Q3 2024 Element Fleet Management Corp Earnings Call
Speaker Change: [music].
Good morning, ladies and gentlemen, and welcome to element fleet management third quarter financial results.
For 2024 at.
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.
Speaker Change: He joined the question Press Star then one on your telephone keypad.
Speaker Change: But you need assistance during the call you may signal, an operator by pressing Star then zero.
I'll, let wishes to caution listeners that todays information contains forward looking information.
Speaker Change: Sanctions on which date there based on 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 its most recent Aif.
Speaker Change: Although management believes that they expect expectations expressed in the statements are reasonable actual results could differ materially.
Speaker Change: The company also reminds listeners that todays call reference to certain non-GAAP supplemental financial measures.
Speaker Change: 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.
Speaker Change: A reconciliation of these non-GAAP measures financial measures just to I F. R. S measures can be found in the company's most recent MD&A.
Speaker Change: I would now like to turn the call over to Laura Vittorio Annotate.
Speaker Change: Today's young chief.
Speaker Change: That Kid of officer of element. Please go ahead.
Good morning, everyone and thanks for joining us today.
Speaker Change: Wanted to start by thanking our element team members for their hard work and dedication, which drove our strong financial and operational performance again this quarter.
As we drive forward with our purpose to move the world through intelligent mobility for our clients. We are delivering solid results for our shareholders. Our strong results speak to the strength and resilience of our business the commitment of our team members and the trust our clients place in us.
Speaker Change: Our commercial success has allowed us to capitalize on our momentum.
Speaker Change: We added 38, new clients this quarter, 42% of which were self managed conversions and we added 330 share of wallet services, while continuing to drive higher services penetration and utilization rates. Thanks to this momentum we.
Speaker Change: Have delivered double digit year over year growth in each of net revenue.
Speaker Change: Adjusted EPS and adjusted free cash flow per share while enhancing adjusted operating margins, we raised our annual common dividend to 52 cents Canadian.
Speaker Change: And with the completion of the redemption of our preferred shares we intend to renew our normal course issuer bid in order to continue to be in a position to return capital to our shareholders in 2025.
Speaker Change: We also invested in our business.
Speaker Change: In October the first we completed the acquisition of auto fleet as we shared previously this will enable us to serve our clients by accelerating our digitization and automation efforts and fleet management with optimized mobility solutions and will help us expand into new value add.
Speaker Change: Added services.
Speaker Change: We are doing this under the incredibly talented leadership of the auto fleet co founders Kobe Eisenberg indoor Shay along with their world class team.
And of course, we are pleased to welcome Heath Valkenburgh as our incoming CFO following Frank's decision to retire in March of 2025 after a very accomplished career.
Speaker Change: Frank on behalf of element. Thank you for your leadership your friendship and your many contributions to element you have played an instrumental role within the company and we will always be grateful.
Speaker Change: He's appointment is a testament to both the leadership with our outgoing CFO and the strength of our internal talent. He is here with us today and he will share. Our initial 2025 guidance. He brings 20 years of finance experience and a wealth of industry expertise to the rule, having most recently.
We served as senior Vice President and corporate Treasurer, and prior to that as CFO of Australia, and New Zealand business.
Speaker Change: Under his leadership, we anticipate continued financial success and a strong commitment to our purpose our clients and our shareholders and with that I will turn it over to Frank.
Frank: Thanks, Laura and good morning, everyone. In Q3 business performance was strong as we continue to deliver for our shareholders by building on our strengths in capturing the growth opportunities available to us.
Frank: This quarter, we delivered strong results with double digit year over year growth in each of revenue adjusted operating income EPS and free cash flow per share our revenue growth and focus on cost controls allowed us to expand operating margins. We anticipate Q3 operating margin to reflect a high point in the current year.
Frank: And we remain on track to modestly improve full year 2024 operating margin within our current guidance.
As in prior quarters, all dollar amounts cited today will be on an adjusted basis, excluding final costs associated with our Ireland leasing function of $2 million and $7 million in acquisition related costs in connection with the completion of the auto fleet acquisition, which.
Frank: Which includes separate severance accruals since the auto fleet purchased closed on October one after the quarter end their operating results will be reflected in our consolidated results starting in Q4.
