After tax adjusted operating income increases 30% over Q2 to $13.6
million or $0.09 per share
-
Record volumes in commercial finance segment offset industry-wide fleet
seasonality
-
US commercial finance originations increase 47% over Q2 to account for
23% of new business
-
Purchase of $250 million helicopter portfolio establishes Element as a
leader in the N.A. helicopter finance industry
TORONTO, Nov. 13, 2013 /CNW/ - Element Financial Corporation (TSX:EFN)
("Element" or "the Company"), one of North America's leading
independent equipment finance companies, today reported financial
results for the three and nine month periods ending September 30, 2013
showing strong growth in earnings and increased origination volumes in
the Company's commercial finance business vertical offsetting the
industry-wide third quarter seasonality of the fleet management
vertical. US-based volumes accounted for 23% of new business in Q3
versus 16% in the previous period and adjusted operating income
increased 30% over the previous period.
"The mix of business that we booked in Q3 shows the strength and
potential of the US-based origination team that we acquired late last
year," said Steven Hudson, Element's Chairman and CEO. "By removing the
funding caps that had previously constrained their growth, this team is
now tapping into a deep reservoir of high quality new business
opportunities," added Mr. Hudson.
Across all segments, new originations grew to $410.4 million for the
three month period versus $397.9 million in the previous period.
Element Finance accounted for $260.5 million or 63%, Element Capital
accounted for $91.6 million or 22% of the new business volume and
Element Fleet originated $58.3 million or 14% of the period's new
business volume.
The order book in the fleet industry is mainly driven by the replacement
of existing vehicles that fleet operators take out of service before
warranties expire. Just as the weak 2009 order book set the stage for
2013, the improved industry outlook for 2014 is built on the strength
of an improved 2010 order book.
"In addition to the macro effect of this replacement cycle, fleet
operators will also seek to reduce their total cost of ownership by
deferring the scheduled replacement of certain vehicles to pick up the
first run of a new model year," noted Mr. Hudson. "This behaviour,
which typically results in lowering Q3 volumes in favour of subsequent
quarters, was amplified this quarter due to a delay in the production
of some of the more popular models of cars and light trucks ordered by
our fleet customers. Volumes have rebounded in Q4 as a result of this
order migration with originations expected to double over the previous
period," added Mr. Hudson.
Element's Aviation Finance business had a solid quarter with more than
$91 million of new originations booked during the period. In late
October, this team signed Letters of Intent for financing civil
aviation assets valued at more than $400 million at the 2013 National
Business Association (NBAA) Convention and Exhibition in Las Vegas. In
addition, the Company announced that it has entered into an agreement
to acquire a $250 million portfolio of finance assets secured by
individual helicopters operated by a diversified base of customers
across a variety of industries in the U.S. The transaction, which is
expected to close by December 31, 2013, strengthens Element's position
as a leader in the North American helicopter finance market. "The
purchase of this helicopter portfolio adds to the already strong
outlook for this business unit for the fourth quarter and well into
2014 with a pipeline of prospective transactions that now exceeds $2
billion," added Mr. Hudson.
Financial revenue for the quarter increased to $46.4 million versus
$34.0 million in the previous quarter generating net financial income
of $31.8 million for the quarter versus $24.7 million in the previous
quarter. Adjusted operating expenses were $13.5 million for the quarter
versus $10.3 million in the previous quarter resulting in adjusted
operating income before income taxes of $18.4 million for the current
quarter versus $14.5 million for the previous quarter. After tax
adjusted operating income was $13.6 million or $0.09 per share for the
current period versus $10.5 million or $0.08 per share for the previous
quarter. Total assets increased to $2.7 billion at the end of the
quarter versus $2.5 billion at the end of the previous quarter and book
value per share increased to $5.72 versus $5.67 reported at the end of
the previous period.
The Company's adjusted operating expense ratio continued to decline
falling from 2.65% of average portfolio assets reported in the previous
period to 2.49% in the third quarter. "We succeeded in taking costs
out of our acquired businesses in the third quarter as we continue to
drive toward our target operating expense ratio of 2%," noted Mr.
Hudson. "Transformational acquisitions are expected to significantly
accelerate our achievement of this target, but can also add to
operating costs in the short run as we engage resources in the hunt for
these transactions."
Finance receivables increased to $2.25 billion at the end of September
2013 versus $2.14 billion reported as at June 30, 2013. Average finance
receivables for the quarter were $2.16 billion versus $1.54 billion for
the previous quarter. Delinquencies represented 0.38% of total finance
receivables as at September 30, 2013 compared to 0.15% as at June 30,
2013 and 0.28% as at March 31, 2013. This variance from quarter to
quarter is expected to normalize as collection policies and practices
are standardized with the further integration of Element's acquired
fleet portfolios. Element's financial leverage ratio increased to
1.93:1 as at September 30, 2013 from 1.75:1 at the June 30, 2013 well
below the Company's target. At the end of the period, the Company had
155.4 million shares outstanding.
