Investor Update

May 8, 2019

Good afternoon, everyone. This is the Element welcome to Element Fleet Management's conference call webcast and investor meeting on the topic of accelerated deleveraging. For context, there are a number a small number of in person attendees in addition to those joining us on the conference call and online. Callers and online participants are in listen only mode. And this meeting is being recorded. Element wishes to remind listeners that some of the information in today's call includes forward looking statements. These statements are based on assumptions that are subject to significant risks and uncertainties, and the company refers you to the cautionary statement and risk factors of its most recent MD and A and AIF for a description of those risks, uncertainties and assumptions. Although management believes that expectations reflected in these statements are reasonable, it can give no assurance that these expectations or that the expectations of any forward looking statements will prove to be correct. Element's earnings release, financial statements, MD and A, supplementary information document and today's call include reference to non IFRS measures, which management believes are helpful to present the company and its operations in ways that are useful to investors. A reconciliation of these non IFRS measures to IFRS measures can be found in the MD and A. After the presentation, there will be an opportunity to ask questions. If you are attending the meeting in person and wish to ask a question, please indicate that to Michael Barrett, Vice President of Investor Relations at Element, who you'll see is present in the room. Q and A will take place at the conclusion of the formal presentation. I'll now turn the call over to Paul Holden of the Canadian Imperial Bank of Commerce. Thanks, operator. So first off, I just want to say thank you to everyone in the room and thank you to everyone on the line for joining us today. Second, I just want to say a couple of quick words of introduction for Jay Forbes and his team. So I was just looking at when the announcement came when Jay was first appointed to CEO and I think it was roughly right around a year ago, in fact May 1438 to be precise, when it was announced that Jay would be appointed CEO of Element Fleet. And if you also recall, the share price around that point in time was just a little over $5 And I was not having much fun as an analyst to be honest covering the stock and probably most of the shareholders here are probably not all that happy either. And boy, what a difference a year makes with an excellent CEO. Stock hasn't quite doubled, but close to as of today. My job has become more enjoyable and based on the basis I've seen this morning, shareholders are a lot happy. So more important than that, I mean Jay is here to update you on transformational progress and the plan for the future and particularly to drill down on the syndication initiative which we learned a little bit about this morning. So with that and with a smiling face, I'll turn over the mic to Jay. Good afternoon. Thanks for joining us for this session and warm welcome to those joining on the telephone as well. I'm going spend a few minutes just giving you an overview of the quarter and some highlights around the syndication program and then open up to questions for myself and Dido Pomoni, our CFO that's in the room with us here this afternoon as well. So, thematically, our first quarter can be best summarized with three themes. The transformation of the fleet business is progressing well and ahead of schedule. We're greatly enhancing Element's profitability and we're strengthening and derisking the company's balance sheet. For those joining this afternoon that don't know us particularly well, Element is the market leader in fleet management services in North America. We provide a full spectrum of services from acquisition and financing through the maintenance, fuel, licensing and tolls, straight on through to end of term remarketing to a whole host of blue chip based excuse me, blue chip clients based throughout The United States, Canada, Mexico, Australia and New Zealand. Approximately 90% of our assets are located outside of Canada with the majority of those located in The United States. Our business model is designed to be resilient with the ability to deliver strong and consistent results regardless of the economic conditions. Our blue chip clients, two thirds of which are investment grade, provide strong counterparty credit. Our widely distributed client base diversifies our exposure to any one specific industry segment. Our fleet management services are indeed essential business services. They are integral to the continuing operations and revenue generating capabilities of our clients, which ensures that our accounts are kept current. The nature of both the assets and the relationships that we enjoy with the client create high switching costs and thus very low turnover. That in turn results in high retention and given the structure of our contracts, effective protection against defaults and historically strong credit performance. Our scale, both in purchasing power as well as data, allow us to create a compelling value proposition for lowering the client's total cost of ownership. And lastly, our ready access to cost efficient financing provides strong funding capacity. In October, we unveiled a three pronged strategy for creating meaningful shareholder value. We wanted to transform the core, strengthen the balance sheet and wind down nineteenth Capital. The first of these three, transform the core, is centered on executing client centric transformation of our core fleet business to create $150,000,000 in annual pre run pretax run rate profitability improvements. Phase one of the plan, our quick wins, saw us identify $58,000,000 of profit improvements in Q4 last year. And we added an additional $12,000,000 of identified profit improvements in Q1. In doing so, we've already identified $70,000,000 of the $100,000,000 we expect to achieve on exiting 2019, setting us up nicely to achieve the full $150,000,000 of run rate profitability by the end of twenty twenty. Importantly, the profit improvements we have identified are already contributing to actual improvements to our bottom line. In Q1, we delivered $11,000,000 of improvement elements adjusted operating income as a result of these productivity initiatives. And lastly, we invested $6,000,000 in the transformation program, bringing our cumulative investment to $45,000,000 at the end of Q1. Again, we think the total investment requirement for this twenty seven month program will approximate our initial $150,000,000 estimate. On Slide nine, having gotten off to a great start with our quick wins, we've morphed into a back to basics approach for the transformation program in 2019. Here, our focus for the remainder of the year will be on simplifying, bolstering and or eliminating the policies, processes or systems to create a superior client experience that we can deliver with consistency. To promote tighter alignment and greater focus throughout the company as we execute the transformation program, we've also introduced performance management system, the balanced scorecard. We've identified four key dimensions: our clients, our business, our people and our investors. And