Element Reports Strong Fourth Quarter and Record 2023 Results, Provides Update on Strategic Initiatives

Amounts in $CAD unless otherwise noted

• Record net revenue of $1.3 billion driving record operating margins, adjusted earnings, and adjusted free cash flow per share
• Strong performance driven by a 35.8% increase in new originations, continued commercial success in converting self-managed fleets, increasing share of wallet with existing clients, and earning share from competitors
• Delivered adjusted operating margin expansion of 110 bps in 2023 while strategically reinvesting in the business and people to support future growth
• Strategic initiatives, Ireland Leasing Function and Asian Strategic Procurement, on track for mid-2024 “go live”
• Adoption of U.S. dollar reporting as the presentation currency beginning in Q1 2024
• Returned $344.8 million of cash to shareholders through increased common dividends, share buybacks and preferred share redemption

TORONTO, Feb. 27, 2024 (GLOBE NEWSWIRE) — Element Fleet Management Corp. (TSX:EFN) (“Element” or the “Company”), the largest publicly traded, pure-play automotive fleet manager in the world, today announced strong financial and operating results for the three months ended December 31, 2023 and record results for full-year 2023.

1. Q4 2023 and 2023 include $14.6 million and $18.5 million, respectively, in one-time strategic project costs. 2022 includes $25.0 million in non-recurring revenue as previously disclosed.
2. Adjusted results are non-GAAP or supplemental financial measures, which do not have any standard meaning prescribed by GAAP under IFRS and are therefore unlikely to be comparable to similar measures presented by other issuers. For further information, please see the “IFRS to Non-GAAP Reconciliations” section in this earnings release. The Company uses “Adjusted Results” because it believes that they provide useful information to investors regarding its performance and results of operations.

Commenting on Element’s financial performance, Laura Dottori-Attanasio, Chief Executive Officer said, “Element has achieved strong success, culminating in a year of unprecedented revenue, profit and adjusted free cash flow. Our dedication to our shareholders has driven strong financial outcomes, enabling investments in our business for 2024. This sets the stage for Element to better assist our clients to thrive in the ever-evolving mobility, vehicle connectivity and fleet electrification landscape. Our greatest opportunities lie ahead as we embark on digital and automation initiatives that will elevate client satisfaction, streamline operations and foster stronger client relationships.”

Profitable revenue growth

Element grew net revenue 14.3% over 2022 (“year-over-year”) to $1.3 billion. On an adjusted basis, net revenue grew 16.9% year-over-year and AOI grew 19.4% year-over-year to $715.8 million.

2023 EPS were $1.13, up 17 cents year-over-year. On an adjusted basis, EPS were $1.32 in 2023, up 27 cents over 2022.

A capital-lighter business model

2023 services revenue grew 16.7% year-over-year to $678.2 million. On an adjusted basis, services revenue grew by 19.0% or $108.2 million.

2023 syndication volume was $3.4 billion, reflecting the strong demand for Element’s assets while 2023 syndication revenue remained relatively unchanged at $61.5 million notwithstanding $5.0 million of non-recurring syndication revenue recorded in 2022. On an adjusted basis, syndication revenue grew 7.3% or $4.2 million as higher volume more than offset yield compression resulting from a rising interest rate environment.

Growing adjusted free cash flow per share and return of capital to shareholders

On an adjusted basis, Element generated $1.67 of adjusted free cash flow (“FCF”) per share in 2023 – 36 cents more year-over-year driven primarily by higher originations, strong commercial performance and a year-over-year increase in services revenue.

Element returned $229.8 million of cash to common shareholders through dividends and buybacks of common shares in 2023 – and $344.8 million to shareholders, including the Company’s $115 million Series A preferred share redemption in Q4 2023 (described further below). Element’s common share dividend target payout ratio remains unchanged at 25% to 35% of the Company’s last twelve months’ adjusted FCF per share.

Capital Structure and Share Repurchase Authorization

On December 28, 2023, the Company redeemed all of its 4,600,000 outstanding Cumulative 5-Year Rate Reset Preferred Shares Series A (“Series A Shares”) at a price of $25.00 per Series A share for an aggregate total of approximately $115 million (as previously disclosed).

