Element Fleet Management Reports Q3 Revenue Growth and 2027 Outlook

Element Fleet Mgmt (TSX: EFN ) reported third-quarter financial results on Wednesday. The transcript from the company's third-quarter earnings call has been provided below. This transcript is brought to you APIs. For real-time access to our entire catalog, please visit for a consultation.

View the webcast at Summary Element Fleet Mgmt reported Q3 2026 net revenue of $321 million, a 5% year-over-year increase, with adjusted EPS up 6% to $0.35 and free cash flow per share up 7% to $0.45. The company acknowledged slower revenue growth, especially in the U.S. and Canada, and is addressing this by focusing on improving commercial execution and pipeline management. Strategic initiatives include a partnership with Waymo for fleet services and the launch of ElementPay, a vehicle-based payment solution, both aimed at expanding market presence and revenue streams.

Management emphasized a disciplined approach to capital allocation, maintaining a strong balance sheet, and increased share repurchases as an attractive use of capital. Guidance for 2027 predicts low single-digit net revenue growth, with a focus on improving productivity and operational efficiencies to support earnings and free cash flow growth. Full Transcript Sumit Malhotra (Senior Vice President and Head of Financial Performance) Good morning and welcome to the Element Fleet Mgmt Q3 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 will 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 the 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 like to now turn the call over to Laura. Laura Dottori-Attanasio (President and Chief Executive Officer) Thank you, Sumit. Good morning, everyone, and thank you for joining us. In the third quarter, Element Fleet Mgmt continued to deliver strong profitability, attractive returns on equity, and robust cash generation.

At the same time, our revenue growth has moderated. We recognize that our commercial performance, particularly in the U.S. and Canada, has not met our expectations, and we have taken decisive steps to address this. Today I want to focus on our underlying business strengths, the actions underway to improve execution, and how we are positioning Element Fleet Mgmt for sustainable, profitable growth.

Now let me start with the strength of our franchise. Element Fleet Mgmt is a global leader in commercial fleet management with deeply embedded client relationships, highly recurring revenue, and significant competitive advantages in scale, purchasing power, supplier relationships, data, technology, and funding. Our services are mission critical to clients, helping them operate their fleets more efficiently, safely, and cost effectively. In the third quarter alone, our strategic advisory team identified approximately $430 million in client savings opportunities, with 44% actioned.

We also have a substantial organic growth opportunity. Approximately half of the addressable market remains self-managed, and we have considerable scope to expand the services we provide to existing clients. During the quarter we added 49 new clients compared with 38 a year ago, with more than half coming from self-managed fleets. At the same time, we continue to invest in capabilities that expand our addressable market and strengthen our value proposition.

Our strategic partnership with Waymo is a good example. We are preparing to operate Waymo's San Diego depot in 2027, providing charging, cleaning, maintenance, and vehicle readiness services for its autonomous fleet. We recently announced an expansion of our partnership into Toronto, initially supporting mapping and validation activities with first riders targeted for 2028. This partnership demonstrates how Element Fleet Mgmt's existing fleet management capabilities can extend into emerging mobility markets and create new sources of services revenue over time.

We're also progressing with ElementPay, our vehicle-based payment solution. For example, our client Crown Capital has achieved approximately 15% overall savings alongside improved fraud detection and reduced administrative effort. These are practical examples of how we're applying technology and our operating expertise to deliver additional value for clients. Now turning to commercial execution, this is where we recognize we need to do better.

While macroeconomic conditions have affected fleet investment decisions, we also have opportunities to improve our own performance, particularly in the U.S. and Canada. During the third quarter, we made changes to our commercial leadership, organization, and operating processes to address these issues. Our commercial efforts became too concentrated on what we refer to as mega opportunities rather than maintaining a balanced pipeline across the mid-market that supports consistent growth.

And we know we can and will do both. The fact is, our win rates have not been where they should be, and we've refocused our U.S. and Canadian teams with strengthened pipeline management and clearer accountability for performance. Now, given typical fleet sales cycles of 130 to 250 days, we expect the contribution to revenue from the changes we've made to build progressively through 2027 with a more meaningful impact thereafter.

We're realistic about the near-term trajectory, but confident that these actions address the commercial execution issues that are within our control. In parallel, we are maintaining strong cost discipline and accelerating productivity improvements. As previously announced, we identified additional operational efficiencies, including opportunities enabled by automation and AI. These actions progressed as planned during the third quarter, and we remain on track to deliver approximately $20 million in annualized run-rate savings beginning in 2027.

