Q2 2023 Element Fleet Management Corp Earnings Call
Thank you for standing by this is the conference operator.
Welcome to the element fleet management second quarter, 2023 financial and operating results conference call.
As a reminder, all participants are in listen only mode and the conference is being recorded.
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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 and if your and most recent MD&A as well as the most recent <unk> 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 prove to be correct.
Elements earnings press release financial statements M. D N. A supplementary information document quarterly Investor presentation, and today's call include references to non-GAAP measures, which management, which management believes are helpful to prevent the company and its operations in ways that are useful to investors.
A reconciliation of these non-GAAP measures to ifr rest measures can be found in the MD&A.
I would now like to turn the call over to Laura editorial Nacho, President and Chief Executive Officer of element.
Go ahead operator, good morning, everyone. We are pleased to be here to discuss element second quarter performance, which includes record results driven by commercial wins and client growth.
We continue to deliver a superior client experience in all five countries, we serve and we're successfully executing all five drivers of our revenue growth strategy by retaining 99% of our existing client base.
Spanning our share of wallet with those clients, earning market share from our competitors converting self managed fleets into new clients and securing government Mega fleet mandate to put this into context. This quarter, we earned market share and welcoming 23, new client we converted 25.
Self managed fleets and we continue to expand our share of wallet with 124 preexisting element client.
These wins represent the potential addition of over 20% more vehicles under management than what our global commercial team accomplished during the same period in 2022.
In addition, unimportant part of our performance was the impressive two and a half a billion dollars of new vehicles that we were able to originate for our clients.
This was a function of steadily improving OEM production capacity, which of course is great news for both our clients and our shareholders and as we communicated last quarter. Our backlog of orders continues to remain at elevated levels and is expected to carry us well into 2024.
With $2 $6 billion of contractually committed future origination volume.
Moreover, our clients' demand for new vehicle continues to be strong as they've placed $4 million of waters a record in the first half of this year.
Now pivoting to E. S. G. We published our third annual report in June containing full disclosure of our scope one two and upstream go three greenhouse gas emissions and we're currently working on the establishment of science based emission reduction targets and expect to share those with you in 2024.
Sure.
That said, we've already been taking action to reduce our environmental impact.
We achieved a 55% reduction in scope, one and two emissions in 2022, and that's relative to our 2019 base here and it is thanks to our internal legal electrification effort and decreased energy usage at our offices.
Regarding electric vehicles, we launched and guided numerous client pilots across our global footprint with a full suite of arc by element services.
Our strategic consulting capabilities, the Navy's continues to garner strong.
Interest from clients and prospective clients, particularly in the self managed space now.
Now before I hand, it over to Frank I want to thank our entire team at element for your continued dedication and hard work without use these record results would not be possible now.
Now looking ahead, we continue to have lots of opportunity to grow and further improve our performance with quant and paced investments in our business and with the continued execution of our strategy. This is an exciting time for element and we're looking forward to sharing future successes with you.
Or do you Frank.
Thank you Laura and good morning, everyone, it's great to be demonstrating elements ability to deliver on our client value proposition and generate strong results across the business two things before I take you through these dose results.
First we disclosed this time last year, we earned $8 million of nonrecurring net revenue in Q2 2022, excluding that from year over year comparison shows the organic growth of the business, so I'll be citing growth on that basis.
Second the growth measures I site will also be in constant currency because strengthening of both the U S dollar and Mexican peso benefited our Q2 results as reported.
After normalizing for those factors, our second quarter growth was still near the high end of our long term guidance ranges and very strong in absolute terms.
We grew net revenue eight 4% year over year to $323 million for the quarter.
Adjusted operating income grew four 5% on the same basis, despite increased investment in our commercial capabilities, which I'll come back to shortly.
Operating margin was 55, 1% for the quarter consistent with our guidance.
Adjusted earnings per share were <unk>, 33, which is a 10% improvement year over year.
And free cash flow per share was 46 cents, which is a 22% improvement year over year.
It's worth noting that Q2 free cash flow benefited somewhat from the timing of cash payments and cash inflows from originations in the first half of this year.