for each of these four dimensions, we've created a strategic pillar. We want to consistently deliver a superior experience and exceptional value for our clients. We want to at the same time improve the productivity of our business, all the while building an engaged and accountable workforce and generating an appropriate risk adjusted return for our investors. In our future conversations, we'll share details of the 15 specific strategic objectives that will drive the collective focus and resources of the company towards the advancement of this strategy. In summary, the strategy is on track with a clear path forward. We've repositioned nineteenth Capital for a runoff or potential sale and we've received $26,000,000 in cash in Q1 as a result of the sale of idle assets. We have strengthened the balance sheet. In addition to the Q4 activities, which you would have seen the equity raise, the dividend reduction, as well as the ABS refinancing. In Q1, we sold excess real estate, sold our interest in ECAP at book value and completed a successful $172,500,000 convertible debenture issue on attractive terms. And as we discussed, we're transforming the core fleet business. We've identified with specificity the 150,000,000 in run rate profit improvements and created 17 separate and concurrent work streams that will allow us to permanently reset our pretax profitability for these efforts. On slide 12, our efforts on all three fronts were clearly reflected in our financial results for the first quarter. Revenue grew to $238,000,000 and after tax adjusted operating income grew to $89,000,000 or $0.21 a share, some 38% increase year over year. And based on our confidence in the transformation program, the stability and growth we're seeing in the core business and the syndication strategy that we shared with you today, we've increased the 2020 guidance from $0.09 0 to $0.95 a share to $1 to $1.05 a share. I'd now like to delve a little deeper into our syndication strategy on slide 15. We are expanding the use of syndication. Having deployed this as a meaningful funding tool in the past, we're looking to expand the go forward to reduce the tangible leverage ratio faster, enabling access to lower cost capital to mitigate asset concentration created by one large and fast growing client and creates another source of profitable and recurring revenue for the organization. Syndication accelerates deleveraging and materially improves our return on equity. Our tangible leverage, which stood at 7.8 times at the end of Q4, has been reduced to 7.4 times at the end of this quarter and we're targeting sub six times leverage by the 2020. Adjusted return on equity, which sat at 9% at the 2018 is expected to increase to between 1313.5% in Q4 twenty twenty as we access lower cost of capital and benefit from the new recurring syndication revenue stream. On slide 17, Element views syndication as a complementary long term funding strategy. In addition to rapidly deleveraging the balance sheet, can offer superior economics to alternative funding arrangements. With syndication, you get back to principal and net income cash flows when that paper is sold to the buyer. All credit risk and future cash flows belong to the buyer at the time of sale. In contrast with securitizations, principal and net interest income are received over the life of the lease. So the combination of securitization through our well established Chesapeake program and active syndication through the new program we've announced this week gives us greater diversification of funding sources and will lead to over time a lower overall cost of capital. In selecting the originations that will be syndicated, we will consider a variety of factors, including client rating, the size of the lease book, as well as the remaining payments. And this is probably a good time just to talk about adverse selection. As I stated earlier, we see securitization and syndication as being two complementary funding alternatives for this organization. As such, we will want to ensure that our cost effective access to the ABS markets remains strong. The large new client is just that. It is new volume, and thus it has not been securitized, so its syndication will not impact the existing ABS profile. As for the remaining book of business, we will not and could not, given it would be readily transparent to our ABS investors dilute the credit quality of the ABS facility. Accordingly, there's no negative implications on syndicating as it relates to the ABS program. While syndication is a well established funding strategy in The United States, it's less so in Canada and virtually nonexistent in Mexico and Australia and New Zealand. Accordingly, our syndication program will be limited to The U. S. For the foreseeable future. As we think about the key success factors for this program, they really boil down to two essential ingredients supply and demand. Large stable demands coupled with ample supply ensures that syndication will be a dependable source of recurring revenue sources for this organization. On the supply side, some of the expanded syndication program is attributable to the need to shift credit risk for that new large fast growing client. And given this client is providing a new source of originations, all of this volume is additive to the supply side. For the remainder, we're simply trading recurring revenue earned over time for recurring revenue earned at a point in time. We have historically originated $6,000,000,000 in annual volume, half of which would be eligible for syndication. Therefore, we see no issue in creating ample supply of qualified volume to feed the syndication funding strategy. So that's the supply side. On the demand side, syndication market for equipment lease has ranged from anywhere from CAD12 billion to CAD23 billion since 02/2007. It's highly liquid, very durable, comprised of approximately 80 participants who are largely comprised of large and midsized banks and life insurance companies. We've been active participants in the syndication market for over a decade, know a number of the players and have longstanding relationships with them. And accordingly, have a full infrastructure in terms of origination and support for the syndication program that we have administered in the past and we'll continue to administer growth forward. The ready supply of this $3,000,000,000 in original originations coupled with strong market demand give us great confidence that we're going to be able to syndicate with consistency and predictability, which will in turn allow us to successfully execute the syndication strategy, deleveraging the balance sheet, gaining access to The U. S. Bond market and generating a higher return on equity. And with that, I'd now welcome any questions that you may have. Thanks, Jay. For the Q and A portion of the event, we're going to try to alternate between questions from the room and from those participating by phone. Thanks in advance for bearing with me as I navigate this bit to and fro. Operator, can you please remind callers how to ask their questions? And once you've done so, we'll start with a question in the room, which I'll figure out who's going to ask that question while you remind callers. Certainly. Thanks, operator. We have a question in the room from MFS. Hi. I actually have two questions. First, it sounds like