Element Fleet Management Corp. (EFN) Earnings Call Transcript & Summary

Hello, and welcome to the Annual Meeting of Shareholders of Element Fleet Management. It is now my pleasure to turn today's meeting over to General Counsel, David Colman.

Thank you very much. Good afternoon. My name is David Colman. I'm the Executive Vice President and General Counsel of Element Fleet Management Corp. I would like to briefly read the forward-looking information statement before turning the meeting over to David Denison as Chair of the meeting. In the course of today's meeting, directors or officers of the corporation may, in their remarks or in response to questions, make certain statements which are forward-looking statements in our perspective. Forward-looking statements are neither promises nor guarantees but are subject to risks and uncertainties that may cause the actual results, performance or achievements of the corporation or developments in the corporation's business or its industry to differ materially from the anticipated results, performance, achievements or developments expressed or implied by such forward-looking statements. A more detailed discussion of risk factors affecting Element's business and industry can be found in the corporation's most recent annual information form and management's discussion and analysis. Forward-looking statements are based on management's beliefs and opinions at the time the statements are made, and undue reliance should not be placed on any of these forward-looking statements. There should be no expectation that these forward-looking statements will be updated or supplemented as a result of changing circumstances or otherwise. And other than as required by applicable laws, the corporation disclaims any obligation to do so. We will now proceed with the formal business of the meeting, and I will turn the meeting over to Element's Chair of the Board, David Denison.