The Company expects to originate new business in the fourth quarter of
2013 of more than $600 million, an increase of nearly 50% over total
originations for the third quarter with increases in all segments.
Conference Call
A conference call to discuss the results with analysts will be held on
Thursday November 14, 2013 at 8:00 a.m. ET. The conference call can be
accessed by dialing the following numbers:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America Toll- Free:
|
|
|
|
|
|
|
|
|
|
|
1-866-696-5910 passcode 2707932
|
|
|
|
|
|
|
|
|
|
|
|
|
Local & International:
|
|
|
|
|
|
|
|
|
|
|
1-416-340-2217 passcode 2707932
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The call will be recorded and can be accessed until November 28, 2013 by
dialing 905-694-9451 or 1-800-408-3053 and entering the pass code
6626144.
Non-IFRS Measures
The Company's unaudited condensed consolidated interim financial
statements have been prepared in accordance with International
Financial Reporting Standards ("IFRS") as issued by the International
Accounting Standards Board ("IASB") and accounting policies we adopted
in accordance with IFRS.
The Company believes that certain Non-IFRS Measures can be useful to
investors because they provide a means by which investors can evaluate
the Company's underlying key drivers and operating performance of the
business, exclusive of certain adjustments and activities that
investors may consider to be unrelated to the underlying economic
performance of the business for a given period. Throughout this Press
Release, management used a number of terms and ratios which do not have
a standardized meaning under IFRS and are unlikely to be comparable to
similar measures presented by other organizations. A full description
of these measures can be found in the Management Discussion & Analysis
that accompanies the financial statements for the quarter ended
September 30, 2013.
Selected Financial Information and Financial Ratios
The following table summarizes key financial data to be read in
conjunction with the unaudited condensed consolidated financial
statements of the Company as at and for three-month and nine-month
periods ended September 30, 2013.
|
|
|
|
|
|
|
As at and for the three months ended
|
|
As at and for the nine months ended
|
(in $000's for stated values, except ratios and
per share amounts)
|
September 30,
2013
$
|
|
June 30,
2013
$
|
|
September 30,
2012
$
|
|
September 30,
2013
$
|
|
September 30,
2012
$
|
|
|
|
|
|
|
|
|
|
|
|
After tax adjusted operating income (loss)
per share (basic) (1)
|
0.09
|
|
0.08
|
|
0.05
|
|
0.25
|
|
0.08
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial revenue
|
46,374
|
|
33,960
|
|
18,124
|
|
112,172
|
|
31,102
|
|
Adjusted operating income
|
18,362
|
|
14,497
|
|
5,374
|
|
44,902
|
|
8,214
|
|
After tax adjusted operating income
|
13,548
|
|
10,451
|
|
3,943
|
|
32,643
|
|
6,027
|
|
Income/(loss) before taxes
|
11,547
|
|
(14,164)
|
|
4,349
|
|
4,635
|
|
(3,353)
|
|
Net income/(loss)
|
7,825
|
|
(13,882)
|
|
3,012
|
|
(1,372)
|
|
(3,044)
|
|
Total assets
|
2,725,955
|
|
2,533,370
|
|
1,109,653
|
|
2,725,955
|
|
1,109,653
|
|
Finance Receivables, net
|
2,253,186
|
|
2,143,133
|
|
927,298
|
|
2,253,186
|
|
927,298
|
|
New originations
|
410,436
|
|
397,896
|
|
219,690
|
|
1,104,583
|
|
455,702
|
|
Loan acquisitions
|
—
|
|
488,691
|
|
—
|
|
573,008
|
|
456,824
|
|
Secured borrowings
|
1,713,973
|
|
1,539,011
|
|
720,297
|
|
1,713,973
|
|
720,297
|
|
Average finance receivables
|
2,163,841
|
|
1,546,145
|
|
847,130
|
|
1,704,873
|
|
487,173
|
|
Average debt outstanding
|
1,586,258
|
|
1,093,655
|
|
651,717
|
|
1,257,016
|
|
337,123
|
|
Number of Shares outstanding (including special warrants)
|
155,399
|
|
155,116
|
|
83,015
|
|
155,399
|
|
83,015
|
Weighted average number of shares outstanding
(including special warrants)
|
155,321
|
|
129,362
|
|
83,001
|
|
130,973
|
|
73,779
|
|
Total Shareholders' equity
|
889,072
|
|
879,560
|
|
316,187
|
|
889,072
|
|
316,187
|
|
Average shareholders' equity
|
882,929
|
|
635,079
|
|
314,222
|
|
661,197
|
|
272,583
|
|
