Element Fleet Mgmt Q2 2026 Earnings Call Transcript

Element Fleet Mgmt (TSX: EFN ) released second-quarter financial results and hosted an earnings call on Thursday. Read the complete transcript below. APIs provide real-time access to earnings call transcripts and financial data. Visit to learn more.

Access the full call at Summary Element Fleet Mgmt reported a strong Q2 2026 with a 10% increase in adjusted net revenue and a 12% increase in adjusted EPS, demonstrating resilience and strategic execution. The company added 42 new clients and completed 247 additional service enrollments, emphasizing the value clients place on their service offerings. Element Fleet Mgmt announced a strategic partnership with Waymo, marking its entry into the autonomous vehicle sector, expected to contribute to service revenue growth starting in 2027.

The company initiated organizational changes leading to an 8% workforce reduction, aiming for $20 million in annual savings, aligning with its digital transformation efforts. 5% and significant share repurchases. Future priorities include growing the core business, deepening client relationships, and investing in mobility opportunities while maintaining disciplined execution. Full Transcript Sumit Malhotra, SVP & Head of Financial Performance Good morning and welcome to the Element Fleet Mgmt Q2 2026 Financial Results Conference Call.

My name is Sumit Malhotra, Senior Vice President and Head of Financial Performance here at Element Fleet Mgmt. Presenting to you on our call this morning are Laura Dottori-Attanasio, President and Chief Executive Officer of Element Fleet Mgmt, and Heath Valkenburg, Executive Vice President and Chief Financial Officer. Following our remarks, we'll be pleased to take your questions. Before we start, and on behalf of the executives speaking today, Element Fleet Mgmt 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 our company's 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. Element Fleet Mgmt 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, and with that I would now like to turn the call over to Laura. Laura Dottori-Attanasio, President and Chief Executive Officer Thanks, Sumit. Good morning everyone and thanks for joining us. Element Fleet Mgmt delivered another solid quarter reflecting the resilience of our business model and the consistent execution of our strategy.

6%, demonstrating both the quality of our earnings and the strength of our recurring revenue model. Our first half performance reinforces that we are executing against the priorities that matter most, delivering greater value for clients, operating more efficiently, and creating long term value for shareholders. Three themes stand out. First, our core business continues to perform well.

We delivered record first half revenue, our services revenue re-accelerated during the quarter and we advanced our capital light strategy through our inaugural equity residual transaction. Second, we continue to deepen client relationships by helping organizations lower fleet operating costs, improve vehicle uptime, and navigate an increasingly complex operating environment through data, technology and strategic advisory services. And third, we're extending Element Fleet Mgmt's leadership in intelligent mobility by applying the capabilities we've built over the years to the next generation of fleet solutions.

Turning to commercial performance, we added 42 new clients during the quarter, including 13 conversions from self-managed fleets to, and we completed 247 additional service enrollments with existing clients. These results demonstrate the growing value clients place on our broad service offering. Our Strategic Advisory Services team remains a key differentiator. During the quarter, the team identified about 482 million in potential client savings with 41% already being actioned.

Those are meaningful outcomes for clients and an important driver of long term client retention. We also announced a strategic partnership with Waymo, a powerful example of how our purpose to move the world through intelligent mobility is coming to life. And while autonomous mobility is an emerging market, the operational capabilities required to support it, including life cycle management, maintenance and operational execution at scale, align closely with Element Fleet Mgmt's core strengths. We are beginning our work with Waymo in San Diego and we expect to support future expansion as our partnership grows.

And as you can appreciate, this is a measured and highly relevant extension of our core capabilities into an evolving mobility segment where Element Fleet Mgmt has a clear right to win and can create meaningful value for clients and shareholders over time. We also continue to advance our digital and automation transformation. Digi Advisor, our AI-powered decisioning platform, combines connected vehicle data, service information and Element Fleet Mgmt's expertise to support faster, more consistent maintenance decisions. It's another example of how our technology advancements are improving the client experience while increasing our ability to scale efficiently.

