Element Fleet Management Corp.

Good morning, ladies and gentlemen, and welcome to Element 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. 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 year-end and most recent MD&A as well as its most recent AIF. Although management believes that the expectations are expressed in the statements are reasonable, actual results could differ materially. 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 Dottoria Atanasio, Chief Executive Officer of Element Fleet. Please go ahead.

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 U.S. dollars and adjusted earnings per share of 27 cents 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 rates. 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. 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 maintain solid adjusted operating margins this quarter, expanding margins by 30 basis points on a year-over-year basis. 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 volume, 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 fleet to EVs, 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 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-centric focus as 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 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. 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. Second, we will continue to adjust our results for the remaining non-recurring setup costs in connection with our strategic initiatives in leasing and sourcing announced last year. In Q1 2024, we've recorded $2.1 million of these non-recurring setup 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 quarter results. 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. Managing tightly to our targeted adjusted operating margin will guide us in balancing discipline, expense management, with investment acceleration. Our adjusted operating income for the quarter was $143.6 million, up 17.5 percent year-over-year, translating to an adjusted EPS of 27 cents a share, a four-cent increase from the same period last year. Additionally, our adjusted free cash flow per share increased seven cents, or 25 percent, to $0.35 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. Let's take a deeper dive into the key drivers of net revenue growth. Services revenue, the cornerstone of this capital-like business model, grew 27.3% year-over-year to $147.1 million. This growth can be attributed to several key factors, increased 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. 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 originations. This increase was somewhat mitigated by higher funding costs and higher standby fees due to higher committee capital balances to fund the forecasted growth in originations. 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 debt scheduled for maturity in Q2. Q1 gain on sale was largely unchanged year over year. Noteworthy improvements in Mexico were largely offset by lower gain of sale in A and Z, where the normalization of used vehicle prices continues in tandem with the improvement in new vehicle availability. 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% year-over-year. This increase was outpaced by the 16.8% growth in net revenue over the same period. Salaries and raises grew largely for the following reasons. Increased headcount in support of growth initiatives and supporting our core growth until we realized the benefits from digitization and automation initiatives. 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 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. 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. 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 notes. As such, you will notice 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 range. From a capital allocation perspective, our priorities remain unchanged. One, prudently invest in our business while maintaining our target tangible leverage ratio. Two, grow our common share dividend in keeping with our target payout ratio. Three, redeem the last of our high-cost legacy preferred shares. And four, return capital shareholders via share buybacks. 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. In September, we plan to redeem our Series E preferred for a total of $98.3 million. The result 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 2024. Most importantly, this action will be EPS accretive, and economically attractive development. 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. Thank you.

Analysts who wish to join the question queue may press star then 1 on your telephone keypad. You will hear a tone acknowledging your request. If you're 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 Jeff Kwan with RBC Capital Markets. Please go ahead.

Hi, good morning. My first question was 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. So if I assume, let's say, like low double-digit is 12% growth, if I take the $503 million in service revenues in 2023, grow that at 12%, you get to 563. If we back out what you guys earned in Q1, that would then imply the Q2 to Q4 service revenues would be up just over about 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. 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?

Yeah. So, Jeff, I would say, you know, as we point to our guidance language where we said, you know, we would feel confidence in increasing confidence in meeting the high end or potentially exceeding most of the targets that we have for our guidance. So when I look at service revenue growth, and I look at it in this quarter at about 20%, backing out the one-timers, I think that was very, very strong performance. I continue to believe that with some seasonality or lumpiness, overall, low double-digit service revenue growth in each quarter is probably a reasonable way to look at the growth there. We're not forecasting any of that slowdown that you referenced in your call. We still think that really strong quarter to start the year, but want to see how the rest of the year plays out. But that low double-digit service revenue growth feels right to us as we move forward.

Okay, that's helpful. And just my other question, sorry, was there another follow-up there?

No, go ahead.

Okay, sorry. My other question was just there was the reference that you talked about on 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, for example, if the economic conditions worsen and there's less consumer demand, that you could see some allocations more than what you're seeing right now.

Hey, Joe. 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, and that'll take place through 2024, and we expect to be in a normalized environment in 2025, if that helps.

Okay. Great. Thank you. Thank you.

The next question comes from Paul Holden with CIBC. Please go ahead.

Excuse me. Thank you. Good morning. A few questions. I guess the first one is the non-recurring 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 just wondering if it's sort of those same factors maybe relating to some customers rolling off or if there were different factors.

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 because it was big enough. And these businesses always have, when you're managing 1.5 million vehicles in four different, five different geographies, 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 try to provide that transparency. 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 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 kind 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 revenue this time.

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 on future revenue or profitability.

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

Got it. Okay. Second question is related to 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 change is, please.

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, you know, we're not going to wait forever on that because, as you know, syndication, I mean, legislation, especially in an election year, getting done becomes more and more difficult the longer it holds out. So, this was a specific action in Q1, but I wouldn't take forward that we will continue to hold back volumes, hoping that that legislation passes.

Okay. 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 that 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?

There's two factors. One is that legislation. So the current tax legislation has bonus depreciation dropping 20% a year. So it went from 100 to 80 last year. 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 desks. We think we'll As rates begin to stabilize and hopefully come down in the future, we'll start to see those come in as well. We're also seeing some of our syndication partners needing net earning assets. So in certain cases, we are, you know, we have, well, 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. You know, it's relatively balanced between bonus depreciation and hurdle rates of our investor partners in this current rate environment.

Got it. That's helpful. Last one from me, and I know, Frank and Laura, you both tried to emphasize this just in terms of the 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?

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. You know, some of the investment that we made drove some of the 20% plus, you know, 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 digital strategy or otherwise that Laura and we talk about in the MD&A. Some could start to pay back in small ways later this year. Some will be a multi-year journey but 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, you know, well above GDP levels.