Net income (loss) per share [basic and diluted]
|
0.05
|
|
(0.11)
|
|
0.04
|
|
(0.01)
|
|
(0.04)
|
|
|
|
|
|
|
|
|
|
|
The following table provides a reconciliation of non-IFRS to IFRS
measures related to the Company:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at and for the three months ended
|
|
As at and for the nine months ended
|
|
$ thousands (except % and per share amounts)
|
|
September 30,
2013
|
|
June 30,
2013
|
|
September 30,
2012
|
|
September 30,
2013
|
|
September 30,
2012
|
|
Reported and adjusted income measures
|
|
7,825
|
|
(13,882)
|
|
3,012
|
|
(1,372)
|
|
(3,044)
|
|
Net income (loss)
|
A
|
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation
|
|
3,467
|
|
2,818
|
|
695
|
|
7,737
|
|
2,187
|
|
|
Amortization of intangible assets from acquisitions
|
|
348
|
|
343
|
|
330
|
|
1,030
|
|
330
|
|
|
Integration costs
|
|
3,000
|
|
5,000
|
|
—
|
|
11,000
|
|
2,750
|
|
|
Transaction costs
|
|
—
|
|
20,500
|
|
—
|
|
20,500
|
|
6,300
|
|
|
Provision (recovery) of income taxes
|
|
3,722
|
|
(282)
|
|
1,337
|
|
6,007
|
|
(309)
|
|
Adjusted operating income
|
B
|
18,362
|
|
14,497
|
|
5,374
|
|
44,902
|
|
8,214
|
|
Provision for taxes applicable to adjusted operating income
|
|
(4,814)
|
|
(4,046)
|
|
(1,431)
|
|
(12,259)
|
|
(2,187)
|
|
After tax adjusted operating income
|
C
|
13,548
|
|
10,451
|
|
3,943
|
|
32,643
|
|
6,027
|
|
Selected statement of financial position amounts
|
|
|
|
2,154,106
|
|
931,427
|
|
2,264,570
|
|
931,427
|
|
Finance receivables, before allowance for credit losses
|
D
|
2,264,570
|
|
Allowance for credit losses
|
E
|
11,384
|
|
10,973
|
|
4,129
|
|
11,384
|
|
4,129
|
|
Finance receivables, net
|
F
|
2,253,186
|
|
2,143,133
|
|
927,298
|
|
2,253,186
|
|
927,298
|
|
|
Average finance receivables, net
|
G
|
2,163,841
|
|
1,546,145
|
|
847,130
|
|
1,704,873
|
|
487,173
|
|
Secured borrowings
|
H
|
1,713,973
|
|
1,539,011
|
|
720,297
|
|
1,713,973
|
|
720,297
|
|
|
Average Secured Borrowings
|
I
|
1,586,258
|
|
1,093,655
|
|
651,717
|
|
1,257,016
|
|
337,123
|
|
Total shareholders' equity
|
J
|
889,072
|
|
879,560
|
|
316,187
|
|
889,072
|
|
316,187
|
|
|
Average shareholders' equity
|
K
|
882,929
|
|
635,079
|
|
314,222
|
|
661,197
|
|
272,583
|
|
Key annualized operating ratios
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial leverage ratio
|
H/J
|
1.93
|
|
1.75
|
|
2.28
|
|
1.93
|
|
2.28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for credit losses as a percentage of finance receivables
|
E/D
|
0.50%
|
|
0.51%
|
|
0.44%
|
|
0.50%
|
|
0.44%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted operating income on average shareholders' equity
|
B/K
|
8.32%
|
|
9.13%
|
|
6.84%
|
|
9.05%
|
|
4.02%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted operating income on average finance receivables
|
B/G
|
3.39%
|
|
3.75%
|
|
2.54%
|
|
3.51%
|
|
2.25%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
After-tax adjusted operating income on average shareholders' equity
|
C/K
|
6.14%
|
|
6.58%
|
|
5.02%
|
|
6.58%
|
|
2.95%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
After-tax adjusted operating income on average finance receivables
|
C/G
|
2.50%
|
|
2.70%
|
|
1.86%
|
|
2.55%
|
|
1.65%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per share information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of shares outstanding (including special warrants)
|
L
|
155,399
|
|
155,116
|
|
83,015
|
|
155,399
|
|
83,015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares outstanding [basic]
|
M
|
155,321
|
|
129,362
|
|
83,001
|
|
130,973
|
|
73,779
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares outstanding [diluted]
|
N
|
159,618
|
|
129,362
|
|
84,310
|
|
130,973
|
|
73,779
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share [basic]
|
A/M
|
0.05
|
|
(0.11)
|
|
0.04
|
|
(0.01)
|
|
(0.04)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share [diluted]
|
A/N
|
0.05
|
|
(0.11)
|
|
0.04
|
|
(0.01)
|
|
(0.04)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Book value per share
|
J/L
|
5.72
|
|
5.67
|
|
3.81
|
|
5.72
|
|
3.81
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
