Q1 2024 Element Fleet Management Corp Earnings Call

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Operator: Good morning, ladies and gentlemen, and welcome to Elements Fleet Management's first quarter 2024 Financial and Operating Results Conference Call. At this time, all participants are in listen-only mode, and you are reminded that this call is being recorded. Following the prepared remarks, there will be an opportunity for analysts to ask questions. To join the question queue, you may press star, then 1.

Speaker Change: Good morning, ladies and gentlemen, and welcome to element fleet management first quarter 'twenty 'twenty four financial and operating results conference call. At this time all participants are in listen only mode and you always find that the best call is being recorded.

Speaker Change: Following the prepared remarks that'll be an opportunity for analysts to ask questions to join the question queue. You met that Star then one.

Operator: In the event you need assistance during the call, you may signal an operator by pressing star then zero. Element wishes to caution listeners that today's information contains forward-looking statements. The assumptions on which they are based and the material risks and uncertainties that could cause them to differ are outlined in the company's near-end and most recent MD&A as well as its most recent AIS. Although management believes that the expectations that are expressed in the statements are reasonable, actual results could differ materially.

Speaker Change: In the event you need assistance during the call may signal, an operator by pressing Star then deal.

Element wishes to caution listeners that todays information contains forward looking statements assumptions on which database and the material risks and uncertainties that could cause them to differ are outlined in the company's year end and most recent MD&A as well as the most recent yeah yeah.

Speaker Change: Although management believes that the expectations are expressed in the statements.

Speaker Change: A reasonable actual results could differ materially.

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

Speaker Change: The company also reminds listeners that todays call is offensive certain non-GAAP supplemental financial measures management measures football in an ever important reported and adjusted basis and it comes to those books to be useful in providing readers with a better understanding of how it plays out.

Speaker Change: A reconciliation of these non-GAAP financial measures can.

Speaker Change: Can be found in the company's most recent MD&A.

Speaker Change: I would now like to turn the call over to Laura Vitoria Ginocchio, Chief Executive Officer of element Fleet. Please go ahead.

Laura Dottori: Good morning, and thank you all for joining us today. We had a strong start to 2024. This quarter, we achieved record net revenue of $262.5 million US dollars and adjusted earnings per share of $0.27, demonstrating robust revenue results. The impressive performance of our commercial team continues to deliver, adding 39 new clients, 59% of which were self-managed conversions, and adding 178 share of wallet services, and continuing to drive higher service penetration and utilization.

Speaker Change: Good morning, and thank you all for joining us today.

Speaker Change: We had a strong start to 2024 this quarter, we achieved record net revenue of 262.5 million U S dollars and adjusted earnings per share of 27, demonstrating robust revenue results.

Speaker Change: For us the performance of our commercial team continues to deliver adding 39, new clients, 59% of which were self managed conversion.

Speaker Change: Adding 178 share of wallet services, and continuing to drive higher service penetration and utilization rate.

Laura Dottori: All of this has been pivotal in driving our solid growth. These results highlight the exceptional quality of our team and the trust our clients have in our ability to contribute to their success. Our strong revenue allowed us to expedite investments in our business to support our growth, to refine our service delivery model, and to establish the groundwork for our digitization and automation initiatives, which will benefit our clients and ensure our continued market leadership. While prioritizing these investments, we also maintained solid adjusted operating margins this quarter, expanding margins by 30 basis points on a year-over-year basis.

Speaker Change: All of this was pivotal in driving our solid growth. These results highlight the exceptional quality of our team and the trust our clients have in our ability to contribute to their success.

Speaker Change: Our strong revenue allowed us to expedite investments in our business to support our growth to refine our service delivery model and to establish the groundwork for our Digitization and automation initiatives, which will benefit our clients and ensure our continued market leadership.

Speaker Change: Well prioritizing these investments we also maintained solid adjusted operating margins this quarter.

Speaker Change: Spending margins by 30 basis points on a year over year basis.

Laura Dottori: We continue to make progress in client satisfaction, achieving a net promoter score of 48 this quarter, as our client-centric focus further enhances the client experience. Our confidence in our future is reinforced by several factors which include the 9.8% year-over-year increase in originations driven by strong client demand and normalizing vehicle production volumes, by the advancement of our digitization and automation initiatives to optimize our business, deliver a higher degree of client experience and drive growth, by the traction of our EV offering, known as Arc by Element, along with our end-to-end electrification solutions for clients that are pursuing decarbonization goals and navigating the complexities of transitioning their fleets to EVs, and of course the enhancement of our strategic advisory services providing more proactive insights to our clients.

Speaker Change: We continue to make progress in client satisfaction, achieving a net promoter score of 48 this quarter as our client centric focus further enhances the client experience.

Speaker Change: Our confidence in our future is reinforced by several factors, which include the nine 8% year over year increase in originations driven by strong client demand and normalizing vehicle production volumes.

Speaker Change: Ah the advancement of our Digitization and automation initiatives to optimize our business deliver a higher degree of client experience and drive growth.

Speaker Change: The traction of our EZ offering known as arc by element along with our end to end electrification solutions for clients that are pursuing decarbonization goals in navigating the complexities of transitioning their fleets to evs.

Speaker Change: And of course, the enhancement of our strategic advisory services, providing more proactive insights to our clients. Additionally, we're making significant progress with our strategic initiatives and leasing and then strategic sourcing for.

Laura Dottori: Additionally, we're making significant progress with our strategic initiatives in leasing and in strategic sourcing. For leasing, we're on track and on plan for the official start of operations in Dublin this summer. And for strategic sourcing, we appointed a new head of Asia operations to lead our Singapore office, and we signed our first direct collaboration agreement with a leading OEM in Asia, expanding vehicle procurement options for our clients. The first quarter laid a strong foundation for our future growth, and we're enthusiastic about the opportunities ahead. Our financial stability, our purposeful investments to support our growth, and our client-centrist focus us well to continue creating value for our customers.

Speaker Change: For leasing we're on track and on plan for the official start of operations in Dublin. This summer.

Speaker Change: And for strategic sourcing, we appointed a new head of Asia operations to lead our Singapore office.

Speaker Change: And we signed our first direct collaboration agreement with a leading OEM in Asia, expanding vehicle procurement options for our clients.

Speaker Change: The first quarter laid a strong foundation for our future growth and we're enthusiastic about the opportunities ahead.

Speaker Change: Our financial stability are purposeful investments to support our growth and our client centric focus us well to continue creating value for our clients and our shareholders alike and with that I'll hand, it over to Frank to take us through the numbers. Thank you Laura good morning, everyone. We started.

Unnamed Speaker: Thank you, Laura. Good morning, everyone. We started the year with strong momentum, including exceptionally strong net revenue growth year over year. We also continue to invest in the business while managing to our targeted full-year AOI margin. As we stated in our earnings release, we believe our performance to date positions us well to achieve or potentially beat the high end of our guidance on most metrics, assuming a relatively stable foreign exchange rate environment.

Frank: The year with strong momentum, including exceptionally strong net revenue growth year over year. We also continue to invest in the business, while managing to our targeted full year NOI margin.

Frank: As we stated in our earnings release, we believe our performance to date and positions us well to achieve or potentially beat the high end of our guidance on most metrics, assuming a relatively stable foreign exchange rate environment.

Unnamed Speaker: Before turning to our first quarter results, I'd like to highlight a few important reporting items. First, we are pleased to present our financial results in U.S. dollars for the first time, transitioning from the Canadian dollar. To aid our investors during this transition, we will continue to report key per share amounts in both U.S. and Canadian dollars for the next several quarters. These metrics include earnings and adjusted earnings per share and adjusted free cash flow per share.

Frank: Before turning to our first quarter results I'd like to highlight a few important reporting items first we are pleased to present, our financial results in U S dollars for the first time transitioning from the Canadian dollar.

Frank: Either divestitures. During this transition we will continue to report key per share amounts in both U S and Canadian dollars for the next several quarters. These metrics include earnings and adjusted earnings per share and adjusted free cash flow per share.

Unnamed Speaker: Second, we will continue to adjust our results for the remaining non-recurring set-up costs in connection with our strategic initiatives in leasing and sourcing announced last year. In Q1 2024, we recorded $2.1 million of these non-recurring set-up costs and anticipate recording the remaining amount next quarter. As such, all dollar amounts and growth measures I cite on today's call will be in U.S. dollars and on an adjusted basis for these one-time items. Let's now turn to our first court result.