Thank you, David, and good afternoon, ladies and gentlemen. Welcome to the 2022 Annual General Meeting of the Shareholders of Element Fleet Management. I'm David Denison, Chair of the Board of Element. This year, as a result of the ongoing public health impact of the COVID-19 pandemic and to mitigate risks to the health and safety of our communities, shareholders, executives, employees and other stakeholders, the meeting is being held as a virtual meeting. In addition to the public health considerations, we believe that the virtual format also provides easier access to our widespread shareholder base without the time, cost and environmental impact of travel to attend an in-person meeting. This meeting still provides our shareholders with the opportunity to participate, submit questions and vote at the meeting. Given the virtual format of today's meeting and in order for us to expediently undertake the business to be conducted at this meeting, we would request that shareholders who have specific comments or questions on a formal item of business to make such written submissions now, clearly identifying the applicable item of formal business. During the course of this meeting, at the appropriate time, such submissions will be addressed prior to voting on the applicable motions. Following the formal business of the meeting, we will have a question-and-answer session. If you have any questions not specifically relating to an item of formal business to be discussed at today's meeting, please feel free to submit those questions at any time during the meeting, and we will do our best to ensure that they are addressed at the conclusion of the meeting. Shareholders can submit questions by clicking on the message icon, typing in and submitting their questions. We'll do our best to answer all shareholder questions. But if, for any reason, we're unable to do so during the meeting, we'll endeavor to follow up with shareholders immediately afterwards. Before proceeding with the formal business of the meeting, I'd like to take the opportunity to introduce the directors and officers of the corporation who are also attending virtually today. In addition to myself, the following directors are in attendance: Jay Forbes, President and Chief Executive Officer of Element; Virginia Addicott; Andrew Clarke; Keith Graham; Alex Greene; Joan Lamm-Tennant; Rubin McDougal; Arielle Meloul-Wechsler; and Andrea Rosen. I'd also like to introduce the officers joining us virtually today. In addition to Jay Forbes, also joining us are Frank Ruperto, Executive Vice President and Chief Financial Officer; Jim Halliday, Executive Vice President and Chief Operating Officer; Jacqui McGillivray, Executive Vice President and Chief People Officer; David Madrigal, Executive Vice President and Chief Commercial Officer; Chris Gittens, Executive Vice President and Chief Digital Officer; Israel Kaufman, Executive Vice President and Treasurer; David Colman, Executive Vice President and General Counsel; and Aaron Baxter, Executive Vice President, Custom Fleet, Australia and New Zealand. Now let's proceed to the business at hand. We have 4 matters of formal business to conduct today: the presentation of our 2021 financial statements, the election of directors, the reappointment of the corporation's auditors and consideration of the advisory resolution on the corporation's approach to executive compensation. Once the formal business of the meeting has been completed, management team will briefly report on the business and financial performance of the corporation for the past year and Element's strategic direction for the future. There will then be an opportunity to ask questions. I'll now call the meeting to order. I will preside as Chair of this meeting, and I'll ask David Colman, Executive Vice President and General Counsel of Element, to act as secretary of the meeting. I hereby appoint Computershare Trust Company of Canada to act as scrutineer for this meeting. Computershare is represented by Hasib Iftekhar as scrutineer. Also in attendance from Computershare are Matthew Gemmell and [ Carter McKinney ]. The secretary has advised me that the notice calling this meeting, together with the form of proxy, the management information circular and, if requested, the financial statements of Element as at and for the year ended December 31, 2021, and the auditor's report thereon have been sent to each director of the corporation, the auditors of the corporation and each intermediary and registered holder of common shares of the corporation as of March 15, 2022, the record date for this meeting. Additional copies of these materials are also available online on the corporation's SEDAR profile at www.sedar.com. I'll dispense with the reading of the notice of the meeting. The scrutineer has provided me with its preliminary report on attendance at this meeting. With approximately 75% of Element's common shares represented in person or by proxy, I declare that the requisite quorum of shareholders is present, and I declare that the meeting is duly and properly constituted for the transaction of business. I direct that the confirmation of mailing of the notice of the meeting received by Computershare and the scrutineers' complete report on attendance be annexed to the minutes of the meeting. Further, in order to expedite the meeting, I have requested that David Colman, Executive Vice President, General Counsel and Corporate Secretary of Element, make the requisite motions during the meeting, and we'll dispense with the seconding of motions. As previously noted, shareholders may make comments or ask questions specific to these motions prior to the vote but should hold any comments or questions on general matters until the question period to be held following the formal business of the meeting. Given this is a virtual meeting, the voting at today's meeting will be conducted by online ballot for all matters. If, as a registered shareholder or a duly appointed proxy holder, you are using your control number to log into the meeting and you accept the terms and conditions, you will be provided the opportunity to vote by online ballot. If you have already voted by proxy and you vote again during the online ballot during the meeting, your online vote during the meeting will revoke your previously submitted proxy. If you have already voted by proxy and do not wish to revoke your previously submitted proxy, do not vote again during the online ballot. The polls will be opened for all items of business to be voted on at the same time. This will allow you to vote on each item immediately, or if you prefer, you may wait until the conclusion of discussion on each item prior to casting your vote. The items of business to be voted on and your available voting options will be visible on the voting panel on your screen. To submit a vote, please click on the voting choice displayed on your screen. Once discussion is concluded on all items of business, we'll provide a few additional moments to enter your votes. I'll then declare voting closed on all matters of business. The results of the votes on each matter will be announced prior to the close of the meeting given the time required for the scrutineers to tabulate the online voting results. I now declare the online voting polls open on all items of business. The secretary has the minutes of the last meeting of the shareholders of the corporation, we'll dispense with the reading of the minutes of such meeting. We'll now move to the first item of business, which is the presentation of the corporation's consolidated financial statements as at and for the year ended December 31, 2021, and the auditor's report thereon. We'll dispense with the reading of the auditor's report. Our next item of business is the election of directors of the corporation. The Board has fixed the number of directors to be elected at 10. Pursuant to our advanced notice bylaw, there have been no director nominations put forward, other than the directors nominated on behalf of management, as set out in our management information circular. Accordingly, in the interest of expediency, I will ask David Colman to make the nominations.

