Amounts in $CAD unless otherwise noted
Record net revenue of $1.3 billion driving record operating margins, adjusted earnings, and adjusted free cash flow per share
Strong performance driven by a 35.8% increase in new originations, continued commercial success in converting self-managed fleets, increasing share of wallet with existing clients, and earning share from competitors
Delivered adjusted operating margin expansion of 110 bps in 2023 while strategically reinvesting in the business and people to support future growth
Strategic initiatives, Ireland Leasing Function and Asian Strategic Procurement, on track for mid-2024 “go live”
Adoption of U.S. dollar reporting as the presentation currency beginning in Q1 2024
Returned $344.8 million of cash to shareholders through increased common dividends, share buybacks and preferred share redemption
TORONTO, Feb. 27, 2024 (GLOBE NEWSWIRE) — Element Fleet Management Corp. (TSX:EFN) (“Element” or the “Company”), the largest publicly traded, pure-play automotive fleet manager in the world, today announced strong financial and operating results for the three months ended December 31, 2023 and record results for full-year 2023.
Q4 20231
Variances to Q4 2022
20231
Variances to 20221
$ millions, except percentages and per share amount
$
$
%
$
$
%
Selected financial results – as reported:
Net revenue
333.4
41.0
14.0
%
1,294.2
162.1
14.3
%
Pre-tax income
140.7
8.5
6.4
%
605.7
56.1
10.2
%
Pre-tax income margin
42.2
%
(300) bps
46.8
%
(170) bps
Earnings per share (EPS) [basic]
0.27
0.03
12.5
%
1.13
0.17
17.7
%
Adjusted results (excludes one-time items in both 2023 and 2022)1,2:
Adjusted net revenue2
333.4
41.0
14.0
%
1,294.2
187.1
16.9
%
Adjusted operating income (AOI)2
183.4
33.1
22.0
%
715.8
116.3
19.4
%
Adjusted operating margin2
55.0
%
360 bps
55.3
%
110 bps
Adjusted EPS2 [basic]
0.33
0.06
22.2
%
1.32
0.27
25.7
%
Other highlights:
Adjusted free cash flow per share2 (FCF/sh)
0.40
0.10
33.3
%
1.67
0.36
27.5
%
Originations (excluding Armada)
2,026
238
13.3
%
8,551
2,253
35.8
%
Q4 2023 and 2023 include $14.6 million and $18.5 million, respectively, in one-time strategic project costs. 2022 includes $25.0 million in non-recurring revenue as previously disclosed.
Adjusted results are non-GAAP or supplemental financial measures, which do not have any standard meaning prescribed by GAAP under IFRS and are therefore unlikely to be comparable to similar measures presented by other issuers. For further information, please see the “IFRS to Non-GAAP Reconciliations” section in this earnings release. The Company uses “Adjusted Results” because it believes that they provide useful information to investors regarding its performance and results of operations.
Commenting on Element’s financial performance, Laura Dottori-Attanasio, Chief Executive Officer said, “Element has achieved strong success, culminating in a year of unprecedented revenue, profit and adjusted free cash flow. Our dedication to our shareholders has driven strong financial outcomes, enabling investments in our business for 2024. This sets the stage for Element to better assist our clients to thrive in the ever-evolving mobility, vehicle connectivity and fleet electrification landscape. Our greatest opportunities lie ahead as we embark on digital and automation initiatives that will elevate client satisfaction, streamline operations and foster stronger client relationships.”
Profitable revenue growth
Element grew net revenue 14.3% over 2022 (“year-over-year”) to $1.3 billion. On an adjusted basis, net revenue grew 16.9% year-over-year and AOI grew 19.4% year-over-year to $715.8 million.
2023 EPS were $1.13, up 17 cents year-over-year. On an adjusted basis, EPS were $1.32 in 2023, up 27 cents over 2022.
A capital-lighter business model
2023 services revenue grew 16.7% year-over-year to $678.2 million. On an adjusted basis, services revenue grew by 19.0% or $108.2 million.
2023 syndication volume was $3.4 billion, reflecting the strong demand for Element’s assets while 2023 syndication revenue remained relatively unchanged at $61.5 million notwithstanding $5.0 million of non-recurring syndication revenue recorded in 2022. On an adjusted basis, syndication revenue grew 7.3% or $4.2 million as higher volume more than offset yield compression resulting from a rising interest rate environment.