Now, over the past several quarters we've invested in digitizing workflows, automating manual activities, strengthening our data infrastructure and simplifying how work gets done across the organization. During the quarter, those investments enabled us to initiate targeted organizational actions representing 8% of our workforce, positioning us to deliver approximately $20 million of annualized run rate savings in 20. This reflects our ongoing focus on building a simpler, more efficient and more scalable organization while continuing to invest in future growth. And as we look to the second half of 2026, our priorities remain unchanged.

We will continue to grow our core business. We will continue to deepen client relationships and invest selectively in capabilities and mobility opportunities and maintain disciplined execution to create long term shareholder value. And with that, I'll turn the call over to Heath to discuss our financial results in more detail. Heath Valkenburg, EVP and Chief Financial Officer Thank you, Laura, and good morning everyone.

Element Fleet Mgmt delivered solid financial results in the second quarter, supported by the durability of our business model, disciplined execution and continued progress of our capital light strategy. 6%, demonstrating the capital efficiency in our business model. I will now walk through the components of our performance on an adjusted basis. Net revenue was $318 million, up 10% year over year with solid contributions from each of our categories.

Service revenue was $164 million, continuing the expected reacceleration and increasing 8% from the prior year. The year-over-year increase was supported by growth in vehicles under management and higher services revenue per VUM. 56 million, an increase of 3% year over year. Consistent growth in VUM remains a key attribute in driving our top line performance and we continue to target annual VUM growth of 2% to 4%.

We remain encouraged by this performance and continued growth in VUM and services further strengthens the recurring and capital light nature of our earnings profile. Net financing revenue was $136 million, up 7% from the prior year. The increase reflected growth in average net earning assets, benefits from our leasing initiative and the continued evolution of our funding platform. The solid NFR growth was achieved despite the provision for credit loss associated with the client-specific matter we discussed last quarter.

We are now fully provided for that exposure and due to the high quality of our lease portfolio, we expect annual credit losses will remain within our historical range of approximately 1 to 2 basis points. Over time. 12%, demonstrating continued expansion while absorbing higher PCL. Syndication revenue was $18 million, an increase of 58% year over year.

The increase was supported by higher syndication volumes, continued investor demand, and the reinstatement of 100% bonus depreciation. Syndication remains an important balance sheet management tool and our new equity residual structure adds a complementary funding channel. As the structure scales, Element can allocate volume across channels to enhance funding capacity, capital efficiency, and our return profile over time. 7 billion in the quarter, down 9% year over year and up 19% sequentially.

The year-over-year decline primarily reflected the expected normalisation in activity from the originate-to-syndicate client we discussed last quarter. Excluding the impact of this client, originations increased 4% during the first six months of 2026 compared to the prior-year period. As this client's activity peaked in the second quarter of 2025, the year-over-year comparison is expected to become more favorable through the balance of 2026. Sequentially, originations increased across all regions, reflecting continued commercial momentum and the conversion of our order pipeline into funded assets.

It is also important to view originations in the context of our broader business model. Approximately 60% of our vehicles under management are service-only and do not require Element to provide financing. In addition, quarterly originations can fluctuate based on the timing of client purchasing decisions, whereas our earnings are supported by a much broader set of drivers, including growth in our vehicles under management. While variability in originations can occur, we would note net financing revenue has continued to consistently increase year over year, benefiting from higher net earning assets and ongoing expansion in NFR yield.

Turning to expenses, the $141 million total in Q2 was slightly down quarter over quarter and up 10% from the prior year. The year-over-year change reflected continued investment in Car IQ, Waymo, and our digital capabilities, together with inflation and higher depreciation. As Laura noted, we initiated organizational actions in Q2 that were supported by prior investments in digitization, automation, and process simplification.

Once fully implemented, these actions are expected to generate approximately $20 million in annual run-rate savings, helping moderate expense growth in 2027 while supporting a more scalable cost structure, enhancing service quality, and enabling continued investment in strategic growth priorities. 6%. 9%, reflecting positive operating leverage across the first half. 39 in the quarter, down 3% year over year, reflecting higher cash tax payments.

