Element Fleet Management Corp.

Good morning and welcome to Element Fleet Management Sports Quarter and Full Year 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, press star then 1 on your telephone keypad. In the event you need assistance during this 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're 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 and AIF. Although management believes that the expectations agreed in these statements are reasonable, the expectations expressed in these 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. A reconciliation of these non-GAAP financial measures to IFRS measures can be found in the company's most recent MD&A. I would now like to turn the call over To Laura Dottori Adonazio, Chief Executive Officer. Please go ahead.

Good morning, and thanks for joining us today. Our Element team, guided by our purpose, is driving our global growth strategy, which continues to deliver meaningful value to our clients and our shareholders. 2024 marked a pivotal year for our company, highlighted by strong commercial success, important investments in our future, and record financial results. On the commercial front, we added 150 new clients, nearly half of whom transitioned from self-managed solutions, and we achieved strong share of wallet gains with the addition of over 1,000 new enrollments in additional services. On the investment front, We increased our spend to position our company for sustained industry leadership and future success. We completed the centralization of our US and Canada leasing operations in Dublin, including the establishment of a strategic sourcing presence in Asia. We acquired Autofleet, bringing in world-class talent and a global fleet optimization tech platform that will enable us to better serve our clients by accelerating our digitization and automation efforts with optimized mobility solutions and a distinct competitive advantage. We are laying the groundwork to enable exciting opportunities for growth in areas such as insurance, small to medium enterprise fleets, telematics, and EVs. On the financial front, Notwithstanding the planned acceleration of our strategic investments, which led to an increase in our expenses, we delivered adjusted operating margin within guidance, and we achieved double-digit year-over-year growth in each of net revenue, adjusted earnings per share, and adjusted free cash flow per share, with adjusted return on equity reaching 16%. Thanks to our strong performance in 2024, we redeemed our PREF shares, raised our annual common dividend, renewed and reactivated our normal course issuer bid, and we returned a total of $336 million to our shareholders. These achievements reflect the hard work and dedication of our team members alongside the strength and resilience of our business. While global trade issues will create volatility and economic impacts, we remain confident in our ability to deliver on our 2025 guidance. Our first priority is providing our clients with the right advice to help them navigate this situation successfully. The resilience of our business model, coupled with high investment-grade assets, diversified portfolio, and contracted recurring revenues, gives us confidence in our ability to deliver for our clients and our shareholders. Looking ahead, with the investments we've made in 2024, we expect to continue to grow organically and to considerably moderate our expense growth. Our investments made in 2024 are already beginning to bear fruit. In January of 2025, we announced Element Risk Solutions, a fully integrated insurance and risk management offering for our clients in the U.S. and Canada. In Q2 of 2025, we will be in market with the initial release of our new digital driver app, an effort that has been led by our colleagues at Autofleet, who will continually release new functionality throughout the year. And by Q3 of 2025, we will launch a new EV charger management platform, which gives us the ability to manage, control, and generate insights from chargers deployed in home, depot, or workplace settings, as well as integrate public charging access into a single platform. And this tool will be fully integrated with our digital driver app. And by Q4 of 2025, we will launch new digital vehicle ordering capabilities, including the introduction of a new offering for small to medium-sized fleets in Canada and the US. Prioritizing our clients' success with a digital-first approach by investing in better technology and automation while maintaining commercial momentum and operational excellence positions us well to continue to deliver strong results for 2025 and into the future. Now, before turning it over to Frank, I do want to thank him again for his leadership, his friendship, and his lasting impact on Element. Frank, we all wish you the very best in your well-deserved retirement. Over to you.