Frank: Second we will continue to adjust our results for the remaining nonrecurring setup costs in connection with our strategic initiatives in leasing and so we're seeing announced last year. In Q1 2024, we've recorded $2 1 million of these nonrecurring setup costs and anticipate recording the remaining amount next quarter.

Frank: As such all dollar amounts of growth measured as Ive stated on today's call will be in U S dollars and on an adjusted basis for these one time items, let's.

Frank: Let's now turn to our first quarter results.

Unnamed Speaker: We achieved record results across many metrics. Net revenue grew 16.8% year over year, reaching an all-time high of $262.5 million. This growth was largely driven by continued services revenue growth and, to a lesser extent, higher net financing revenue. We strategically ramped up investments in our business this quarter, reinforcing our commitment to generating long-term growth and value creation for our clients and our shareholders. We will be purposeful in accelerating investments when our revenue performance permits it.

Frank: We achieved record results across many metrics net revenue grew 16, 8% year over year, reaching an all time high of $262 $5 million. This growth was largely driven by continued services revenue growth and to a lesser extent higher net financing revenue.

Frank: We strategically ramped up investments in our business this quarter reinforcing our commitment to generating long term growth and value creation for our clients and our shareholders, we will be purposeful and accelerating investments when our revenue performance permits managing tightly to our targeted adjusted operating margin will guide us in balance sheet.

Unnamed Speaker: Managing tightly to our targeted adjusted operating margin will guide us in balancing discipline, expense management, and investment acceleration. Our adjusted operating income for the quarter was $143.6 million, up 17.5% year-over-year, translating to an adjusted EPS of $0.27 a share, a $0.04 increase from the same period last year. Additionally, our adjusted free cash flow per share increased 7 cents, or 25 percent, to 35 cents per share. We ended Q1 with an adjusted operating margin of 54.7%, marking 30 basis points of expansion year over year, consistent with our guidance.

Frank: Disciplined expense management with investment acceleration or.

Frank: Our adjusted operating income for the quarter was $143 $6 million up 17, 5% year over year translated into an adjusted EPS of 27 cents a share.

Frank: <unk> increase from the same period last year. Additionally.

Frank: Additionally, our adjusted free cash flow per share increased seven steps, where 25% to 35 per share.

Frank: We ended Q1 with an adjusted operating margin of 54, 7%, marking 30 basis points of expansion year over year consistent with our guidance.

Unnamed Speaker: Let's take a deeper dive into the key drivers of net revenue. Services revenue, the cornerstone of Elements Capital Light's business model, grew 27.3% year-over-year to $147.1 million. This growth can be attributed to several key factors, increased penetration of services with our existing clients, higher utilization of services from both new and existing clients, and the continued growth in our other geographies.

Frank: Let's take a deeper dive into the key drivers of net revenue.

Frank: Services revenue the cornerstone of our capital light business model grew 27, 3% year over year to $147 1 million.

Frank: This growth can be attributed to several key factors increase penetration of service with our existing clients higher utilization of services from both new and existing clients and the continued growth in our other geographies.

Unnamed Speaker: I would note that Q1 2024 services revenue included $7 million from certain revenue items that vary by type but share a similar characteristic in that they are discrete items and not expected to recur in 2024. Excluding these amounts, services revenue was still a strong 21.3% higher year over year. Also contributing to the year-over-year growth in net revenue was higher financing revenue, which was up 9.1% from Q1 last year. This uptake is primarily the result of an increase in net earning assets attributed to higher origination.

Frank: I would note that Q1 2020 for services revenue included $7 million from certain revenue items that vary by type, but share similar characteristics and that they are discrete items not expected to recur in 2024. Excluding these amounts services revenue was still a strong 21, 3% higher year over year.

Frank: Also contributing to the year over year growth in net revenue was higher financing revenue, which was up nine 1% from Q1 last year.

Frank: The uptake is primarily the result of an increase in net earning assets attributed to higher originations.

Unnamed Speaker: This increase was somewhat mitigated by higher funding costs and higher standby fees due to higher committed capital balances to fund the forecasted growth and origination. Debt capital markets have been strong with lower spreads on turning out our financings in the first part of the year compared with prior year transactions. We continue to capitalize on these favorable credit market conditions, including accelerating the refinancing of debts scheduled for maturity in 2020. However, Q1 gain on sale was largely unchanged year over year. Noteworthy improvements in Mexico were largely offset by lower gains of sale in ANZ, where the normalization of used vehicle prices continues in tandem with the improvement in new vehicle availability.

Frank: This increase was somewhat mitigated by higher funding costs and higher standby fees due to higher committed capital balances to fund the forecasted growth in originations.

Frank: Debt capital markets have been strong with lower spreads on terming out our financings in the first part of the year compared with prior year transactions. We continued to capitalize on these favorable credit market conditions, including accelerating the refinancing of that schedule for maturity in Q2.

Frank: Q1 gain on sale was largely unchanged year over year noteworthy improvements in Mexico were largely offset by lower gain on sale in ANZ, where the normalization of used vehicle prices continues in tandem with the improvement in new vehicle availability.

Unnamed Speaker: Moving on to syndications, we syndicated 473 million assets this quarter, down by 6.6% from Q1 last year. The decline can be largely attributed to our strategic decision to defer certain syndication volumes out of Q1 as we awaited the outcome of potential U.S. tax legislation. Adjusted operating expenses for the quarter were $118.9 million, an increase of 16.1 percent year-over-year. This increase was outpaced by the 16.8 percent growth in net revenue over the same period. Salaries and rates grew largely for the following reasons: increased headcount in support of growth initiatives and supporting our core growth until we realize the benefits of the Digitization and Automation Initiative, and higher incentive accruals year over year, given our strong performance in General and administrative expenses were up 12.8%, largely due to investment acceleration and Business Development Expenses in support of our commercial activities. Higher depreciation and amortization also contributed to the increase in year-over-year adjusted operating expenses.

Frank: Moving onto syndications, we syndicated 473 billion of assets this quarter down by six 6% from Q1 last year.

Frank: The decline can be largely attributed to our strategic decision to defer certain syndication volumes out of Q1, as we awaited the outcome of a potential U S tax legislation.

Frank: Adjusted operating expenses for the quarter were $118 9 million an increase of 16, 1% year over year. This increase was outpaced by the 16, 8% growth in net revenue over the same period.

Frank: Salaries and wages grew largely for the following reasons.

Frank: Increased head count in support of growth initiatives and supporting our core growth until we realize the benefits from.

Frank: From Digitization and automation initiatives.

Frank: And higher incentive accruals year over year, given our strong performance in Q1 and strong outlook for the remainder of the year.

General and administrative expenses were up 12, 8% largely due to investment acceleration.

Frank: And business development expenses in support of our commercial activities.

Frank: Higher depreciation and amortization also contributed to the increase in year over year adjusted operating expenses.

Frank: Yeah.

Unnamed Speaker: As I mentioned before, we will be purposeful in accelerating investments when our revenue performance permits. Our commitment to manage our expenses closely within the boundaries of achieving our targeted adjusted operating margin while also prioritizing these investments that align with our long-term strategic goals remains unchanged. Our free cash flow generation remains strong. This quarter, we generated adjusted free cash flow per share of $0.35, up $0.07 year-over-year.

Frank: As I mentioned before we will be purposeful and accelerating investments when our revenue performance permits our commitment to manage our expenses closely within the boundaries of achieving our targeted adjusted operating margin. While also prioritizing this investments that align with our long term strategic goals remains unchanged.

Frank: Our free cash flow generation remained strong this quarter, we generated adjusted free cash flow per share up 35 cents up 7% year over year.

Unnamed Speaker: We ended the quarter with tangible leverage of 6.68 times on the higher end of our target as we pre-funded the redemption of our senior note. As such, you will notice a significantly higher cash balance on our quarter-end balance sheet. Had we deployed all the capital raised from our Q1 $750 million senior unsecured notes offering during the quarter toward debt repayment, tangible leverage would have been 6.23 times near the bottom end of our targeted revenue. From a capital allocation perspective, our priorities remain unchanged. One, prudently invest in our business while maintaining our target tangible leverage ratio to grow our common share dividend in keeping with our target payout ratio. 3.

Frank: We ended the quarter with tangible leverage of $6 six eight times on the higher end of our target as we pre funded the redemption of our senior notes and as such you will notice significantly higher cash balance on our quarter end balance sheet had.