Growing adjusted free cash flow per share and return of capital to shareholders
On an adjusted basis, Element generated $1.67 of adjusted free cash flow (“FCF”) per share in 2023 – 36 cents more year-over-year driven primarily by higher originations, strong commercial performance and a year-over-year increase in services revenue.
Element returned $229.8 million of cash to common shareholders through dividends and buybacks of common shares in 2023 – and $344.8 million to shareholders, including the Company’s $115 million Series A preferred share redemption in Q4 2023 (described further below). Element’s common share dividend target payout ratio remains unchanged at 25% to 35% of the Company’s last twelve months’ adjusted FCF per share.
Capital Structure and Share Repurchase Authorization
On December 28, 2023, the Company redeemed all of its 4,600,000 outstanding Cumulative 5-Year Rate Reset Preferred Shares Series A (“Series A Shares”) at a price of $25.00 per Series A share for an aggregate total of approximately $115 million (as previously disclosed).
To further optimize its balance sheet and mature its capital structure, the Company today reaffirmed its intention to use a portion of its adjusted free cash flow to redeem all its outstanding 6.21% Cumulative 5-Year Rate Reset Preferred Shares Series C (June 2024) and 5.903% Cumulative 5-Year Rate Reset Preferred Shares Series E (September 2024) for approximate aggregate total amounts of $128 million and $133 million, respectively.
The Company also has approximately $169.4 million in 4.25% convertible debentures as of February 27, 2024, that are convertible into an aggregate of approximately 14.6 million common shares in June 2024.
Transition to U.S. dollar reporting
The Company also announced today its intention to transition all its financial reporting currency from the Canadian dollar to the U.S. dollar, effective Q1 2024. Consequently, the Company’s first quarter results for the three-month period ending March 31, 2024, tentatively scheduled for publication in May 2024, and all subsequent financial information, will be presented in U.S. dollars. The change will be applied retrospectively, leveraging the translation methodology defined in IAS 21 The Effects of Changes in Foreign Exchange Rates to re-present its financial statements and operating results.
The Company cautions readers that this strategic move to U.S. dollar reporting does not entirely eliminate foreign exchange fluctuations from its financial performance. Instead, it limits the Company’s exposure to the movements of other currencies, such as the Mexican Peso and the Australian and New Zealand dollar against the U.S. dollar. 2023 Net Revenues derived in US dollars represented approximately 62% of total revenues while Mexican Pesos, Australian and New Zealand Dollars and Canadian Dollars represented 15%, 13%, 5% and 5% of Net Revenues, respectively. As a result, starting this quarter, the Company will no longer present and report its financial performance in constant currency.
The following table provides select financial highlights as reported in Canadian dollars alongside select pro-forma2 financial highlights in U.S. dollars for the 12 months ended 2023 and 2022.
Canadian Dollars ($)
Pro-Forma3 U.S. Dollars ($)
$ millions, except percentages and per share amount
2023
2022
2023
2022
Selected financial results:
Adjusted net revenue3
1,294.2
1,107.0
959.1
850.7
AOI3
715.8
599.5
530.6
461.1
Adjusted EPS3 [basic]
1.32
1.05
0.98
0.81
Adjusted FCF per share3
1.67
1.31
1.24
0.99
Originations3 (excluding Armada)
8,551
6,299
6,340
4,837
3. Adjusted results and pro-forma financial highlights are non-GAAP financial measures, which do not have any standard meaning prescribed by GAAP under IFRS and are therefore unlikely to be comparable to similar measures presented by other issuers. The presentation above is provided for general information purposes only and should not be used as a substitute for GAAP measures.
The Company expects this change to provide several key benefits:
Enhance alignment between performance reporting and funding and business exposures, which are predominately in U.S. dollars,
Improve the comparability of financial statements,
Simplify financial reporting, and
Increase attractiveness to a broader investor audience.
While the Company’s reporting currency is changing, its roots remain firmly planted. The Company will continue to be headquartered in Toronto, Canada, maintain its listing on the Toronto Stock Exchange, with its shares quoted in Canadian dollars, and pay dividends in Canadian dollars, if declared by the Board.