After-tax adjusted operating income per share [basic]
|
C/M
|
0.09
|
|
0.08
|
|
0.05
|
|
0.25
|
|
0.08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes key operating ratios to be read in
conjunction with the unaudited condensed consolidated interim financial
statements of the Company as at and for the three-month and nine-month
periods ended September 30, 2013:
|
|
|
|
|
|
|
|
|
|
|
|
As at and for the three-month periods ended
|
|
As at and for the nine month periods ended
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
2013
|
June 30,
2013
|
|
September 30,
2012
|
|
September 30,
2013
|
|
September 30,
2012
|
|
Ratios
|
1.93:1
|
1.75:1
|
|
2.28:1
|
|
1.93:1
|
|
2.28:1
|
|
Financial leverage ratio
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for credit losses as a percentage of
|
|
|
|
|
|
|
|
|
|
|
finance receivables
|
0.50%
|
0.51%
|
|
0.44%
|
|
0.50%
|
|
0.44%
|
|
|
|
|
|
|
|
|
|
|
|
Annualized credit loss provision as a percentage
|
|
|
|
|
|
|
|
|
|
|
of average finance receivables
|
0.31%
|
0.28%
|
|
0.30%
|
|
0.34%
|
|
0.27%
|
|
|
|
|
|
|
|
|
|
|
|
Portfolio average remaining life (in months)
|
26.8
|
22.6
|
|
19.0
|
|
26.8
|
|
19.0
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted operating income on average
|
|
|
|
|
|
|
|
|
|
|
shareholders' equity
|
8.32%
|
9.13%
|
|
6.84%
|
|
9.05%
|
|
4.02%
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted operating income on average
|
|
|
|
|
|
|
|
|
|
|
finance receivables
|
3.39%
|
3.75%
|
|
2.54%
|
|
3.51%
|
|
2.25%
|
|
|
|
|
|
|
|
|
|
|
|
After-tax adjusted operating income on
|
|
|
|
|
|
|
|
|
|
|
shareholders' equity
|
6.14%
|
6.58%
|
|
5.02%
|
|
6.58%
|
|
2.95%
|
|
|
|
|
|
|
|
|
|
|
|
After-tax adjusted operating income on
|
|
|
|
|
|
|
|
|
|
|
average finance receivables
|
2.50%
|
2.70%
|
|
1.86%
|
|
2.55%
|
|
1.65%
|
|
|
|
|
|
|
|
|
|
|
|
Book value per share
|
$5.72
|
$5.67
|
|
$3.81
|
|
$5.72
|
|
$3.81
|
|
(1)
|
All are ratios presented on an annualized basis.
|
|
|
|
The following table sets forth a summary of the Company's results of
operations for the three months ended September 30, 2013, June 30, 2013
and September 30, 2012:
|
|
|
|
|
|
|
For the three-month periods ended
|
|
|
|
|
|
|
|
|
(in 000's for stated values, except per unit amounts)
|
September 30, 2013
$
|
|
June 30, 2013
$
|
|
September 30, 2012
$
|
|
Net Financial Income
|
|
|
|
|
|
|
Interest income
|
37,011
|
|
28,916
|
|
15,589
|
|
Interest expense
|
14,525
|
|
9,212
|
|
5,635
|
|
Net interest income before provision for credit losses
|
22,486
|
|
19,704
|
|
9,954
|
|
Provision for credit losses
|
1,670
|
|
1,099
|
|
640
|
|
Net interest income
|
20,816
|
|
18,605
|
|
9,314
|
|
Other revenue items
|
11,033
|
|
6,143
|
|
3,175
|
|
Net financial income
|
31,849
|
|
24,748
|
|
12,489
|
|
Operating Expenses
|
|
|
|
|
|
|
Salaries, wages and benefits
|
9,479
|
|
7,994
|
|
5,142
|
|
General and administration expenses
|
4,008
|
|
2,257
|
|
1,973
|
|
Share-based compensation
|
3,467
|
|
2,818
|
|
695
|
|
|
16,954
|
|
13,069
|
|
7,810
|
|
Business acquisition costs
|
|
|
|
|
|
|
Amortization of intangibles from acquisition
|
348
|
|
343
|
|
330
|
|
Integration costs
|
3,000
|
|
5,000
|
|
—
|
|
Transaction costs
|
—
|
|
20,500
|
|
—
|
|
|
3,348
|
|
25,843
|
|
330
|
|
Net income/(loss) before taxes
|
11,547
|
|
(14,164)
|
|
4,349
|
|
Tax expense/(recovery)
|
3,722
|
|
(282)
|
|
1,337
|
|
Net income/(loss) for the period
|
7,825
|
|
(13,882)
|
|
3,012
|
|
|
|
|
|
|
|
|
Net income (loss) per share [basic and diluted]
|
$0.05
|
|
($0.11)
|
|
$0.04
|
|
|
|
|
|
|
The following table sets forth a summary of the Company's results of
operations for the nine months ended September 30, 2013 and 2012:
|
|
|
|
|
|
|
For the nine-month periods ended
|
|
|
|
|
|
|
(in 000's for stated values, except per unit amounts)
|
September 30, 2013
$
|
|
September 30, 2012
$
|
|
Net Financial Income
|
|
|
|
|
Interest income
|
92,371
|
|
28,019
|
|
Interest expense
|
32,780
|
|
9,284
|
|
Net interest income before provision for credit losses
|
59,591
|
|
18,735
|
|
Provision for credit losses
|