To further optimize its balance sheet and mature its capital structure, the Company today reaffirmed its intention to use a portion of its adjusted free cash flow to redeem all its outstanding 6.21% Cumulative 5-Year Rate Reset Preferred Shares Series C (June 2024) and 5.903% Cumulative 5-Year Rate Reset Preferred Shares Series E (September 2024) for approximate aggregate total amounts of $128 million and $133 million, respectively.

The Company also has approximately $169.4 million in 4.25% convertible debentures as of February 27, 2024, that are convertible into an aggregate of approximately 14.6 million common shares in June 2024.

Transition to U.S. dollar reporting

The Company also announced today its intention to transition all its financial reporting currency from the Canadian dollar to the U.S. dollar, effective Q1 2024. Consequently, the Company’s first quarter results for the three-month period ending March 31, 2024, tentatively scheduled for publication in May 2024, and all subsequent financial information, will be presented in U.S. dollars. The change will be applied retrospectively, leveraging the translation methodology defined in IAS 21 The Effects of Changes in Foreign Exchange Rates to re-present its financial statements and operating results.

The Company cautions readers that this strategic move to U.S. dollar reporting does not entirely eliminate foreign exchange fluctuations from its financial performance. Instead, it limits the Company’s exposure to the movements of other currencies, such as the Mexican Peso and the Australian and New Zealand dollar against the U.S. dollar. 2023 Net Revenues derived in US dollars represented approximately 62% of total revenues while Mexican Pesos, Australian and New Zealand Dollars and Canadian Dollars represented 15%, 13%, 5% and 5% of Net Revenues, respectively. As a result, starting this quarter, the Company will no longer present and report its financial performance in constant currency.

The following table provides select financial highlights as reported in Canadian dollars alongside select pro-forma² financial highlights in U.S. dollars for the 12 months ended 2023 and 2022.

3. Adjusted results and pro-forma financial highlights are non-GAAP financial measures, which do not have any standard meaning prescribed by GAAP under IFRS and are therefore unlikely to be comparable to similar measures presented by other issuers. The presentation above is provided for general information purposes only and should not be used as a substitute for GAAP measures.

The Company expects this change to provide several key benefits:

• Enhance alignment between performance reporting and funding and business exposures, which are predominately in U.S. dollars,
• Improve the comparability of financial statements,
• Simplify financial reporting, and
• Increase attractiveness to a broader investor audience.

While the Company’s reporting currency is changing, its roots remain firmly planted. The Company will continue to be headquartered in Toronto, Canada, maintain its listing on the Toronto Stock Exchange, with its shares quoted in Canadian dollars, and pay dividends in Canadian dollars, if declared by the Board.

To assist shareholders during this transition, the Company has prepared select unaudited pro-forma financial statements and highlights for the full years of 2023 and 2022 in U.S. dollars. These can be accessed in the Supplemental Financial Information package on the Company’s website at www.elementfleet.com. 

Full-year 2024 results guidance

The Company reaffirms its previously disclosed 2024 guidance ranges. While the Company intends to commence U.S. dollar reporting in Q1 2024, it re-presents its guidance ranges for 2024 in U.S. dollars. Additionally, the Company has provided guidance on origination volume for full-year 2024.

Element affirms its ability to deliver the above results for full-year 2024 given positive operational momentum, sustained commercial success, and resilient client demand for the Company’s services.

Element’s full-year 2024 results guidance ranges exclude non-recurring setup costs to be incurred by the Company as it continues to invest in the strategic initiatives announced previously in Q3 2023.

Strategic initiatives update

As previously disclosed, Element plans to optimize its business further by centralizing accountability for its U.S. and Canadian leasing operations in Ireland, establishing a strategic sourcing presence in Asia, and prioritizing digitization and automation initiatives to enable future growth and operational efficiencies. The Company’s leasing and strategic sourcing initiatives remain on track to be operational by mid-2024.

Non-recurring setup costs

The above initiatives require approximately $30 million (total) in non-recurring setup costs, of which $14.6 million were incurred in Q4 2023 and $3.9 million in Q3 2023 ($18.5 million in aggregate in 2023). The vast majority of the remaining non-recurring setup costs are expected to be incurred evenly over the next two quarters.

Element continues to expect these strategic initiatives to:

• Contribute profitable net revenue growth and operational efficiencies beginning in 2025;
• Fully recoup the $30 million (total) of related non-recurring setup costs within approximately 2.5 years; and
• Generate between $40 – $60 million of run-rate net revenue, and between $30 – $50 million of run-rate adjusted operating income (“AOI”), by full-year 2028.