the recutification program is going be started with a clean sheet of paper. So if that is the case and I'm understanding that correctly, how can you ensure that it is a constant and recurring stream without volatility? And it kind of leads into my second question, which really, if you think about syndication as originations flow, like how should we think about that or in a tougher economy where perhaps purchasers step back because of their own balance sheet issues and maybe I'm just scarred from the financial crisis. Yes. So in terms of the syndication program, actually it is a single undertaking that will have kind of an evergreen status. So this will not be a series of newly constructed syndication initiatives, but instead an ongoing process. And just to give you a little bit of flavor, so we have looked at our origination schedule as we look at our client profiles, as we look at their fleets and their planned originations for this year. We've mapped that out, have assessed them based on the criteria that I shared with you this afternoon and have now have a monthly profile that will watch those originations and prepare to track those originations through to activation, at which time we would then syndicate that. So we have a very clear line of sight on a monthly basis as to the portfolio that we will syndicate as the year unfolds. And so we're quickly ramping up to develop that type of rhythm, that type of cadence, that type of foresight in terms of the pipeline within the organization on the supply side that will give us continuity of supply to feed the market demand that we anticipate. Coincident to that, we again have long established relationships with a segment of those 80 participants in that marketplace. We are extending our reach beyond that to enlarge the addressable market for this type of product, have found warm receptivity. And again, given the volumes that we're anticipating introducing into that market, we will continue to expand through marketing efforts and relationship building the relationships to create that awareness, understanding and translate that into an appetite in terms of a consistent demand for quality product that will help those mainly deposit taking institutions invest in a reliable short term asset. Sorry, just to clarify, mean that sounds like the plan for the next twelve to twenty four months where you have visibility In 2020 and 2021. So if you look back at our originations, we have consistently generated $6,000,000,000 worth of originations. And you're not operating at that point? No. And also remember that this is the syndication strategy is designed to accomplish two main objectives. One is to quickly delever the balance sheet to facilitate a second investment grade rating from a U. S. Provider, which would in turn allow us access to lower cost capital through unsecured U. S. Bond market. So that's one key thrust of this. And think of that as a tranche of volume that we would be syndicating to facilitate the realization of that objective. Second objective is to manage our credit position vis a vis a large and fast growing client. Okay? And when you think of that, think of syndication is the only means. Once you get to a credit hold position on a client, each and every additional dollar has to be syndicated. Okay? And so that imagine that, if you will, the second tranche of volume that you would be drawing from. That second tranche of volume didn't exist before. So that is additive to the $6,000,000,000 of volumes that we originate on an annual basis. So process, not project. Evergreen just keeps rolling. And again, if you think about the nature of it, our fleets have an average life of forty one months. So in any given year, you're turning over somewhere between one third and one fourth of the entire fleet. And so as long as you're maintaining your client base, let alone growing your client base, then that origination number should remain very consistent, highly predictable. And again, the $6,000,000,000 of total originations translates into probably rough, rough, rough $3,000,000,000 of volume that could be syndicated. But that's just for that single tranche along the second tranche in terms of managing credit. Stuart, go ahead. Do any of these AD participants give you like preorders or is it every time you bring it to the market they decide? And then I have another question too. Yes, we've had expressions of interest and these institutions have gone to their credit committee such that they are ready to accept. They know we have the pipeline building and they've kind of put up their hands and said, we want it, we're preapproved and so we can transact with speed. So, we're helping more of those adopt that type of ready able and very willing to contract. That said, again, the reputation that we built, the quality of the underlying paper when we do show up, again, we've received a very warm reception. How did the premium that you received during syndication change with the tax cuts? And are there is there any other tax policy that we should be aware of that could affect the premium in the future? Yes. So the accelerated write down that you referenced certainly was additive in terms of the pricing that we saw in the marketplace. And so, there was an uptick in terms of the pricing to reflect the accelerated write off of those types of assets. And that tax component, the spread component and the tax component, both of them weigh heavily in terms of the pricing that we received in the marketplace. Just wondering, does this fall under the category of shared national credit that U. S. Banks would participate in? Or is that separate part of the syndication market? One more time with that, sorry. Shared national credit, which are like syndicated loans in The U. S. That U. S. Banks participate in and there is additional regulatory oversight. Would this be No. That's what happens as part of the larger 1,000,000,000,000 market for syndicated assets. This is the what we have been referencing is the subset of that, that is pure equipment leasing. Okay. And then often banks enter into syndication agreements to get an understanding of the loans, like the tolls. Do you worry or consider that some of the banks could is it like inviting competition from participants in your syndication? No. So regional banks are competitors on the finance side in The United States for us, but they tend to migrate to small to mid sized fleets and very rarely are they competitive in the mid to enterprise space, which is kind of our bread and butter. So we rarely see them compete there. And again, further, the decade plus of relationships that we've enjoyed, we've never encountered a situation where someone was trying to gather intel, trying to improve their own knowledge of pricing in the marketplace to advance their strategy. So no, we don't see that as a threat. And again, for us, end to end ability to finance, but the ability to provide those full suite of services to the client through that fleet management function is invaluable. And we don't find as many clients choosing a financer that is separate from the fleet service provider. What kind of clients does this help you go after that you could have serviced on an ABS platform? Are there increasing signs of e commerce activity sort of fueling that type of revenue generation from new clients or autonomous