4,340
|
|
970
|
|
Net interest income
|
55,251
|
|
17,765
|
|
Other revenue items
|
24,141
|
|
4,053
|
|
Net financial income
|
79,392
|
|
21,818
|
|
Operating Expenses
|
|
|
|
|
Salaries, wages and benefits
|
24,635
|
|
9,275
|
|
General and administration expenses
|
9,855
|
|
4,329
|
|
Share-based compensation
|
7,737
|
|
2,187
|
|
|
42,227
|
|
15,791
|
|
Business acquisition costs
|
|
|
|
|
Amortization of intangibles from acquisitions
|
1,030
|
|
330
|
|
Integration costs
|
11,000
|
|
2,750
|
|
Transaction costs
|
20,500
|
|
6,300
|
|
|
32,530
|
|
9,380
|
|
Net income/(loss) before taxes
|
4,635
|
|
(3,353)
|
|
Tax expense/(recovery)
|
6,007
|
|
(309)
|
|
Net income/(loss) for the period
|
(1,372)
|
|
(3,044)
|
|
|
|
|
|
|
Net loss per share - basic and diluted
|
($0.01)
|
|
($0.04)
|
|
|
|
|
The following table sets forth a summary of the Company's consolidated
financial position as of the dates presented:
|
|
|
|
|
|
|
|
|
|
|
As at
|
|
|
|
|
|
|
|
|
|
|
(in 000's for stated values, except per unit amounts)
|
September 30,
2013
$
|
|
June 30,
2013
$
|
|
December 31,
2012
$
|
|
|
|
|
|
|
|
|
Cash
|
52,258
|
|
41,534
|
|
9,997
|
|
Restricted cash
|
87,482
|
|
64,142
|
|
51,279
|
|
Finance receivables
|
2,253,186
|
|
2,143,133
|
|
1,294,591
|
|
Deferred tax assets
|
19,630
|
|
25,272
|
|
16,152
|
|
Non-portfolio assets
|
313,399
|
|
259,289
|
|
136,873
|
|
Total assets
|
2,725,955
|
|
2,533,370
|
|
1,508,892
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
91,695
|
|
83,883
|
|
70,057
|
|
Secured borrowings
|
1,713,973
|
|
1,539,011
|
|
989,128
|
|
Derivative financial instruments
|
3,275
|
|
2,562
|
|
645
|
|
Deferred tax liabilities
|
27,940
|
|
28,354
|
|
25,637
|
|
Total liabilities
|
1,836,883
|
|
1,653,810
|
|
1,085,467
|
|
Shareholders' equity
|
889,072
|
|
879,560
|
|
423,425
|
|
Total liabilities and shareholders' equity
|
2,725,955
|
|
2,533,370
|
|
1,508,892
|
|
|
|
|
|
|
|
Overall Performance Highlights
Total originations were a record $410.4 million during the three months
ended September 30, 2013, an increase of 86.8% or $190.7 million over
the originations for the three months ended September 30, 2012, and an
increase of 3.2% or $12.5 million over the originations for the prior
quarter ended June 30, 2013. Total originations were $1,104.6 million
during the nine months ended September 30, 2013, an increase of 142.4%
or $648.9 million over the comparative period in 2012.
Total originations from the Company's mid-ticket Element Finance
business were $260.5 million during the three months ended September
30, 2013, an increase of $173.9 million or 200.7% over the $86.6
million generated during the three months ended September 30, 2012, and
an increase of $29.6 million or 12.8% over the prior quarter ended June
30, 2013. The acquisition of CoActiv on November 30, 2012 and Nexcap on
January 18, 2013 contributed $102.2 million and $38.8 million,
respectively, to the total origination of the mid-ticket business for
three months ended September 30, 2013. For the nine months ended
September 30, 2013, total originations from the Element Finance
business were $677.4 million, an increase of $448.1 million or 195.5%
over the $229.3 million generated during the nine months ended
September 30, 2012.
Total originations for the Element Fleet vertical initially acquired in
June 2012 were $58.3 million during the three months ended September
30, 2013, a decrease of $22.1 million or 27.4% over the prior quarter
and an increase of $7.4 or 14.6% over the same quarter in the prior
year, and $197.8 million on a year to date basis or an increase of
$146.9 or 288.4%. Volumes of Element Fleet have decreased quarter over
quarter as a result of seasonality, availability of vehicles from
manufacturers and the purchase cycle of existing Element Fleet
customers offset by the new volumes generated from the GE Portfolio
acquired on June 28, 2013. Management expects volume to increase as the
Company enters a seasonally stronger fourth quarter and as the Company
increases its ability to leverage the relative strengths of the TLS and
GE Portfolio acquisitions.