Frank: Had we deployed all the capital raised from our Q1 and 750 million senior unsecured notes offering during the quarter toward debt repayment tangible leverage would have been $6. Two three times near the bottom end of our targeted range.

Frank: From a capital allocation perspective, our priorities remain unchanged, one prudently invest in our business, while maintaining our target tangible leverage ratio.

Frank: To grow our common share dividend in keeping with our target payout ratio.

Frank: Three redeemed the last of our high cost legacy preferred shares and for returning capital to shareholders via share buybacks.

Unnamed Speaker: Redeem the last of our high-cost legacy preferred shares and 4. Return capital to shareholders via share buyback. Before I conclude, I'd like to draw your attention to two notable capital acts.

Frank: Before I conclude I'd like to draw your attention to two notable capital actions first we plan to redeem all of our remaining preferred shares in June we will redeem our series C preferred shares for a total of $94 $6 million.

Unnamed Speaker: First, we plan to redeem all of our remaining preferred shares. In June, we will redeem our Series C Preferred Shares for a total of $94.6 million. In September, we plan to redeem our Series E Preferred for a total of $98.3 million. The results of replacing these preferred share redemptions with debt will move the cost of capital below the line up to the NFR line, creating modest compression to NFR margins in the second half of 2020.

Frank: Timber we plan to redeem our series E preferred for a total of $98 $3 million.

Frank: <unk> of replacing these preferred share redemption with that we'll move the cost of capital well below the line up to the <unk> line, creating modest compression to end up our margins in the second half of 2020 for.

Unnamed Speaker: Most importantly, this action will be EPS-accretive and economically attractive. Additionally, we plan to redeem all our outstanding convertible debentures this coming June. In connection with this redemption, we expect to issue 14.6 million shares from Treasury. In summary, the first quarter has established a solid foundation, and when combined with our positive outlook and the purposeful investments we are making to drive our growth and sustain our success, place us in a strong position to achieve or potentially surpass the upper end of full year 2024 guidance on most metrics, provided that foreign exchange rates remain relatively stable. Thank you, operator. We are now ready to take questions.

Frank: Most importantly, this action will be EPS accretive and economically attractive.

Frank: Additionally, we plan to regain all of our outstanding convertible debentures this coming June.

Frank: In connection with this redemption, we expect to issue a $14 6 million shares from Treasury.

Frank: In summary, the first quarter has established a solid foundation and.

Frank: And when combined with our positive outlook and the purposeful investments, we are making the driver growth and sustain our success placed us in a strong position to achieve where potentially surpassed the upper end of our full year 2024 guidance on most metrics provided that foreign exchange rates remain relatively stable.

Operator: Analysts who wish to join the question queue may press star then one on your telephone keypad. You will hear a tone acknowledging your request. If you are using a speakerphone, please pick up your handset before pressing any keys. To withdraw your question, please press star then two. The first question comes from Geoff Kwan with RBC Capital Markets. Please go ahead.

Speaker Change: Thank you operator, we're now ready to take questions.

Speaker Change: Thank you analysts who wish to join the question queue may better than one on your telephone keypad, you'll hear telling acknowledging your request if youre using a speakerphone. Please pick up your handset before pressing any key davinci.

Speaker Change: If you enjoy a question please press star.

Speaker Change: Then too.

Speaker Change: The first question comes from Geoff Kwan with RBC capital markets. Please go ahead.

Geoffrey Kwan: Hi, good morning. On the service revenue side, you've guided to, or you've made kind of comments that you think it's going to be low double-digit growth in 2024. Thank you.

Geoffrey Kwan: Hi, good morning.

Geoffrey Kwan: My first question was on the service revenue side, you've guided to or you can make kind of comments that you think it's gonna be low double digit growth in 2024.

Geoffrey Kwan: Yes.

Unnamed Speaker: Assume that say a low double digit is 12% growth. If I take the $503 million in service revenues in 2023, and grow that at 12%, you get to $563. If we back up what you guys earned in Q1, that would then imply the Q2 to Q4 service revenues would be up just over 7% year over year. That's substantially below the 27% you had in Q1 and even the 15% year over growth you had in 2023.

Speaker Change: Assume let's say like low double digit is 12% growth.

Speaker Change: If I take the 553 million in service revenues in 2023 grille that at 12% you get to $5 63.

Speaker Change: If we back up with you guys earned in Q1 that would then imply that Q2 to Q4 service revenues would be up just over about 7% year over year.

Speaker Change: That's substantially below the 27% you had in Q1 and even the 15% you ever growth you had in 2023. So I'm just wondering am I missing something as to why the service revenues.

Unnamed Speaker: So I'm just wondering, am I missing something as to why the service revenues for the rest of 2024 are going to be growing at a much lower rate than what you've done in the past year? Or is it just going to build in some level of conservatism?

Speaker Change: Rest of 'twenty 'twenty four are going to be growing at a much slower rate than what you've done in the past here or is it just kind of.

Speaker Change: Building some level of conservatism.

Unnamed Speaker: Yeah, so, Geoff, I would say, you know, as we point to our guidance language where we said, you know, we would feel confidence in... (inaudible)

Jeff: So Jeff I would say you know what I would point to our guidance language, where we said we would.

Speaker Change: Feel confidence in.

Speaker Change: Increasing confidence in meeting the high end or potentially exceeding.

Speaker Change: Most of the targets that we have for our guidance. So when I look at service revenue growth and I look at it and this quarter, it's about 20% backing out the one timers.

Speaker Change: That was very very strong performance.

Speaker Change: I continue to believe that.

Speaker Change: With some seasonality or lumpiness overall, low double digit service revenue growth in each quarter, that's probably a reasonable way to look at the growth there. So we're.

Speaker Change: We're not forecasting that any of that slow down that you reference in.

Speaker Change: In Europe call, we still think that really strong quarter to start the year.

Speaker Change: But wanted to see how the rest of the year plays out but that low double digit service revenue growth feels right to us.

Speaker Change: We move forward.

Unnamed Speaker: Okay, that's all for now. My other question, sorry, was there another follow-up? No, go ahead.

Speaker Change: Okay. That's helpful and just my my mother.

Speaker Change: Hmm.

Speaker Change: My other question sorry ticket was another follow up there.

Speaker Change: No go ahead.

Laura Dottori: My other question was the reference that you talked about about the OEMs possibly increasing allocations to commercial fleets like yourselves relative to the Consumer Channel. Just wondering, are you seeing that? Did you make that comment because you're seeing it already, or are you just kind of making a comment that... (inaudible)

Speaker Change: Sorry, My other question was just it was the reference that you talked about on <unk>.

Speaker Change: The Oems, possibly increasing allocations to commercial fleet like yourselves.

Speaker Change: Relative to the consumer channel.

Speaker Change: Just wondering are you seeing that you can make that coming because you're seeing it already or are you just kind of making comment that.

Speaker Change: I believe if the economic conditions.

Speaker Change: University, and there's less consumer demand that you could see some allocations more than what you're seeing right now.

Laura Dottori: Hey Geoff, it's Laura. I'll take that. In my comments, I talked about OEM production capacity normalizing, which is what we're seeing when it comes to our models. We're expecting, as I think we had shared previously, we still were under allocation for some of the models. I think we're now down to only about three of, let's say, our top 15 that we expect to remain under some form of controlled allocation. That will take place through 2024. We expect to be in a normalized environment in 2025, if that helps.

Laura: Hey, John It's Laura I'll I'll take that in my comments I talked about OEM production capacity are normalizing.

Speaker Change: What we're seeing when it comes to our model.

Speaker Change: We're expecting as I think we had shared previously we still were under allocation for some of the model I think were now down to only about three or let's say our top 15.

Speaker Change: We expect to remain under some form of controlled allocation and that'll take place in 2024, and we expect to be in a normalized environment in 2025.

Yes.

Unnamed Speaker: Okay. Great. Thank you.

Speaker Change: Okay, great. Thank you.

Operator: The next question comes from Paul Holden with CIBC; please go ahead.

Speaker Change: Our next question comes from Paul Holden CIBC. Please go ahead.

Paul David Holden: Excuse me, thank you, and good morning. I guess the first one is the non-reoccurring items that impacted higher servicing income this quarter. Maybe you can just walk us through what those are. I know we've seen some of that in the past, and I was just wondering if it's sort of those same factors, you know, maybe relating to some customers rolling off or if there were different factors.