The Company’s key elements of progress include the following:

Centralizing accountability for U.S. and Canadian leasing

Chris Gittens (who has previously led our Canadian business, our Strategic Relationships business focused on ‘mega’ fleets, and – most recently – was our Chief Information Officer), and several other existing Element executives will be moving to the Company’s new office in Dublin to oversee the operation. The Company is also focused on adding several key local executives. They will bring fresh ideas and specialized leasing expertise, further strengthening our leadership team in Ireland. The Company has partnered with three Dublin-based recruiting firms and the Irish Foreign Direct Investment Agency with the goal of filling all key leadership positions by mid-2024.

Establishing a strategic sourcing and relationship management presence in Asia

The Company is also progressing toward enhancing its global procurement capabilities and forging new strategic sourcing relationships in Asia. Element has successfully registered its company name, a key milestone that formally establishes their presence in the region. Element will be adding a key executive who will bring with them a wealth of knowledge and expertise about the region.

Prioritizing digitization and automation

The Company’s greatest opportunities lie in accelerating digital and automation initiatives, which it believes will provide an enhanced client experience, drive operating efficiencies, expand existing client relationships to include greater penetration of capital-light services revenue, and position it to help clients thrive in the ever-evolving mobility, and vehicle connectivity landscape. Element is in the early stages of a journey to redefine its digital capabilities by executing a robust carefully crafted technology roadmap in order to better support its growth ambitions by allowing it to scale operations more quickly and to provide an enhanced client experience.

Conference Call and Webcast

A conference call to discuss these results will be held on Wednesday, February 28, 2024 at 8:00 a.m. Eastern Time.

The conference call and webcast can be accessed as follows:

A taped recording of the conference call may be accessed through March 28, 2024 by dialing 1-800-319-6413 or +1-604-638-9010 and entering the access code 0632.

Dividends Declared

The Company’s Board has authorized and declared a quarterly dividend of $0.12 per outstanding common share of Element for the first quarter of 2024. The dividend will be paid on April 15, 2024 to shareholders of record as at the close of business on March 28, 2024.

Element’s Board of Directors also declared the following dividends on Element’s preferred shares:

The Company’s common and preferred share dividends are designated to be eligible dividends for purposes of section 89(1) of the Income Tax Act (Canada).

Normal Course Issuer Bid

On November 13, 2023, the Toronto Stock Exchange approved the Company’s intention to renew its normal course issuer bid (the “2023 NCIB”). Under the 2023 NCIB, the Company has approval from the TSX to purchase up to 38,852,159 common shares during the period from November 15, 2023, to November 14, 2024. There cannot be any assurance as to how many common shares, if any, will ultimately be purchased pursuant to the 2023 NCIB.

During Q4 2023, we purchased 153,473 common shares for cancellation (under the previous NCIB), for an aggregate amount of approximately $3.0 million at a volume weighted average price of $19.56 per common share. Under the previous NCIB that commenced on November 15, 2022 and ended on November 14, 2023, 3,984,022 common shares were repurchased for cancellation, for an aggregate amount of approximately $73.9 million at a volume weighted average price of $18.56 per common share.

Element applies trade date accounting in determining the date on which the share repurchase is reflected in the consolidated financial statements. Trade date accounting is the date on which the Company commits itself to purchase the shares.

IFRS to Non-GAAP Reconciliations, Non-GAAP Measures and Supplemental Information

The Company’s audited consolidated financial statements have been prepared in accordance with IFRS as issued by the IASB and the accounting policies we adopted in accordance with IFRS. These audited consolidated financial statements reflect all adjustments that are, in the opinion of management, necessary to present fairly our financial position as at December 31, 2023 and December 31, 2022, the results of operations, comprehensive income and cash flows for the three-month period-ended and year-ended December 31, 2023 and December 31, 2022.

Non-GAAP and IFRS key annualized operating ratios and per share information of the operations of the Company:

Management also uses a variety of both IFRS and non-GAAP and Supplemental Measures, and non-GAAP ratios to monitor and assess their operating performance. The Company uses these non-GAAP and Supplemental Financial Measures because they believe that they may provide useful information to investors regarding their performance and results of operations.

The following table provides a reconciliation of certain IFRS to non-GAAP measures related to the operations of the Company and other supplemental information.