Importantly, we see opportunities to go further. We've already made significant investments in our technology capabilities, and we intend to leverage those investments to simplify our operations, enhance client service, and generate further productivity improvements. For example, DIGI Advisor, our AI-powered maintenance decisioning platform, illustrates what is possible. In its initial deployment, average repair order handling time declined from 4.8 minutes to 2.3 minutes while supporting more consistent decisions for our clients.

Together, these initiatives are intended to support operating margin expansion while preserving our ability to invest in growth. Now, finally, our approach to capital allocation remains disciplined and focused on shareholder returns. Our highly recurring revenue, our strong free cash flow generation, and investment-grade balance sheet provide considerable financial flexibility. We will continue to prioritize organic investment, maintain our dividend, and allocate capital to opportunities offering the most attractive risk-adjusted returns.

And at current valuation levels, we believe share repurchases represent an attractive use of capital, and we intend to remain active under our Normal Course Issuer Bid. Bringing it all together, we expect growth to moderate in Q4 and in 2027. And against this backdrop, we are intensifying our focus on productivity, operational efficiencies, and disciplined cost management while continuing to deploy capital through share repurchases. This should support adjusted earnings per share and free cash flow per share growth.

So I'll conclude by saying that Element Fleet Mgmt remains a high-quality, profitable, and cash-generating business with significant competitive advantages and a substantial organic growth opportunity. We recognize where execution needs to improve, and we have taken concrete action. Our focus is on converting those actions into stronger organic growth, continued margin improvement, and attractive earnings and free cash flow per share growth. Keith will now take you through our third quarter financial performance and our outlook in greater detail.

Keith, over to you. Heath Valkenburg (Executive Vice President and Chief Financial Officer) Thank you, Laura, and good morning, everyone. Element delivered solid results with net revenue of $321 million in the third quarter, up 5% year over year, driven by growth in both net financing and services revenue. On an adjusted basis, EPS increased 6% to $0.35, free cash flow per share grew 7% to $0.45, and return on equity expanded to 20.2%.

These results demonstrate the resilience and cash-generating strength of our business notwithstanding a moderation in top-line growth. I'll now highlight the key drivers of our third quarter performance, starting with services. Revenue increased by 5% to $164 million versus last year, supported by 3% growth in total vehicles under management and higher services revenue per VUM. While services revenue growth remains solid, it is below the trajectory we expect from the business.

Our opportunity remains to grow VUM and increase the value of services delivered per vehicle. Turning to net financing revenue, we generated $138 million, up 6% year over year. Core NFR yield increased to 5.76%, supported by the continued strength of our leasing economics, lower funding costs, and a benefit from foreign exchange. The total NFR was partly offset by lower gains on sale, particularly in Australia and New Zealand where used vehicle pricing continues to normalize.

There are also some quarter-specific factors that contributed to the higher reported yield. As a result, we expect yield to normalize over the coming quarters. Our funding efficiencies are an important competitive advantage for Element, where our scale, investment-grade credit profile, and access to multiple funding channels allow us to manage costs effectively and support attractive returns. Across our leasing portfolio, syndication revenue was $19 million, down 6% year over year, reflecting a lower syndication yield of 2.4% compared to 3.2% a year ago, primarily driven by a shift in the mix of syndicated assets.

Origination volumes were $1.7 billion, down 2% year over year. From a year-to-date perspective, originations decreased 5% year over year but increased 2% excluding the originate-to-syndicate client discussed in the first half of the year. Orders reached $1.4 billion, increasing both sequentially and from a year ago, including activity from clients that had deferred orders earlier in the year. I would just say here that we remain focused on consistently increasing our vehicles under management, which is an important indicator of growth of the overall franchise.

As Laura highlighted, the broader environment remains mixed, with some existing clients taking a measured approach to fleet investment amid economic and trade uncertainty. Turning to costs, adjusted operating expenses were $139 million, up 8% year over year and underpinning an operating margin of 56.8%. Expenses grew faster than revenue year over year, reflecting our investments to support longer-term growth, but declined sequentially for the second consecutive quarter. As Laura stated, the investments we have made and the actions we have taken on costs are designed to drive consistent positive operating leverage over time.