Paul David Holden: Excuse me. Thank you good morning.

Paul David Holden: Few questions I guess, the first one is the non reoccurring items that impacted the higher servicing.

Paul David Holden: Come this quarter, maybe you can just walk us through what those are I know, we've seen some of that in the past and just wondering if it's sort of those same factors.

Paul David Holden: Maybe relating to some customers rolling off or if there were different factors.

Unnamed Speaker: It has nothing to do with customers rolling off, Paul, and I don't think it did. So, if you remember, in 2022, we called out about $25 million. And these businesses always have, when you're managing 1.5 million vehicles in, you know, four different, five different geographies, you're going to see things that are not necessarily recurring types of revenues. And when it gets to a level in a quarter or a line item where it really needs to be called out, we try to provide that transparency.

Speaker Change: Has nothing to do with customers Rolling off Paul and I don't think it did so if you remember in 2022 we called out about 25 million because it was big enough. In these business has always had when you're managing $1 5 million vehicles.

Speaker Change: Or different by different geographies.

Speaker Change: You're going to see things that are not necessarily recurring type of revenues and when it gets to a level in a quarter or in a line item, where it really needs to be called out we've tried to provide that transparency.

Unnamed Speaker: And so with $7 million in the service revenue line alone, we wanted to make sure that you understood what those are. Some of them do, I don't want to say they're non-recurring, but they're lumpy. So some of what we got this quarter, we got in 2022. Others are, you know, just different things, but it could be a host of, a hodgepodge of items that come in. And unless they're really material, because every company has these kinds of non-recurring one-timers, both ways, we will only call them out to the extent that we think they're important for you to understand the trends in the business or key performance metrics like service rep.

Speaker Change: So with $7 million in the service revenue line alone we wanted to make sure that you understood what those are.

Speaker Change: Some of them do I don't want to say the nonrecurring, but they're lumpy so.

Speaker Change: What some of what we got this quarter, we got in 2022.

Speaker Change: Others are just different things, but it.

Speaker Change: It could be a host of.

Speaker Change: A hodgepodge of items that come in and then unless theyre really material. Because every company has these kind of nonrecurring one timers both ways, we will only call them out to the extent that we think are important for you to understand the trends in the business are our key performance metrics like service revenue at this time.

Unnamed Speaker: I understand, so the way I should look at it is these are things that might occur from time to time; you wouldn't want them in the run rate numbers, but they don't, or they shouldn't influence our view of future revenue or profitability.

Speaker Change: I understand so the way I should look at it is these are things that might occur from time to time, you wouldn't want them on the run rate numbers, but they don't or they shouldn't influence our view on future revenue or profitability.

Unnamed Speaker: Correct, and we wouldn't even forecast them internally because they are very sporadic, and there's sometimes not visibility a year out or two years out on some of these items.

Speaker Change: Correct, and we wouldn't even forecast them internally there that because they are very sporadic and theres not sometimes visibility a year out or two years out on some of these items got it got it okay.

Unnamed Speaker: The second question is related to syndication. You were quite clear that you've intentionally reduced volumes because of a pending U.S. tax change. I'm wondering if you could explain what that pending tax change is, please.

Speaker Change: Second question is related to our syndication you were quite clear that you've intentionally reduced volumes because of a pending U S tax change wondering if you can explain what that pending tax changes. Please yeah. It's the working families act that was passed by.

Unnamed Speaker: Yeah, it's the Working Families Act that was passed by Congress in the first quarter, and what it would do in the bill is raise bonus depreciation from 60% back to the 100% level, which would benefit us from a yield perspective. So we held in Q1 from that perspective. As we move forward, we're not gonna wait forever on that because, as you know, syndication, I mean, legislation, especially in an election year, gets done more and more difficult the longer it holds out. So this was a specific action in Q1, but I wouldn't take it forward that we will continue to hold back volumes, hoping that that legislation passes.

Speaker Change: Congress in the first quarter and what it would do in the Bill is range bonus depreciation from 60% back to the 100% level, which would benefit us from a yield perspective.

Speaker Change: So we held in Q1 from that perspective, as we move forward.

Speaker Change: No we don't.

Speaker Change: Not going to wait for wrapper on that because as you know syndication I mean legislation, especially in an election year getting done because more and more difficult to longer. It holds out. So this was a specific action in Q1, but I wouldn't well.

Speaker Change: It wouldn't take forward that we will continue to hold back volumes I'm, hoping that that that legislation passed.

Unnamed Speaker: And then I guess my follow-up question then is with respect to the syndication yields that you're earning, still relatively low relative to what we've seen in historical periods. Is that anything related to the Working Families Act? I'm guessing not, but maybe it is, or are there still other factors influencing the yields you're able to achieve? So there are two factors: one is...

Speaker Change: Okay.

Speaker Change: And then I guess my follow up question, then is with respect to the syndication yields that you're earning still you know relatively low relative to what we've seen and historical periods is that anything related to that working families. Zach I'm guessing not but maybe it is.

Speaker Change: Or are there still other factors influencing the yields you're able to achieve so theres. Two factors. One is that legislation. So the current tax legislation as bonus depreciation dropping 20% a year. So it was went from 100 to 80 last year. This year. It went from 80 to 60.

Unnamed Speaker: So there are two factors; one is legislation, so the current tax legislation has bonus depreciation dropping 20% a year, so it went from 100 to 80 last year, and this year it went from 80 to 60. So, that has an impact on yield, and then we saw, with the increasing interest rates, some of the bank hurdle rates moving up from our syndication buyers and buy desk. We think we'll, as rates begin to stabilize and hopefully come down in the future, start to see those come in as well.

Speaker Change: So that has an impact on yield and then we saw with the increase in interest rates.

Speaker Change: Some of the bank hurdle rates moving up.

Speaker Change: From our syndication buyers and by that we think will as rates begin to stabilize and hopefully come down in the future will.

Speaker Change: We will start to see those come in as well. We're also seeing some of our syndication partners needing.

Unnamed Speaker: We're also seeing some of our syndication partners needing net earning assets, so in certain cases, we are, you know, we have strong demand across the board, continued strong demand, but in certain cases, we are benefiting from some of the scarcity of these high quality assets in the marketplace from that perspective. I would put kind of half the yield on, you know, yield decrease, it's relatively balanced between bonus depreciation and

Speaker Change: Net earning assets. So in certain cases, we are you know.

Speaker Change: We have well we have a strong demand across the board continued strong demand, but in certain cases, we are benefiting from some of the scarcity of these high quality assets in the market place from that perspective.

Speaker Change: I wouldn't put.

Speaker Change: Kind of have the yield on yield.

Speaker Change: It'll decrease it's relatively balanced between bonus depreciation and hurdle rates of our Investor partners in this current rate environment.

Unnamed Speaker: Last one from me, and I know Frank and Laura, you both tried to emphasize this just in terms of expense management, but I want to make sure I have the conclusion right here. So as you're driving higher than forecast revenue, you're going to pull forward some of the future investment expense into the current period. And so when I think about that, I think, okay, well, your margins aren't expanding in the current period, but there's more capacity for margin expansion potentially in future periods. Am I drawing the right conclusion here?

Speaker Change: Got it that's helpful.

Speaker Change: Last one from me and I know Frank in Florida, you. Both tried to emphasize this just in terms of fee expense management, but I want to make sure I have the conclusion right here, so as you're driving higher than forecast revenue youre going to pull forward some of the future.

Speaker Change: Investment expense into the current period.

So when I think about that I think okay, well your margins are in expanding the current period, but theres more capacity for margin expansion and potentially in future periods semi.

Speaker Change: Drawing the right conclusion here.

Unnamed Speaker: Yeah, I think so. I think it's dependent on the timeframe that you look at and the specific initiative you're talking about, Paul. But some of the investment that we made drove some of the 20% plus service revenue growth that we currently have, so that's part of that step up. But some of the – and that was more some of the things we did. But remember, last year we introduced leadership into these key strategic initiatives, whether it's a digital strategy or otherwise that Laura and I talk about in the MD&A.

Speaker Change: Yeah, I think so I think it's a it's dependent on the timeframe that you look at the specific initiatives you're talking about all but you know some of the investment that we made what drove some of the 20% plus you know service revenue growth that we currently have so that that's part of that step up but.

Speaker Change: Some of the and that was more of some of the things we did but.

Speaker Change: Remember last year, we introduced leadership into these key strategic initiatives, whether its digital strategy or otherwise that Laura and we talk about in the MD&A.