Normalizing for those items free cash flow per share would have been approximately 42 cents in the second quarter and the incremental <unk> would likely benefit the second half of this year equally.
For certainty, we reaffirm our guidance of $1 58 to $1 63 of free cash flow per share for the full year.
Looking more closely at our second quarter net revenue growth year over year. It was driven by services revenue and net financing revenue growth.
The first pillar of our capital lighter business model as services revenue.
Consistently delivering superior claim service is fundamental to our value proposition.
These services results in our clients and their drivers developing a near daily working relationship with element.
Which is the stickiness and enables us to retain almost 99% of our business annually.
Services revenue was up 12% year over year, driven by share of wallet growth, namely increased penetration and utilization as well as modest growth in ANZ, Mexico, and our modest services revenue streams.
We've quantified the relative value of these contributions in our supplementary information document for Q2 and included further detail in the MD&A results commentary.
Net financing revenue grew six 4% year over year, driven by average net earning assets growth of six 2% and interim funded asset growth of 100 per cent. Each of these asset categories grew as a consequence of a record 2.5 billion, our global originations in the quarter.
Year over year gain on sale or Goss growth also contributed net financing revenue growth.
In Q2, golf's moderated slightly in Australia, and New Zealand compared to the second quarter of last year.
However, this was more than offset by gas growth in Mexico on the same comparative basis now.
Now I'll turn to the second pillar of our capital light business model, which is syndication.
We syndicated $690 million of assets in the second quarter and generated $11 4 million of revenue that.
That represents 165% yield on the asset syndicated or 35 basis points shy of the 2% long term average yield we continue to guide for modeling purposes as.
As we've said before the continuing uncertainty around interest rates of sustained elevated spreads, which compressed available syndication deals.
Remember.
The biggest benefits that element of our syndication program are first the ready access to off balance sheet funding for growth.
Second the ability to manage our tangible leverage ratio.
Third the accelerated revenue recognition and increased velocity of cash flow, which we can redeploy for attractive returns and fourth the freeing up of excess equity to reinvest in the business and returned to shareholders through buybacks and dividends.
Our access to capital through syndication remains steep and we are confident that we can syndicate the volumes implied by our full year guidance.
Second half originations should provide ample inventory for our syndication team to work with.
Turning now to operating expenses, we knew the modest increase was coming this quarter as plant, which we signaled in may.
And this increase reflects both practical and strategic choices as well as inflation.
Given our confidence in longer high long term higher annual organic revenue growth potential of 6% to 8%.
Which is up from the previous 4% to 6% run rate outlook.
We need to resource our teams to lead manage and fulfill this potential.
Resourcing problem properly means hiring and developing the right talent in the right roles. It means.
Newest really improving our market leading capabilities and it means facilitating meaningful client interactions to travel and events as we exit the pandemic era and increase our commercial ambitions.
We are also investing in our service delivery model to sustain the growth of our net promoter scores and lower our cost to serve.
The health of returns on these opex investments are already been demonstrated for example in our second quarter results and in the commercial success profile that Laura sure.
That commercial success will have lasting impact on our performance over the next several years such as the nature of our incremental growth.
Recurring revenue model.
I want to briefly.
<unk> sustaining capital investments, which we disclosed in our calculation of elements of free cash flow in the supplementary.
We expect to make between 75 and $80 million of sustaining capital investments this year, which is more than we have in recent years.
This is partly a function of inflation on the $50 million to $55 million in annual sustaining Capex range, we first set out several years ago.
However that range was predominantly focused on spec.
As Laura mentioned, we've been electrifying elements internal global fleet.
Which will impact our sustaining capital investment totals both this year and next year.
We will also be optimizing certain of our real estate footprints over the next two to three years, the cost of which will be partially comprised of incremental sustaining capex.
These and other non sustaining capital investments are forecast to be approximately $18 million in 2023.
Turning now to our funding as you know element maintains ready access to diversified sources of on balance sheet funding from a roster of high quality and that lenders.
Lenders and investors across all of our markets and this is evidenced by our activity in the first half of the year.
In April we issued 750 million U S dollars, a basket backed term notes, which was greeted by strong investor demand, allowing us to upsize the offering from <unk>.
