Element Fleet Management Corp
TSX:EFN
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Element Fleet Management Corp
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Good morning, ladies and gentlemen, and welcome to Element Fleet Management's First Quarter 2024 Financial and Operating Results Conference Call. [Operator Instructions] You are reminded that this call is being recorded. [Operator Instructions]Element wishes to caution listeners that today's information contains forward-looking statements. The assumptions on which they are based and the material risks and uncertainties that could cause them to differ are outlined in the company's year-end and most recent MD&A as well as its most recent AIF. Although management believes that expectations are expressed in the statements are reasonable, actual results could differ materially.The company also reminds listeners that today's call references certain non-GAAP and supplemental financial measures. Management measures performance on a reported and adjusted basis and considers both to be useful in providing readers with a better understanding of how it assesses results. A reconciliation of these non-GAAP financial measures to IFRS measures can be found in the company's most recent MD&A.I would now like to turn the call over to Laura Dottori-Attanasio, Chief Executive Officer of Element Fleet. Please go ahead.
Good morning, and thank you all for joining us today. We had a strong start to 2024. This quarter, we achieved record net revenue of USD 262.5 million, and adjusted earnings per share of USD 0.27, demonstrating robust revenue results. The impressive performance of our commercial team continues to deliver, adding 39 new clients, 59% of which were self-managed conversions and adding 178 share of wallet services and continuing to drive higher service penetration and utilization rates. All of this was pivotal in driving our solid growth. These results highlight the exceptional quality of our team and the trust our clients have in our ability to contribute to their success.Our strong revenue allowed us to expedite investments in our business to support our growth, to refine our service delivery model and to establish the groundwork for our digitization and automation initiatives, which will benefit our clients and ensure our continued market leadership. While prioritizing these investments, we also maintained solid adjusted operating margins this quarter, expanding margins by 30 basis points on a year-over-year basis. We continue to make progress in client satisfaction, achieving a Net Promoter Score of 48 this quarter, as our client-centric focus further enhances the client experience.Our confidence in our future is reinforced by several factors, which include the 9.8% year-over-year increase in originations driven by strong client demand and normalizing vehicle production volumes by the advancement of our digitization and automation initiatives to optimize our business, deliver a higher degree of client experience and drive growth by the traction of our EV offering known as Arc by Element, along with our end-to-end electrification solutions for clients that are pursuing decarbonization goals and navigating the complexities of transitioning their fleets to EVs and of course, the enhancement of our strategic advisory services, providing more proactive insights to our clients.Additionally, we're making significant progress with our strategic initiatives in leasing and in strategic sourcing. For leasing, we're on track and on plan for the official start of operations in Dublin this summer. And for strategic sourcing, we appointed a new Head of Asia operations to lead our Singapore office, and we signed our first direct collaboration agreement with a leading OEM in Asia, expanding vehicle procurement options for our clients. The first quarter laid a strong foundation for our future growth, and we're enthusiastic about the opportunities ahead. Our financial stability, our purposeful investments to support our growth and our client-centric focus us well to continue creating value for our clients and our shareholders alike.And with that, I'll hand it over to Frank to take us through the numbers.