Unnamed Speaker: Those – some could start to pay back in small ways later this year. Some will be a multi-year journey, but they will continue to enhance our efficiencies and our scalability. And importantly, all of these investments are done with a view to the client and what we're going to deliver to the client to help sustain and drive that long-term growth rate at the levels that we've seen well above. We've got it all.

Speaker Change: Those some could start to pay back in small ways. Later this year, some will be a multiyear journey, but continue to enhance our efficiencies and our our scalability and.

And importantly, all of these.

Speaker Change: Investments are done with all due to the client and that's what we're going to deliver to the client.

Speaker Change: <unk> sustain and drive that long term growth rate.

Speaker Change: At the levels that we've seen you know well above GDP levels.

Unnamed Speaker: I'll leave it there. Thanks for your time.

Speaker Change: Okay got it I'll leave it there thanks for your time.

Speaker Change: Yeah.

Yeah.

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

Speaker Change: The next question comes from Jamie going with National Bank Financial. Please go ahead.

Jaeme Gloyn: Yeah, thanks. Just wanted to follow up on that last line of questioning, Ben. It doesn't quite sound like you're, I guess, confidently guiding potential operating margin expansion in future periods with this advanced or accelerated spending, but it does sound like you're suggesting that that accelerating spending is driving more rapid growth. And so, I'll ask this a little bit differently, then: does this accelerated spending put you in a position to outperform the 6% to 8% long-term revenue growth guidance for the next several years?

Yeah. Thanks.

Jamie: Just wanted to follow up on that on that last line of questioning then it.

Speaker Change: It doesn't quite sound like your I guess confidently guiding and potential operating margin expansion.

Speaker Change: In future periods with this advanced AR or accelerated spending, but it does sound like you're you're suggesting that that accelerating spending is driving more rapid growth and so.

Speaker Change: I'll ask this a little bit differently that is that does this accelerated spending.

Speaker Change: Put you in a position to.

Speaker Change: To outperform the 6% to 8% long term revenue growth guidance for the next the next several years.

Unnamed Speaker: I'll start that one. I think an important takeaway here is that every decision that we make, it's all about driving growth, it's all about optimizing our operations and really enhancing our clients' experience. As Frank mentioned, we are very comfortable and confident in the guidance that we provided, and that included feeling that we could potentially exceed the upper range of the guidance that we provided. So, we're being incredibly disciplined in our investment spend, and I'd say we're also managing tightly to our targeted adjusted operating margin, which, as we shared in our guidance, we expected to show some slight margin expansion, and we continue to expect to see that.

Jamie: Jamie I'll I'll start that one I think.

Speaker Change: Takeaway here.

Speaker Change: Every decision that we make is all about driving growth, it's all about optimizing our operations and really enhancing.

Speaker Change: That's right mentioned.

Speaker Change: We are very comfortable and confident in the guidance that we provided are not included.

Speaker Change: And you can see the effort.

Speaker Change: The range of the guidance that we provided so we're being incredibly disciplined in our investment spend I'd say, we're also managing tightly to our targeted adjusted operating margin, which as we shared in our guidance. We expect it to show some light our margin expansion and we continue to expect to see that.

Speaker Change: Yes.

Speaker Change: Yeah.

Speaker Change: Yeah.

Unnamed Speaker: On the originations, there was a comment in the Outlook about the second quarter or maybe some of the originations being pushed into the second quarter due to some OEM constraints and the second quarter being much stronger. Can you sort of just detail some of those constraints and then what you're thinking in terms of the seasonality, I suppose, with Q2 and maybe even Q4 being stronger? Does that suggest Q3 should be light? Maybe just walk through that origination cadence based on the comments in the Outlook.

Speaker Change: Okay.

Speaker Change: On the on the originations there was a comment in the outlook about the second quarter or maybe some of the originations being pushed into the second quarter due to some OEM constraints.

Speaker Change: And in second quarter being much stronger is can you sort of just some detail some of those constraints and then what you're what you're thinking in terms of that.

Speaker Change: The seasonality I suppose with Q2, and maybe even Q4 being stronger does that suggest Q3 should be like maybe just walk through that origination cadence based on their comments in the outlook.

Unnamed Speaker: And remember, there's always some seasonality in originations. So 1Q23 was the lowest quarter for originations. 1Q24 is the lowest quarter, so there's some seasonality component to it. I think, you know, what I would tell you is we expect to be in our guidance range for originations, which by definition would say that we would have much stronger Q2, 3, and 4. Q2 has tended to be a very solid origination quarter. It was our high-water mark last year, so we're monitoring that quickly.

Speaker Change: And remember, there's there's always some seasonality in originations. So <unk> 23 was the lowest quarter.

Speaker Change: Originations <unk> 24 is the lowest quarter. So there's just there's some seasonality component into it.

Speaker Change: You know I think you know what I would tell you is we expect to see in our guidance range.

Speaker Change: Originations, which by definition would say that we would have much stronger Q2, three and four Q2 has tended to be a very solid origination quarters was our high watermark last year.

Speaker Change: So we're monitoring that clicks that quickly, but we see a market improvement obviously not changing guidance at originations would say you know you'd be upward.

Unnamed Speaker: But we see a market improvement, obviously, not changing the guidance, and originations would say, you know, you'd be upward of 1.9 a quarter going forward, roughly. So no real changes in that upward. Oh yeah, one other thing I'd just add: remember that we also have the model changeover in Q3, right, which sometimes gives you a little bit of a diminished delivery from that perspective.

Speaker Change: One night, a quarter going forward roughly so no no real changes in that.

Speaker Change: Oh, Yeah, one other thing I'd just add a remember that we also have.

Speaker Change: The model changeover in Q3, right, which sometimes gives you a little bit of a diminished delivery from that from that perspective.

Unnamed Speaker: One more, as I look at the gain on sale performance in the quarter, surprisingly strong, I guess, and its contribution to the NIM, or Net Financing Revenue Yield, the NFR Yield increase from the last couple of quarters. Is there anything in this quarter, whether it was vehicle turnover or something specific in Mexico that drove a stronger performance on gain on sale? That is, we should go back to the trend of seeing lower gain on sale contribution in the upcoming quarters, or maybe you can just give us some more detail on that, Driver?

Speaker Change: Okay, Okay, and just one more as I as I look at the gain on sale performance in the quarter.

Speaker Change: Prize and Lee a surprisingly strong I guess and its contribution to the NIM.

Speaker Change: Or a net financing revenue yield the enterprise yield.

Speaker Change: Increased from the last couple of quarters. So is there is there anything in this quarter, whether it was vehicle turnover or something specific in Mexico that drove a stronger performance on gain on sale that as you know we should go back to the trend of obscene lower gain on sale.

Speaker Change: And in the upcoming quarters or maybe you can just give us some more detail on that driver yeah. What I would say is the biggest drivers are and we said you know our Mexico is effectively offsetting a decrease in ANZ.

Unnamed Speaker: Yeah, what I would say is the biggest drivers are, and we said, you know, Mexico is effectively offsetting a decrease in ANZ. Really, the key to it is we've been growing that portfolio significantly over the last five years in the number of vehicles. As that portfolio is grown, returns run over time, and so as that portfolio is grown, returns run out, and then needs to be remarketed and put us in a position for potential gain on So in regards to the Mexico market, yeah, in regards to the Mexico market, we would continue to see those volume opportunities as we move forward here, continuing to drive that benefit. So we're not seeing anything in the Mexican market that would give us pause at this point.

Speaker Change: The key to it is we've been growing that portfolio significantly over the last five years and number of vehicles and so as that portfolio has grown returns right.

Speaker Change: Overtime.

Speaker Change: Just to be remarketed and put us in a position for potential gain on sale. There. So in regards to the Mexico market.

Speaker Change: Yeah in regards to the Mexico market, we would continue to see those volume opportunities as we move forward.

Speaker Change: Continuing.

Speaker Change: Continuing to drive that that benefit so we're not seeing anything in the Mexico market that would give us pause at this point.

Unnamed Speaker: Okay, thank you.

Speaker Change: Okay. Thank you.

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

Speaker Change: The next question comes from Tom Mackinnon with BMO capital markets. Please go ahead.