$500 million, while improving pricing.
In June we Upsized, our credit facilities as well as issuing $750 million U S. Dollar senior unsecured note at 200 basis points over the relevant treasury.
We're very pleased with this pricing for our third ever U S bond deal and given the market at the time.
With a strong outlook for originations over the next several quarters, we continue to evaluate funding options to optimize both our on and off balance sheet mix and of course, lower our cost of capital.
This is an exciting time to be looking ahead at elements prospects because theres so much positive momentum in our business.
Our record profitability continues to validate our strategy and the organizations cohesive approach to delivering that consistent superior client experience.
Over time this growing profitability combined with recent and contemplated global tax legislation is likely to drive increasing cash tax expenses.
That said, we expect cash taxes to remain below the accounting provision for tax that is a function of our effective tax rate.
Before we take your questions. Let me officially reaffirm the full year 2023 resolves guidance. We've provided the market in may which remains unchanged, we commit to revisiting this guidance since November .
Part of our Q3 earnings release.
We also expect to be in a position to provide you with full year 2024 results guidance at that time.
For now I'll turn this call over to the operator for your questions.
Thank you we will now begin the analyst question answer session in order to afford all analysts the opportunity to ask questions element kindly request the analysts limit themselves to two questions and live dialogue with management.
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The first question comes from John Aiken with Barclays.
Please go ahead.
Good morning, Frank just first off a quick clarification on your commentary around the free cash flow you said this quarter benefited by four cents from pull forward, but I think you said that four cents will also benefit the second half did I get that correct no what I said John was.
Had we not had that pull forward that would have affected and I wouldn't call. It pull forward, it's really driven by both the timing of the originations that we saw so the strong originations.
Then also by the timing of cash taxes, which were lower in the quarter.
Had we not had those two impacts.
Of that four cents would have likely benefited the would have benefited the second half instead of coming in in the second quarter.
Thanks, Frank that makes a lot more sense to me.
Then I guess my second question is admittedly. This commentary came from at least two generations of management teams go but when we originally.
There had been some commentary around interest rates and win.
If I remember correctly.
Interest rate sensitivity for clients he had around 11 or 12% and we're at that level now at least.
In general are you seeing any rate sensitivity with your clients in terms of what you're charging or is the environment. Just so different today because of the impact we saw through the pandemic that theres basically no sensitivity.
Any commentary there would be it would be appreciate it yeah, no and I think the way I would phrase it as are we seen any impact on demand right and client demand.
We are not and remember it's a aspect of the mission critical nature of these vehicles. The fact that the clients need to replace them and the fact that the aging fleets because of the supply chain is helpful, but not.
Driving that is just the overall mission critical aspect of those vehicles and overall all funding for our clients whenever whatever markets forever, whether users are up in this environment. So we're in that same vein, obviously up higher because our contracts are based.
On base rates at the time of the origination. So no. We see demand is still very good and I'd just point you to $2 $1 billion billion dollars' worth of orders in the quarter, which was very very strong from a from our perspective.
Thanks for the color Frank I'll requeue.
The next question comes from Geoff Kwan with RBC capital markets.
Go ahead.
Hi, good morning, I'm Fran.
Frank I had a question on the syndication yield it varied a little bit at certain times over the past few years, just wondering how should we think about.
How do you get some pack it by you know interest rates, the higher funding costs and tighter conditions for the regional banks and any other factors that we need to be aware of and also how are you expecting that yield to trend over the next couple of quarters. The next few quarters.
Yeah. So I think you will continue.
Answer the last question first I think Youll continue to see yields kind of depressed from that 2% level over the next two quarters as we continue to be in this interest rate environment that we are we currently are in.
That being said what is driving that is two fold. One is obviously the increasing spreads that we've seen but more importantly, the increasing hurdle rates at the banks as they are they have gone through this year, so that impacts their ability to or the pricing of our products into their investment.
I'm sure that that's an important consideration.
That perspective that being said I would say, we continue to see significant depth in that market.
And feel very strongly as I commented in the.
In the.
In the prepared comments that we are on target for.