Frank: This morning, I'll review in more detail our results for the third quarter before turning it over to Heath to discuss 2025 guidance.
Frank: For the quarter, our adjusted operating income reached $161 million up 15% year over year.
Frank: This translates to an adjusted EPS of <unk> 29 cents, which is a 12% increase from the same period last year.
Frank: Additionally, our free cash flow per share grew 13% to 36 cents. These increases were driven by robust revenue generation and positive operating leverage of over 300 basis points, partially offset by the increase of our common shares outstanding as a result of the conversion of our convertible debentures at the end.
Frank: Q2.
Frank: Net revenue grew 12% year over year to $280 million. This increase was driven by robust year over year growth across all revenue categories. Thanks to our strong commercial momentum and capital light business model.
Frank: Service revenue rose by $16 million or 12% compared to Q3 last year, reaching $147 million. This increase is mainly due to sustained higher penetration and utilization rates, although volume was relatively flat.
Frank: Due predominantly to the loss of two single service clients across geographies. The new clients. We are acquiring have higher service attachment rates and greater profitability compared to the lower revenue single service clients.
Frank: Growth in Mexico services also contributed to the year over year increase.
Frank: Net financing revenue grew $11 million or 11% year over year. This growth is largely attributable to higher net earning assets in the U S and Canada. We also saw higher year over year gain on sale, particularly in Australia, New Zealand contributing to overall increase the higher volume of vehicles for <unk>.
Frank: Sell in a N C more than offset a decrease in used vehicle pricing.
Frank: Mexico Goss was relatively flat year over year.
Frank: These increases were somewhat mitigated by higher funding costs, including higher standby fees to support growth in originations and the higher interest expense arising from the redemption of our preferred shares we called up replacing these preferred shares with that well economically beneficial moves the cost of capital from below the pretax income.
On to the net financing revenue line affecting revenue growth and creating modest compression to net finance revenue margins for the remainder of 2024 and into 2025.
Shifting to syndications, we syndicated $1 billion of assets for the second consecutive quarter highlighting the depth of this funding source syndication volumes were up 32% year over year, largely attributable to higher originations and our capital lighter model. In addition, syndication yields rose 40 basis.
Frank: Points quarter over quarter, mostly due to a favorable mix and beneficial rate volatility during the quarter.
Frank: In terms of expenses adjusted operating expenses for Q3 were 118, billion% to 9% increase year over year. This increase mainly stems from higher salaries and wages associated with increased head count to support business growth along with higher professional fees, we will continue to invest in our business.
Frank: To maintain our leadership position in the industry, while committing to generating positive operating leverage and expanding our operating margins going forward.
Frank: Continuing on growth, we originated $1 7 billion of assets this quarter up 10% year over year.
This increase was primarily driven by the U S and Canada with higher 2024 vehicle prices playing a role.
Frank: As expected Q3 originations were down versus Q2 as Oems reduced production to retool for the next model year in the U S in cabinet.
Frank: Before handing it over to Heath I wanted to touch on a few other notable items about our capital structure leverage ratio and taxes.
Frank: On the capital structure side, we redeemed our series D preferred shares this September for $95 million and as such we no longer have any preferred shares outstanding which optimizes our capital structure.
Our strong performance and outlook, let us to increase our annual common share dividend by 8% to 52 cents Canadian which represents approximately 27% of our free cash flow per share over the last 12 months.
Frank: Additionally, we renewed our M CIB and intend to be more active on our share repurchase program in 2025, as we no longer need to regain preferred shares.
Frank: Striking the right balance between dividends and share repurchases will continue to be a focus of ours now with our simplified capital structure.
Frank: At September 30, our tangible leverage ratio was at seven times consistent with our strong investment grade ratings as we redeemed our final series a preferred shares this quarter.
Frank: Now, let's briefly discuss our effective tax rate, which was elevated this quarter at just under 26% due to year to date adjustment.
Frank: The increase in the quarter is due to a catch up of the full year rate from 24, 5% to 25%.
Frank: We expect our effective tax rate for Q4 and for full year 2024 to be approximately 25%.