Good morning, everyone, and thank you for the kind words, Laura. It has been a privilege to work alongside you and the executive leadership team to guide Element over the past four years. 2024 was another outstanding year, and our team is prepared to continue this momentum in 2025. We concluded 2024 on solid footing, delivering record results and exceeding the high end of our guidance for net revenue and each of adjusted operating income, EPS, and free cash flow per share. As Laura mentioned, this strong performance allowed us to accelerate our strategic investments, which will drive innovation and position Element for continued success. Despite the anticipated increase in operating expense growth, largely a result of accelerated investments this year, we expanded adjusted operating margins by 30 basis points to 55.6%, excluding the impact of auto fleet. This result came in just above the high end of our 55 to 55.5% guidance range. Q4 adjusted operating margin was 54.1% after excluding the impact of auto fleet. This decline, as expected, reflects the impacts of accelerated strategic investments and typical seasonal factors affecting gain on sale. This morning, my comments will focus on our 2024 financial results and key factors impacting the quarter before turning it over to Heath, who will speak to our 2025 outlook and guidance. As always, the figures discussed are on an adjusted basis and exclude the costs related to Ireland leasing function in both 2024 and 2023. and the $7 million in expenses tied to the Autofleet acquisition, including severance and implementation costs. We closed the Autofleet acquisition on October 1st and are already realizing benefits, including accelerating our digital journey and actioning synergy opportunities. For the year, our adjusted operating income reached $601 million, up 13% year over year. This resulted in adjusted EPS of $1.12, which is a 14% increase from last year, while free cash flow per share grew 11% to $1.38. These increases were driven by double-digit revenue growth underpinned by continued commercial success and the effective execution of our global growth strategy. On a per-share basis, these strong results were partly offset by the $15.5 million increase and average common shares outstanding, primarily resulting from the Q2 conversion of our convertible debentures. Net revenue grew 13% year-over-year, reaching a record high of $1.1 billion in 2024. This growth was driven primarily by a robust 18% year-over-year increase in services revenue, which rose to $596 million. Additionally, net financing revenue grew by 9% over the same period. The strong services revenue performance in 2024 was largely attributable to higher penetration and utilization rates of our services by both new and existing clients. Net financing revenue grew 9% year over year to $450 million in 2024, supported by a 14% increase in net earning assets resulting from improved origination activity across all geographies offset in part by higher interest expense, which I will touch on shortly. Our strong net earning asset growth in 2024 was underpinned by an increase in origination volumes, driven by client demand and new vehicle pricing inflation, but moderated by the impact of foreign currency fluctuations. Impacting net financing revenue growth included, one, flat year-over-year gains on sale, as higher vehicle sales volume were offset by continued normalization in used vehicle pricing, Two, higher funding costs, standby fees. And three, increased interest expense from incremental debt linked to our preferred share redemptions and the auto fleet acquisition. The last item represents non-net earning asset components of interest expense and total $10 million in incremental interest expense. Excluding these factors and excluding gain on sale, net finance revenue growth would have reached 15% year over year. We syndicated a record 3.5 billion in assets in 2024, a 40% increase from 2023, highlighting the success of our capital lighter strategy and robust investor demand for our assets. Syndication revenue decreased 3 million or 6% year over year, primarily due to the Canadian $474 million bulk syndication of a Canadian lease portfolio to Black Zone in December. This transaction further diversifies our off-balance sheet funding sources, reduces leverage, and frees up capital for reinvestment and return to shareholders. Although not part of our core syndication program, the results of this sale are reported in syndication revenue, impacting syndication yield due to setup costs incurred in connection with the initial sale, the absence of bonus depreciation in Canada, and the unwinding of certain related hedges. Despite this short-term impact, the ability to strategically access other off-balance sheet markets is expected to benefit Element in 2025 and beyond. Syndication revenue and reduced net yield were also impacted by a reduction in bonus depreciation in the United States from 80 percent in 2023 to 60 percent in 2024, as well as a shift in syndication mix. Importantly, investor demand remains strong, with gross yield, or the price at which our investors value our assets, remaining stable when compared to 2023. Looking ahead, higher syndication yields are anticipated in 2025 as a result of continued strong investor demand, an improved portfolio mix, and the potential increase in U.S. bonus depreciation legislation later in 2025. This latter factor would provide revenue upside towards 2025 guidance. Turning to expenses, our robust revenue performance in 2024 allowed us to accelerate strategic investments. As expected, this led to a 13% year-over-year increase in expenses, well in excess of our normalized expense growth outlook. The growth, both for 2024 as a whole and during Q4, is predominantly a function of higher performance-based compensation aligned with our top-line outperformance relative to our initial guidance. The acceleration of our strategic investments, such as digitization and automation, and the development of new products, including insurance and small-medium enterprise fleets, and $3 million in operating expenses associated with auto fleet, which closed October 1. These costs reflect our commitment to modernizing our platform and bringing value-added solutions to our clients to sustain our industry leadership and enhance future growth opportunities. Further details on how we view the components of our expense growth in 2024 can be found in our supplementary document, including the operating expense waterfall on page 22. Lastly, I want to thank Laura and all Element team members for their support and their efforts over the past four years. Together, we have been executing on an ambitious growth strategy, and I am confident that it will drive both client success and the continued growth of Element in the future. As I move forward towards retirement at the end of March, I do so with the knowledge that every day I focus on serving all our constituents well by assisting in the provision of value-added service to our clients, providing opportunities for our employees and communities, and delivering strong financial results for our investors. We've achieved many great things together, and I have full confidence in Heath and our entire employee base to take the company forward on this strong trajectory. Thank you all for your trust and confidence. Over to Heath.