened and further production has shifted to the fleet segment.
What has evolved as our appreciation of three things.
First the scale of pent up demand across our client base we.
We have always known there's unquantifiable demand for replacement vehicles beyond the volumes reflected in our formal order backlog.
As this gets quantified in the form of multiple orders, we are seeing upward pressure on our order backlog.
Second reason that the time horizon on our excess where the backlog is linked them.
Extent of our commercial team's ongoing success at winning new business.
And the third thing blame our order backlog outlook is new vehicle price inflation, which on average is up 6% in 2022.
Finally, our increased full year 2023 results guidance encompasses both the fundamental strength of the business and the current favorable FX environment based upon the average foreign exchange rates for all currencies in Q1.
I want to be clear that we do not forecast currency and encourage you to make your own assessment of same in deriving your forecast.
We do not hedge currency as a result represents predominantly translation impact and not economic impacts.
Foreign exchange.
However, the growth rates implied by todays guidance allow you to understand our fundamental growth outlook regardless of currency.
<unk> constant currency growth rates.
Given the strength of our Q1 results our momentum in commercial success trends in service revenue and ongoing efforts to drive scalability, we expect to generate $1. Two four to $1 $2 6 billion of net revenue, implying approximately six five to eight 5% year over year growth on a constant currency.
Base.
A 54% to 55% operating margin, resulting in $675 million to $700 million.
Adjusted operating income were 7% to 10% year over year growth in constant currency.
This.
Range translates into between $1 26 and one.
31 of adjusted earnings per share, which is 12% to 16% growth year over year.
And between $1 58, and $1 63 of free cash flow per share for the year, which is 13% to 17% growth.
We continue to expect the same volume of originations this year as we expected when we last spoke to you in March.
The reason our originations volume guidance has increased by approximately $500 million Canadian dollars is solely due to the strengthening of the U S dollar and the Mexican peso in relative terms.
Again, I want to be clear about the fact that we do not try to forecast foreign exchange, we do not have a view on what the U S. Dollar the Mexican peso Australian dollar won't be worth relative to the Canadian dollar to any future point in time instead.
Instead, we generate our internal forecast using the most recent periods exchange rates.
So our guidance effectively assumes that FX will remain constant to that for billing time add to that from valeant at the time of the forecast.
With that let's open the lines for your questions.
Thank you.
We will now begin the question and answer session in order to afford all analysts the opportunity to ask questions elements kindly request that analysts limit themselves to two questions and a lot of dialogue with management.
And analysts have additional questions. Please rejoin the queue.
To join or rejoin the question queue. You May Press Star then one on your telephone keypad.
You're telling me acknowledging your quest, if you're using a.
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To withdraw your question Press Star then two.
Excellent question is from Geoff Kwan with RBC capital markets. Please go ahead.
Hi, Good evening first off just wanted to say congratulations on your time as CEO and wish you the best in your retirement.
Thanks, John .
The first question I had was just with the new guidance that you've got on the E. P. S.
Yeah outside of the FX like what would be some things that would drive a better than expected on your on your new guidance and Conversely, where it might come in below what you got it yes.
Yeah, Jeff as it relates to our earnings per share what really is driving that increase in guidance outside of FX, so going from that 7% to 12% previous growth to 12% to 16% growth in EPS under the new guidance.
We see just the fundamental.
Momentum that we have particularly in the services revenue as we look forward on the business. So again strong double digit service revenue growth from that perspective.
And the N F. Our solid Nf our growth that we've seen in the first quarter.
Additionally, we continue to anticipate and drive to a scalable operating platform and watch that that net revenue growth over the course of the year will outpace the increase in operating expenses, therefore, allowing us to expand our margins over time.
So that is a critical aspect of driving that growth that goes down to ally. Then lastly, I would just point to modestly lower tax rate than initially assumed so we originally were in the 25% to 26% range. As we typically are and I would guide you closer to the 24% to 25% range for this.
Year.
Okay.
And just my second question was on the self managed opportunity can you kind of talk about how that progress is today versus say two quarters ago or theres. Some examples you can give us.
How are you making progress on this front.
Yeah, So Jeff as you know, it's a long it's a longer lead cycle time or lead time cycle to do that that being said we have.