Tom MacKinnon: Thanks very much. I have two questions, one with respect to the operating margin. If I take out the revenue one-timer and kind of account for the 2.1, I think you said, in other expenses in the quarter, I get the 54.7 operating margin comes to 54.3, which is lower than the 50 to 55.5 you've been talking about for 2024. I think you mentioned you're going to exceed most of the metrics or the top end to perhaps higher on most of the metrics, and talked about targeting slightly higher operating margins going forward

Tom MacKinnon: Yeah. Thanks, very much two questions one with respect to the operating margin.

Tom MacKinnon: If I take out the revenue one timer and kind of account for the 2.1 I think you said in addition in our other expenses in the quarter I get to the $54 seven operating margin was $54 three which.

Speaker Change: It's lower than the 50 to 55 and a half you've been talking about for 'twenty 'twenty. Four I think you mentioned youre going to exceed most of the metrics or the top end to perhaps hired on most of the metrics you've talked about.

Speaker Change: Targeting a slightly higher operating margins going forward. So is.

Speaker Change: Is this.

Tom MacKinnon: The fact that we're under 55 in the first quarter, is that with respect to any kind of seasonality, or does it have to do with you pulling forward more expenses? I guess I'm just trying to say how comfortable you are with getting towards the top end of that 50 to 55 and a half operating margin for 2024.

Speaker Change: Fact that were under 55 in the first quarter does that.

Speaker Change: With respect to any kind of seasonality.

Speaker Change: Or is it have to do with it.

Speaker Change: You're pulling forward more expenses I guess I'm just trying to say how comfortable are you with getting towards the top end of that 50 to 55 and a half operating margin for 2024.

Unnamed Speaker: Yeah, so 55 to 55 and a half is absolutely our target, and that is where we're focused on driving the business. We would not have accelerated as much investment had we not seen the one-timer coming, those 7 million.

Speaker Change: So 55 to 55 and a half is absolutely our target and that is where we're focused on driving the business.

Speaker Change: Would not have accelerated as much investment had we not seen the one time are coming.

Tom: That 7 million. So 54 seven is a good number of what I would look at though Tom is look at that versus Q1 of last year and were up 30 basis points. So that's consistent with how we want to drive the business with some modest margin expansion.

Unnamed Speaker: So 54-7 is a good number. What I would look at, though, Tom, is that versus Q1 of last year. We're up 30 basis points. So that's consistent with, like, how we want to drive the business with some modest margin expansion this year. So that would mean we need to get in that 55 to 55.5, and that's where we're focused on driving the business. I'd also say, you know, expenses. There are certain things that do come into Q1 from time to time, but nothing from a seasonal perspective that I would, you know, draw too much attention to as you move forward here. I should move forward from here.

Tom: In the year, so that would mean, we need to get into that $55 to $55 five and that's what we're focused on driving the business. I'd also say you know expenses. There there are certain things that do come into Q1 from time to time, but nothing from a seasonal perspective, I would you know draw.

Draw too much attention to.

Tom: As you move forward here.

Tom: As you move forward here.

Speaker Change: Okay. Thanks.

Laura Dottori: And then I think, Laura, you mentioned 39 new clients in your opening comments. Just remind me of what time frame that was.

Speaker Change: And then I think Lori you mentioned 39, new clients in your opening.

Speaker Change: Comments I'm, just remind me of what timeframe that was is this all you know.

Laura Dottori: Is this all, you know, stealing market share? What's the outlook with respect to that? What's driving that? Is there still disruption, you know, some economic uncertainty that's driving that? And yet, how does this metric compare? Just trying to get a feeling for how well you're doing in one of your, you know, your targets.

Stealing market share are what's the outlook with respect to that what's driving that is there still disruption.

Speaker Change: Some economic uncertainty, that's driving that and how does this metric compare just trying to get a feeling for how well youre doing in one of your.

Speaker Change: You know you're targeting your five drivers of earnings here, one was I think stealing market share. So if you can elaborate a little bit more on that 39, new clients you got in the quarter that would be good. Thanks.

Laura Dottori: Yeah, absolutely, Tom. And so those 39 new clients were in that first quarter. As I mentioned, 59% of those were self-managed conversions, so really happy to see that close to 60% of those came from that segment. The balance came from winning share from our competitors.

Tom: Yeah, absolutely Tom and so as those 39, new clients, we're in that first quarter.

Tom: As I mentioned, 59% of those were self manage conversion so really happy to see that you know close to 60% of those.

Tom: Came from that segment.

Tom: The balance came from winning share from our competitors.

Laura Dottori: We are doing incredibly well. Our commercial team is knocking it out of the park. We have had successive successful quarters, and I would tell you our commercial team is feeling very confident about their ability to continue to deliver into the future. And so for the growth levers we've talked about, we are doing well on all of those growth levers. And it's really just the solid work of our commercial team getting out

Tom: We are doing incredibly well our commercial team is knocking it out of the park.

Tom: Sure.

Tom: Successful quarters, and I would tell you our commercial team is feeling.

Tom: Very confident about their ability to continue to deliver into the future and so for the gross levered talked about we are doing well in all of those are gross levered.

Tom: And it's really just the solid work of our commercial team getting out there.

Tom: You know meeting our existing clients for more share of wallet opportunities are again, winning market share or managing to.

And then our companies to convert their self managed.

Tom: Sorry.

Tom: And with Horizon.

Laura Dottori: [inaudible] And the retention at 98%, that's generally kind of flattish.

Tom: And the retention at 98%, that's generally kind of flattish.

Tom MacKinnon: Yeah, that's our client revenue retention rate that we share in our disclosure. That is, it remains at the same level. Okay, that's it.

Speaker Change: Yeah, that's our client revenue retention rate that we share in our disclosure that is remain the.

Speaker Change: The same level.

Unnamed Speaker: Okay, that's great. Thanks very much.

Speaker Change: Okay, that's great thanks very much.

Operator: The next question comes from Graham Ryding with TD Securities. Please go ahead. Bye. Good morning.

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

Graham Ryding: Hi, good morning. You mentioned in your slide deck that you flagged exploring and assessing complementary revenue opportunities. Is there anything that you can speak to at this point?

Graham Ryding: Hi, good morning.

Graham Ryding: You mentioned in your slide.

Speaker Change: Slide deck.

Graham Ryding: Exploring in assessing complementary revenue opportunities is there anything that you can speak to at this point.

Speaker Change: Oh nothing.

Speaker Change: Yeah.

Laura Dottori: It's true Graham, I'll take that or attempt to take that. Exploring revenue opportunities, I'm not sure that we mentioned that in our prepared remarks, but we are, I would just say from an organic revenue growth perspective, we are incredibly comfortable, as I mentioned to Tom with this question, we're feeling really good about how we continue to grow from a new client's earning market share perspective. I think we have discussed this maybe previously where we talked about some initiatives that we were looking at; there were two of them that come to mind.

Speaker Change: Okay.

Graham Ryding: Graham I'll I'll take that or attempt to take that.

Speaker Change: Uh huh.

Speaker Change: It's flowing revenue opportunity is I'm not sure that we mentioned that in our prepared remarks, but we are I would just say from an organic revenue growth perspective, we are incredibly comfortable if I mention.

Speaker Change: Tom with his question, we're feeling very good about how we continue to grow from that new clients, earning a market share perspective, I think we have shared previously where we've talked about some initiatives that we were looking at are there. There were two of them that come to mind one of them was a where are we.

Laura Dottori: One of them was whether we could look at the possibility of selling insurance through our network in the US and in Canada, similar to what we do in Mexico, Australia, and New Zealand. We are looking at that, and we continue to work on our business case to see how and if we're best placed to go into that market, so that remains an opportunity for growth for us if we choose to go down that path.

Speaker Change: Look at the possibility of selling insurance.

Speaker Change: Into our network in the U S and Canada.

Speaker Change: What we do.

Speaker Change: Oh I see.

Speaker Change: Your line.

Speaker Change: We are looking at that we continue to.

Speaker Change: Work on our business.

Speaker Change: To see how how and if our best place to go into that market. So that remains.

Speaker Change: An opportunity for growth for us if we choose to go down the path.

Laura Dottori: And the other is in the smaller medium-sized fleets that I think we've talked about previously, where we do see an opportunity to even further expand from a growth perspective if we go into that market. There, we've also brought someone on board who's working through a business case and the steps it would take for us to be successful in that market if we chose to proceed. So those are two, I think, very interesting opportunities for us, early days, but the work we've done to date is pretty good, and we feel pretty good about those opportunities. When the time is right, and we have more to share, we'll certainly come back to you and share the path that we expect to be headed down.