vehicle, which is quite far out, you have a client like me when I believe in there. Can you give some flavor as to what sort of opportunities that you go after given this is in your arsenal now? Yes. So the design of the strategy started truly with this desire to accelerate the deleveraging of the balance sheet, to strengthen the balance sheet, secure that investment additional investment grade rating and to gain access to lower cost capital, especially in light of the $575,000,000 convertible debenture that matures mid-twenty twenty. So that was kind of the genesis for exploring this. And the deeper we got into it, the more attractive economically this proposition began. We continue to look at this as an enabler to strengthen the balance sheet to dealing with the concentration risk of a large name and for enhancing profitability. We want to be careful to keep the financing decisions separate from the business decision. So, in terms of the clients that we are pursuing, if you immediately said, well, listen, we can just offload any credit to syndication, so we really don't need to worry about that, very quickly, you could start to change the culture and see a degradation in terms of your NIM and the sales force willingness to kind of get their elbows up and try and negotiate the best possible terms for both parties in the transaction. So this won't necessarily drive client mix for us. Instead, we'll look at this as a funding tool. And as we think about how we want to compete in the marketplace and we think about our embedded cost of capital and returns on that, that's it will manifest itself in more of the thresholds that we will expect from our sales force as opposed to driving a marketing strategy for the organization. Jay, how much of the $0.10 lift in the guidance do you think is attributable to the syndication strategy? And then I have a follow-up. Yes. So when we looked at the syndication strategy, our confidence in the recurring nature of that and that ability to indeed have an ongoing evergreen process of syndication that will run parallel to securitization as a major source of funding. That had Vito and I starting to consider our guidance. And again, based on the renewed confidence that we have in the core business and the stability that we're seeing, the growth prospects that are emerging in the core business based on the our continued pace in terms of the transformation and remaining ahead of where we had anticipated being at this juncture. And then you stir in the syndication and the stability of that revenue flow. That's what gave us kind of those three factors, Tom, gave us the confidence to say this is no longer $0.90 $0.95 This feels a lot more like one dollar to $1.5.20 20. Was onboarding this large client you speak of in the original $90 to $95 or did that move it as well? We had a view to it. Yes, when we again, when we look at those three factors, that's they all really kind of combine to give us the confidence to increase that guidance by plus or minus 10%. How should we be thinking about the converts next year? There's a considerable amount of free cash flow still coming here. Yes. I mean, you kind of flipped over half, which you had in the other. Yes. So something along that line for next year or Very much so. So to your point, Tom, we basically with this issue, we went out at half of the $350,000,000 that is maturing in June. And we're able to do so through the steps that we took, the repatriation of the stranded capital and the ABS facility, some sale of non core assets that gave us the ability to again have the requirement to refinance this year's convertible debentures. As we look at 2020 in the June maturity there, dollars $575,000,000 coming due, effectively the $100,000,000 that we have received with regards to ECAF will be applied to that. So that will step down to April The 25,000,000 that we just received $26,000,000 that we just received from the sale of idle assets in nineteenth Capital combined with the proceeds that we would expect to receive between now and June we'll again step down that refi. So the $475,000,000 then drops to $375,000,000 or something less than that. So at the very least, we have line of sight to materially reduce the refi requirement as it relates to it. And then if all the stars lined up and we were able to secure that additional investment grade rating, giving us access to The U. S. Bond market in 2020, then that sets up a scenario where there's no need to issue any convertible debentures evermore. So to clarify, the improvement of funding cost, is it because of that deleveraging and lower credit spread on your debt? Or is there an ongoing benefit from that syndication? Is that syndication the implied funding cost of the syndication more attractive than ABS or other forms as well? And again, we had a very honestly, a simplistic point of view in mid December as we started to kind of tease this out in our own minds. And the benefits accruing with syndication just kept on coming and being much more apparent. And when we think about syndication and that deleveraging, I mean, we have financial risk for equity holders that is priced into the valuation of this organization. That gets reduced through deleveraging. The deleveraging reduces our cost of capital by again taking risk from away from lenders. Replacing convertible debentures with unsecured U. S. Bonds, dramatic drop in cost of capital. So, there's a number of different ways of reducing the total amount of debt outstanding. The absolute amount of debt outstanding will reduce the interest cost. So, in so many different ways, syndication will have tremendous value for the organization over and above that new revenue stream that we're creating. But compared to ABS, is it similar? Yes. So, when we look at the economics of securitization versus syndication, over the entirety of the portfolio, okay, so the full range of the portfolio, syndication actually has better economics for us than securitization. So, we thought when we began this that we were going to have to pay a small price to improve the quality of our balance sheet. So, and again, we were open minded to it and we needed to obviously calculate it and justify it in our own minds. And as we went to calculate it, there's no cost. This is actually economically value added in terms of the strategy. And recourse risk? None. No recourse. We'll give the operator an opportunity to just remind callers how to join the queue in the event that they'd like to. Anybody in the room who has a question afterwards, happy to hear it. Certainly. Question. I wanted to go back to the cost savings plan, dollars 150,000,000 target. Originally when you outlined that with investors, you had tried and taken some time with your team and you were using health like consultants. And at the time you said it was because you wanted a high certainty of delivering and you needed to develop internal bench strength. So where are you today on the internal team and where what are your thoughts? Interesting. This was the exact question that was asked at the Board meeting yesterday. So you find yourself in great company in terms of your thinking. Listen, we're absolutely delighted with our association with Boston Consulting Group. They were part of the strategic assessment process. They worked with management to truly take a realistic appraisal