Frank: Looking at the rest of 2024, we expect most of the financial metrics at or above the high end that such guidance before initial Ireland leasing a lot of fleet acquisition related costs.
Frank: I will now hand, it over to Heath to take us through 2025 guidance.
Heath: Thank you Frank I'm pleased to be here. This morning, as elements incoming CFO and I look forward to spending more time with our shareholders and analysts in the coming quarters.
Speaker Change: Over the past several months I've worked closely with Laura Frank and the entire element seem to develop our 2020 odd plan as such I'd like to share our initial guidance for the coming year on.
Speaker Change: On the back of what would be a twice a record 2024, we are confident that our business will continue to grow at or above our long term targeted revenue growth rate of 6% twice for Sydney in 2025 and into the future.
Speaker Change: Specifically for 2025, we expect to deliver net revenue growth of 6.5% white and a half a cent while generating positive operating leverage, thereby driving high single to low double digit increases in nature of adjusted operating income adjusted EPS and adjusted free cash flow per share.
Speaker Change: We anticipate capital expenditures to be around $80 million as we leverage the capabilities acquired we thought a slight tweak celebrate our digitization strategy.
Speaker Change: In addition, we expect it out 'twenty 'twenty thought the effective tax rate will average between $24 five and 26, 5%.
Speaker Change: As Frank noted we are focused on returning excess capital after investing in our business to shareholders with an annual 52 cent per share dividend and wish to balance the return of capital between dividends and share repurchases.
Speaker Change: The 'twenty 'twenty four we expect most metrics to finish the year at or above the high end about 2020 full guidance as such we will share specific dollar value ranges for a 2025 guidance at our next quarterly call in February after finalizing our 2024 results.
Speaker Change: But if I need five revenue, we see core growth of 11% to 13% with certain temporary or one off items that may affect what would otherwise be double digit revenue growth, which we have outlined in our supplementary information disclosure.
Speaker Change: These factors include the following.
Speaker Change: The FX impact from the movement in the Mexican peso, which has deep value to the historical right in the last six months for clarity. Our 2025 plan assumes a peso to U S. Dollar exchange rate of 25 to one which compares to the 20 to 24 year to date average of approximately 18 to one.
Speaker Change: In addition, we currently plan to increase peso founding in 2025, I'll forecast assumes approximately $300 million of additional peso funding, which is at the upper end of our forecast, thereby reducing the peso exposure, but incurring higher borrowing rates.
Speaker Change: Thirdly, as we have discussed for several quarters, we have further optimized our balance sheet by redeeming all lost three series of preferred shares, which while a P. S accretive will impact revenue with the cost of these financing moving from below the adjusted operating income on the net financing revenue lawn.
Speaker Change: Finally, our guidance assumes a step down in the bonus depreciation right to 40% should bonus depreciation be reinstated to a 100% in 2025, it could contribute an additional $25 million to $30 million in annualized syndication revenue.
Speaker Change: Again, our forecast of net revenue growth would have been approximately 11% to 13% without these previously noted items.
Speaker Change: Additionally, while we anticipate core origination volume to be strong next year. Two factors may result in marginal headwinds to our growth rate.
Speaker Change: The FX translation impact of the peso devaluation and the expected reduction in volume from an originate to syndicate client, which will have very minimal impact on our financial results.
Speaker Change: These items will reduce our expected origination volume growth from low double digit range in 2025 to our garden of low to mid single digits.
Speaker Change: It is important to note that neither factor impacts our core growth our commercial success and the value proposition of our service offering should allow us to continue to grow service revenue in the low double digit percentage range in 2025.
Speaker Change: As always what makes our business, particularly attractive is the resilience of our business model to digest external impacts such as inflation interest rates and supply chain amongst others, while still delivering strong financial results.
Speaker Change: With our strong business momentum ample organic growth opportunities and expansion beyond our core we are focusing on continuing to create value for our clients business and shareholders.
Speaker Change: I'd like to thank Laura Frank and the entire element team for their support and I look forward to collaborating with them as we continue driving element success. Thank you all.
We are now ready to take questions.
Speaker Change: Certainly.
Speaker Change: Analysts who wish to join the question queue May Press Star then one on your telephone keypad, well hear a tone acknowledging your request.