The following table summarizes key statement of financial position amounts for the periods presented.

Throughout this press release, management uses the following terms and ratios which do not have a standardized meaning under IFRS and are unlikely to be comparable to similar measures presented by other organizations. Non-GAAP measures are reported in addition to, and should not be considered alternatives to, measures of performance according to IFRS.

Adjusted operating expenses

Adjusted operating expenses are equal to salaries, wages and benefits, general and administrative expenses, and depreciation and amortization less adjusting items impacting operating expenses. The following table reconciles the Company’s reported expenses to adjusted operating expenses.

Adjusted operating income or Pre-tax adjusted operating income

Adjusted operating income reflects net income or loss for the period adjusted for the amortization of debenture discount, share-based compensation, amortization of intangible assets from acquisitions, provision for or recovery of income taxes, loss or income on investments, and adjusting items from the table below.

The following tables reconciles income before taxes to adjusted operating income.

Adjusted operating margin

Adjusted operating margin is the adjusted operating income before taxes for the period divided by the net revenue for the period.

After-tax adjusted operating income

After-tax adjusted operating income reflects the adjusted operating income after the application of the Company’s effective tax rates.

Adjusted net income

Adjusted net income reflects reported net income less the after-tax impacts of adjusting items. The following table reconciles reported net income to adjusted net income.

After-tax adjusted operating income attributable to common shareholders

After-tax adjusted operating income attributable to common shareholders is computed as after-tax adjusted operating income less the cumulative preferred share dividends for the period.

About Element Fleet Management

Element Fleet Management (TSX: EFN) is the largest publicly traded, pure-play automotive fleet manager in the world, providing the full range of fleet services and solutions to a growing base of loyal, world-class clients – corporates, governments and not-for-profits – across North America, Australia and New Zealand. Element enjoys proven resilient cash flow, a proportion of which is returned to shareholders in the form of dividends and share buybacks; positive operating leverage; and an evolving capital-lighter business model that enhances return on equity. Element’s services address every aspect of clients’ fleet requirements, from vehicle acquisition, maintenance, accidents and remarketing, to integrating EVs and managing the complexity of gradual fleet electrification. Clients benefit from Element’s expertise as one of the largest fleet solutions provider in its markets, offering unmatched economies of scale and insight used to reduce fleet operating costs and improve productivity and performance. For more information, visit elementfleet.com/investor-relations.

This press release includes forward-looking statements regarding Element and its business. Such statements are based on the current expectations and views of future events of Element’s management. In some cases the forward-looking statements can be identified by words or phrases such as “may”, “will”, “expect”, “plan”, “anticipate”, “intend”, “potential”, “estimate”, “believe” or the negative of these terms, or other similar expressions intended to identify forward-looking statements, including, among others, statements regarding Element’s enhancements to clients’ service experience and service levels; enhancement of financial performance; improvements to client retention trends; reduction of operating expenses; increases in efficiency; EV strategy and capabilities; global EV adoption rates; dividend policy and the payment of future dividends; Element’s expectation and ability to redeem its preferred shares; the costs and benefits of strategic initiatives; creation of value for all stakeholders; expectations regarding syndication; growth prospects and expected revenue growth; level of workforce engagement; improvements to magnitude and quality of earnings; executive hiring and retention; focus and discipline in investing; balance sheet management and plans with respect to leverage ratios; anticipated benefits of the balanced scorecard initiative; Element’s proposed share purchases, including the number of common shares to be repurchased, the timing thereof and TSX acceptance of the NCIB and any renewal thereof; and expectations regarding financial performance. No forward-looking statement can be guaranteed. Forward-looking statements and information by their nature are based on assumptions and involve known and unknown risks, uncertainties and other factors which may cause Element’s actual results, performance or achievements, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statement or information. Accordingly, readers should not place undue reliance on any forward-looking statements or information. Such risks and uncertainties include those regarding the fleet management and finance industries, economic factors and many other factors beyond the control of Element. A discussion of the material risks and assumptions associated with this outlook can be found in Element’s annual MD&A, and Annual Information Form for the year ended December 31, 2023, each of which has been filed on SEDAR and can be accessed at www.sedarplus.ca. Except as required by applicable securities laws, forward-looking statements speak only as of the date on which they are made and Element undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events, or otherwise.

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