Release Date: November 14, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Element Fleet Management Corp (ELEEF, Financial) reported double-digit year-over-year growth in net revenue, adjusted EPS, and adjusted free cash flow per share.
- The company added 38 new clients this quarter, with a significant portion being self-managed conversions, enhancing service penetration and utilization rates.
- Element Fleet Management Corp (ELEEF) completed the acquisition of Autofleet, which is expected to accelerate digitization and automation efforts in fleet management.
- The company raised its annual common dividend to CAD0.52 and plans to renew its normal-course issuer bid to return capital to shareholders in 2025.
- Syndication volumes were up 32% year-over-year, highlighting the depth of this funding source and contributing to revenue growth.
Negative Points
- The effective tax rate increased to just under 26% due to year-to-date adjustments, with expectations for it to remain around 25% for the full year.
- Higher funding costs, including higher standby fees and interest expenses from the redemption of preferred shares, created modest compression to net finance revenue margins.
- The company experienced a loss of two single-service clients, which impacted VAM, although the impact on revenue was minimal.
- Adjusted operating expenses increased by 9% year-over-year, driven by higher salaries, wages, and professional fees.
- The devaluation of the Mexican peso posed a challenge, impacting revenue growth and necessitating increased peso funding at higher borrowing rates.
Q & A Highlights
Q: Can you explain the increase in the effective tax rate for 2025 and whether it relates to lower bonus depreciation? Also, will the cash tax rate increase next year?
A: The increase in the tax rate is about 50 basis points, mainly due to income earned in higher jurisdictional places like Mexico and ANZ. Bonus depreciation has no impact on our effective tax rate. We expect a modest increase in the cash tax rate, migrating closer to the OECD minimum rate of 15%.
Q: Can you provide more color on the operating margin outlook and the potential for expanding margins in 2025?
A: We anticipate strong underlying revenue growth of 11% to 13% before one-time items. Operating margins are expected to expand through 2025 as we scale and digitize our business. We will also reinvest in the business to drive future growth, ensuring revenue growth outpaces expense growth.
Q: Regarding client growth, can you explain the rationale behind some clients leaving and where you are winning new clients from?
A: We added almost 25,000 units with strong service attachment. Two clients, who were single-service clients, left, impacting about 22,000 units with minimal revenue impact. We continue to see strong service attachment rates with new clients.
Q: What progress has been made with the Autofleet acquisition, and is it included in the 2025 revenue guidance?
A: The Autofleet acquisition closed on October 1, and their results will be included from Q4 2024. We expect Autofleet to drive revenue growth through product penetration and strategic initiatives. The 2025 revenue guidance of 6.5% to 8.5% includes Autofleet's contributions.
Q: Can you clarify the factors influencing the decision on share repurchases and the expected activity for 2025?
A: Share repurchase decisions are based on free cash flow generation and leverage. With strong revenue and free cash flow growth projected for 2025, we anticipate increased activity in our share buyback program.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