Thank you, Laura, and good morning, everyone. We started the year with strong momentum, including exceptionally strong net revenue growth year-over-year. We also continue to invest in the business while managing to our targeted full year AOI margin. As we stated in our earnings release, we believe our performance to date positions us well to achieve or potentially beat the high end of our guidance on most metrics, assuming a relatively stable foreign exchange rate environment.Before turning to our first quarter results, I'd like to highlight a few important reporting items. First, we are pleased to present our financial results in U.S. dollars for the first time, transitioning from the Canadian dollar. To [ aid ] our investors during this transition, we will continue to report key per share amounts in both U.S. and Canadian dollars for the next several quarters. These metrics include earnings and adjusted earnings per share and adjusted free cash flow per share.Second, we will continue to adjust our results for the remaining non-recurring setup costs in connection with our strategic initiatives in leasing and sourcing announced last year. In Q1 2024, we recorded $2.1 million of these non-recurring setup costs and anticipate recording the remaining amount next quarter. As such, all dollar amounts and growth measures I state on today's call will be in U.S. dollars and on an adjusted basis for these onetime items.Let's now turn to our first quarter results. We achieved record results across many metrics. Net revenue grew 16.8% year-over-year, reaching an all-time high of $262.5 million. This growth was largely driven by continued services revenue growth and to a lesser extent, higher net financing revenue. We strategically ramped up investments in our business this quarter, reinforcing our commitment to generating long-term growth and value creation for our clients and our shareholders. We will be purposeful in accelerating investments when our revenue performance permits. Managing tightly to our targeted adjusted operating margin will guide us in balancing disciplined expense management with investment acceleration.Our adjusted operating income for the quarter was $143.6 million, up 17.5% year-over-year, translating to an adjusted EPS of $0.27 a share, a $0.04 increase from the same period last year. Additionally, our adjusted free cash flow per share increased $0.07 or 25% to $0.35 per share. We ended Q1 with an adjusted operating margin of 54.7%, marking 30 basis points of expansion year-over-year, consistent with our guidance.Let's take a deeper dive into the key drivers of net revenue growth. Services revenue, the cornerstone of Element's capital-light business model grew 27.3% year-over-year to $147.1 million. This growth can be attributed to several key factors: increased penetration of service with our existing clients, higher utilization of services from both new and existing clients and the continued growth in our other geographies. I would note that Q1 2024 services revenue included $7 million from certain revenue items that vary by type, but share a similar characteristic in that they are discrete items and not expected to recur in 2024. Excluding these amounts, services revenue was still a strong 21.3% higher year-over-year.Also contributing to the year-over-year growth in net revenue was higher financing revenue, which was up 9.1% from Q1 last year. This uptake is primarily the result of an increase in net earning assets attributed to higher originations. This increase was somewhat mitigated by higher funding costs and higher standby fees due to higher committed capital balances to fund the forecasted growth in originations.Debt capital markets have been strong with lower spreads on turning out our financings in the first part of the year compared with prior year transactions. We continue to capitalize on these favorable credit market conditions, including accelerating the refinancing of debt scheduled for maturity in Q2. Q1 gain on sale was largely unchanged year-over-year. Noteworthy improvements in Mexico were largely offset by lower gain on sale in ANZ, where the normalization of used vehicle prices continues in tandem with the improvement in new vehicle availability.Moving on to syndications. We syndicated $473 million assets this quarter, down by 6.6% from Q1 last year. The decline can be largely attributed to our strategic decision to defer certain syndication volumes out of Q1 as we awaited the outcome of potential U.S. tax legislation. Adjusted operating expenses for the quarter were $118.9 million, an increase of 16.1% year-over-year. This increase was outpaced by the 16.8% growth in net revenue over the same period.Salaries and wages grew largely for the following reasons: increased headcount in support of growth initiatives and supporting our core growth until we realize the benefits from digitization and automation initiatives and higher incentive accruals year-over-year, given our strong performance in Q1 and strong outlook for the remainder of the year. General and administrative expenses were up 12.8%, largely due to investment acceleration and business development expenses in support of our commercial activities. Higher depreciation and amortization also contributed to the increase in year-over-year adjusted operating expenses.As I mentioned before, we will be purposeful in accelerating investments when our revenue performance permits. Our commitment to manage our expenses closely within the boundaries of achieving our targeted adjusted operating margin while also prioritizing these investments that align with our long-term strategic goals remains unchanged.Our free cash flow generation remained strong. This quarter, we generated adjusted free cash flow per share of $0.35, up $0.07 year-over-year. We ended the quarter with tangible leverage of 6.68x on the higher end of our target as we prefunded the redemption of our senior notes. As such, you will notice significantly higher cash balance on our quarter end balance sheet. Had we deployed all the capital raised from our Q1 $750 million senior unsecured notes offering during the quarter towards debt repayment, tangible leverage would have been 6.23x, near the bottom end of our targeted range.From a capital allocation perspective, our priorities remain unchanged. One, prudently invest in our business while maintaining our target tangible leverage ratio; two, grow our common share dividend in keeping with our target payout ratio; three, redeem the last of our high-cost legacy preferred shares; and four, return capital to shareholders via share buybacks.Before I conclude, I'd like to draw your attention to 2 notable capital actions. First, we plan to redeem all of our remaining preferred shares. In June, we will redeem our Series C preferred shares for a total of $94.6 million. In September, we plan to redeem our Series E preferred for a total of $98.3 million. The result of replacing these preferred share redemptions with debt will move the cost of capital below the line up to the NFR line, creating modest compression to NFR margins in the second half of 2024. Most importantly, this action will be EPS accretive and economically attractive [ talent ]. Additionally, we plan to redeem all our outstanding convertible debentures this coming June. In connection with this redemption, we expect to issue 14.6 million shares from treasury.In summary, the first quarter has established a solid foundation. And when combined with our positive outlook and the purposeful investments we are making to drive our growth and sustain our success, it place us in a strong position to achieve or potentially surpass the upper end of full year 2024 guidance on most metrics provided that foreign exchange rates remain relatively stable.Thank you, operator. We are now ready to take questions.