of the business. And with that grounding everyone and with that kind of setting the common knowledge across the team in terms of both the challenges and the opportunities that were available, we built the strategic plan that we shared with you in October. Recognizing the where we were, recognizing the pace of change that we wanted to introduce and recognizing that just some things needed to move much more quickly than the organization had the capabilities to facilitate, we engaged Boston Consulting Group to work with us throughout the two year transformation. Couldn't be more pleased with them in terms of partners. Let me give you a specific example of how this works. So in our last call, we talked about this client retention program that we had developed. So given the turnover that the beer business had experienced, it had escalated as a consequence of some integration issues that they had experienced. And we needed to get a much better handle at clients at risk, the reason why they're at risk and a pathway for immediate resolution of those issues so that we would save and maintain those client relationships. BCG brought in some subject matter experts. They worked with our team. They put a fantastic program together, helped them build algorithms. And that is now a fully functioning aspect of our business as being led by an outstanding gentleman promoted from Minneapolis St. Paul. BCG has no involvement in that whatsoever. The systems are in place, the process is in place, the policies are in place. Promote is excelling in his leadership of that function. He has full ownership of that. They're done and they're moving on to another team to help them accomplish the same. And that's kind of our pattern. So they come in. We balloon in terms of resources that can attack this through a multifaceted perspective. But once the problem has been diagnosed, the solutions have been designed and engineered and the executive has signed off, then they come out and their time and effort goes elsewhere. So, we're affecting a very positive transfer of knowledge and capabilities to our existing leaders who truthfully just haven't had that investment made in them in the past. Can you give us your outlook on service revenues as the plan progresses? Maybe also with this new client, are they taking the same level of service revenues as a normal client would take given their size? Yes. So, I mentioned on our earnings call earlier today that some of our clients have a strong desire for anonymity and some of them have an even stronger desire for anonymity. And let's just say this large fast growing client falls into that latter category. So I will refrain from offering any commentary in terms of them and their service needs. We had a small dip in Q1 in terms of service revenue. That was just largely quarter over quarter declines in maintenance as the huge demand for snow tires in October, November, December was on the way into January, February. So, that was kind of the main driver in terms of just the step down in maintenance, which in turn gave us a step down in service revenues. Otherwise, feeling very good about unit growth and holding our own on pricing and so feeling, again, confident in terms of the profile of service revenues go forward. And again, that in turn gives us the confidence to step up the EPS guidance for 2020. What was the large client using before? And what's the ramp up time to get them fully ramped up? I wouldn't be able to offer much in the way of commentary in terms of the past. And again, on ramp up, I should just sidestep any detail in terms of that. One question that did arise in an earlier conversation that we had with investors is originations, activations, can you help us better understand that cycle time? And I can, but you may not like the answer because it depends. So, originations basically is where we are in receipt of a bona fide order on behalf of the client. There's effectively an obligation on both parties' part. We assume that obligation and we order that vehicle on their behalf and then obviously follow it through to completion. If that is a GM Silverado that's sitting on Carroll's GM dealership's lot, then we can originate and activate that in days. If it is for a three quarter ton dually that's going to need a complete racking system out back, then that could be seven months. So, it just really depends on whether it's factory order in stock, whether it's straight or whether it's upfit. And so there could be a large lag between an origination and an activation or it could be a very condensed timeline. It just depends on what is being ordered and whether or not it's going to be upfitted. Just go back to service revenue. So if service revenue accelerated or if new sources appeared, would you accelerate your syndication The piece, Stuart, that we indicated that $600,000,000 a quarter at this point in time feels like the right level of volume. So dollars 2,400,000,000.0 of syndications a year. When we think about, again, the dual objective of managing that credit exposure coupled with delevering the balance sheet, that feels like the right volume for us. If we thought that there was going to be a material change in that view, we would share that update with you. We've seen a couple of quarters, it's a very strong origination growth. Was wondering, maybe you can characterize it in terms of putting it across buckets of relevance of new client wins, the large book client wins taking market share versus just some strong conditions in your markets on on a macro basis that might drive a little higher growth rate for you in general and the industry in general. Can you maybe give us that sort of sense of and how that feeds into the prospect of overall AUM growth? Yes. We attempted to do so. And again, always looking for your feedback on all the disclosures, but in particular the supplement. So we're trying to provide you as much information as possible, business and how we view the business and the different aspects of the business without compromising information that would be detrimental in terms of our competition or our dealings with our clients. So, some of the information that you have requested would probably fall into that category. The one thing I could reference in the supplemental is indeed the growth that we're seeing in terms of the asset base throughout the three different marketplaces, Canada U. S, Mexico and AMC. So that will give you a bit of a flavor in terms of what's going on in the marketplace. But beyond that, again, we probably wouldn't be able to offer much in the way of commentary. I guess, in your opening comments, did on the call this morning, you made reference to maybe some competitors that were focused elsewhere, I think was the word you did. Yes, sorry. And there specifically was ANZ. So there had been a failed merger that took place. Both organizations have been presuming that they were going to receive approval, working towards that end and we're really taking their ball off the marketplace, which gave Aaron Baxter and the team there a good opportunity to continue to advance their interest. And in that market, I have said in the past that we tend to do twice in some years three times better than market growth. So, clearly, we're stealing share in that market. It's a well developed market. And so, the team is very targeted, very