Speaker Change: And the other is in the small or medium sized fleets that I think we've talked about previously, but we do see an opportunity to even further expand from a growth perspective. If we go into that market are there. We've also brought someone on board who is working through a business case and the steps.

Speaker Change: It would take for us to be successful in that market. If we chose to proceed. So those are two I think very interesting opportunities for us early days.

Laura Dottori: Yeah, no, that was helpful. Yeah, you flagged it on slide 8, so I just wanted to gauge whether this is material, a growth piece, or early days. So you answered my question there, that's helpful. And when you say small to medium-sized fleets, what does that mean, and how do you size that? Yeah, I'd say that's it.

Speaker Change: But it's the work we've done to date is pretty good and feeling pretty good about those.

Speaker Change: Opportunities that when the time was right and we have more to share, we'll certainly come back to you and share.

The path that we expect to be headed down.

Speaker Change: That helps.

Speaker Change: Yeah, No that was helpful. You flagged on slide eight so I just wanted to gauge whether this is material.

Speaker Change: Growth piece or or early days. So you answered my question. There was helpful. But when you say small to medium sized fleets what does that what does that mean.

Speaker Change: How do you size that.

Laura Dottori: Yeah, I'd say less, more than 50 units and less than 250, and some of it depends on the market, but that's generally the target market. And I would just point out that the guidance that we provided, of course, does not include any revenue we would make from those initiatives.

Speaker Change: Yeah, I'd say less more than 50 units in less than 250, and some of it depends on the market, but that's generally the target market and I'd just point out that the guidance that we provided of course does not include any revenue we would make sense.

Speaker Change: Yes.

Speaker Change: Okay.

Speaker Change: Understood.

Unnamed Speaker: Okay, understood. And then just on the..., you know, your strategic initiatives, one of them is just technology investments and upgrade. Is there any timeline here for this initiative, or is this a multi-year? multi-year process, and then I guess the second part of that, should we be expecting any non-recurrent expense items here, or would this be largely baked into your sort of capex and your operating margin target? Well, I think...

Speaker Change: And then just on the.

Speaker Change: You know that your strategic initiatives one of them is just technology investments and upgrade is there any timeline here for this initiative or is this a multi year.

Speaker Change: Multi year process, and then I guess, the second part of that should we be expecting any.

Speaker Change: Non recurring expense items here or would this be largely baked into your sort of capex and your operating margins.

Unnamed Speaker: Well, I'd say from a CapEx perspective, certainly there. We've talked about investing in that Canadian $100 to $110 million range. So now that we're presenting in U.S. dollars, I'm looking at frank, it's $75 to $80 million. And those investments will be for growth, sustainability, again, long-term value creation. So I would say expect it to be multi-year.

Speaker Change: <unk>.

Speaker Change: Well I think from a Capex perspective, certainly is there we've talked about are you can expect to see.

<unk> invested in that Canadian $100 million to $110 million range. So now that we're presenting them in U S dollars I'm looking at Frank it $75 million to $80 million.

Speaker Change: And those investments will be for we've talked about growth sustainability and long term value creation. So I would say expect it to be a multi year again like all companies, we need to continue to invest in our digitization analytical automation.

Unnamed Speaker: Again, like all companies, we need to continue to invest in our digitization, analytical, and automation tools and capabilities. It continues to hold, I'd say, real immense potential for us to continue to enhance not just client experience, but it's going to continue to allow us to drive growth and create operational efficiencies.

Speaker Change: Tools and capabilities. It continues to hold I'd say, a real and then potential for us to continue to enhance a.

Speaker Change: Not just client experience is going to continue to allow us to drive growth and create operational efficiencies.

Unnamed Speaker: So from an operating margin perspective, we do expect and we're going to work to deliver on that guidance. But on occasion, we could find ourselves, as Frank mentioned earlier, that, you know, if we have some quarters where we've had some, I'm going to say, outperformance or increased revenue opportunities, and if that does allow us to accelerate some of our spend, and if we feel that that's really going to benefit our clients and support our future growth, or get to realizing benefits sooner, we will take that opportunity. But we will be, as I said earlier, very thoughtful and very disciplined about how we...

Speaker Change: And I just go back to guidance. So from an operating margin perspective, we do expect and we're going to work to deliver on that guidance, but on occasion, we could find ourselves as Frank mentioned earlier that.

Speaker Change: You know if we have some quarters, where we've had some I'm gonna see outperformance or increase our revenue opportunities and if that does allow us to accelerate some of our spend and if we feel that that's really going to benefit our clients and support our future growth.

Speaker Change: Our guests are realizing benefits, you'll remember that we will we will take that opportunity, but we will be as I said earlier, a very thoughtful and very different.

Speaker Change: Right.

Speaker Change: Yeah.

Unnamed Speaker: Great, that's it for me, thank you.

Speaker Change: Great. That's it for me thank you.

Speaker Change: Yeah.

Operator: The next question comes from Stephen Boland with Graham and Jaeme. Please go ahead.

Speaker Change: The next question comes from Stephen Boland with Raymond James. Please go ahead.

Stephen Boland: Good morning. Thanks.

Stephen Boland: Oh. Good morning. Thanks can you explain to me. This collaboration agreement with BYD, you know I know you've opened the office in Singapore.

Unnamed Speaker: Can you explain this collaboration agreement with BYD? I know you've opened the office in Singapore. When you start acquiring these vehicles, is this coming out of Asia into Europe? Is it coming out of Asia into North America? I know they're looking at building a plant in Mexico. I'm just wondering what this collaboration involves.

Stephen Boland: When you start you know I guess, requiring these vehicles or is this is this you know coming out of Asia into Europe, as they're coming out of Asia to North America, I know that they're looking at building a.

Stephen Boland: Plant in Mexico, I'm, just wondering what this collaboration involved.

Laura Dottori: Yes, Stephen, thanks for that. We're really happy about this one as we expand into Singapore. For us, this really is an important, I'd say, milestone that is really going to help us enhance our global procurement capabilities. So we did sign our first collaboration agreement. We expect it to be the first of many.

Steven: Yes, Steven a place for that.

Speaker Change: We're really happy about this one as we expand in Singapore, a trust just really isn't important.

Steven: No.

Speaker Change: It's really going to help us enhance our global procurement capabilities. So we did sign our first collaboration agreement we expect it to be the first of many when it says essentially again it provides us with another channel where we can purchase vehicle, it's going to provide our clients with additional choice.

Laura Dottori: What I'm saying is, essentially, again, it provides us with another channel where we can purchase vehicles. It's going to provide our clients with additional choice. But that's in the countries where we operate and also in the countries where these vehicles can be sold. So for now, that's Mexico, Australia, and New Zealand.

Speaker Change: But that's in the countries, where we operate and also in the countries where these vehicles can be sold.

Speaker Change: So for now that's Mexico, Australia, and New Zealand are so really happy about it.

Laura Dottori: So, really happy about it. It's, quite frankly, really just a broad framework for a direct economic relationship. Very similar, I'd say, to the ones we have in place with the big three American OEMs. They continue to be the largest part of our sourcing in the countries in which we operate. And I would say they remain great partners to us. So this does feel really good. So not only does it give us and our clients more optionality and choice, but I think it's also a really important step forward for us as we do need to continue to be equipped, if you will, to be able to supply growing global demand from our clients for decarbonization solutions that are required in the fleet industry. So I'm really happy about that.

Speaker Change: Quite frankly, it really just the broad framework for a a direct economic relationship.

Speaker Change: Very similar to the ones we have in place with the Big three American Oh, Yeah. They continued to be the largest part of our sourcing in the countries in which we operate and let's say they remain great partners. So this does feel really good so not only does it give us.

Speaker Change: And our clients are more optionality in Chile.

Speaker Change: It's also a really important step forward for us.

Speaker Change: As we do need to continue to be.

Speaker Change: If you will to be able to supply growing demand from our clients for decarbonization solution.

Speaker Change: Oh required in the fleet industry, so really happy about.

Speaker Change: How quickly we've managed to progress on this really important initiative.

Laura Dottori: Okay, and then maybe you could talk about the other sort of initiative, the European Office in Ireland. Can you give us any more color in terms of, you know, what the main focus of that office will be? Is it to get more contracts in, you know, more fleets in Europe, or is it just to help North American companies, you know, basically help their European operations? I'm just wondering if there's been any, you know, more genesis in the plan for that office.