Total originations for the Company's large-ticket Element Capital
business which was established in January 2012, were $91.6 million
compared to $86.6 million in the immediately preceding quarter and
$82.1 million in the comparative quarter in 2012, and $229.3 million
for the nine months ended September 30, 2013, compared to $175.5
million for the nine months ended September 30, 2012. As management has
reported in the past, this business unit will not report even volumes
over accounting periods due to the nature of the business. Element
Capital continues to have a strong pipeline which was in excess of $1.8
billion at September 30, 2013 and the Company expects record
originations in the fourth quarter of 2013.
The Company's finance receivables portfolio of leases and loans has
grown substantially during the three months ended September 30, 2013 to
$2,253.2 million from $2,143.1 million reported on June 30, 2013 and
from $1,294.6 million reported at December 31, 2012. The growth over
June 30, 2013 is primarily due to the combined effect of the total new
originations for the three months ended in the amount of $410.4
million, net of repayments and syndication activities of $297.3
million. The growth over December 31, 2012 is primarily due to the
combined effect of the total new originations for the nine months ended
in the amount of $1,104.6 million, the $488.7 million acquired as part
of the acquisition of the GE Portfolio and $84.3 million acquired as
part of the acquisitions of Nexcap, net of repayments and syndication
activities for $711.5 million.
The Company is reporting net income of $7.8 million for the three months
ended September 30, 2013, compared to a net income of $3.0 million in
the three months ended September 30, 2012 and net loss of $13.9 million
for the immediately preceding quarter ended June 30, 2013. Net income
per share was $0.05 for the three months ended September 30, 2013,
compared to net income of $0.04 per share for the three months ended
September 30, 2012 and a net loss per share of $0.11 for the
immediately preceding quarter ended June 30, 2013. The large variances
between periods are primarily the result of business acquisition and
integration costs incurred on mergers and acquisition activities and
are therefore not predictable.
As indicated previously, management believes that adjusted operating
income is the most appropriate operating measure of the Company's
performance as it excludes non-cash items related to share-based
compensation and business acquisition costs which do not relate to
maintaining operating activities. The Company is reporting adjusted
operating income of $18.4 million for the three months ended September
30, 2013, compared to $5.4 million for the three months ended September
30, 2012 and $14.5 million for the prior quarter ended June 30, 2013,
and after tax adjusted operating income per share of $0.09 compared to
$0.05 per share for the three months ended September 30, 2012 and $0.08
per share for the prior quarter ended June 30, 2013. For the nine
months ended September 30, 2013, the Company is reporting adjusted
operating income of $44.9 million and after tax adjusted operating
income per share of $0.25, compared to $8.2 million in adjusted
operating income or $0.08 in after tax operating income per share for
the comparative nine-month period ended September 30, 2012.
The Company continued to execute on its growth plan and strategy during
the quarter ended September 30, 2013 and is reporting improved
performance from operations (net income before business acquisition
costs and taxes) both over the comparable period of the previous year
and the immediately preceding quarter. The improved performance is in
part the result of the acquisition and integration of TLS, CoActiv,
Nexcap and the GE Portfolio that were completed on June 29, 2012,
November 30, 2012, January 18, 2013 and June 28, 2013, respectively.
The Company is reporting net income of $7.8 million for the quarter
ended September 30, 2013 compared to net income of $3.0 million for the
same comparative quarter ended September 30, 2012 and compared to a net
loss of $13.9 million reported during the previous quarter ended June
30, 2013. The net loss reported in the prior quarter is the direct
result of the inclusion of business acquisition costs of $25.5 million
related to the GE Portfolio acquisition completed during the second
quarter of 2013. Business acquisition costs will continue to create
volatility to the net income of the Company as the Company continues on
its acquisitive path.
Basic and diluted income per share was $0.05 for the three months ended
September 30, 2013, compared to basic and diluted income per share of
$0.04 for the quarter ended September 30, 2012, and a net loss of $0.11
per share for the immediately preceding quarter ended June 30, 2013.
The large variances between these earnings are the result of the
inclusion of business acquisition costs in the computation of net
income.
As indicated previously, management believes that adjusted operating
income, a Non-IFRS Measure, is the most appropriate operating measure
of the Company's performance as it excludes business acquisition costs
and non-cash items related to share-based compensation which do not
relate to maintaining operating activities. The Company is reporting
basic and adjusted operating income of $0.09 per share for the quarter
ended September 30, 2013 compared to $0.05 per share for the quarter
ended September 30, 2012 and $0.08 per share for the immediately
preceding quarter ended June 30, 2013 on total average number of shares
outstanding of 155.3 million, 83.0 million and 129.4 million,
respectively.