disciplined in terms of the areas in which they want to grow and have been very successful in wrestling the existing clients of our competitors away from those entities and into our fold. And then, of course, in Mexico, as you've seen, has just been fantastic. And these are top flight organizations. These are the largest companies in Mexico and or the subsidiaries of international conglomerates that are operating in Mexico. And the team is just compelling offering in terms of service. They have deep, deep, deep relationships, are well respected in the marketplace and they're growing great gamebusters. And then in Canada and The U. S, again, as we've shared with you and again, when I saw it, it was an anomaly for the short time that I've been in the organization. No mid market or an enterprise customer losses in the month of March. And I just happened to ask our COO, Jim Halliday, please, when was the last time that happened? Four years ago. Okay. So again, does a month make? No, of course not. But it is a very powerful illustration of the inroads that we're making. We're getting to the core issues and we're resolving those issues so that that consistent client experience is being maintained. We had 170 some odd clients gather in Minneapolis St. Paul last month. And we do an annual roundtable and just a real great opportunity to interact with the clients. And what was fascinating is, at any given point in time of the, let's call it, 175 clients, the vast majority of those clients are having a phenomenal experience. Phenomenal. Best in industry. And a few are. Next week, you go out to those 175, vast majority of them are having a phenomenal experience. And a few aren't. And it may be the same few, it may not be. It's that consistency piece. It's not that we can't do it. It's actually we are doing it every single day. It's just the lack of consistency that comes with the inability to rationalize or integrate or address policies, processes and systems that either don't exist, exist three or four different ways or just haven't been bolstered in terms of the capabilities. And that's what we're going to be focusing on. Jim, looking at the balance scorecard here in the Investors section, you have two items. One, earn a fair rate of return on capital. So it's 13%, 13.5%. Would you classify that as a steady state fair rate of return on capital? That and second, if you can sort of just flush it out, currently managed risks or enterprise risk index. What does that mean for those two things? Yes. And so specifically, we're actually looking to not only a fair rate of return on capital, but an appropriate risk adjusted return on capital. And again, that's another reason why we believe stepping down the leverage the organization and taking some of that financial risk away as an overhang in terms of valuation of this organization is important. So, one of the four metrics that we have set forth is the Enterprise Risk Index. And we showed our balanced scorecard to the organization today. And across that is a big work in progress. Okay? What is it? Don't know. Haven't even started. It won't start until second half. But what we know is that we need to increase the awareness and active involvement of the employee group in identifying and managing risk in the organization. And it hasn't been a strong theme. It hasn't been part of our culture in the past. And so Vito is taking responsibility as executive sponsor. We will. We have launched enterprise risk management program. We're working with the Board, bringing them up to speed as we refine that. And then we'll begin to cascade that throughout the organization. And as we do, we'll probably identify five or six different risks that will comprise the risk index and give us an idea as to how we're progressing in terms of the management of those exposures for the organization. And whether cybersecurity ends up in there, again, we're not prejudging the outcome. Instead, what we have been adamant is, as we think about the cultural complexion of this organization go forward, we need to have a greater awareness of and exercise greater control over the risk profile of all aspects of the business. Maybe I'll add Jay. When you think about our financial risk or when you think about our credit risk, I mean those are very well developed, finely honed sort of practices, always opportunity to improve them. But those are core to our business and obviously have, as you see through the results, effectively managed. We will incorporate those in our strategy of course, but I want leave it with the impression that those items are not calibrated and not well developed because very much so in those areas. Jay, you talked about the $600,000,000 I guess, syndication a quarter. It works down sort of the bucket on what goes to G. L. A. Having in that. But say, you get the end of Q4 twenty twenty and you kind of hit your six times tangible leverage, you're humming along $600,000,000 a quarter in syndications. Would you like to maintain that tangible leverage at six times and then would you rather toggle that with maybe reduce your syndications a little bit? Or do you see it as more like then you start to get into different capital return scenarios where buybacks would be your toggle as opposed to reducing that 600,000,000 in syndication quarter. Yes. And to your point, Rob, that's where it gets very interesting. So once you kind of get to that optimal level of leverage where you've finally managed that trade off in terms of financial risk and cost of capital. And given the cash flow generation profile of the business, which again, part of the supplemental disclosure, we're trying to give you a better feel for that. It creates a tremendous amount of optionality for this business and puts at the forefront of the Board of Management capital allocation decisions as it relates to shareholders. So again, it's out there. We're comfortable that we're progressing in the right direction at the right speed. And as we mature the results in line with that, we'll bring some additional thoughts in terms of where we think the business, what options it might have and how those options might be pursued. No questions on the phone line, sounds like and looks like. Any other questions from here in the room? Jay, is there any sort of point in time that you envision where the way you represent or the way you present the economics of the business will change? So obviously, seems like you're focusing on taking down leverage being less of a balance sheet business. Internally, when sort of your sales people are working with clients, how do they think about sort of pricing the business and maybe the economics of the business? Is it some sort of dollar margin per unit serviced? Or just curious on internally, I mean, this is helpful, but more of just I guess how did that work internally would be too. No number specific, I'm just more curious. Yes. No. So, Milan, we actually I had the same question. So delightfully, our Treasurer, Karen Martin, agreed to lead a pricing review for the entirety of the organization. And we're midway through that. She had to kind of put a little bit of it on the back burner as we advance those indications for Q1. But we want to get a better understanding of how our value proposition manifests itself in a pricing strategy and whether we're earning a fair rate of