Mr. Chair, I nominate those persons specified in the management information circular delivered with the notice of meeting, namely Virginia Addicott, Andrew Clarke, David Denison, Jay Forbes, Keith Graham, Alexander Greene, Joan Lamm-Tennant, Rubin McDougal, Arielle Meloul-Wechsler and Andrea Rosen to serve as directors of the corporation and to hold office until the next Annual Meeting of Shareholders or until their successors are duly elected or appointed in accordance with the articles and bylaws of the corporation.

As noted, since there were no prior nominations under our events notice bylaw, I declare the nominations closed. I'll now request a motion that the 10 persons nominated as directors of the corporation be so elected.

I'm David Colman, and I so move.

Mr. Moderator, can you please advise whether any questions have been received from the participants of this meeting?

There have been no questions.

In accordance with the corporation's majority voting policy, we will have individual voting for directors to be conducted by way of online ballot. Once again, as previously noted, if you've already voted by proxy and you vote again through the online ballot during the meeting, your online vote during the meeting will revoke your previously submitted proxy. So if you've already voted by proxy and do not wish to revoke your previously submitted proxy, please do not vote again during the online ballot. Registered shareholders and duly appointed proxy holders can choose to vote by online ballot now by selecting the applicable voting options. I'll announce results of the vote at the conclusion of the meeting. We'll now move on to the reappointment of auditors. May I have a motion that Ernst & Young LLP be reappointed as auditors of the corporation until the next Annual Meeting of Shareholders or until a successor is appointed, and that the Board of Directors are authorized to fix the auditor's remuneration.

I am David Colman, and I so move.

Mr. Moderator, can you please advise whether any questions have been received from the participants of this meeting?

There have been no questions.

We'll now conduct the vote by way of online ballot, and I'll announce results of the vote at the conclusion of this meeting. We'll now move on to consideration of the advisory resolution on the corporation's approach to executive compensation. As described in the management information circular, shareholders are asked to approve the resolution on the corporation's approach to executive compensation. This vote is advisory only and nonbinding on the corporation and the Board. However, it will influence how the Board and the Compensation and Corporate Governance Committee look at compensation in the future. And the Board believes that this say-on-pay vote is good governance and allows our shareholders to provide specific feedback on the corporation's compensation practices. This advisory resolution is set out on Page 12 of the circular. To be approved, the advisory resolution must be passed by a majority of the votes cast at this meeting. May I have a motion that the advisory resolution as set out in the circular be passed as an ordinary resolution of the shareholders of the corporation?

I'm David Colman, and I so move.

Mr. Moderator, can you please advise whether any questions have been received from the participants of this meeting?

There have been no questions.

We'll now conduct the vote by way of online ballot. We'll now briefly pause, allowing the polls to close and the results to be tabulated by the scrutineers. [Voting]

I now confirm that the polls are closed, and the scrutineers have tabulated their results. I'm pleased to confirm that all matters have passed with over 96% approval. Accordingly, as a result, I hereby declare the directors elected, the auditors reappointed, and the advisory resolution on executive compensation approved. The actual voting results will be filed on SEDAR and disclosed in a press release promptly following the meeting. Mr. Moderator, can you please advise whether any other formal business has been properly brought before this meeting?

There has been no other business brought before the meeting.

Thank you. This then concludes the formal business brought before the meeting. I wish to thank you for attending today, and I now declare this meeting to be terminated. We'd now like to take the opportunity to provide our shareholders with an update on Element's financial results and the execution of our strategic plan. And I'll now turn the meeting over to Jay Forbes, our President and Chief Executive Officer.

