Element Fleet Management Corp.

Good morning and welcome to Element Fleet Management's second quarter 2025 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 the call, you may signal an operator by pressing star then 0. Elements 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 and annual information form. 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-gap 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 ND&A. I'd now like to turn the call over to Laura Dottori-Atanasio, Chief Executive Officer. Please go ahead.

Good morning, everyone, and thank you for joining us. Element delivered record results in the second quarter of 2025, extending the strong momentum that we established at the start of the year. These results reflect the strength of our business model, the disciplined execution of our global strategy, and most importantly, the relentless commitment of our team members to serve our clients and create long-term value for all stakeholders. In a macro environment characterized by elevated uncertainty and shifting global trade dynamics, our purpose and values continue to guide us with clarity and conviction. Our commitment to delivering value to our clients and stakeholders continues to be our top priority. We made meaningful commercial progress this quarter and delivered healthy, top-line growth with strong contributions from both our services and net financing revenue. At the same time, we maintained disciplined expense management, which supported our performance. We welcomed 46 new clients in the second quarter, the majority of which converted from self-managed fleets. And this highlights our increased traction in this important growth segment. We also added 265 new service enrollments, a strong continuation of our share of wallet expansion, further strengthening our recurring revenue base. Our strategic advisory services team identified over $390 million in savings opportunities for our clients, of which 43% was actioned. This is up significantly from last year's rate, reflecting how clients are increasingly turning to us to help drive efficiencies in today's dynamic operating environment, reaffirming the element value proposition. Our ongoing efforts have translated into solid year-over-year growth. Our committed order pipeline grew 6% and total client order volumes rose 9%. We also advanced our digital innovation agenda. Last week, we launched Element Mobility, a new strategic division dedicated to shaping the future of intelligent mobility. Under the leadership of Coby Eisenberg, Element Mobility represents a new chapter in how we anticipate the evolving needs of our clients. Our recently announced partnerships with industry leaders Samsara and Modus further enhance our ability to deliver more integrated, tech-enabled solutions for our clients. The creation of Element Mobility and these partnerships signal our intent to lead in intelligent mobility by deepening the breadth and functionality of our platform, allowing us to deliver more value and more insights for our clients. Lastly, we remain committed to advancing our sustainability agenda. Earlier this quarter, we released our fifth annual sustainability report, which reinforces our focus on transparency, environmental and social responsibility, and having a long-term positive impact in all that we do. With that, I'll hand it over to Heath to take you through the financials.

Thank you, Laura, and good morning, everyone. Our record second quarter results reaffirmed the strength and resilience of our business model and highlighted the continued progress we are making towards delivering on our financial objectives. We reported solid financial performance underpinned by healthy top line growth and disciplined expense management. This translated into adjusted earnings per share of $0.30 and free cash flow per share of $0.40, representing year-over-year growth at 7% and 8% respectively. Foreign exchange continues to be a headwind in Q2, though the impact moderated relative to Q1. On a year-over-year basis, the Mexican peso depreciated 13% against the US dollar, contributing to a $10 million reduction in net revenue and a $2 million benefit to adjusted operating expense, and a two cent decrease to diluted earnings per share. We anticipate the FX translation effect to continue easing in the second half of the year. Now, let us turn to our Q2 financials, which I will speak to on an adjusted basis. We generated net revenue of $290 million, an increase of 6% year over year, driven by strong growth in both services and net financing revenue. When adjusted for foreign exchange, net revenue grew 9%, outpacing the 7% increase in adjusted operating expenses and resulting in positive operating leverage of 2.5%. Services revenue increased 8% year over year to $151 million, reflecting increased penetration and utilization of our expanding suite of offering. Including a $3 million FX headwind services revenue grew a strong 10% year-over-year. Net financing revenue rose 4% year-over-year to $127 million, driven by the ongoing benefits resulting from both our leasing business and funding initiatives, along with strong gain on sale in both ANZ and Mexico. This was partly offset by higher funding costs associated with our preferred share redemptions and the auto fleet acquisition in October 2024. Excluding the $7 million FX impact, NFR grew a solid 10% year over year. Importantly, excluding gains on sale, our NFR yield for the first half of 2025 increased 20 basis points year over year, a strong outcome, especially considering the funding headwinds from our preferred share redemptions and the auto fleet acquisition in late 2024. Origination volumes totaled $1.9 billion year down 4% year-over-year, with foreign exchange contributing to the decline. Adjusted for FX, originations declined 2%, while on a quarter-over-quarter basis, originations grew 26%. We also saw continued momentum in client activity, with our committed order pipeline of $1.7 billion, reflecting strong year-over-year growth underpinned by resilient demand and commercial strength. Syndication revenue held steady at $12 million despite a $418 million reduction in volume year over year. This decline was intentional, driven by our decision to defer select syndication transactions to the second half of the year, aligning with the reinstatement of 100% bonus depreciation under the new US tax legislation effective early July. As previously communicated, we expect this change to deliver a favourable uplift to syndication yield, which we estimate could drive approximately $25 million in incremental annualised revenue. We do note, however, that our first half 2025 syndication yield has been strong due to client mix, and the uplift expected is relative to the syndication yields generated in 2024. Adjusted operating expenses of $128 million maintained the trend of moderating growth at 5% year-over-year. When combined with our solid net revenue growth, this resulted in adjusted operating margin of 55.8%. We remained focused on driving internal efficiencies and consistently generating positive operating leverage. Our adjusted return on equity rose to 17.5%, up 120 basis points year-over-year. underscoring the strength of our capital light model and discipline balance sheet management. In Q2, we returned $61 million to shareholders through dividends and share repurchases. Year to date, we have repurchased 3.1 million common shares, representing 64 million in capital deployed, reinforcing our commitment to share buybacks as a key pillar of our capital allocation strategy. As of June 30, our debt to capital ratio stood at 76.1% within our targeted range of 73 to 77%. Looking ahead, we anticipate finishing the year at or above the high end of our guidance ranges across all key financial metrics, with the exception of originations, which we expect will improve as macroeconomic uncertainty eases and businesses re-engage in capital planning and allocation. Despite operating in a complex external environment, we delivered a record quarter, achieving new heights in revenue, adjusted operating income, return on equity, diluted earnings per share, and free cash flow per share. We remain confident in our ability to sustain this momentum and continue delivering meaningful value to our clients and shareholders in the coming quarters. Thank you. Operator, we are now ready to take your questions.