Our guidance range, which would mean the second half will be stronger than the first half in regards to the syndication volume and that's really.
Benefiting from the supply we're getting from the higher originations as.
As we as we look there longer term, so going out past a quarter or two we would anticipate that those deals would start to rise again in particular as interest rates number one stabilize and then number two should enter into one interest interest rates start to come down we will benefit in.
<unk> on our fixed rate product, so historically and I've said this before we tended to sell more fixed rate unless floating rate in the current environment.
Over the last year or so we actually sell slightly more floating rate and fixed rate because it is a much more agnostic to the volatility.
Volatility in interest rates that being said it tends to because floating rate notes do carry lower yields once sold.
Got it no. That's that's very helpful and just my second question on was honestly when thinking about the reported backlog in and what do you think is maybe your shadow backlog.
How long do you think it will take for all your clients to have their only call it up to date.
But in particular also is like how do you think that backlog normalizes in terms of what it means from the OEM side in other words what is it that then.
Increasing protection allocations to fleets in terms of that shifting market share complaint that adding an extra production shift as their new plant opening I'm just trying to understand how you think about that path to normalization.
Yeah first and foremost increased production rate is always the best way towards that and I know the Oems have been focused on increasing production and getting there and obviously they've done a significant significantly.
Significantly good job doing that and being able to originate up to $2 $6 billion. So that we had this quarter. So.
That's been a very very big plus to it.
You know to us.
He is to the extent if there is any shift towards the fleets versus retail and that's really a flat out.
How strong is retail demand for vehicles, because obviously retail is an important component up their business as well. So we don't count on that but we do think we will see benefits should the retail demand slowed down in any way shape or form in regards to the backlog and when it normalizes.
Our crystal ball isn't better than anyone else's, but that being said, we think that will carry you know meaningfully into 2020 for we think we'll end the year with a still a strong order backlog that is above normalized levels and we will take some time through 2024, assuming continued improvement in production.
As we move through the year.
And that that also includes our perspective that.
Orders will remain strong.
Cause of the demand that we see and they need for our clients to continue to replenish their fleet.
Okay. Thank you.
The next question comes from Tom Mackinnon with BMO capital markets.
Go ahead.
Yeah. Thanks, very much just a follow up question with respect to free cash flow.
Even if I normalize for the four cents that you talked about a it's still it looks like free cash flow was up.
Hum.
Maybe closer to 12% you know this is the excluding currency adjustments versus your adjusted EPS. That's up 10, so we do have sort of free cash flow even at.
The items, you talked about it growing faster than our adjusted EPS.
Yeah.
Or modestly faster faster why might that be and what would be the outlook for that relationship as we move into 'twenty 'twenty four just given some of the sustained.
Sustained capex investments that you've been talking about and if you could shed a little bit of color with respect to that answer about a at recent discussions and to drive an increase in cash taxes, and how you might think we should take that into account as well. Thanks.
Yeah, I think the first and foremost that I would point to.
Tom is that you know.
<unk> in general and even even normalizing a little bit for that there's they're very strong in the quarter and as we've said going on for the last couple of years originations are very good both from a revenue perspective, but from a free cash flow perspective, so we really enjoy the improvement in originations.
And we know our clients enjoy the improvement in originations and so we're glad that that is starting to come through.
From that component of it.
As we look for going forward as I've said, we believe we will continue to have.
A material spread between all.
Free cash flow, our effective rate free cash flow cash tax rate and our effective tax rate. So you'll continue to see a nice spread between those two and hence why we focus so much on free cash flow.
Overall in the business and you know lastly, again I'd point you in the future you know the strength of originations and just how strong.
Cash flow drives from that regardless of the allied component.
An important component of why we see that differential.
And you talked about investing in your service model can you elaborate a little bit on that or are you looking at expanding your service proposition are are you looking at them can you just shed a little bit more color with respect to what youre doing with your service model.
Sure. So you know we have a we have a significant operating leverage in our business, but it is not.
Absolute operating leverage right. So when we see this level of originations and as we grow clients and as we increase our vehicles under management there are certain aspects of the business, whether it's F. P S or maintenance service coordinators or others that can serve us a set number of vehicles and so as we grow the business.