[Operator Instructions] The first question comes from Geoff Kwan with RBC Capital Markets.
My first question was on the service revenue side. You've guided to -- or you've made kind of comments that you think it's going to be low double-digit growth in 2024. So if I assume, let's say, like low double digit is 12% growth. If I take the [ $503 million ] in service revenues in 2023, grow that at 12%, you get to $563 million. If we back out what you guys earned in Q1, that would then imply the Q2 to Q4 service revenues would be up just over about 7% year-over-year. That's substantially below the 27% you had in Q1 and even the 15% year-over-year growth you had in 2023. So I'm just wondering, am I missing something as to why the service revenues for the rest of 2024 are going to be growing at a much lower rate than what you've done in the past year? Or is it just kind of build in some level of conservatism?
Yes. So Geoff, I would say as I'll point to our guidance language, where we said we would feel confident in -- increasing confidence in meeting the high end or potentially exceeding the most of the targets that we have for our guidance. So when I look at service revenue growth, and I look at it in this quarter, it's about 20% backing out the one-timers, I think that was very, very strong performance. I continue to believe that with some seasonality or lumpiness, overall, low double-digit service revenue growth in each quarter is probably a reasonable way to look at the growth there. So we're not forecasting that -- any of that slowdown that you referenced in your call. We still think that really strong quarter to start the year, but we want to see how the rest of the year plays out. But that low double-digit service revenue growth feels right to us as we move forward.
Okay. That's helpful. And just my -- my other question -- sorry, was there another follow-up there?
No, go ahead.
Okay. Sorry. My other question was just there was the reference that you talked about on the OEMs possibly increasing allocations to commercial fleets like yourselves relative to the consumer channel. Just wondering, are you seeing that -- did you make that comment because you're seeing it already? Or are you just kind of making a comment that if the economic conditions worsening, there's less consumer demand that you could see some allocations more than what you're seeing right now?
Geoff, it's Laura. I'll take that. In my comments, I talked about OEM production capacity normalizing, which is what we're seeing. When it comes to our models, we're expecting, as I think we had shared previously, we still were under allocation for some of the models. I think we're now down to only about 3 of, let's say, our top 15 that we expect to remain under some form of controlled allocation, and that will take place through 2024, and we expect to be in a normalized environment in 2025. That helps.
The next question comes from Paul Holden with CIBC.
A few questions. I guess the first one is the non-recurring items that impacted higher servicing income this quarter. Maybe you can just walk us through what those are. I know we've seen some of that in the past. I'm just wondering if it's sort of those same factors maybe relating to some customers rolling off or if there were different factors?
It has nothing to do with customers rolling off, Paul, and I don't think it did. So if you remember in 2022, we called out about $25 million because it was big enough. And these businesses always have. When you're managing 1.5 million vehicles in 4 different -- 5 different geographies, you're going to see things that are not necessarily recurring type of revenues. And when it gets to a level in a quarter or in a line item where it really needs to be called out, we try to provide that transparency. And so with $7 million in the service revenue line alone, we wanted to make sure that you understood what those are.Some of them do. I don't want to say they're non-recurring, but they're lumpy. So some of what we got this quarter, we got in 2022. Others are just different things, but it could be a host of a hodgepodge of items that come in. And unless they're really material because every company has these kind of non-recurring one-timers, both ways, we will only call them out to the extent that we think they're important for you to understand the trends in the business or key performance metrics like service revenue this time.