To assist shareholders during this transition, the Company has prepared select unaudited pro-forma financial statements and highlights for the full years of 2023 and 2022 in U.S. dollars. These can be accessed in the Supplemental Financial Information package on the Company’s website at www.elementfleet.com.
Full-year 2024 results guidance
The Company reaffirms its previously disclosed 2024 guidance ranges. While the Company intends to commence U.S. dollar reporting in Q1 2024, it re-presents its guidance ranges for 2024 in U.S. dollars. Additionally, the Company has provided guidance on origination volume for full-year 2024.
Full-year 2024 result ranges ($CAD)
Full-year 2024 result ranges ($USD)
Net revenue
$1.365 – 1.390 billion
$1.020 – 1.040 billion
Adjusted operating margin
55.0% – 55.5%
55.0% – 55.5%
Adjusted operating income
$750 – 770 million
$560 – 575 million
Adjusted EPS [basic]
$1.41 – 1.46
$1.05 – 1.09
Adjusted free cash flow per share
$1.75 – 1.80
$1.31 – 1.34
Originations (excl Armada)
$9.5 – 10.0 billion
$7.0 – 7.4 billion
Element affirms its ability to deliver the above results for full-year 2024 given positive operational momentum, sustained commercial success, and resilient client demand for the Company’s services.
Element’s full-year 2024 results guidance ranges exclude non-recurring setup costs to be incurred by the Company as it continues to invest in the strategic initiatives announced previously in Q3 2023.
Strategic initiatives update
As previously disclosed, Element plans to optimize its business further by centralizing accountability for its U.S. and Canadian leasing operations in Ireland, establishing a strategic sourcing presence in Asia, and prioritizing digitization and automation initiatives to enable future growth and operational efficiencies. The Company’s leasing and strategic sourcing initiatives remain on track to be operational by mid-2024.
Non-recurring setup costs
The above initiatives require approximately $30 million (total) in non-recurring setup costs, of which $14.6 million were incurred in Q4 2023 and $3.9 million in Q3 2023 ($18.5 million in aggregate in 2023). The vast majority of the remaining non-recurring setup costs are expected to be incurred evenly over the next two quarters.
Element continues to expect these strategic initiatives to:
Contribute profitable net revenue growth and operational efficiencies beginning in 2025;
Fully recoup the $30 million (total) of related non-recurring setup costs within approximately 2.5 years; and
Generate between $40 – $60 million of run-rate net revenue, and between $30 – $50 million of run-rate adjusted operating income (“AOI”), by full-year 2028.
The Company’s key elements of progress include the following:
Centralizing accountability for U.S. and Canadian leasing
Chris Gittens (who has previously led our Canadian business, our Strategic Relationships business focused on ‘mega’ fleets, and – most recently – was our Chief Information Officer), and several other existing Element executives will be moving to the Company’s new office in Dublin to oversee the operation. The Company is also focused on adding several key local executives. They will bring fresh ideas and specialized leasing expertise, further strengthening our leadership team in Ireland. The Company has partnered with three Dublin-based recruiting firms and the Irish Foreign Direct Investment Agency with the goal of filling all key leadership positions by mid-2024.
Establishing a strategic sourcing and relationship management presence in Asia
The Company is also progressing toward enhancing its global procurement capabilities and forging new strategic sourcing relationships in Asia. Element has successfully registered its company name, a key milestone that formally establishes their presence in the region. Element will be adding a key executive who will bring with them a wealth of knowledge and expertise about the region.
Prioritizing digitization and automation
The Company’s greatest opportunities lie in accelerating digital and automation initiatives, which it believes will provide an enhanced client experience, drive operating efficiencies, expand existing client relationships to include greater penetration of capital-light services revenue, and position it to help clients thrive in the ever-evolving mobility, and vehicle connectivity landscape. Element is in the early stages of a journey to redefine its digital capabilities by executing a robust carefully crafted technology roadmap in order to better support its growth ambitions by allowing it to scale operations more quickly and to provide an enhanced client experience.