Continue to focus on the effort for the self managed fleets I believe it's progressing well, which with a again a significant focus there as we've said in the past you know one of the one of the benefits that we have seen more recently with the improving.
Capabilities of the organization both from the NPS scores and how clients perceive us is our ability to win share.
S steels in the marketplace and that continues to be prevalent in what we see here and in fact, winning back clients, who left us back.
Back into 2018, 2019 timeframe back from other competitors, who come in and see this opportunity from it to come back to the element that looks very different from a client experience them when they left us.
So we're leaning into those opportunities as we see the competitive dynamics landscape lay itself out, but we don't hesitate and we continue to lean heavily into self managed fleets.
And we will continue to do so I believe that that will continue to pick up that would be additive to both the share of wallet.
And.
And many of the other levers of growth that we have.
Okay. Thank you.
The next question is from Paul Holden with CIBC. Please go ahead.
Thank you good evening.
Also first half to congratulate Jay very a very successful career, obviously at elements, so well done and enjoy the a well deserved time off thanks Paul.
First question from me is regarding your expectation for OEM production in the second half of the year I think sort of listening to a couple of the important Oems I think I'm getting a sense that maybe there is potential downside to production they seem to be.
You know because of weaker consumer demand do you think there is a realistic risk that production doesn't ramp in the second half of the year as expected our or maybe you have a better indicators than I on why it still should ramp in the second half.
Yeah, Hi, Paul its Laura.
I'll I'll take that one Frank you can add on.
So we actually are feeling positive about that for as much as we expect.
Our backlog to remain elevated into 2020 or we still have as I mentioned in my prepared remarks.
We still have a lot of pent up demand on the fleet side, we're still seeing high demand in the humorous side, but if you imagine for a moment that the consumer demand starts to fall away a weekend.
That's just would mean that more production would likely be diverted to the fleet size, which would be good for us and so we thought good momentum in the business and good results.
Notwithstanding that there are higher backlogs and so we see.
I'm going to see some real opportunity for future growth if that does start to come off.
And Laura I would just add you know as we.
We've said before we have very good relationships with the Oems are in constant dialogue.
A major buyer there and our discussions with them lead us to believe that worse were pretty spot on in regards to the production volumes and as Laura suggested that consumer weakness could provide upside in originations for us.
Got it okay. Thanks for that.
Second question is related to your disclosure on who.
I can't recall, if this question's come up in the past, but I'm going to ask it anyway. So if I look at the.
Oh, one Q23 number versus three Qs 21, there's virtually no growth in the service and financed from virtually all the growth has come from serviced only so I guess first first part of the question is kind of what explains that.
That divergence because I'd expect gross in both and then two is that what is that what we should expect going forward or should we expect growth in both going forward.
So let me answer the second question first you should expect growth in both going forward with the caveat of the white clubs or the White label service that we provide you a competitor which is very low margin.
And it has really no implications whatsoever for.
When we and that service to them in this coming quarter. So that will you will see that in a flatter or maybe even a modest decrease but from a profitability perspective, no no impact to us in regards to that.
And sorry, Frank just just kind of is that our serviced only or is it a service stand financed relationship that is serviced only so these these are vehicles that.
Our.
Managed by another FMC, who has contracted with us for each service.
That.
We had done historically for that and.
We are no longer going to provide that service going forward.
And so and it was again not really.
No major impact to the P&L is very low margin business very small from a revenue perspective as we look at.
Yeah.
I understand and then there's sort of a historical explanation of why the serviced and financed hasn't grown yeah. I think as you look at the business over time.
The big some big components of it are OEM supply shortage to some extent.
The overhang on that so let's do some vehicles can come off road needs to get replaced so we feel very comfortable that we will start to see that grow more Moreover time.
It's also.
A relic of what we've talked about in the past, which is some again some very low profitability business that we've moved off the books.
From that perspective in Q3, and Q4 I believe of last year.
And the proof is to some extent when you look at the revenues per B U N you see those consistently increasing over time.
Relatively strong in the last quarter I would say I wouldn't expect that type of growth in the future. Because we are as we on board. Some of these big wins, they do take time to ramp up and so the bump comes on quicker than the revenue, but again youll see growing Bob.