return on the capital that we're deploying, whether we're as we think about the pricing, are we discounting services in order to get financing business and maybe the financing business is skippy in terms of the basis points. So, if we've asked the question, it kind of gives you an idea as to we think there's opportunities. And as I indicated at the tail end of this morning's earnings call, it's one of the very interesting attributes of being involved in these types of turnarounds is you start out with a thesis that thesis gains life. It starts to get substantial in terms of proving itself out and generating returns. And the fascinating byproduct is it just starts to clear away things. So you go, wow, I didn't really think about that before. I wouldn't have guessed that. And syndication is a perfect example of that. At no point in time does that come on the radar screen for consideration through four months of crawling through every crack and crevice of the organization. We just weren't able to, given all the other priorities and everything else that just needed to be done perhaps on a more timely basis, we didn't have the opportunity to delve into this. Now that we've got the balance sheet restructured and given ourselves some breathing room, gosh, guess what? You can actually stand back and see these types of opportunities. So that's, for me is kind of the exciting piece. It does not take away, does not in the least distract from the pursuit and the attainment of the $150,000,000 But it does go to for all intents and purposes, we could easily go, okay, the well of 150 is now substantially more of that if we put syndication in. We're going keep the 150 pure and just start to stack up a few other alternatives alongside it. So yes, pricing absolutely is an area of great interest, and we think there's probably some opportunities there. Yes. We're solving the same thing of the idea from your target returns to your current returns, the incremental returns will be much higher. So how does this look like, I guess, going forward would be of interest? Yes. Sorry, sir. Should have somebody on the phone. So there will be time for you to ask as well. Go ahead, operator. Thank you. Yes, we have a question from Mario Mendonca with TD Securities. Please go ahead. Good afternoon. Jay, could you just address one thing? The syndication clearly takes down the balance sheet risk. I get that part. But have you do you feel that in some way you've swapped that balance sheet concentration for what I'll call let's call it syndication concentration or even service fee concentration? Because if ultimately this very large account is contributing meaningfully to the originations and therefore to the syndication revenue, how do you address the notion that syndication then just becomes highly concentrated to this one particular account? Yes. So Mario, again, think it's best to look at syndication through the two lens of objectives. So one is decrease or avoid any single name concentration risk. And the second is the deleveraging of the balance sheet. And you can actually bifurcate the syndication volumes in that manner. So there will be a stream of originations that go to activations that go immediately to syndication that is represented by the large fast growing client. There's a second stream that is totally independent of that client. And so, let's say that new clients just stop doing business with you tomorrow, then you don't do that syndication. And guess what? It doesn't impact our deleveraging of the balance sheet whatsoever because we've never had the volume before. It's new volume now. It's volume that disappears tomorrow. Again, would obviously be a loss in attendant revenue, but it would not negatively impact the deleveraging scenario that we're undertaking. So these run parallel. They'll be combined under the one syndication program, but they will run kind of parallels to streams that contribute to that $2,400,000,000 of syndication volume and the revenue that's being generated from SANE. But you're not suggesting that if that large account stopped originating with EFN that it would have no effect on the company's earnings and the guidance you provided? That's not what you're suggesting, are you? That's not what I'm suggesting. I think maybe the takeaway for me is at some point over time if this company continues to grow and we suspect it will and it becomes a larger and larger part of your business, I think investors are going to need to understand just how important this client is, whether it's on We the balance sheet or would be aligned. Yes. And the other piece, again, we just think through the syndication piece is, it is the situation wherein in order to do business with any name, like we syndicate our largest client, we syndicate our second largest client, we syndicate our third largest client. Again, there's a certain exposure that we can take and be comfortable in terms of the inherent risks that we want to have from a credit profile. And so that excess end up getting syndicated out. So this is a very common means for us to retain the relationship with a client, retain the opportunity to service those clients and transact on their behalf, because as you can appreciate, transacting on their behalf is quite additive to the billions of dollars of purchasing power and billions of bits of data that we accumulate. And so looking after those clients has a significant value for us. And syndication has been, is and will be a means for us to provide continuity of all large scale relationships. My only point is that concentration risk isn't limited to a balance sheet. I guess that's the that's where I'm going with all this, but It is. Yes. And again, the concentration risk disappears upon the balance sheet in terms of syndication. We'll have to agree to disagree. Thank you. Okay. Just to service revenue, like historically there were some big plans for service revenue. There was Cassandra Inc. And just when you think about it over the next say like three to five years and you think about the future of service revenue Are there things that will eventually acquire capital? Or are there things you're thinking of out of the box that you buy from someone else? Or how should we think about that in that time horizon? Yes. So we welcomed Vinit Gupta as our new CTO in mid January. Vinit has immersed himself into the business very quickly and has already got his arms around the IT agenda and how it's going to enable the remainder of our transformation agenda. Thematically, again, too early themes that have emerged. One is the cloud and the second is control and active risk management. So as you know, has done his inventories. He's assessed where we are, where we want to be. This notion that we need to own infrastructure, that we need to own applications is dying away very quickly. And we would need to own proprietary applications, but all else should be rented and used on a distributed basis. And so, as we think about the transformation of the business and the back to basics this year and the build for the future in 2020, we envision a goodly amount of that remaining $150,000,000 of investment going to investments in information technology. So, again, we want to strengthen the platform such that we exit 2020 with, by far, the strongest capabilities in the industry. And again, as I've shared with a