Conference Call and Webcast
A conference call to discuss these results will be held on Wednesday, February 28, 2024 at 8:00 a.m. Eastern Time.
The conference call and webcast can be accessed as follows:
Webcast:
https://services.choruscall.ca/links/elementfleet2023q4.html
Telephone:
Click here to join the call most efficiently,
or dial one of the following numbers to speak with an operator:
Canada/USA toll-free: 1-800-319-4610
International: +1-604-638-5340
A taped recording of the conference call may be accessed through March 28, 2024 by dialing 1-800-319-6413 or +1-604-638-9010 and entering the access code 0632.
Dividends Declared
The Company’s Board has authorized and declared a quarterly dividend of $0.12 per outstanding common share of Element for the first quarter of 2024. The dividend will be paid on April 15, 2024 to shareholders of record as at the close of business on March 28, 2024.
Element’s Board of Directors also declared the following dividends on Element’s preferred shares:
Series
TSX Ticker
Amount
Record Date
Payment Date
Series C
EFN.PR.C
$0.3881300
March 15, 2024
March 28, 2024
Series E
EFN.PR.E
$0.3689380
March 15, 2024
March 28, 2024
The Company’s common and preferred share dividends are designated to be eligible dividends for purposes of section 89(1) of the Income Tax Act (Canada).
Normal Course Issuer Bid
On November 13, 2023, the Toronto Stock Exchange approved the Company’s intention to renew its normal course issuer bid (the “2023 NCIB”). Under the 2023 NCIB, the Company has approval from the TSX to purchase up to 38,852,159 common shares during the period from November 15, 2023, to November 14, 2024. There cannot be any assurance as to how many common shares, if any, will ultimately be purchased pursuant to the 2023 NCIB.
During Q4 2023, we purchased 153,473 common shares for cancellation (under the previous NCIB), for an aggregate amount of approximately $3.0 million at a volume weighted average price of $19.56 per common share. Under the previous NCIB that commenced on November 15, 2022 and ended on November 14, 2023, 3,984,022 common shares were repurchased for cancellation, for an aggregate amount of approximately $73.9 million at a volume weighted average price of $18.56 per common share.
Element applies trade date accounting in determining the date on which the share repurchase is reflected in the consolidated financial statements. Trade date accounting is the date on which the Company commits itself to purchase the shares.
IFRS to Non-GAAP Reconciliations, Non-GAAP Measures and Supplemental Information
The Company’s audited consolidated financial statements have been prepared in accordance with IFRS as issued by the IASB and the accounting policies we adopted in accordance with IFRS. These audited consolidated financial statements reflect all adjustments that are, in the opinion of management, necessary to present fairly our financial position as at December 31, 2023 and December 31, 2022, the results of operations, comprehensive income and cash flows for the three-month period-ended and year-ended December 31, 2023 and December 31, 2022.
Non-GAAP and IFRS key annualized operating ratios and per share information of the operations of the Company:
As at and for the three-month
period ended
As at and for the
year ended
(in $000’s for stated values, except ratios and per share amounts)
December
31, 2023
September
30, 2023
December
31, 2022
December
31, 2023
December
31, 2022
Key annualized operating ratios
Leverage ratios
Financial leverage ratio
P/R
2.74
2.64
2.42
2.74
2.42
Tangible leverage ratio
P/
(R-K)
5.99
5.76
5.86
5.99
5.86
Average financial leverage ratio
Q/V
2.67
2.58
2.34
2.53
2.35
Average tangible leverage ratio
Q/(V-L)
5.80
5.49
5.75
5.55
5.80
Other key operating ratios
Allowance for credit losses as a % of total finance receivables before allowance
F/E
0.08
%
0.10
%
0.13
%
0.08
%
0.13
%
Adjusted operating income on average net earning assets
B/J
7.19
%
7.71
%
7.26
%
7.57
%
7.37
%
Adjusted operating income on average tangible total equity of Element
D/(V-L)
29.43
%
30.35
%
30.48
%
30.11
%
31.37
%
Per share information
Number of shares outstanding
W
389,169
389,218
392,495
389,169
392,495
Weighted average number of shares outstanding [basic]
X
389,115
389,511
392,811
390,297
396,907
Pro forma diluted average number of shares outstanding
Y
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