We will invest in the business where we see attractive returns while continuing to manage our cost base with discipline. During the third quarter, we remained active on share repurchases, bringing the year-to-date total to nearly 11 million shares. We also intend to renew our normal course issuer bid following its expiry in November 2026, subject to TSX approval. In terms of our balance sheet, we ended the quarter with a debt-to-capital ratio of 76.7%, within our targeted range of 73% to 77%.

Maintaining a strong investment-grade profile remains a priority, supporting our access to funding and financial flexibility across different market conditions. As we look at 2026, through the first nine months, net revenue increased 10%, adjusted EPS grew 14%, and adjusted free cash flow per share increased 9%. These results demonstrate the resilience of Element Fleet Mgmt's business model. Given what we see in the fourth quarter, we now expect 2026 full-year originations to be below the company's previously published guidance, and other 2026 full-year financial metrics to be at or near the lower end of the guidance ranges.

Looking ahead to 2027, we expect net revenue growth to moderate to the low single-digit range, excluding the impact of foreign exchange translation. As slower commercial growth continues to impact our near-term outlook, we expect the translation impact of the Mexican peso relative to the U.S. dollar will create an additional headwind to reported revenue growth. In keeping with our usual practice, we will provide formal 2027 financial guidance with our fourth quarter results in February, but wanted to give you a view of how we see the year developing.

Thank you, operator. We are now ready to take your questions. OPERATOR Thank you. We will now begin the question-and-answer session.

If you would like to ask a question, please press star then the number one on your telephone keypad to raise your hand and join the queue. We do request a limit of two questions per analyst to give everyone a chance to participate. If you would like to withdraw your question, simply press star one. Again, your first question is from Jamie Gloin with National Bank Capital Markets.

Your line is open. Jamie Gloin (Analyst) Yeah, thanks. I think probably first of all we want to dig into how you arrived at the low single-digit growth rate for 2027. If you could provide maybe a little bit of detailed color, breaking that down perhaps by the three key revenue segments, would be helpful.

Heath Valkenburg (Executive Vice President and Chief Financial Officer) Yeah. Good morning, Jamie. So we'll provide our full annual guidance in February, as is our normal course of operations. What we're providing today is really just an indicative outlook based on the trends we're seeing as we exit 2026.

And we really expect the moderation in revenue growth we've experienced in the second half of 2026 will continue into 2027. The changes we're making to improve commercial execution will take some time, as Laura discussed, to translate into revenue growth with sales implementation cycles, but also as VUM and services utilization build from new client wins. So for us, we'll come back with the detail in February. But I'd finish off by saying, against that backdrop, we're placing emphasis on productivity, operating efficiency, and capital deployment to support both EPS and free cash flow per share.

Jamie Gloin (Analyst) Okay. And then on the margin itself, you know, as we look at like a negative operating leverage this quarter, some of the expense savings starting to come through, as you kind of noted, quarter-over-quarter decline in adjusted opex. But last quarter it was maybe too early to kind of think about that. But in terms of that opex savings, how much would you sort of think to drop to the bottom line?

There's a good 100-plus basis points of operating margin there. But what's your updated view on utilizing those cost savings to reinvest or to just take those savings and drive margin expansion? Heath Valkenburg (Executive Vice President and Chief Financial Officer) Yes. So from an expense perspective, we're very focused on our expense base and certainly recognize that the current level of growth relative to revenue is not where it needs to be.

We're making progress, so operating expenses have declined sequentially now for two quarters, reaching $139 million in Q3, and we remain focused on cost discipline. And I'd say we're on track to deliver the $20 million of annual productivity savings for 2027. Importantly, the investments that we've made in the past in terms of technology, digitization, automation—they are creating opportunities to structurally improve efficiency and support future growth without a corresponding increase in costs. So certainly on track to deliver that $20 million number for next year.

And we expect that expense growth will moderate in 2027, with a clear focus on restoring positive operating leverage throughout the year. OPERATOR Your next question comes from Graham Riding with TD Securities. Your line is open. Graham Riding (Analyst) Hi, good morning.

Just wanted to touch on Car IQ—or I think you've rebranded ElementPay. You know, is there any evidence yet of services revenue coming through from that acquisition, or is it still, you know, in the process of, you know, you still trying to figure out how to take it to market properly? Laura Dottori-Attanasio (President and Chief Executive Officer) Yeah. Hey, Graham, it's Laura.

I'm happy to take that one. So we just launched that under ElementPay.