number of you in previous conversations, I have met our competition. We have hired away from our competition. We have stolen clients from our competition. And I'm very comfortable as to how we're positioned in the industry in terms of what we have today, which bodes very well given what we plan to have over the course of the next twenty months of executing this transformation agenda. Fine points too. Yes, that ability to mine data. I mean, no one in North America has anywhere near the fleet volumes that we do. No one has greater line of sights in terms of the operational costs of those fleets than we do. And that ability to take this competitive advantage in terms of the data set and the knowledge that it would enable and to properly mine it and provide those insights such that those fleet managers can meaningfully lower their total cost of ownership and demonstrate that productivity within their organization is the secret sauce. And the work that Tom Peterson and his strategic consulting group do in our organization And the capabilities that have come up here in the last three to six months are nothing short of phenomenal. So, being able to mine those insights and provide that information real time in an informative manner that the client can act on. That's kind of the first evolution of the value add proposition that we're looking to achieve kind of short to midterm. In my own mind, I kind of go midterm and beyond is how do we enable the clients' fleets to be an enabler to the realization of the overarching strategic objectives of that organization. So, you are part of that organization, your department, you're probably labeled a cost center. How do we help you advance the overarching strategic objectives of the organization by virtue of the deep insights that have been afforded to you and that ability to influence the operations of the business and think telcos and think about work vehicles and dynamic positioning of those work vehicles. That's what we're capable of enabling, I believe, kind of midterm and beyond. Just on the direct cost, the increasing size of the underlying managed asset base, does it change your view longer term in terms of, I guess, the leverage you have there from a negotiation perspective? And especially with a larger client, is that you give a sense of negotiation power of direct cost, I guess, in general? Sorry, I'm not sure if I that cost of both of the systems at this point. It's going grow over time. It's down the line, after active pace growth. And now this speed or pace that grows faster, does that give you a different negotiation power? It does. Yes, it does. Again, interestingly, we've been one of the largest procurers of tires in North America. And so your ability to secure rebates on behalf of yourself and your clients grow with that type of purchasing power. We have the ability by virtue of our accelerated application to direct clients' drivers to Pep Boys or Jiffy Lube in terms of an oil change. And that ability to dynamically choose which one to direct them to based on the pricing for that client, again, has its attendant benefits for us. So, yes, with the spend that we have in this segment and the spend that we have with the OEMs in the segment, we see significant opportunities for value creation and that is part of the $150,000,000 of opportunities that we've identified. Yes. So, one of the things I always really like about EPS funding is effectively case the banks to warehouse before going to ABS. And if the ABS demand wasn't there, that kind of acted the safety valve as well. Yes. You're paying a standby. Yes. So I'm curious about this if it works the same way as the syndication to the point of any given quarter lines of liquidity drives up the So in addition to the senior line that provides that type of backstop capability to us, we've also we're in the process of setting up a warehousing facility that will act the same way. So, as we accept orders that we would envision syndicating, we would have that standby that would kind of provide a backstop. And then as we're drafted by the OEMs and need to actually draw funds and we withdraw from that warehouse facility and that would carry us through to the ultimate billing and syndication to the client. And our typical arrangements are that we're compensated for those whole periods. So, I won't say it harmless, but we receive interest incomes throughout the period in which we're out of pocket until at a point in time where we're actually building the client by way of the lease. And then a follow on question to that. As your use of ABS decreases as a result, are there some kind of cost savings associated with reducing the ABS? Potentially, I haven't dug into that with Karen at this point in large measure because, again, we're still going to be driving significant volumes through that. So, the ABS program is still going to be a very large source of funding for the organization. But Jeff, let's take that one away and just follow-up. Jay, to what extent was your drive to deleverage just predicated on the fact that rating agencies have, for you guys in particular, a tangible leverage calculation versus a lot of other net interest margin companies do not have a tangible leverage calculation. And so, I mean, effectively, your secured borrowings are AAA type paper, but they but it's worked into this, but secured borrowings for a bank would be deposited. And if they if we did the tangible leverage for the bank under that thing, it blow way through this thing. And so help me square that. Like are you doing this because the rating agencies say that don't cover a lot of fleet manufacturing fleet management companies at all. They've got that box for whatever known reason, But now you're just kind of having to drive your truck through that box. Is it point? There is a degree of reality to that, Tom. Yes, to your point. There's not many of us. And they have developed a view. And while I'd like to think that in time, we'll be able to alter that view at this particular point in time, we need to be compliant with that view. And of the direction that we're signaling to you in terms of a sub-six times tangible leverage ratio is, again, an output of the analysis that we've done that says, if we're going to be able to secure a Moody's or an S and P rating, we need that number and that kind of translates into a sub-six tangible leverage number. I'm conscious that we've gone well over time, but we're here to stay here in the world for as long as necessary. But if people feel they've got it or have other commitments, I don't want anybody to feel badly about getting it going, but we're also here to answer So I just want to make that up. If there are any other questions, happy to answer them. Otherwise, we'll Okay. Thank you very much. Ladies and gentlemen, before you disconnect, if any of you missed the announcement at the beginning of the before the call got underway, there was a miscommunication regarding the webcast URL for this meeting. The one that was circulated was the webcast from this morning's Q1 call. The two links are very similar, and what you could do is simply insert the word update before twenty nineteen-five-eight, and that will take you to the webcast of this call. It will take us about an hour or so before that archive is available, though. Thank you for your attendance. Bye for now.