I understand. So the way I should look at it is these are things that might occur from time-to-time. You wouldn't want them in the run rate numbers, but they don't or they shouldn't influence our view on future revenue or profitability?
Correct. And we wouldn't even forecast them internally. They're -- because they are very sporadic and there's not sometimes visibility a year out or 2 years out on some of these items.
Got it. Got it. Okay. Second question is related to syndication. You were quite clear that you've intentionally reduced volumes because of a pending U.S. tax change. Wondering if you can explain what that pending tax change is, please?
Yes. It's the Working Families Act that was passed by Congress in the first quarter. And what it would do in the bill is raise bonus depreciation from 60% back to the 100% level, which would benefit us from a yield perspective. So we held in Q1 from that perspective. As we move forward, we're not going to wait forever on that because, as you know, syndication, I mean, legislation, especially in an election year, getting done becomes more and more difficult the longer it holds out. So this was a specific action in Q1. But I wouldn't take forward that we will continue to hold back volumes, hoping that, that legislation passes.
Okay. And then I guess my follow-up question then is with respect to the syndication yields that you're earning, still relatively low relative to what we've seen in historical periods. Is that anything related to that Working Families Act? I'm guessing not, but maybe it is? Or are there still other factors influencing the yields you're able to achieve?
There's 2 factors. One is that legislation. So the current tax legislation has bonus depreciation dropping 20% a year. So it went from 100% to 80% last year. This year it went from 80% to 60%. So that has an impact on yield. And then we saw with the increase in interest rates some of the bank hurdle rates moving up from our syndication buyers and buy desk. We think we'll -- as rates begin to stabilize and hopefully come down in the future, we'll start to see those come in as well. We're also seeing some of our syndication partners needing net earning assets. So in certain cases, we are -- we have -- well, we have strong demand across the board, continued strong demand. But in certain cases, we are benefiting from some of the scarcity of these high-quality assets in the marketplace from that perspective. I would put kind of half the yield on yield decrease. It's relatively balanced between bonus depreciation and hurdle rates of our investor partners in this current rate environment.
Got it. That's helpful. Last one from me. And I know Frank and Laura, you both tried to emphasize this just in terms of the expense management, but I want to make sure I have the conclusion right here. So as you're driving higher than forecast revenue, you're going to pull forward some of the future investment expense into the current period. And so when I think about that, I think, okay, well, your margins aren't expanding in the current period, but there's more capacity for margin expansion potentially in future periods. Am I drawing the right conclusion here?
Yes, I think so. I think it's dependent on the time frame that you look at in the specific initiative you're talking about, Paul. But some of the investment that we made what drove some of the 20%-plus service revenue growth that we currently have. So that's part of that step up. But some of the -- and that was more some of the things we did. But remember, last year, we introduced leadership into these key strategic initiatives, whether it's digital strategy or otherwise that Laura and we talk about in the MD&A, those, some could start to pay back in small ways later this year. Some will be a multiyear journey, but continue to enhance our efficiencies and our scalability. And importantly, all of these investments are done with a view to the client and what we're going to deliver to the client to help sustain and drive that long-term growth rate at the levels that we've seen well above GDP levels.
The next question comes from Jaeme Gloyn with National Bank Financial.
Just wanted to follow-up on that last line of questioning then. It doesn't quite sound like you're, I guess, confidently guiding in potential operating margin expansion in future periods with this advanced or accelerated spending, but it does sound like you're suggesting that, that accelerating spending is driving more rapid growth. And so I'll ask this a little bit differently then, is that -- does this accelerated spending put you in a position to outperform the 6% to 8% long-term revenue growth guidance for the next several years?
Jaeme, I'll start that one. I think an important takeaway here is every decision that we make is all about driving growth. It's all about optimizing our operations and really enhancing client experience. As Frank mentioned, we are very comfortable and confident in the guidance that we provided, and that included really that we could potentially exceed the upper range of the guidance that we provided. So we're being incredibly disciplined in our investment spend. I'd say we're also managing tightly to our targeted adjusted operating margin, which as we shared in our guidance, we expect it to show some slight margin expansion, and we continue to expect to see that.