Okay, I'll leave it there. Thanks for your time.

The next question comes from Jamie Bowen with National Bank Financial. Please go ahead.

Yeah, thanks. Just wanted to follow up on that last line of questioning then. It doesn't quite sound like you're, I guess, confidently guiding in 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, is that 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?

I'll start that one. I think an important takeaway here is every decision that we make, it's all about driving growth. It's all about optimizing our operations and really enhancing 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. 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.

Okay. 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 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 and the outlook.

And remember, there's always some seasonality in originations. So 1Q23 was the lowest quarter of originations. 1Q24 is the lowest quarter. So there's some seasonality component into it. There, you know, 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 watermark last year. So, we're monitoring that quickly. But we see a market improvement, obviously, not changing the guidance and originations would say, you know, you'd be upward of, you know, 1.9 a quarter going forward, roughly. So, no real changes in that outcome. 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.

Okay, and just one more as I look at the gain on sale performance in the quarter. You know, 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. So is there anything in this quarter, whether it was vehicle turnover or something specific of Mexico that drove a stronger performance on gain on sale that is, you know, we should go back to the trend of of seeing lower gain on sale contribution 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, Mexico is effectively offsetting a decrease in A and Z. Really, the key to it is we've been growing that portfolio significantly over the last five years in number of vehicles. And so as that portfolio is grown, returns grow. over time that then needs to be remarketed and put us in a position for potential gain on sale there. In regards to the Mexico market, we would continue to see those volume opportunities as we move forward here, continuing to drive that benefit. We're not seeing anything in the Mexico market that would give us pause at this point.

Okay, thank you.

The next question comes from Tom McKinnon with BMO Capital Markets. Please go ahead.

Yeah, thanks very much. 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 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. You've talked about targeting slightly higher operating margins going forward. Is this 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'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?

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, that 7 million. So 54.7 is a good number. What I would look at, though, Tom, is look at that versus Q1 of last year, and we're up 30 basis points. So that's consistent with how we want to drive the business with some modest margin expansion in the 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 expenses, there are certain things that do come into Q1 from time to time, but nothing from a seasonal perspective that I would draw too much attention to as you move forward here. As you move forward here, yeah.

Okay, thanks. And then I think, Laurie, you mentioned 39 new clients in your opening comments. Just remind me of what timeframe that was. 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 to trying to get a feeling for how well you're doing in one of 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'd be good. Thanks.

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. We are doing incredibly well. Our commercial team is knocking it out of the park. We have had 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 in all of those growth levers And it's really just the solid work of our commercial team getting out there You know meeting existing clients for more share of wallet opportunities or again winning market share or managing to convince companies to convert their self-managed leads to being outsourced leads.

And the retention at 98%, that's generally kind of flattish?

Yeah, that's our client revenue retention rate that we share in our disclosure. That remains at the same level.

Okay, that's great. Thanks very much.

The next question comes from Graham Riding with TD Securities. Please go ahead.

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

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 shared maybe previously where we've talked about some initiatives that we were looking at There were two of them that come to mind. One of them was where we could look at the possibility of selling insurance into our network in the U.S. and in Canada, similar to what we do in multiple Australia and New Zealand. We are looking at that. We continue to, I'm going to say, 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. 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 feeling pretty good about those opportunities. And when the time is right and we have more to share, we'll certainly come back to you and share information the path that we expect to be headed down. If that helps.

Yeah, that was helpful. Yeah, you flagged it on slide eight, so I just wanted to gauge whether this is a material growth piece or early days. So you answered my question there. That was helpful. And when you say small to medium-sized fleets, what does that mean, and how do you size that?

Yeah, I'd say more than 50 units and less than 250. 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.

Okay. Understood. And then just on your strategic initiatives, one of them is just technology investments and upgrades. Is there any timeline here for this initiative, or is this a 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 targets?

Well, I'd say from a CapEx perspective, certainly is there. We've talked about you can expect this to – invest in that Canadian 100 to 110 million dollar range so now that we're presenting in US dollars I'm looking at Frank it's 75 to 80 million and those investments will be for we've talked about growth sustainability again long-term value creation so I would say expect it to be multi-year again like all companies we need to continue to invest in our digitization analytical automation Tools and capabilities it continues to hold I'd say real immense potential for us to continue to enhance Not just client experience. It's going to continue to allow us to drive growth and create operational efficiencies 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 and But on occasion, we could find ourselves, as Frank mentioned earlier, that 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, that we will take that opportunity. But we will be, as I said earlier, very thoughtful and very disciplined about how we do that.

Great. That's it for me. Thank you.

The next question comes from Steven Boland with Raymond James. Please go ahead.

Good morning. Thanks. 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.

Yes, Stephen. Thanks for that. I'm 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. What I say 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. 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 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 really happy about how quickly we've managed to progress on this really important initiative.

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

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 US dollars, but it was a 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 of 2028. 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'll help us maximize value for our shareholders okay that's all i had thanks very much once again if you have a question please press star then one we have a follow-up question from jamie going with national bank financial please go ahead

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, the Apollo and the bigger pair, or is it from the smaller players? And are you seeing any change in their competitive positioning? And I'm thinking of Apollo specifically.

Our wins are coming from all of our competitors, so feeling really good about that. And I would just say, again, we have great competitors. 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 have sleep. And I'm particularly pleased with it given, again, there's not a lot of, or there shouldn't be a lot of joy 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 make 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.

Very good. Thank you.

This concludes the question and answer session. I would like to turn the conference back over to Laura Vittoria Tenazio for any closing remarks. Please go ahead.

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. And 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. And it provides us with our confidence in our growth trajectory and in our ability to achieve or even potentially exceed the upper ends 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.

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