Element Fleet Management Corp.

Good morning, and welcome to Element Fleet Management's first quarter 2025 financial and operating results conference call. At this time, all participants are in a 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 one on your telephone keypad. 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 risk 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 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. 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 conference call over to Ms. Laura Dottore Atanasio, Chief Executive Officer. The floor is yours, ma'am.

Good morning, and thank you for joining us. Element is off to a strong start in 2025, building on the momentum of a record year in 2024. Our strong financial and operational resilience combined with ongoing commercial momentum resulted in solid net revenue growth year over year, even with meaningful movements in foreign exchange rates. And as we communicated last quarter, our adjusted operating expense growth moderated, and we expect this trend to continue throughout 2025. Our business fundamentals remain strong. We believe that key elements of our business, such as the impact of capital cost inflation and our growing portfolio of services, help counterbalance potential economic pressures. The evolving global trade dynamic presents opportunities to deepen relationships with existing clients and establish new ones. Clients increasingly rely on elements expertise and industry leadership to navigate complex challenges. In times of change, our purpose and value proposition become even more essential. We're committed to helping clients lower their total fleet operating costs while delivering an exceptional client experience. For example, our strategic advisory team identified over $1.5 billion in data-driven savings opportunities for clients last year and an additional $380 million this quarter. We remain confident in our ability to adapt, sustain momentum, and create lasting value for our clients and our shareholders. Several factors underpin this confidence. Our ongoing commercial momentum continues to grow with 34 new clients added this quarter. These included converting self-managed fleets and gaining share from our competitors. Additionally, we saw another solid quarter of share of wallet growth, adding 246 service enrollments. Our client order volumes have been strong over the past two quarters, which we expect will drive increased originations. Our Dublin-based leasing initiative remains on track to meet revenue and operating income targets. Early feedback on our recently launched insurance initiative has been promising, with clients actively engaging with our commercial team. Our digital strategy is progressing as planned, highlighted by advancements such as our digital driver app, enhanced client reporting portal, and continued investment in our ordering platform. Lastly, we are committed to investing in our digital capabilities to enhance existing service delivery further elevate the client experience, and deepening digital engagement with clients. Before I turn it over to Heath, I want to acknowledge the continued efforts of our global team. Thank you all for your dedication and your commitment, as well as your consistent focus on delivering for our clients and our shareholders. Heath, over to you.

Thank you, Laura, and good morning, everyone. We started the year with solid financial performance, driven by our resilient business model and strong balance sheet. Year over year, net revenue growth and positive operating leverage resulted in adjusted operating income of $151 million, free cash flow per share of $0.36 and earnings per share of $0.28. Additionally, our return on equity continues to expand, reaching 16.7% this quarter, Before turning to the financials, let me address two key factors influencing our Q1 results. First, significant foreign currency movements impacted our comparisons on many metrics. Year over year, the Mexican peso depreciated by 20% against the US dollar, while the Australian dollar declined 5%. This reduced net revenue by $17 million, operating expenses by $4 million, adjusted operating income by $13 million, and diluted EPS by two cents. And second, in Q1 2024, services revenue benefited from $7 million in certain non-recurring items disclosed last year. Now, let's turn our focus to the key growth drivers for Q1. The figures discussed will be on an adjusted basis and exclude the impact of the $7 million in non-recurring services revenue from Q1 last year. Net revenue increased 8% year over year to $276 million this quarter, driven by growth across all categories. This compares favourably with the 5% growth in adjusted operating expenses over the same period, resulting in positive operating leverage of 2.9%. Services revenue grew 9% year over year to $152 million. driven primarily by higher penetration and utilisation from new and existing clients. Excluding foreign currency translation, which had a $6 million impact, services revenue grew by a robust 13% year-over-year. Net financing revenue grew 4% year-over-year to $112 million, led by strong growth in financing income driven by pricing and funding initiatives. This was partly offset by higher funding costs associated with the increased interest expense from debt associated with our preferred share redemption and auto fleet acquisition. Gain on sale declined year over year due to the unfavourable currency translation, but higher unit volumes continue to offset used vehicle price normalisation. The aggregate impact of foreign exchange translation reduced net financing revenue by 11 million year over year. While origination volumes were down year over year, this was largely a function of foreign currency translation impacts. Excluding FX, originations were up modestly. Origination activity in our largest region, the US and Canada, saw an impressive 13% quarter-over-quarter increase, an encouraging sign of our strength and business resilience. This growth was largely tempered by declines in Mexico and Australia, where activity stepped back from Q4 due to seasonal factors. Client order volumes have been strong over the past two quarters, which positions us well for higher originations and continued growth in net financing revenue in the coming quarters. In addition, our core vehicles under management increased 4% year over year, at the high end of our expected 2% to 4% annual range. Net financing revenue continued to benefit from improvements and diversification of our funding sources and pricing initiatives. In March, we completed a private offering of $650 million in senior notes. This will replace notes due to mature in June. Importantly, the spread we were able to achieve in this transaction represented a 247 basis point improvement versus our maturing notes. indicative of our reduced cost of funding. We syndicated 574 million assets this quarter, a 21% increase from Q1 last year, but down from Q4 due to the 346 million bulk syndication of a Canadian lease portfolio to Blackstone in December. Syndication revenue increased by 3 million, or 41% year-over-year, largely attributable to higher net yields and higher syndication volume. The higher net yield in Q1 reflects a favourable syndication mix, offsetting the scheduled reduction in bonus depreciation in 2025. This quarter, we strategically delayed certain syndication activity to the second half of the year, anticipating US tax legislation changes that could reinstate bonus depreciation back to 100%. Turning to expenses, Q1 adjusted operating expenses totaled $125 million, with year-over-year growth moderating to 5% as anticipated. This trend is expected to continue throughout the year. Solid net revenue growth and moderated expense growth resulted in adjusted operating margin of 54.7% in Q1, which represents expansion of 125 basis points year-over-year. We remain focused on discipline expense management in order to deliver on our 2025 adjusted operating margin target range of between 55.5% and 56.5%. Our debt to capital ratio ended March at 74.9% at the midpoint of our 73% to 77% target range. We returned $77 million to shareholders through common dividends and share repurchases. We repurchased 2.2 million shares in Q1 for total consideration of $40 million, with an additional 600,000 shares repurchased in April. It is worth noting that our heightened NCIB activity in 2025 reflects an opportunistic approach that is not indicative of the future quarterly run rate. Looking ahead, our momentum is strong. We remain ready to adapt, innovate, and drive forward at pace to further enhance the client experience while consistently delivering value to our investors and clients. Thank you. Operator, we are now ready for questions.