Speaker Change: Okay, and then just maybe you could talk about the other sort of initiatives the European office in Ireland.

Speaker Change #100: Can you give us any more color in terms of you know what the main focus of that that office will be as it took to get more.

Speaker Change #100: Contracts and you know more fleets in Europe or is it just to help North American companies, you know basically help their European operation. So I'm just wondering if there's been any.

Speaker Change #100: You know more genesis on the on that.

Speaker Change #100: Planning of that office.

Laura Dottori: Yeah, that is our other strategic initiative that is going very well. So, as you know, we got set up or we're getting set up in Dublin, so one of the world's global leasing centers of excellence, which is why we selected that place. We are set to be operational by this summer. And so we continue to expect that we're going to, as we talked about, deliver a payback in two and a half years, and I apologize for giving Frank a heads up, we had mentioned and we still feel very confident that we're going to generate the, again, I have CAD dollars here in my mind, so I'm not sure what it is in U.S. dollars, but it was 40 to 60 million run rate of net revenue is what we were expecting, and I think between Canadian dollars 30 to 50 million of run rate adjusted operating income, and that was by full year in 2028.

Speaker Change #101: Yeah that is our other strategic initiatives that is going very well. So as you know we got set up Oh, we're getting set up in Dublin, and so one of the world.

Speaker Change #101: Global leasing centers of excellence, which is why we selected that play we are set to be operational by this summer.

Speaker Change #101: So we continue to expect that we're going to as we talked about a deliberate payback in two and a half years in.

Speaker Change #102: Oh, just giving flanker heads up.

Speaker Change #102: We had mentioned and we still feel very confident that we're going to generate the again I have CAD dollars here in my mind, So I'm not sure what it is in U S dollars.

Speaker Change #102: But it was a 40 to 60 million run rate of net revenue is what we were expecting and I think between the Canadian dollars 30 to 50 million of run rate adjusted operating income and that was by full year of 2020. So we're still expecting those are economic benefits for our business and our share.

Laura Dottori: So we're still expecting those economic benefits for our business and our shareholders, but to your question on focus, what we're really looking to do here in setting this up under one accountable officer is that we are going to really elevate our client's leasing experience. We are going to make things easier for our clients and for our team members in supplying a leasing product to our clients. We expect it's going to allow us to really optimize our operations as we'll be doing a bit more standardization and approach, and it's really going to help us improve our pricing discipline. So all of those things should help us just be better, more efficient in terms of what we do for our client base, and ultimately, it will help us maximize value for our shareholders.

Stephen Boland: Okay, that's all I had. Thanks very much.

Speaker Change #102: But to your question on focus what we're really looking to do here in setting this up.

Operator: Once again, if you have a question, please press star then 1. We have a follow-up question from Jaeme Gloyn with National Bank Financial. Please go ahead.

Speaker Change #102: Under one accountable officer.

Speaker Change #102: Is that we are going to really elevate our clients' leasing experience.

Speaker Change #102: We are going to make things easier for our clients and for our team members are in supplying our leasing products to our clients. We expect that's going to allow us to really optimize.

Speaker Change #102: Our operation as we will be doing a bit more standardization and approach and it's really going to help us improve our pricing discipline.

Speaker Change #102: All of those things should help us just eat better more efficient in terms of what we do for our client base and ultimately it'll help us maximize value for our shareholders.

Speaker Change #103: Okay. That's all I had thanks very much.

Speaker Change #104: Once again, if you have a question. Please press Star then one.

Speaker Change #105: Do you have a follow up question from Jamie going with National Bank Financial. Please go ahead.

Jaeme Gloyn: Yeah, thanks. Just wanted to follow up on the competitive environment commentary, just winning new clients from competitors. Are you able to share, are those wins coming from, let's say, Apollo and the bigger pair, or are they from the smaller players? And are you seeing any change in their competitive positioning? I'm thinking of Apollo.

Speaker Change #106: Yeah. Thanks, just.

Jamie: Just wanted to follow up on the the competitive environment commentary, just a winning winning new clients from competitors or are you able to share. Our those are are those wins coming from let's say that the the Apollo and the the bigger bigger pair or is it from the smaller players and.

Jamie: Have you seen any any change in their competitive.

Jamie: Positioning and I'm thinking of Pollo specifically.

Laura Dottori: Our wins are coming from all of our competitors, so I feel really good about that. And I would just say again, we have great competitors. All, I mean the whole industry honestly, solid competitors, really good companies. We are not winning market share based on others' weaknesses, which I think is a very good thing. It means that our competitors remain strong, which I think is really important for the overall client base that has fleets.

Speaker Change #107: Our wins are coming.

Speaker Change #108: From all of our competitors still feeling really good about that and I would just say again, we have great competitors.

Speaker Change #108: All I mean, the whole industry honestly solid competitors really good companies.

Speaker Change #108: We're not a we're not winning market share based on others.

Weaknesses, which I think is a very good thing it means that our competitors remain strong, which I think is really important for the overall, our client base, but to have fleet.

Laura Dottori: And I'm particularly pleased with it given, again, there's not a lot of, or there shouldn't be a lot of joy in winning clients from weak competitors, but when you can win clients from strong competitors, I think that's just a testament to how good your team really is. And we do have a great team of people at Element. Our people are the difference here, and I think that's what we're seeing is just how solid our team is in terms of what we do and how well we serve our clients.

Speaker Change #108: And I'm, particularly pleased with it given again.

Speaker Change #108: There's not a lot of it or there shouldn't be a lot of joy are winning clients from weak competitors, but when you can win clients from strong competitors I think that's just a testament to how good are your.

Speaker Change #108: Your team really is and we do have a great team of people at elements our people are at home.

Speaker Change #108: It makes a difference here and I think that's what we're seeing is just a how solid our team is.

Speaker Change #108: In terms of what we do and how well we serve our clients.

Jaeme Gloyn: Okay, very good. Thank you.

Speaker Change #109: Okay very good thank you.

Operator: This concludes the question and answer session. I would like to turn the conference back over to Laura Detoria Tanasia for any closing remarks. Please go ahead. Thank you.

Speaker Change #110: This concludes the question answer session.

Speaker Change #111: I'd like to turn the conference back over to Leigh editorial nausea for any closing remarks. Please go ahead.

Laura Dottori: Thank you, operator, and thank you all for joining us on our call today. Our results really do reflect our resilient business model, the quality of our clients, and, as I mentioned, the dedication of our team members. So, I do want to take this moment to express my gratitude to our people for their incredibly hard work and commitment to our clients. It really does make the difference.

Speaker Change #112: Oh, Thank you operator, and thank you all for joining us on our call today.

Leigh: Our results really reflect our resilient business model the quality of our clients are and as I mentioned the dedication of our team members and so I do want to take this moment.

To express my gratitude to our people for their incredibly hard work and.

Leigh: And commitment to our clients it really does make the difference.

Operator: And that provides us with confidence in our growth trajectory and in our ability to achieve or even potentially exceed the upper end of our 2024 guidance on most metrics. So we continue to feel very confident about that. As I mentioned earlier, that's reinforced by client demand, team performance, and our investments in our business. So, as we grow our business and as we optimize our operations, you can expect us to continue to deliver strong results for our shareholders. So, thank you once again for joining us today. We look forward to our next quarterly call and wish you all a wonderful day.

Leigh: And it provides us with our confidence in our growth trajectory and then our ability to achieve or even potentially exceed the upper ends of our 2024 guidance on most metrics.

Leigh: So we continue to feel very confident about that as I mentioned earlier, that's reinforced by clients to man team performance and our investments in our business.

Leigh: So as we grow our business and as we optimize our operation you can expect us to continue to deliver strong results for our shareholders. So thank you once again for joining US today, we look forward to our next quarterly call and I wish you all a wonderful day.

Operator: This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.

Speaker Change #114: This concludes today's conference call you may disconnect. Your lines. Thank you for participating and have a pleasant day.

Speaker Change #114: Yeah.

Speaker Change #114: Yeah.

Speaker Change #114: [music].

Speaker Change #114: Yeah.

Speaker Change #114: [music].

Speaker Change #114: Uh huh.

Speaker Change #114: [music].

Speaker Change #114: Okay.

Operator: ?? ?? ?? ?? ?? ?? ?? ?? [inaudible] Thanks for watching.

Speaker Change #114: [music].

Speaker Change #114:

Speaker Change #114: Sure.

Speaker Change #114: [music].