Speaker Change: If youre using a speakerphone please pick up your handset before pressing any key.
Speaker Change: To withdraw your question. Please press Star then two.
Speaker Change: Yes.
Speaker Change: Our first question is from Paul Holden with CIBC. Please.
Speaker Change: Go ahead.
Speaker Change: I appreciate the 2025 guidance and all the details behind it very helpful.
Speaker Change: Of course, it does lead to a few questions.
Speaker Change: First I want to understand the increase in the effective tax rate and 25, so two questions there.
Speaker Change: It related to the lower bonus depreciation and two does the cash tax rate also increase next year.
Speaker Change: Thanks, Paul This is Frank to answer to that is the increase in the tax rate. So at the midpoint of the range is about 50 basis points. As you know our tax rate is very impacted or is impacted by where we earn our income so with Mexico and a N C at higher jurisdictional.
So places as those grow.
Speaker Change: We'll see higher tax rates effective with that that's why we've got a relatively wide range of 200 basis points, what our best guesses or estimate is that.
Roughly $25 five for next year. So that's that's what's driving that.
Speaker Change: Component of that bonus depreciation has no impact on our ETR.
Speaker Change: Got it.
Speaker Change: And then sorry, the second part of the question is just if the cash tax rate is also moving higher.
Speaker Change: Yeah. We we've said we should continue to migrate the tax rate closer to the OECD minimum rate of 15% plus or minus so yeah. We would expect some modest increase in cash tax rate.
Speaker Change: The next question is from Jamie Klein with National Bank Financial. Please go ahead.
Jamie Klein: Yeah. Thank you.
Speaker Change: Good morning, just wanted to.
Speaker Change: Get a little bit more color in terms of the operating margin outlook and positive operating leverage at a based on the guidance. It seems to imply that there's a lot more opportunity to drive expanding margins in 2025 versus what we've seen recently can you add a little bit more color as to what you're what you're seeing there and thinking through launch in terms of that guidance.
Speaker Change: Yeah. Good morning, Johnny absolutely. So obviously all K focus is driving revenue growth and we are anticipating strong underlying revenue growth of 11 of 13% before the one time items that are outlined in the supplemental.
Speaker Change: In terms of operating margins, we expect that that will continue to expand through 2020 thought as as we continue to scale and digitize our business, but ultimately we'll also be focused on reinvesting into the business to drive further growth into the future. So.
Speaker Change: Certainly we we anticipate continued operating margin expansion through 2025 and beyond.
But certainly all of our key focus is driving revenue and we will always drive our revenue will always outpace our expense growth.
Speaker Change: Yeah.
Yeah.
Speaker Change: Glen do you have a follow up.
Speaker Change: Oh, well that we're only going to be held to one for now based on Paul's question.
Speaker Change: Yeah, I guess the I mean, the second question I'd be curious to hear about is in terms of the the client the client growth.
Speaker Change: So a couple of clients, leaving any any color in terms of their rationale or decision on on why leaving or was it an element decision to non renew and then you know similarly.
Speaker Change: Where are you winning you're at your net new clients from outside of the Salt managed fleet market of course.
Speaker Change: Okay.
Speaker Change: Yeah, absolutely so in terms of the bomb for for the quarter, we had really strong bond growth, adding almost 25000 units and what was particularly pleasing about those 25000 units was that they had really strong service attachment and ultimately revenue that came with them. So in the USA and Canada.
Speaker Change: Those units that we added had almost full products to a unit offsetting that we did have some some units that we lost and really it was two clients that drove that so two clients had approximately 22000 units.
Speaker Change: Both of those clients with single serve is certainly clients. So sorry, just one service and in a very low.
Speaker Change: Impact to revenue.
Speaker Change: So we continue to see Waldbaum was slightly down for the quarter average revenue per volume is certainly up as the the ones that we added a strong service attachment rates.
Speaker Change: The next question is from Graham Ryding with TD Securities. Please go ahead.
Graham Ryding: Oh, hi, good morning.
Graham Ryding: I can start with.
The auto fleet.
Graham Ryding: Sort of progress or update there on where you're seeing opportunities to add new new products.
Graham Ryding: Two years, you've seen sort of services.