And then over time revenue profile as we move forward in history. So hopefully that answers your question Paul.
Helpful. Thank you have a good night.
The next question is from John Aiken with Barclays. Please go ahead.
Good evening, I guess, a jail wish you well in your retirement as well and we're sorry to see you go but so Laurie we're happy to have you onboard with US this time around I guess, Laurie I'd like to.
Extend my first question to you that as.
As an outsider coming in I know, it's only been three months, but it does sound like you are being able to go around and see the entire operations is there anything about elements.
That is actually a surprise to you that you didn't realize coming yet good bad ugly doesn't matter.
Oh, Thanks for the question John .
I did a lot of due diligence prior to arriving.
And I would say for the three months and I have been put through quite a quite the onboarding from JV, it's been tougher than being at University.
So a lot of learning.
And it has been as Jay told me. He did say to me you'll see when you arrived everything is as advertised and so I'm happy to report that everything is as advertised.
What I've seen to date again, a company with some really strong business fundamentals.
Solid strategy.
Which has really impressed me.
And I see really a high performance organization that is continuously improving.
Very strong culture, very competent people, who really know how to execute on this strategy.
And I think that's what we're seeing in the results you can see really good results and so.
I'm actually left feeling very optimistic that we'll be able to generate more value for our stakeholders over the long term.
So as advertised.
And if I may.
Thank you again for his son.
For his leadership on behalf of everyone.
I see.
Thanks, Laura and then I guess my second question, if I can switch to Frank Frank You had mentioned in your prepared commentary that youre developing new services for Armada is is there any are you able to give us any sense in terms of what these services are and regardless of whether or not these are state secrets.
Are these services that could potentially be deployed to your broader customer base at some point down the road.
I think the thing we love about working with Armada as they always challenge us and they take the.
Concepts of efficiency in how they can more efficiently use their fleet.
And and again remember they have.
Different cycles throughout the course of the year and say how can you help us manage our fleet to increase utilization to drive more productivity to have more flexibility in the utilization of that fleet.
Et cetera, and it's those type of challenges that we love because it makes us better and we come up with a with them in with.
Answers to those challenges that we then work with them to implement them and they move it at a relatively fast pace, which is which is good.
I'd say that the learnings we got from working with a Mega fleet, regardless of who it is can always be transported into our broader operations to the extent that there are good learnings from from those.
Modified in many cases, but again, it's just those type of those type of learnings those type of exercises make us better and when they make us better for one client they make us better for all clients that are that are applicable.
Thanks for the color Frank.
The next question is from Tom Mackinnon with BMO capital. Please go ahead.
Yeah, Thanks, very much and I want to congratulate Jay on a on all your great work at element and all the great work you did at previous companies. He worked at before elements. So enjoys a next phase of your of Youre continuing to of your continued career.
The question is with respect to the gain on sale of equipment under operating leases. This was up significantly year over year and even more so quarter over quarter. So was there anything special driving that and how should we be thinking about that going forward and then I have a follow up thanks.
So when we look at our gain on sales.
Sleep predominantly ANZ.
We saw a couple of things one is <unk>.
That market has remained very robust from a pricing perspective.
Gain on sale.
So we took a strategic perspective.
Making sure that we took advantage of where that market is and move the volumes that we had available.
Into that market and so you saw kind of across the board on our gain on sales print.
Predominant one what the larger impact was volume, but yield was up our rate was up as well in those markets.
And given our view that originations will continue to start to come in we wanted to make sure that we.
We made hay, while the Sun was shining and took advantage of those very strong markets and the demand appetite that was out there that being said we continue to believe that those markets will remain strong over the course of the year because of that sort of demand, but our volumes will probably not be it.
The levels that they were in Q1 of 2023, so you'll see that be moderated as we move through the course of the year and that's all built into our guidance.
Great and then with respect to syndication as the second question I think in the last quarterly call you talked a little bit more measured about the outlook with respect to syndicating, our assets and I'm just wondering how that sort of changed I think you've got it.
There was a three to four in terms of volume, 2% yields it can be lumpy, but is there any way you would change your characterization to the syndication market now versus how you were describing it a three months ago, Yeah and just.
Just to just to recall back you know we've always said the syndication market is very strong for our assets and we think it's very deep for our assets as we built out that capability with north of 30 partners and I think the strength of that showed through especially in the last two weeks of March as a service market.