Adjusted operating income for the three month period ended September 30,
2013 was $18.4 million, an increase of $13.0 million or 241.7% over the
amount reported during the comparative quarter ended September 30, 2012
or an increase of $3.9 million or 26.7% over the amount reported during
the immediately preceding quarter. The increase over the quarter ended
June 30, 2013 is due to the continued impact of the organic growth on
the Company's finance receivable portfolio and the contribution of the
GE Portfolio acquired on June 28, 2013. The increase over the September
30, 2012 quarter is the result of organic growth as well as the
contribution of CoActiv acquired on November 30, 2012, Nexcap acquired
on January 18, 2013 and the GE Portfolio acquired on June 28, 2013.
Adjusted operating income on average receivable was 3.39% during the
quarter ended September 30, 2013 compared to 2.54% for the quarter
ended September 30, 2012 and 3.75% for the prior quarter ended June 30,
2013, reflecting the substantial improvement of the Company's
performance year over year from a larger balance sheet and from
integration initiatives. The decline quarter over quarter is a result
of reduced interest revenue as a percentage of average assets,
primarily due to the inclusion of the GE Portfolio which has lower
interest yields than the legacy Element Fleet business, declining
interest yields on new originations in the Company's U.S. operations
and an increase in interest expense as a percentage of average assets
as the Company diversifies its funding sources.
Similarly, adjusted operating income on average shareholders' equity was
8.32% during the quarter ended September 30, 2013 compared to 6.84% for
the quarter ended September 30, 2012 and 9.13% for the prior quarter
ended June 30, 2013. After-tax adjusted operating income on average
shareholders' equity was 6.14% during the quarter ended September 30,
2013 compared to 5.02% for the quarter ended September 30, 2012 and
6.58% for the prior quarter ended June 30, 2013, reflecting the
substantial improvement of the Company's performance year over year
from a larger balance sheet, integration initiatives and the deployment
of capital into finance receivables. The decline quarter over quarter,
is the result of an increase to average shareholders' equity as a
result of the June 18, 2013 issuance of special warrants that increased
share capital by $283.5 million. This issuance was used to partially
fund the acquisition of the GE Portfolio, which as discussed above has
lower interest yields than the legacy Element Fleet business. The
acquisition of the GE Portfolio also included $73.0 million of goodwill
and intangible assets that do not generate an income yield, these
factors contributed to the decline in adjusted operating income and
after-tax adjusted operating income on average shareholders' equity
quarter over quarter.
Financial revenue for the three month period ended September 30, 2013
was $46.4 million, an increase of $28.3 million or 155.9% over the
amount of $18.1 million reported during the quarter ended September 30,
2012, and an increase of $12.4 million or 36.6% over the amount of
$34.0 million reported during the immediately preceding quarter ended
June 30, 2013. These increases result from increases in average finance
receivables outstanding during the periods which grew to $2,163.8
million during quarter ended September 30, 2013, from $847.1 million
during the quarter ended September 30, 2012 and from $1,546.1 million
during the immediately preceding quarter ended June 30, 2013. Finance
receivables have increased to $2,253.2 million as at September 30, 2013
compared to $927.3 million as at September 30, 2012 and $2,143.1
million at June 30, 2013 reflecting respective increases of 143.0% and
5.1% resulting from a combination of (i) the acquisition of TLS on June
29, 2012, (ii) the acquisition of CoActiv on November 30, 2012, (iii)
the acquisition of Nexcap on January 18, 2013, (iv) the acquisition of
the GE Portfolio on June 28, 2013, and (v) the continued organic growth
in originations which reached a record total of $410.4 million during
the quarter ended September 30, 2013, compared to $397.9 million during
the immediately preceding quarter ended June 30, 2013 and compared to
originations of $219.7 million during the quarter ended September 30,
2012.
Gross average yield was 8.88% for the quarter ended September 30, 2013
compared to 9.07% for the immediately preceding quarter ended June 30,
2013 and 8.86% for the comparative quarter ended September 30, 2012. A
direct comparison against the results for the quarter ended September
30, 2012 is not meaningful as a result of the numerous acquisitions
completed subsequent to that comparative quarter and the resulting
different mix of businesses. The decrease in gross yields of 0.19%
compared to the immediately preceding quarter ended June 30, 2013 was
impacted by the acquisition of the GE Portfolio which has a lower
yields than the legacy Element Fleet business and lower yields earned
on the Company's new U.S. origination volumes. These were offset by
higher non-interest revenue earned in the quarter. Other non-interest
revenue is primarily ancillary service revenues and will fluctuate
period to period based on the number of transactions and is not
directly correlated to average finance receivables.
Interest expense was $14.5 million for the quarter ended September 30,
2013, compared to $5.6 million for the quarter ended September 30, 2012
and $9.2 million for the immediately preceding quarter ended June 30,
2013, reflecting respective increases of $8.9 million and $5.3 million.