Okay. On the originations, there was a comment in the outlook about the second quarter or maybe some of the originations being pushed into the second quarter due to some OEM constraints and second quarter being much stronger. Is -- can you sort of just some detail some of those constraints and then what you're thinking in terms of the seasonality, I suppose, with Q2 and maybe even Q4 being stronger? Does that suggest Q3 should be light? Maybe just walk through that origination cadence based on the comments and the outlook.
And remember, there's always some seasonality in originations. So 1Q '23 was the lowest quarter of originations, 1Q '24 is the lowest quarter. So there's some seasonality component into it. I think what I would tell you is we expect to be in our guidance range for originations, which, by definition, would say that we would have a much stronger Q2, Q3 and Q4. Q2 has tended to be a very solid origination quarter, it was our high watermark last year. So we're monitoring that quickly. But we see a market improvement, obviously, not changing the guidance and originations would say, you'd be upward of [ 1.9 a quarter ] going forward roughly. So no real changes in that outlook.Yes. One other thing I'd just add. Remember that we also have the model changeover in Q3, right, which sometimes gives you a little bit of a diminished delivery from that perspective.
Okay. Okay. And just one more. As I look at the gain on sale performance in the quarter, surprisingly strong, I guess, and its contribution to the NIM or net financing revenue yield, the NFR yield increased from the last couple of quarters. So is there anything in this quarter, whether it was vehicle turnover or something specific in Mexico that drove a stronger performance on gain on sale, that is -- we should go back to the trend of seeing lower gain on sale contribution in the upcoming quarters? Or maybe you can just give us some more detail on that driver.
Yes. What I would say is the biggest drivers are, and we said Mexico is effectively offsetting a decrease in ANZ. Really, the key to it is we've been growing that portfolio significantly over the last 5 years in a number of vehicles. And so as that portfolio has grown, returns from over time that then need to be remarketed and put us in a position for potential gain on sale there.So in regards to the Mexico market -- yes, in regards to the Mexico market, we would continue to see those volume opportunities as we move forward here, continuing to drive that benefit. So we're not seeing anything in the Mexico market that would give us pause at this point.
The next question comes from Tom MacKinnon with BMO Capital Markets.
Two questions. One, with respect to the operating margin. If I take out the revenue one-timer and kind of account for the [ $2.1 million ], I think you said in other expenses in the quarter. I get the 54.7%, operating margin comes 54.3%, which is lower than the 50% to 55.5% you've been talking about for 2024. I think you mentioned you're going to exceed most of the metrics or the top end perhaps higher on most of the metrics. You've talked about targeting slightly higher operating margins going forward. So is this the fact that we're under 55% in the first quarter. Is that with respect to any kind of seasonality? Or does it have to do with you're pulling forward more expenses? I guess, I'm just trying to say how comfortable are you with getting towards the top end of that 50% to 55.5% operating margin for 2024?
Yes. So 55% to 55.5% is absolutely our target. And that is where we're focused on driving the business. We would not have accelerated as much investment, had we not seen the one-timer coming to that [ $7 million ]. So 54.7% is a good number. What I would look at, though, Tom, is look at that versus Q1 of last year and we're up 30 basis points. So that's consistent with like how we want to drive the business with some modest margin expansion in the year. So that would mean we need to get in that 55% to 55.5% and that's where we're focused on driving the business. I'd also say expenses, there are certain things that do come into Q1 from time to time, but nothing from a seasonal perspective that I would draw too much attention to as you move forward here -- as you move forward here.
Yes. Okay. And then I think, Laura, you mentioned 39 new clients in your opening comments. Just remind me of what time frame that was? Is this all stealing market share? What's the outlook with respect to that? What's driving that? Is there still disruption, some economic uncertainty that's driving that? And how does this metric compare? Just trying to get a feeling for how well you're doing in one of your target -- your 5 drivers of earnings here. One was, I think, stealing market share. So if you can elaborate a little bit more on that 39 new clients you got in the quarter, that would be good.
Yes, absolutely, Tom. And so those 39 new clients were in that first quarter. As I mentioned, 59% of those were self-managed conversion. So really happy to see that close to 60% of those came from that segment. The balance came from winning share from our competitors. We are doing incredibly well. Our commercial team is knocking it out of the park. We have had successful quarters. And I would tell you, our commercial team is feeling very confident about their ability to continue to deliver into the future.And so for the growth levers we've talked about, we are doing well in all of those growth levers. And it's really just the solid work of our commercial team getting out there meeting existing clients for more share of wallet opportunities or, again, winning market share or managing to convince companies to convert their self-managed fleets to being outsourced fleet. [ Almost, ] we did on this horizon.