We need to invest in those areas and the reason that's absolutely critical is those are those are pieces of the business that directly face to the client.
And so if we want to continue to maintain high NPS scores high retention rates et cetera, we need to make sure that we're providing best in class service to those clients, which starts with our frontline people, which is absolutely critical.
From that perspective, so that is the service component and then obviously I've talked about investing in the commercial component up as well and if you look overall, a significant amount of our investment increase in opex over the quarter really is in our people and our people drive.
Our NPS and they drive our client experience and that's why it's so critical.
If I could just squeeze one more what about orders.
How do they hurt or are they trending relative to originations.
So we saw a $2 $1 billion in orders, which I believe is a record and so they are trending very well, obviously, we had a very very strong.
Origination quarter.
Probably the high watermark for the year, but we'll knock on wood, hopefully see strong originations I'm going forward.
So we feel really good about the order volumes that we're seeing in the business and then the continued ability to originate against those waterfalls.
<unk>.
The next question comes from Paul Holden with CIBC.
Go ahead.
Thank you. Good morning wanted to go back to the Opex investments, you're making or make sure I understand the story right. So two parts to the question I guess.
First off frankly, I mean, you just referenced N. P. S scores I thought those were already strong. So just wanted to make it clear are you, making these investments for enhancing future.
Revenue potential or is it really just to bring up.
Service levels that were maybe.
Below where you were aiming for and then two maybe just remind us of your approach to managing investments versus revenue overtime I E margin slash operating leverage.
And how do you plan to manage that over overtime. Yeah. It's a good question Paul the answer to your first question is.
So we have to support the growth that.
That we have.
That's absolutely critical but.
We have to support the growth we were getting at least at the levels that we currently have that provides us high net promoter scores, but additionally in a world where do you stand still.
That is evolving as quickly as our world and our clients expectations continue to increase we have to continue to invest to make sure that we're meeting those needs and in fact exceeding those those expectations of our clients for.
For two reasons one is it helps with our retention rates second is it gets out in the market and it provides our commercial team a very strong foundation to go sell on value and that is absolutely critical to our proposition as we move forward. So that's what you're seeing in this near term I think longer term.
Firm, you'll see opex kind of moderate from the perspective, we will get to a scale.
A level in regards to the commercial investment.
That.
Well will start to level off and remember we're coming out of comparisons that are.
Still pandemic or just coming out of pandemic. So that's why you see some of those step ups on the commercial piece, whether it's travel meeting clients et cetera.
But we will always focus and have always focused for the last five years on delivering that consistent superior client experience and we're going to make sure that that's something that we never we don't put in jeopardy, while still maintaining.
Our commitment to.
Driving operating leverage over the longer term.
Okay.
And then.
Last question is just.
With respect to the Ah <unk>.
Syndication rates and maybe it's an obvious answer, but just assuming if they sort of stay.
Stay in line with Q2 or below 2% that means a lower proportion of syndication.
Versus what you retain on the balance sheet.
And maybe that has some influence on your 2023.
The guidance does that is that fair.
There's no impact on our 2023 guidance and what I would say Paul is well.
When we look at our syndication whether or not we syndicate, a lease or group of leases, we always look first and foremost.
Is it a positive net economic benefit to syndicate that right. So if it is I'm not in a positive net economic benefit and it's better to hold on books and syndicated absolutely will hold it up right and so we're not going to give away economic value for the sake of just syndicating an asset that would be.
<unk> said because of our partners to lower cost of capital.
And the tax benefits that we can't use today, but our partners can use relatively quickly.
Many of our leases are.
Beneficial to to syndicate from an economic perspective and so.
We're not seeing the current rate environment driving significant decisions around the volume, we're gonna syndicate and hence why we set our guidance for the year is good for syndication volume.
And that is by definition, our second half will be more robust from a volume perspective than the first half of the business and I'll point you to when we look at the syndication and look at the P&L impact is relatively minor next to some of the other key drivers of the business service revenue.
Some of our at a bar of what we're doing there, but that being said it is critical but I'll go back to what I said in the prepared remarks, which is it is a critical funding for funding and increases the velocity of cash flow and allows us to go out and win more business and take on more vehicles under management, which carry with those server.