These increases are the result of increases in the average outstanding
debt during the periods which increased to $1,586.3 million during the
quarter ended September 30, 2013 from $1,093.7 million during the
quarter ended June 30, 2013 and $651.7 million during the quarter ended
September 30, 2012. The average cost of borrowing has however increased
to 3.66% for the quarter ended September 30, 2013 versus 3.37% in the
immediately preceding quarter and 3.46% for the comparative quarter
ended September 30, 2012 reflecting a change in the mix of borrowings,
new debt structures and diversification of funding sources entered into
during the periods.
Operating expenses were $17.0 million for the quarter ended September
30, 2013, compared to $7.8 million for the comparative period in 2012,
and $13.1 million for the immediately preceding quarter ended June 30,
2013. Adjusted operating expenses were $13.5 million for the quarter
ended September 30, 2013 compared to $10.3 million for the immediately
preceding quarter and $7.1 million for the quarter ended September 30,
2012, an increase of 31.6% over the amount reported during the previous
quarter ended June 30, 2013 and an increase of 89.6% over the amount
reported during the comparative period ended September 30, 2012. The
adjusted operating expenses ratio decreased to 2.49% during the quarter
ended September 30, 2013 from 2.65% reported for the immediately
preceding quarter ended June 30, 2013 and decreased from 3.36% during
the quarter ended September 30, 2012. The continued improvements
reflect operating efficiencies from the growing balance sheet of the
Company and the impact of the integration of recent acquisitions.
Share-based compensation, which consists of non-cash expenses related to
the fair value of options granted under the Company stock option plan
and deferred share units ("DSUs") granted during the period, was $3.5
million during the three months ended September 30, 2013 compared to
$2.8 million during the three months ended June 30, 2013 and $0.7
million reported in the comparative quarter ended September 30, 2012.
The increase is directly attributed to the additional grant of options
and DSUs, and the increasing estimated fair value of those options and
the change in the fair value of the DSUs as the Company's share price
continues to increase.
Business acquisition costs, which consist of the amortization of certain
acquired intangibles from the acquisition of TLS and the GE Portfolio,
and integration costs associated with the GE Portfolio acquisition were
$3.3 million during the quarter ended September 30, 2013. During the
quarter, the Company accrued $3.0 million in additional integration
costs associated with the legacy Element Fleet operations and the
recently acquired GE Portfolio. As we have noted previously, these
types of expenses will continue to negatively impact the Company's
performance going forward as it continues on its growth plan and where
such costs will continue to be expensed as incurred under IFRS.
Net income before income taxes for the three months ended September 30,
2013 was $11.5 million compared to net income before taxes of $4.3
million reported for the three months ended September 30, 2012 and net
loss before income taxes of $14.2 million reported in the immediately
preceding quarter. The net income before income taxes for the three
months ended September 30, 2013 was negatively impacted by $3.0 million
of integration costs associated with the recently acquired GE
Portfolio. The net income before income taxes during the quarter ended
June 30, 2013 was impacted by $25.5 million of transaction and
integration costs associated with the acquisition of the GE Portfolio
during that quarter.
About Element Financial Corporation
With total assets of approximately $2.7 billion, Element Financial
Corporation is one of North America's leading independent equipment
finance companies. Element operates across North America in three
verticals of the equipment finance market - Element Capital provides
large ticket equipment financing, Element Finance serves the mid-ticket
equipment finance market and Element Fleet provides vehicle fleet
leasing and management solutions.
This release includes forward-looking statements regarding Element and
its business. Such statements are based on the current expectations
and views of future events of Element's management. In some cases the
forward-looking statements can be identified by words or phrases such
as "may", "will", "expect", "plan", "anticipate", "intend",
"potential", "estimate", "believe" or the negative of these terms, or
other similar expressions intended to identify forward-looking
statements, including, among others, statements regarding new
originations in the current quarter, the anticipated pipeline of
prospective transactions, and proposed purchases of portfolios of
finance assets. The forward-looking events and circumstances discussed
in this release may not occur and could differ materially as a result
of known and unknown risk factors and uncertainties affecting Element,
including risks regarding the equipment finance industry, economic
factors, risks related to completion of the proposed purchases of
portfolios of finance assets, and many other factors beyond the control
of Element. No forward-looking statement can be guaranteed.
Forward-looking statements and information by their nature are based on
assumptions and involve known and unknown risks, uncertainties and
other factors which may cause our actual results, performance or
achievements, or industry results, to be materially different from any
future results, performance or achievements expressed or implied by
such forward-looking statement or information. Accordingly, readers
should not place undue reliance on any forward-looking statements or
information. Except as required by applicable securities laws,
forward-looking statements speak only as of the date on which they are
made and Element undertakes no obligation to publicly update or revise
any forward-looking statement, whether as a result of new information,
future events, or otherwise.
SOURCE Element Financial Corporation
