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Element Fleet Q1 Originations Jump 11.3% Y/Y to $1.4B

May 11, 2022, 07:21 AM
Filed Under: Corporate Earnings

Element Fleet Management Corp. announced strong financial and operating results for the three months ended March 31, and management raised full-year 2022 results guidance. Q1 net income of $93.6 million represents 21 cents on a per share basis. Q1 adjusted operating income (AOI) of $142.9 million was $5.6 million higher than Q1 last year and, $20.3 million higher than last quarter.

“Element's strong first quarter results are a testament to our people and their dedication to our clients. Their considerable efforts pivoting the business to growth over the last two years are evident in our first quarter financial performance," said Jay Forbes, President and Chief Executive Officer. "What's more, this improved performance is sustainable, hence our revised full-year 2022 guidance."

"Our people deserve further recognition for their ongoing efforts," Forbes added. "Element continues to work tirelessly with our clients in a challenging environment for automotive fleets. Utilization of Element services is intensifying, and we are responding by consistently delivering a superior service experience in support of our clients, their vehicles and their drivers."


  • First-quarter originations of $1.4 billion constitute 11.3 percent growth from Q1 last year and 19.9 percent growth from last quarter
  • Element generated $0.21 EPS, $0.24 adjusted EPS and $0.29 FCF per share in Q1
  • The company raised full-year 2022 results guidance, indicating net revenue will grow 4-6 percent, AOI 4.5-7.5 percent, adjusted EPS 9-14 percent and FCF per share 10-15 percent from full-year 2021 results
  • Q1 net revenue grew 4.9 percent from Q1 last year and 6.2 percent from last quarter
  • The company's scalable operating platform magnified net revenue growth into pre-tax income growth of 15.1 percent and AOI growth of 16.6 percent from last quarter, expanding pre-tax income margin 370 bps to 48.1 percent and operating margin 485 bps to 54.8 percent
  • Capital-light services revenue grew 15.2 percent from Q1 last year and 6.6 percent from last quarter. Syndication revenue was $13.8 million for Q1. Services revenue growth and syndication combined to improve Q1 return on common equity 250 bps to 10.5 percent and pre-tax return on common equity 150 bps to 15.8 percent versus Q1 2021
  • Element returned $106 million cash to common shareholders in the quarter by way of dividends and share buybacks under the Company's NCIB

Profitable Revenue Growth Atop a Scalable Operating Platform
Element's first quarter net revenue grew 4.9 percent year-over-year and 6.2 percent quarter-over-quarter to $261 million, led by services revenue growth of 15.2 percent year-over-year and 6.6 percent quarter-over-quarter and net financing revenue growth of 3.7 percent year-over-year and 7.4 percent quarter-over-quarter.

The company's net revenue growth was demonstrably profitable as pre-tax income and AOI growth each outpaced net revenue growth quarter-over-quarter at 15.1 percent and 16.6 percent, respectively, expanding pre-tax income margin 370 basis points to 48.1 percent and operating margin 485 basis points to 54.8 percent for the first quarter.

Element's Q1 EPS were $0.21 and adjusted (i.e., operating) EPS were $0.24, the latter up 2 cents per share or 9.1 percent year-over-year and 3 cents or 14.3 percent quarter-over-quarter.

A Capital-lighter Business Model

Element's sale of fleet assets to third parties - financial buyers with a lower cost of capital - is one of two thrusts of the company's capital-lighter business model, and advances several aspects of Element’s profitable growth strategy:

  • Syndication generates a highly profitable, recurring revenue stream for the Company;
  • Syndication accelerates revenue recognition (while improving economics) and increases the velocity of cash flow; and
  • Syndication alleviates the need a growing Element would otherwise have to (i) increase the Company’s on-balance-sheet funding of assets and therefore (ii) set aside equity to manage the resulting pressure on leverage. Instead, syndication has allowed Element to grow while significantly lowering its tangible leverage ratio and, at the same time, returning $105.9 million cash to common shareholders thus far (at March 31) in 2022.

Element syndicated $661 million of assets in the first quarter, generating $13.8 million of syndication revenue or a 2.09 percent "yield" on assets syndicated.

The second thrust of Element's capital-lighter business model is services revenue growth, because services revenue has a low funding requirement – only the net working capital required for procurement – compared to net financing revenue.

First quarter services revenue grew 15.2 percent or $17.4 million year-over-year and 6.6 percent or $8.1 million quarter-over-quarter, for three broad reasons:

  1. The speed at which Element is converting share of wallet commercial wins into new active services being provided to existing clients (penetration);
  2. Element clients' increasing use of services (utilization) due to increased vehicle activity levels in general, and - as a result of the ongoing, unprecedented OEM production delays - the advanced average age of clients' vehicles in particular; and
  3. Fuel, parts and labor cost inflation across Element's networks of supplier-partners.

See the full release here.

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