Revenues that alert to our benefit as well as upfront originations, whether or not and the benefits of those upfront originations whether or not we syndicated so.
Hopefully that answers your question.
Yes, sorry, I do I do want to follow up because I guess the way I am just looking at it as syndication rates are somewhat under pressure or at least they certainly were in Q2, and you're suggesting they will remain under pressure to some degree versus historical norms.
Yeah, when we look at the net financial margin, you're earning on what you keep on the balance sheet, it's expanding and continues to expand them and then and so.
So I'm just curious why that doesn't change.
T equilibrium between retaining assets and syndicating asset to me right.
I would've thought it would.
Yeah, well again it just it it goes to that net economic value.
And the equity and return on equity we get in regards to holding on balance sheet versus not holding on balance sheet and remember when you're looking at I'm not sure exactly what youre looking for it in regards to the deal, but if youre looking at the yield there is couple of things that influence you know the first one is the geographic.
Right. So we are growing assets outside of the U S, which carry higher yields to that.
And those are in the earnings benefit from that perspective.
And then secondly, obviously some of the non interest component benefits like gain on sale continue to benefit us in regards to that as well.
Okay I'll leave it there thank you.
The next question comes from Graham Ryding with TD Securities.
Go ahead.
Yes, there is.
Some concern out there just a potential autoworkers strike.
Looming in September .
How concerned are you or.
That could sort of negatively impact production volumes or would you at this point expect that to be a bit more of a transitory type event.
Graham Laura I'd tell you that we're watching it.
Closely run different scenarios within the organization at.
All of it's very manageable and see let's say similar to previous to supply chain disruptions that we would've had.
So we would expect again that would be we continue to see a good order backlog was the elevated then it would all be in deferred revenue and I'd say more importantly, as Frank was talking about earlier, we don't expect it to change our previously provided guidance.
Comfortable with our guidance for the balance of 2023.
And if it persists into 2024, and we think it's all manageable.
Okay.
Uh huh.
Understood maybe I can just jump to your the services piece.
It looks to me like in the U S and Canada over 50% of your revenue roughly comes from.
Services, where it's a much lower mix and ANC in Mexico.
Is I guess why isn't so much lower in those markets and then do you feel like there's an opportunity to maybe replicate some of the.
The services that you're offering in the U S and Canada to those other geographies and increase that mix.
Sure. So I would say the number one its maturity maturity of the markets. So the U S market. We've operated here longer we've got a much more built out service network, we've got much more.
Consistent offering.
From just because of the size of the network and for the length of time, we've been doing it.
It is absolutely one of the biggest focus is that we have from a growth opportunity perspective is to drive service revenues in Mexico, and AMC and we have seen considerable growth in those markets on our services business, albeit from a smaller base as we build out those networks and continue to.
Ed vehicles under management in those markets, we believe that represents a real opportunity to.
Mature those services markets.
Jane outsized growth within that service piece in that.
Geography, so yeah. It is absolutely a focus and absolutely an opportunity from our perspective.
That's it for me thank you.
And the next question comes from James <unk> with National Bank financial.
Please go ahead.
Yeah. Thanks. Good morning, just wanted to go back maybe a pop your opening remarks, you talked about some of the the new client wins stealing market share in the self nationally.
Sounded like 20 or 25, new clients in each of the categories.
Just wonder if you can frame the revenue.
The contribution of those clients in that you know looking at the sub pop it looks like the VA. The services program of these new clients in Q2 were a little bit lower than the than the broader average. So just curious like how are how is how a typical new client starts with like maybe a couple of services and then you land and expand like what's what's the timeline.
Our progression for that revenue to kind of flow through.
Yeah. Thanks for the question James.
We usually start is frankly are responding to the earlier question. So Austin will start from the leasing side.
And then looked at adding servicing overtime with services of course coming into revenue.
Sooner as we take them.
But it's really a question of progression over time once you get in and start providing Easter.
These service then we look to add additional services on <unk> and so it dependent upon the survey it can take.