Dislocation elsewhere, where we will we're able to sing.
Syndicated yields.
Above our target levels.
For the most part so really strong demand there so.
The.
Discussion around syndication is more around the economic value and the breadth of the <unk>.
The opportunity.
Versus holding it on our book and getting better economics.
In a higher spread world.
We will continue to take advantage of that and we continue to see that depth and breadth of the market. So volumes not not an issue if we choose to go into the market with it.
Just to add one other caveat one other piece of information as we move through the year.
We believe that as rates stabilize.
E.
Rates going up a stop or slow that that market will begin to yields will begin to come in again, therefore operate offering us a better opportunity to get better.
Economics on the syndication product as well as driven by the fact that.
Other the supply of other investable assets think mortgage securities or corporate loans, which are down.
We'll be less supply of our asset both from a risk perspective on the top of the pyramid from a safety perspective as well as amply available will continue to be a continue.
Continue to be attractive and as such we may actually see some more volume opportunities in the second half of the year and then lastly, as we've said before in the fourth quarter typically.
Tax benefits become more valuable because they their use in time are more near term and so we benefit from that so we're we feel good about the syndication market.
And what we saw in the first quarter only gave us more comfort that we've got depth and breadth of the funding opportunities.
That's great. Thanks.
The next question is from Jamie coin with National Bank Financial. Please go ahead.
Yeah, just to follow up on that last question and open perhaps you can answer this.
Have you been active in recent weeks on on syndication markets.
Yes, we have and again those markets, we haven't seen any real noticeable change in tone.
As we've been in those markets, where typically lighter in the first month of any quarter.
Heavy a little heavier in the back end of the quarters, but now we've been continuing to bring volume to the market and had rapid and ready reception of it as we move forward and again no change in tone from our perspective for our assets.
Yep, Okay great.
And then on that I guess.
I dunno in sourcing of our competitors are weak.
Does that exist elsewhere in your portfolio.
Of the vehicles under management and if if it does can you size it and.
Maybe talk about like the.
And any other metrics around that in terms of like time of relationship et cetera, No. There's really no any material.
Other components to that there and again. This is you know this is historical business that we've had.
That.
Came with an acquisition, we did several years ago, when our collision business and.
So so they had that business and as we move forward and brought it in obviously now we're a competitor and we've decided that.
The economics at that business, we're just not attractive to us.
Therefore, we will be exiting that business in the second quarter.
Yeah understood. Okay that was it for me thank you very much.
The next question is from Graham Ryding with TD Securities. Please go ahead.
Hi, good evening.
I could stick with the syndication theme.
You increased.
I guess from an ethics perspective, your originations outlook, but you kept your syndication volumes.
Unchanged relative to your old guidance.
Or are you just trying to be but then on the you gave a pretty constructive outlook for the depth and the breadth of that market. So I'm. Just wondering why you didn't increase your syndication volume outlook, but you did your originations up on.
When we reset that syndication guidance from four to four and a half build billion. We left it at a pretty wide range of $3 4 billion for him. So theres a lot of areas to Ross to land within that within that range and so we've got you know even if those originations continue to go up you know and you can see.
Opportunities in syndication, it's going to be more driven though by the rate environment and the.
The originations and whether or not we would prefer to keep those on book in the near term until the rate environment gets more attractive to us and then we syndicate those assets at a later date.
Okay Fair enough and then just.
Broadly speaking when we sort of look at it.
The increase increasing rate environment are you seeing any pressure at all on your business with.
Higher variable rate funding.
Are you able to pass that on on your variable rates.
N F or are you seeing any pressure there at all or are you able to pass through the higher rates.
Yeah. So you know our are we always look at the confluence of our funding cost versus what we price our leases that as we move forward that being said, we have long term relationships and long term agreements with clients right. So as we see rates increasing we have discussed.
But specifically as we onboard new business, we make sure that they reflect the new rate environment that we're in.
To the extent that there is a reason to have a discussion on rate with an existing client we will have those discussions as we move forward, but again you know.
We've.
<unk> been able to continue.
Continue to finance, our business at attractive levels, right, and so and shown that ample access to capital. So we although we do see some rate increase within our.