And the retention at 98%, that's generally kind of flattish.
Yes. That's our client revenue retention rate that we share in our disclosure that is -- remains at the same level.
The next question comes from Graham Ryding with TD Securities.
You mentioned in your slide deck, you flagged exploring and assessing complementary revenue opportunities. Is there anything that you can speak to at this point on that theme?
It's true, Graham. I'll take that or attempt to take that. Exploring revenue opportunities. I'm not sure that we mentioned that in our prepared remarks, but we are, I would just say, from an organic revenue growth perspective, we are incredibly comfortable. As I mentioned to Tom with this question, we're feeling really good about how we continue to grow from a new clients earning market share perspective. I think we have shared maybe previously where we've talked about some initiatives that we were looking at. There were 2 of them that come to mind. One of them was where we could look at the possibility of selling insurance into our network in the U.S. and in Canada, similar to what we do in Mexico, Australia and New Zealand. We are looking at that. We continue to, I'm going to say, to work on our business case to see how and if we're best placed to go into that market. So that remains an opportunity for growth for us if we choose to go down that path.And the other is in the small or medium-sized fleets that I think we've talked about previously, where we do see an opportunity to even further expand from a growth perspective if we go into that market. There, we've also brought someone on board, who's working through a business case and the steps it would take for us to be successful in that market if we chose to proceed. So those are 2, I think, very interesting opportunities for us early days. But it's -- the work we've done to date is pretty good and feeling pretty good about those opportunities. And when the time is right, and we have more to share, we'll certainly come back to you and share the path that we expect to be headed down, if that helps.
Yes. No, that was helpful. Yes, you flagged it on Slide 8. So I just wanted to gauge whether this is a material growth piece or early days. So you answered my question there. That's helpful. And when you say small- to medium-sized fleets, what does that mean? And how do you size that?
Yes, I'd say less -- more than 50 units and less than 250. And some of it depends on the market, but that's generally the target market. And I'd just point out that the guidance that we provided, of course, does not include any revenue we would make from those initiatives.
Okay. Okay. Understood. And then just on the -- your strategic initiatives, one of them is just technology investments and upgrade. Is there any time line here for this initiative? Or is this a multiyear process? And then, I guess, the second part of that, should we be expecting any non-recurring expense items here? Or would this be largely baked into your sort of CapEx and your operating margin targets?
Well, I'd say from a CapEx perspective, certainly is there. We've talked about -- you can expect us to invest in that CAD 100 million to CAD 110 million range. So now that we're presenting in U.S. dollars, I'm looking at Frank, it's $75 million to $80 million. And those investments will be for -- we've talked about growth, sustainability, again, long-term value creation. So I would say, expect it to be multiyear. Again, like all companies, we need to continue to invest in our digitization, analytical, automation tools and capabilities. It continues to hold, I'd say, real immense potential for us to continue to enhance not just client experience. It's going to continue to allow us to drive growth and create operational efficiencies.And I just go back to guidance. So from an operating margin perspective, we do expect and we're going to work to deliver on that guidance. But on occasion, we could find ourselves, as Frank mentioned earlier, that if we have some quarters where we've had some, I'm going to say, outperformance or increase revenue opportunities and if that does allow us to accelerate some of our spend, and if we feel that, that's really going to benefit our clients and support our future growth or get to realizing benefits sooner, that we will take that opportunity. But we will be, as I said earlier, very thoughtful and very disciplined about how we do that.
The next question comes from Stephen Boland with Raymond James.
Can you explain this collaboration agreement with BYD? I know you've opened the office in Singapore. I mean, when you start, I guess, acquiring these vehicles, is this coming out of Asia into Europe? Is it coming out of Asia into North America? I know they're looking at building a plant in Mexico. I'm just wondering what this collaboration involves.