Our product can take three months, sometimes six months before we see those sales represent a on the revenue side.
The other thing I would add Jim is.
What is really interesting about <unk>.
New business wins is just the.
Detail on which should provide some growth and so when you think about the lease we will typically if they're already with another F. M C.
The FMC keeps those leases. So it takes four years, roughly three and a half years to fully ramp up the full lease revenue and that's before any growth within the clients fleet, which also asked a better increasing growth.
And then with the services piece, obviously, we typically don't start out with the full suite of services and so we have that ability to add share of wallet over time. So the nice thing about the recurring revenue business is that it's actually a recurring growing revenue business with a new client because by definition a win to date not only provides value.
Today, but if it provides value in year two year three in Europe or is that growth takes place and derisked those future.
6% to 8% growth rates, we talked about.
Okay. Thanks, and then.
Thinking about the gain on sale of this this quarter, a little little bit down from last quarter are you able to.
Are you able to break out the <unk>.
And price contributions.
I guess, what if it goes like our volumes higher versus last quarter and it's you know prices are are coming down of course, maybe a little bit more color on how that gain on sale is.
Progressing sure. So so we've seen a little bit of pressure in ANC in regards to pricing.
Within the within the fleet, but we did see more volume and we also which which helped to offset it and we also saw.
Higher.
Vehicles that had more depreciation because of the age of the vehicles and then we also have been growing our gain on sale in Mexico, which is a.
Been a benefit to two offs as we move forward with it.
With the business. So I think in general you know, it's down a little it's relatively stable, we think that it will.
Will decline over time, but at a very modest pace because of many of those offsets we talked about and the growth in Mexico relative to AMC.
Good stuff. Thank you.
Once again analysts who I have a question May press Star then one.
Our next question comes from Stephen Boland with Raymond James.
Please go ahead.
Oh good morning, Thanks, just in terms of originations for 2023.
You're right $4 4 billion for the first half to hit your guidance of eight to eight and a half.
Even though at the top of that range.
We have to do about 2 billion per quarter. So we assume that like this was a peak quarter in the year.
And perhaps originations do slow down in the second half.
Yeah, I would say that is a fair estimate and it's very consistent with past experience, where the second half tends to be a little bit lighter as the Oems go through the model changeovers in Q3, which they have to take the lifestyle and retool and then bring them back up.
To do that.
I would tell you that the high end of that guidance range is pretty sound.
From that perspective, but we'll keep an eye on that.
And I think you heard the earlier question earlier comments in regards to you know a potential UAW strike and so.
We didn't want to go out on a limb with regards to how.
How we think about the originations in the second half.
Okay. That's good.
Laura sorry can you just talk a little bit more on the self managed conversion I don't know Jamey just a quick question, but I presume that near the tail end I'd also on some of these contracts takes a long time to come to fruition, but you must have been or could have been part of some of these conversations.
With these new clients, maybe you could just talk about what you saw it through those discussions what got those both fleets to convert.
Reising was it.
Additional promise of services or what in your view are made those those companies or governments or regions.
<unk> two element.
Yeah.
Oh, Thanks for the question Steven.
I just want to start with our people I've had the opportunity to actually go on some of those sales calls.
Hmm.
We have a very high quality.
Sales team and account management team.
That's still really strong relationship and they create trust.
From our perspective.
I see.
So that goes a long way, we have great people and a really solid value proposition not only in what we offer in terms of total cost of operation, where we can help our clients saved money.
I'd say, our real differentiator is the strategic consulting value that we bring forward again solid team that offer a really impressive insight.
Where they can take action.
Insane cough I.
Following the advice that we're giving them all that said it is a longer sales cycle just given it doesn't take a few meetings again to gain trust and get our.
Clients are comfortable with and trusting us with these operations.
But once a client to sign on.
As you saw with our retention rate.
Do a great job keeping them as Frank alluded to earlier, we've got some really solid momentum in the business and with a lot of these things.
Gary Yes from a growth perspective in future years.
Okay, and just when you mentioned strategic consulting that's not just for E. B, that's just for the whole product offering.
The card offering including E D.
Okay. Thanks very much.
This concludes the question 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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