Graham Ryding: Services portfolio and then secondly.
Graham Ryding: Your revenue guide next year, six 5% to eight 5% does that.
Speaker Change: Include auto food in there.
Speaker Change: Hey, Graham its Laura so I'll start and I'll, let Heath take the second question.
Speaker Change: So as you know we closed out a fleet of near month and a half ago. So still early days, but I have to say, we're absolutely pumped.
Speaker Change: With what we're gonna be able to accomplish with auto fleet. They will indeed help us fuel our growth and Heath can talk about that in a bit and that's what their existing product offering. So there's no doubt we're going to be able to sell their services with our sales team and they're all.
Speaker Change: So really going to be able to help us accelerate our digitization and automation effort. So early days, but we are off to an incredibly solid start we've had all of our meetings, we've already aligned and are our key priorities and we've got work that's already underway to deliver on them in fact, we expect to.
To be in the market in either the first or second quarter of 2025 with a new app for our client drivers so I'm really happy with the acquisition.
Speaker Change: As you can appreciate we're really focused on ensuring it delivers an expectation.
Speaker Change: Early days, but it's looking really good not just from an ability to generate more sales for auto fleet, but also to help us move faster with our Digitization and automation initiatives and he if he wanted to talk just about guidance yeah. Absolutely. So obviously are the acquisition died of the OTA.
Speaker Change: <unk> business was the first of October So, we'll see the results coming into our numbers from Nandan and being there for Q4 and into 2025 in terms of the the revenue growth, obviously, a wet targeting underlying growth rate of 11% to 13% before those those one off items that we outlined in our <unk>.
Speaker Change: Couple of mental.
Speaker Change: What's what's going to draw that to live in the third I understand he's probably four key areas. The first is is continued bombing and any I growth.
Speaker Change: So excluding what liable if we look at at bottom we grew 10% in 2023, we're currently tracking an annualized rate of 4% for 2024, and we expect a bomb in an hour any eye to grow into 2025.
The second is inflation, so I'll forecast assumes an inflation rate of 3%, which will help to drive higher revenue.
Speaker Change: The third item is continued product penetration across our flight and we've had really good commercial success in this space in 2020 for one of the K regions. While service revenue is actually up by 16% on a year to date basis, and we expect that that momentum will continue through 2025.
Speaker Change: And then finally is is what will help to drive the revenue is all strategic initiatives. So theres the leasing business, which we've obviously called out in the past and will start to see the incremental revenue associated with that initiative and then the other one is obviously driving new products and services into our existing business.
Speaker Change: And all of that plays into the key one day off so that the team is currently working the old isolate sami's currently working with our sales team.
Speaker Change: To to drive incremental revenue as we look to two salvo the auto flight product set into into our existing customer base.
Speaker Change: So all of those sort of cool for items combined are what will deliver the 11% to 13% before the one time items.
Speaker Change: Yes.
Speaker Change: Okay, Great appreciate that color one more if I could just on the the capital investments I think you flagged $80 million for next year.
Speaker Change: Instead due.
Speaker Change: Do I assume that that's both growth capex and sustaining capex and if so can you break out how.
Speaker Change: How much for each because I think you are sustaining impacts free cash flow, but your gross capex because it's not.
Speaker Change: Yeah. So to answer your first question that is correct. We are anticipate to spend approximately $80 million in capex into the business, obviously, what we're saying and working through right now with the order isolate acquisition is we expect that that I E $80 million will go a lot further than that.
Speaker Change: Otherwise below and we will get a lot more in return for outspend in terms of the split between sustaining and and and.
Speaker Change: And growth. We are currently just finalizing our initiatives for 2020 thawed, it's relatively balanced across those those two numbers.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: The next question is from John <unk> with Jefferies. Please go ahead.
Speaker Change: Good morning, just wanted to clarify in terms of the commentary around the repurchase program.
Speaker Change: There was no I'm, taking this this quarter was due to the fact that we had redemptions.
Speaker Change: The coker share redemptions.
Speaker Change: Hi, John It's Laura I'll take that one yes, that's right.
Speaker Change: We did have a muted buyback activity just given we redeemed all of our preferred shares so for 2025.