Thank you, Mr. Chairman, and thank you all for joining our Annual Meeting of Shareholders. There's no better place for me to begin my address today than by recognizing and celebrating the dedicated people of Element. I'm truly fortunate to work alongside 2,500 colleagues who care deeply about this business and our mission to create smarter, safer and more productive fleets for our clients. Over the last 2 years, our employees have met the dual challenges of the pandemic and the industry-first shortage of vehicles to deliver a consistent, superior client experience that is the envy of our industry. Their continued and passionate engagement in our business has been the overwhelming reason for the success that we've enjoyed to this point and for the future success that we will enjoy in the years to come. Building on the strengthening operating platform, the investment-grade balance sheet and the commercial momentum resulting from our transformation program, we pivoted to growth in 2021, centering on a 3-pronged strategy for long-term value creation. I'm delighted to report that despite the many challenges presented by our environment, we persevered to deliver significant progress in all 3 strategic thrusts in fiscal 2021. We grew annual net revenue in line with our 4% to 6% goal and leveraged our scalable operating platform to magnify that top line growth into higher profitability. We advanced a capital-lighter business model through a growing service revenue and by syndicating $2.7 billion in assets, enhancing our return on equity. And we grew free cash flow per share and returned $644 million in capital to shareholders through a 19% increase in the common dividend and by repurchasing our common shares. Our ability to grow in an atypically challenging environment is a testament to the steadfast focus of our people and helping our clients through these challenges, the trust and reliance our clients place us given the mission-critical role fleet vehicles play in servicing their own business needs and the unique attributes of our business model that make Element so resilient, even in the face of the most difficult of circumstances. We need to look no further than the results we generated during the unprecedented worldwide shortage of vehicles to understand how unique and special this business is. Element generated more net revenue in 2021 than ever before, driven by more service revenue and more net financing revenue. Quite simply, we produce more of everything, more adjusted operating income, more free cash flow and more free cash flow per share than ever before. Equally rewarding is how well our clients have responded to our commitment to deliver a consistent, superior experience. In 2021, we achieved all-time high global Net Promoter Scores, levels that I'm proud to say were surpassed yet again in the first quarter of 2022. The surge in client satisfaction is evident in their increased service adoption and utilization and in the record numbers of vehicles our clients are ordering through us, resulting in the largest global order backlog in Element's history, standing at just under $3 billion. Opportunities abound to deepen our client relationships, particularly around sustainability. With ESG rapidly emerging as a strategic imperative for our organization and for many of our clients, we've invested early to position Element at the forefront of the industry. The recent release of our second annual ESG report highlights our public commitment to delivering real and positive societal change. A centerpiece of that ESG strategy is sustainability, and in particular, assisting clients plan for and navigate the technology shift from fleets powered by internal combustion engines to fleets comprised of electric vehicles. The launch of Arc by Element, our comprehensive end-to-end EV offering, has been met with widespread interest from both existing clients and prospective ones who want us to help them simplify their journey to electrification. These are but a few of the many achievements realized by our company in 2021. We, the management team and employees of Element, are proud to have produced these results, especially in the face of unforeseen challenges. As important, we're delighted that the full potential of this company came into sharper focus with the reporting of our first quarter results and the upward revision of our 2022 guidance. With client activity levels back to or above pre-pandemic levels and with OEM production beginning to its slowest sent back to normal, the power of our growth strategy to deliver meaningful value to you, our owners, became far more apparent. We're energized by the acceleration we've seen in demand and confident in our ability to satisfy same for our clients. Even in an environment of rising prices and rising interest rates, there are a few companies that are as well positioned as Element to thrive, and in fact, benefit from these economic conditions. While other business models may falter, ours stands to benefit. On a closing note, I'd like to extend warm and sincere thanks to the members of Element's Board of Directors. They've been great stewards of this organization, working with management in the true spirit of collaboration to safely steer a course through these uncertain times over the course of the last 2 years. We are a far better organization, thanks to their dedication and their engagement. With that, Mr. Chairman, I'll pass things back over to you.

Thanks, Jay. And we'd now like to invite any supplemental questions from shareholders or proxy holders who are present at the meeting. [Operator Instructions] Mr. Moderator, can you please advise whether any questions have been received from the participants of this meeting?

There have been no questions.

So given that, on behalf of the Board and management of the corporation, I'd like to thank all of our shareholders as well as others who have joined us today for your support and your attendance, and we'll now close the meeting.

This concludes the meeting. You may now disconnect.