In certain jurisdictions, cash tax payments can vary between quarters, as demonstrated by adjusted free cash flow per share increasing 11% year over year during the first six months of 2026. 5%, within our targeted range of 73% to 77%. This reflects continued discipline in managing leverage and ties back to the broader funding initiatives discussed earlier. Our inaugural equity residual transaction with CPP Investments and Blackstone represents an important evolution in our funding strategy.

It adds a complementary channel alongside traditional syndications and provides greater flexibility in how we deploy capital. Importantly, we're already seeing the benefits of this enhanced flexibility. 8 million common shares. 4 million shares that we repurchased in all of 2025.

We will continue to deploy capital with discipline, using our enhanced flexibility to be opportunistic during periods of market dislocation. In summary, our first half results demonstrate the resilience and strength of the Element Fleet Mgmt business model. In the first six months of the year, revenue grew 13% on a year-over-year basis. EPS increased 18% and free cash flow per share rose 11%.

Services revenue continues to reaccelerate and, as our partnership with Waymo launches in early 2027, we expect that our entry into the autonomous vehicle sector will add to our services growth. At the same time, our investments in technology and growth initiatives are now providing us with the ability to further improve our organizational efficiency and support positive operating leverage as the business scales. Our new funding structure also provides us with greater balance sheet flexibility that we will utilize on behalf of our shareholders.

With a solid first half behind us, continued momentum in the core business, and enhanced capital-light funding capabilities, we remain well positioned to deliver within our full-year 2026 guidance ranges. Thank you, operator. We are now ready to take questions. OPERATOR (Operator) Analysts who wish to join the question queue, you may press star then 1-1 on your telephone keypad.

You will hear a tone acknowledging your request. If you are using the speakerphone, please pick up your handset before pressing any keys. To withdraw your question, press star one. Again, we ask that you please limit yourselves to two questions and then re-queue.

We'll pause for a moment as callers join the queue. The first question is from Nick Brady. Nick Brady, Analyst Good morning, this is Nick Brady filling in for Basil. Just on servicing revenue, I know growth picked up to 8% this quarter.

Can you maybe speak to your mid- to long-term target for that business? Can it return to a double-digit grower and, if so, is that mainly from loan growth accelerating or monetization of additional services? Thank you. Heath Valkenburg, EVP and Chief Financial Officer Yeah, good morning, Nick.

So as we think about medium-term growth, we've always guided the market to a 6% to 8% revenue growth and then the composition of that, the service revenue growth over the medium term will be higher, a higher contribution to that growth relative to financing income. In terms of where that growth comes from, number one, it's expanding our portfolio, so growing our vehicles under management, and we target 2% to 4% growth on an annual basis for VUM. Additionally, we always see the impact of inflation coming through with a lot of our service revenue driven by pass-through items.

And then we continually drive increased product penetration of our existing products into our portfolio. And that's a combination of our traditional products that we have, but also the new products that we have brought to market, whether it's route optimisation or the new Car IQ product that we acquired. And then the additional one that I would mention are other initiatives, and something like the Waymo autonomous vehicle space is another area that will drive stronger service revenue growth into the future. Nick Brady, Analyst Got it, thank you.

And then just one quick follow-up question. You mentioned the core NFR yield continued to rise. How much higher can that yield get and maybe what are the biggest drivers there? Is it mainly just cost of funds improvement or some of the other moving pieces?

Thank you. Heath Valkenburg, EVP and Chief Financial Officer Yeah, so we were pleased with another really solid yield in our NFR for the quarter, and really it reflects the continued benefit from our leasing initiatives. So we set up our leasing business a number of years ago and we're seeing the benefits of that coming through. S.

Treasuries, and that's actually our most efficient debt funding to date. So this enables us to refinance higher debt costs at more attractive terms. 12% despite some higher credit loss provisions that we expect will normalise over time. In terms of the look-forward on that yield, we think that these improvement items are durable drivers and should continue into the future.

Having said that, it's important for us to balance increased yield with growth and new client wins. And the benefits of our lower funding costs can drive strong NFR yield, but also enables us the ability to pass some of that on to clients to drive growth into the future. OPERATOR (Operator) The next question is from Bart Dzarski with RBC Capital Markets. Bart Dzarski, Analyst at RBC Capital Markets Great, thanks and good morning everyone.