Given we are projecting to have strong revenue and free cash flow growth, we do anticipate to be in a position to really lean in more so our share buyback program.
Speaker Change: Thanks, Laura.
Speaker Change: What I was leading into can you can you give us some color around the calculus that you use in terms of determining what you Wanna repurchase in any given period you know what what doctors are in there or is it cash flow is it share price valuation.
Can you just give us some sort of color around that so we so basically you can help me model.
Speaker Change: Yes, I'll help you with that so what we really look at is obviously, we look at our free cash flow generation right and then we look at all of the guardrail is really tangible leverage or leverage overall on how we think about the business. So you know to the extent that we continue to grow.
Our off balance sheet financing et cetera that would be beneficial, but overall, we see you know a healthy degree of share repurchases next year as we move forward with those those guard rails. So like how much is free cash flow growing and whereas our overall leverage city.
Speaker Change: Okay.
The next question is from Tom Mackinnon with BMO. Please go ahead.
Speaker Change: Yeah, Hi, Thanks, two quick ones here given the healthy degree of share repurchases next year why is the guide for adjusted operating income the same as via gesture at adjusted EPS.
Speaker Change: Or should we imply that one that the adjusted EPS guide would be higher than the adjusted operating income guide.
Speaker Change: Yeah, absolutely. So obviously, there's a range and in all of those metrics.
Speaker Change: You would expect that your adjusted EPS will grow at a higher price than your adjusted operating income we saw share repurchases throughout the year are driving the the law sort of average share count.
Speaker Change: Okay. Thanks, and then.
The reasons you cited for the 11% to 13% underlying revenue growth next year seem to be pretty.
Speaker Change: Carmen with respect just the business I mean.
Speaker Change: <unk> product penetration growth in volume.
Speaker Change: You know and our other strategic initiatives and yet this 11 to 13 underlying seems to be significantly higher than your medium term guide of six to eight.
Speaker Change:
Speaker Change: A question that's too.
Speaker Change: No.
Speaker Change: Should we be thinking that the.
Speaker Change: The medium term guide of six to eight is actually maybe a little bit lower or what's making your underlying growth next year in revenue so much higher than your 68 medium term guide.
Speaker Change: Yeah, absolutely. So obviously all seeks to white medium term God is what we have got the market too in the Boston and ultimately the revenue growth we are guiding to for 2025 and six and a half died off percent so relatively.
Speaker Change: In in La and we sat growth right in terms of the core items, that's driving the 11 to 13, we we do see some some opportunities are those.
Speaker Change: That will give us some some good revenue growth in 2025 from those strategic initiatives. So the leasing business the old isolate our acquisition and driving the cross sell so said that though that will give us a obviously those two items I haven't been in our numbers before so you're coming off of zero.
Speaker Change: Our bison and I'll give you some strong growth seen in 2025.
Speaker Change: Once again analyst with any further questions you May press Star then one.
Speaker Change: Next question is from Stephen Bohlen with Raymond James. Please go ahead.
Speaker Change: Yeah, just a follow up on Tom's question, there just about the six and a half to half.
Obviously that is slightly higher than your your medium term target. So is this just a pause.
Precursor to maybe that target moving up and I do have a follow up.
Speaker Change: Yeah.
Yeah.
Speaker Change: So right now we're comfortable with the six to eight long term guidance that we've put out there. Obviously, we have undertaken a number of strategic initiatives, which are boosting growth from a core basis to that 11% to 13% next year inclusive of all of the things that Heath mentioned as well as some of the strategic.
Speaker Change: Teach initiatives that Laura has mentioned in the past, including Digitization insurance small medium fleet and those type of things obviously very early stage in some of those but at this point, we're not in a position to say six to eight long term growth is should be changed at this point, but we feel very good about where we're sitting today.
Okay and then the second thing I was just wondering if your 2020 guidance includes.
Speaker Change: You know the discussion about.
Putting in a new securitization facility that would would help move assets off the balance sheet I'm, just wondering what's happening with that initiative.
Speaker Change: Timing and is that included in the guidance. Thanks.
Speaker Change: Yeah, absolutely. So at this point in time, we haven't included the impact of that in the guidance and the reason for that is that we have yet to tap a signed contract for that new program.