Our N F. R. You know some of that's just driven by as we continue to leg into match funding in Mexico and the.
So, which we've talked about before.
It's the bigger component of that versus slightly higher rate on a 500 million dollar or $750 million ABS and remember R.
Our variable funding relatively stable or.
Senior lives, our other apps or other funding mechanisms have been relatively stable and when we go to market. We go with a relatively small percentage of the overall to term out those type of facilities and so we're not seeing a major impact from the rate moves, albeit you know the funding that we've done more recently in the ABS market is higher than that.
One we did in 2021, but it makes sense.
And I'd also say Graham this is important.
As overall rates go up we are completely agnostic to base rates.
So our contracts are set so if the if the fed whether its sofa historically LIBOR.
Whatever as those rates increase.
Our cost to clients actually increased walk step with those right. So the only the only exposure. We have is just on terming out facilities with whatever spread increase we have over and above the base rate. So most of it and this is why we've said many times we're effectively.
Interstate rate agnostic, because we lock in the economics at the time of the origination based on where base rates are at the time of that origination.
That's it for me thank you.
Once again, the panelists who have a question you May press Star then one.
The next question is from shell out guard with Veritas investment research. Please go ahead.
Thank you good evening.
My question. So I don't know all the backlog can you share any insights on the mix of electric worried because within the order backlog.
Yeah. So if you look at our if you look at our.
A bomb calculation, we do disclose the amount of evs in that bump calculation and its very small component of the overall the U N. We are seeing more interest in electric vehicles, and so on a percentage basis more opt.
<unk> within the order backlog, but it is still very very small relative to the overall component for several reasons. One is as we work really closely with clients.
The prudent and stepping in matter as they want to do pilots on a much smaller scale to understand.
And you said that best fit for use type of vehicles and get used to charging infrastructure, which is also a big component of how they do it. So it's still small it's one of those things that we believe will continue to move over time and as we've said before we think 40% to 60% up.
The fleets by 2030 will be electrified.
That being said that means 40% to 60% of their fleets will still be ice and so someone like us with capabilities to both have the data and help people migrate to the EV journey, but be able to manage a mixed fleet as those fleets become more mixed.
Continue to be very well positioned for that migration.
Okay. That's useful color and are you seeing I mean is this has it been from clients because of the patent landscape along those lines the Quakers.
I think it's too early to say I don't think anyone's extended timelines, we're seeing more interest from from the.
The client base and we're spending a significant amount of our strategic consulting on Evs. It is a topic on every new business and existing client discussion.
It is one of the things that I think provides an incredible opportunity for us.
Not only with our existing client base, but with self managed fleets given the complexity of.
Moving to an EV fleet.
Fleet or even a mixed fleet over time. So we believe this will be a catalyst to one of the earlier questions self managed fleets looking to this because we.
We should we should have based on our $1 5 million vehicles under Matt under management.
Some of the best data on in use.
Diana <unk> data for these type of vehicles, what type of vehicle to use what are the challenge is going to be and then helping people to sell.
Solve the charging infrastructure component of it as well.
Okay. That's helpful. One last one from me so the order backlog stood at approximately three times EBITDA, which.
Which we have seen for quite a few quarters.
Can you provide a breakdown of that creates growth into things like is it driven by a majority number the way it goes by inflation by a change in mix towards electric weightless, which had a bit more expensive.
Anything on that would be very helpful.
I think the reason you've seen it stay elevated predominantly is the strength of the ordering that our clients have I mean these are our clients are looking at their fleets have aged over time.
They believe in their business. These are mission critical vehicles that they cannot generate they cannot generate revenues without these vehicles and there's a real need to control costs and obviously costs have gone up we've been a great partner with our clients and trying to help them manage those costs with that aging fleet grew preventative maintenance and other.
Products to make sure, we're keeping downtime down, but they need new vehicles and so as these order bank sort of open up.
They have been placing their orders at very strong volumes quarter after quarter.
Which is cap, despite increasing originations new orders or just backfill. He knows obviously inflation is a small component, but the bigger component by far is just the demand component of our of our client base.
This concludes the question and answer session and today's conference call.
You may disconnect. Your lines. Thank you for participating and have a pleasant day.
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