Yes, Stephen, thanks for that. Really happy about this one. As we expand into Singapore, for us, this really is an important, I'd say, milestone that is really going to help us enhance our global procurement capability. So we did sign our first collaboration agreement. We expect it to be the first of many. What I'd say is essentially, again, it provides us with another channel where we can purchase vehicles. It's going to provide our clients with additional choice, but that's in the countries where we operate and also in the countries where these vehicles can be sold. So for now, that's Mexico, Australia and New Zealand. So really happy about it. Quite frankly, really it's a broad framework for a direct economic relationship. Very similar, I'd say, to the ones we have in place with the big 3 American OEMs. They continue to be the largest part of our sourcing in the countries in which we operate. And I would say they remain great partners to us.So this does feel really good. So not only does it give us and our clients more optionality and choice. I think it's also a really important step forward for us as we do need to continue to be equipped, if you will, to be able to supply growing global demand from our clients for decarbonization solutions that are required in the fleet industry. So really happy about how quickly we've managed to progress on this really important initiative.
Okay. And then just maybe you could talk about the other sort of initiatives, the European office in Ireland. Can you give us any more color in terms of what the main focus of that office will be? Is it to get more contracts and more fleets in Europe? Or is it just to help North American companies basically help their European operations? I'm just wondering if there's been any more genesis on that -- the plan of that office?
Yes. That is our other strategic initiative that is going very well. So as you know, we got set up or we're getting set up in Dublin. So one of the world's global leasing centers of excellence, which is why we selected that place. We are set to be operational by this summer. And so we continue to expect that we're going to, as we talked about, deliver a payback in 2.5 years and apologize giving Frank a heads up. We had mentioned, and we still feel very confident that we're going to generate the -- again, I have CAD dollars here in my mind, so I'm not sure what it is in U.S. dollars, but it was a $40 million to $60 million run rate of net revenue is what we were expecting. And I think between CAD 30 million to CAD 50 million of run rate adjusted operating income, and that was by full-year of 2028.So we're still expecting those economic benefits for our business and our shareholders. But to your question on focus, what we're really looking to do here in setting this up under one accountable officer is that we are going to really elevate our clients' leasing experience. We are going to make things easier for our clients and for our team members in supplying a leasing product to our clients. We expect it's going to allow us to really optimize our operations as we'll be doing a bit more standardization and approach, and it's really going to help us improve our pricing discipline. So all of those things should help us just be better, more efficient in terms of what we do for our client base. And ultimately, it will help us maximize value for our shareholders.
[Operator Instructions] We have a follow-up question from Jaeme Gloyn with National Bank Financial.
Yes. Just wanted to follow up on the competitive environment commentary just winning new clients from competitors. Are you able to share, are those wins coming from, let's say, the Apollo and the bigger player? Or is it from the smaller players? And are you seeing any change in their competitive positioning? And I'm thinking of Apollo specifically?
Our wins are coming from all of our competitors. So feeling really good about that. And I would just say, again, we have great competitors, all -- I mean, the whole industry, honestly, solid competitors, really good companies. We are not winning market share based on others weaknesses, which I think is a very good thing. It means that our competitors remain strong, which I think is really important for the overall client base that have fleets. And I'm particularly pleased with it given, again, there's not a lot of -- or there shouldn't be a lot of joy winning clients from weak competitors. But when you can win clients from strong competitors, I think that's just a testament to how good your team really is. And we do have a great team of people at Element. Our people are to make the difference here. And I think that's what we're seeing is just how solid our team is in terms of what we do and how well we serve our clients.
This concludes the question-and-answer session. I would like to turn the conference back over to Laura Dottori-Attanasio for any closing remarks. Please go ahead.
Thank you, operator, and thank you all for joining us on our call today. Our results really do reflect our resilient business model, the quality of our clients. And as I mentioned, the dedication of our team members. And so I do want to take this moment to express my gratitude to our people for their incredibly hard work and commitment to our clients. It really does make the difference. And it provides us with our confidence in our growth trajectory and in our ability to achieve or even potentially exceed the upper end of our 2024 guidance on most metrics. So we continue to feel very confident about that. As I mentioned earlier, that's reinforced by client demand, team performance and our investments in our business. So as we grow our business and as we optimize our operations, you can expect us to continue to deliver strong results for our shareholders.So thank you once again for joining us today. We look forward to our next quarterly call and wish you all a wonderful day.
This concludes today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.