Speaker Change: In terms of of the progress, but we're obviously still working through that with potential investors. So that's something that.
Speaker Change: Well, we will look to execute in Q4.
Speaker Change: The next question is from Tom Mackinnon with BMO. Please go ahead.
Tom Mackinnon: Yeah, just a question with respect to the FX impact in the quarter and the quarter over quarter growth in earning assets to what extent was there any FX headwind in that in the quarter.
Speaker Change: And if that can be.
Speaker Change: The peso depreciated roughly 4% on average over the quarter. So there was some headwind in the quarter associated with that depreciation a call. It mid single digit type of impact.
Speaker Change: Okay. Thanks.
Speaker Change: The next question is from Paul Holden with CIBC. Please go ahead.
Speaker Change: Thanks, Thanks for taking my follow up question So tomorrow.
Two more for you I guess the first one is with respect to the lower syndication yields anticipated next year, how does that impact the proportion of originations.
Speaker Change: That will be will be syndicated.
Yeah.
Speaker Change: Sure.
Speaker Change: Yeah, absolutely so it doesn't.
Speaker Change: Materially impact a portion that we will syndicate and and we still expect to see Takeda a material portion of our originations are in line with 2020 full so it really it just impacts the potential yield.
Speaker Change: That we would get on those leases I'm sorry, the current current bonus depreciation who set at 60%. The legislated Ah just depreciation is set to reduce to 40% obviously with the change in administration, if that was to a normalized or revert back to the 100% depreciation right.
Speaker Change: From a syndication revenue perspective, that's an opportunity of anywhere from $25 million to $30 million on an annualized basis.
Speaker Change: Got it okay and the last one from me is just with respect to the originations and Mexico. So second consecutive quarter of a decline and I got there was the peso impact this quarter.
Speaker Change: I think if I, if I take where the peso was in Q3, a year ago versus this year.
Speaker Change: Suggests that originations on a constant currency basis in Mexico, or maybe flat year over year can you clarify if that's right and then b. If it is sort of flat what are what are the drivers behind that sort of that flat resolve versus sort of the <unk>.
Speaker Change: Hi high teens low twenty's growth rate, we've we've been seeing in the past.
Speaker Change: Yeah, absolutely so the key the key impact when you look at the pie. So originations is the impact of beat the FX. So once you you know the laws in FX. It is a slightly down quarter on quarter and there's seasonality in any originations.
Q2s it was the high watermark in originations in Q3 drops down.
Speaker Change: From a year on year perspective, it is relatively flat.
Speaker Change: Concerns from all our Mexico business, it's really just timing of of the the client ordering cycle as well as some product mix in that all al units under management now any eye continues to grow strongly in Mexico. When you look at it through a peso lens.
Speaker Change: And I know yourself in a number of people will have the opportunity to get down in Mexico and in view of our business as part of all our investor visit.
Speaker Change: We've got a really strong business with with really strong growth opportunities both from a driving a bomb and net earning assets, but also driving increased product penetration across south the Mexico platform, sorry, where we're very comfortable with the Mexican business and expect it will continue to deliver strong rig.
Speaker Change: <unk> seen in 2020 thought.
Speaker Change: Okay. That's great. That's it for me thank you.
This concludes the question and answer session I'd like to turn the conference back over to Laura to Tory add that echinacea for any closing remarks.
Speaker Change: Alright, thanks for joining us and I do want to take the time to offer a special thanks to all of our element team members for putting our clients at the center of all we do because it really does make a difference as we outlined today, we are very well positioned to continue to grow in.
Speaker Change: To deliver for our shareholders to drive forward at pace with intelligent mobility initiatives and to consistently offer the very best for our clients.
We look forward to sharing our progress with you in the new year. Thanks, everyone.
Speaker Change: Okay.
This brings to a close today's conference call. You may disconnect. Your lines. Thank you for participating and have a pleasant day.
Speaker Change: [music].
Speaker Change: Okay.
Speaker Change: Yeah.
Speaker Change: [music].
Hum.
Speaker Change: Okay.
Speaker Change: Hmm.
Yeah.
Speaker Change: [music].
Speaker Change: Yeah.
Speaker Change: [music].
Yeah.