Element Fleet Management Corp
TSX:EFN
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Element Fleet Management Corp
Earnings Call Analysis
Q3-2023 Analysis
Element Fleet Management Corp
Element Fleet Management has showcased a stellar third quarter, with an impressive over 15% year-over-year revenue growth. This remarkable achievement was complemented by the addition of 55 new clients, showing the effectiveness and the competitiveness of its business model. The company has demonstrated its ability to attract and retain clients, as evidenced by its consistent Net Promoter Score above 40 and an impressive 99% client retention rate. In recognition of its strong performance and with a nod to its shareholders, Element has increased its common dividend by an encouraging 20%.
Element is diligently working on centralizing its U.S. and Canadian leasing operations to an office in Dublin, motivated by the past successes of this centralized approach. This strategic transition is envisioned to heighten client experiences, enhance operational efficiency, and improve pricing discipline starting mid-2024. Additionally, the company aims to establish a strategic sourcing presence in Asia, based in Singapore, to maximize procurement capabilities and strengthen ties with Asian OEMs, which promises access to strategic sourcing benefits and supports clients' sustainability goals.
With an eye towards the future, Element has embraced digitization and automation, efforts catalyzed by the hiring of a new Chief Digital Officer and Chief Information Officer. These initiatives are set to optimize the company's scalability and enhance both client and employee experiences, ensuring Element's position as a digitally-forward and competitive player in the market.
Element's third quarter results reflect strong client demand and effective commercial strategy, paving the way for a positive outlook. Building on its financial strength, the company is actively returning capital to shareholders, evident from the increase in annual common dividend to $0.48 per share. Moreover, Element anticipates redeeming outstanding preferred shares and has reauthorized the NCIB to buy back common shares over the coming year.
Looking ahead, Element forecasts that the newly announced leasing and strategic sourcing initiatives are set to contribute a conservative estimate of $40 million to $60 million in net revenue and $30 million to $50 million in run rate AOI by 2028. These initiatives underpin Element's growth trajectory and reflect the company's commitment to long-term value creation, despite the $25 million to $30 million in nonrecurring setup costs expected through the second quarter of 2024. These costs, which include expenses for recruiting, office setup, and IT, have an estimated payback period of 2.5 years, reinforcing the strategic nature of these investments.
Element projects robust growth for the upcoming year, excluding nonrecurring setup costs from its full year guidance. For 2024, the company has provided a guidance range with net revenue expected between $1.365 and $1.390 billion, an adjusted operating margin of 55% to 55.5%, and an adjusted operating income of $750 million to $770 million. These projections translate to an adjusted EPS of $1.41 to $1.46 and a free cash flow per share of $1.75 to $1.80, affirming Element's status as a company with a forward-looking and sustainable growth plan.
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Good morning, ladies and gentlemen, and welcome to Element Fleet Management's Third Quarter 2023 Earnings Call. At this time, all participants are in listen-only mode, and you are reminded that this call is being recorded. Following the prepared remarks, the company will invite questions from analysts. In the event you need assistance during the call. [Operator Insructions] 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 the expectations 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 conference over to Laura Dottori-Attanasio, President and Chief Executive Officer of Element. Please go ahead.
Thank you, operator. Good morning, everyone, and thank you for joining us. I am really proud of our Element team for delivering another outstanding quarter, demonstrating the strength of our strategy and the momentum we continue to enjoy and regenerate. We have delivered record revenue growth at over 15% on a year-over-year basis, a rapidly expanding client base with yet another record by welcoming 55 new clients, of which 22 were self-managed fleets, and we're increasing our common dividend by 20%. This is a result of our resilient business model, which speaks to the quality of our clients and the hard work and focus of our team. In addition to delivering strong financial and operating results, we continue to deliver a superior client experience. We maintained our strong global Net Promoter Score above 40 with a continued 99% client retention rate. We outperformed on our targeted EV acceptance rate, and we had $1.9 billion of new vehicle orders from our clients, representing a 29% year-over-year increase. Our confidence in our growth trajectory is further bolstered by the recent prioritization of opportunities to scale our business and make targeted investments that will drive our future performance. We announced 3 strategic initiatives that we have underway. They are centralizing accountability for our U.S. and Canadian leasing operations, establishing a strategic sourcing presence in Asia and advancing digitization and automation, all of which will unlock future growth for us. The first decentralizing accountability for our U.S. and Canadian leasing function at a new Element office in Dublin, Ireland, a recognized global leasing Center of Excellence. This new office will be operational beginning in mid-2024. A number of long-term benefits to both clients and our business support this decision. So let me elaborate. Our experience has been that a signing accountability for the performance of each of our service products to individual senior leaders has driven focus that resulted in accelerated growth. In each of the last 7 quarters, services revenue has grown as a result of this approach. Our intention is to replicate this proven model of centralized accountability and apply it to our leasing function. It will be led by Chris Gittens, one of our very seasoned executives who in this past, has successfully run Element's Canadian business as a whole, and we built our strategic relationship business for mega-fleet, including Armada. Most recently, Chris has served as our Chief Information Officer. Chris and approximately 70 employees will be based in Dublin. The centralized accountability for this function will elevate our clients' leasing experience, optimize related operations and improve pricing discipline, all to maximize the value of our portfolio. Now secondly, we will establish a small yet strategic sourcing and relationship management presence in Singapore next year. This decision will further enhance our global procurement capabilities. This move is crucial for us to further strengthen our existing ties with Asian OEMs and foster valuable new sourcing relationships. This will provide us with an opportunity to expand and improve our clients' access to new vehicles and provides our business with the economic benefits of strategic sourcing at scale. And given Asia's global leadership position in the development and production of EVs, it's also aligned with our clients' commitment to sustainability and decarbonization. Chris Tulloch, the leader of our businesses in Australia and New Zealand will drive this strategic initiative. He is another one of our very talented and seasoned executives within our company. We expect these 2 strategic initiatives to contribute profitable revenue growth and operational efficiencies that Frank will speak to. Now our third strategic initiative is prioritizing and investing in increased digitization and automation in order to further optimize and scale our business. For now, this comes in the form of having recruited 2 important new executives to Element. Joining our leadership team are David Aptar in the role of Chief Digital Officer; and Eugene in as our new Chief Information Officer. David will accelerate efforts to scale our business and deliver consistent superior client experiences through digital solutions, while Eugene will be responsible for ensuring we build the right technology infrastructure necessary to ensure that Element can compete and create great clients and employee experiences. The time I spent with our team members, our clients and our suppliers over the past 9 months has made clear the importance of enhanced digitization and automation to build the growth momentum our investors have come to expect from Element. Our people are motivated and excited about our future. That energy is translated into the exciting strategic initiatives we're implementing to enhance our value proposition and grow our earnings and free cash flow per share. Moving forward, you can expect us to continue working hard to generate strong results by delivering for our clients. I want to thank our Element team members for your commitment to our clients and the exciting work ahead to build a strong and sustainable future for our business and for our shareholders. With that, I'll hand it over to Frank and look forward to your questions.
Thank you, Laura, and good morning, everyone. We posted another strong set of results for the third quarter, including several new record highs. We continue to benefit from our commercial capabilities and investments in strengthening those as well as robust client demand and improve originations driven by improving OEM production. Our performance underscores the trust and confidence our clients have an element and the value that we deliver. In addition, this strong performance and solid outlook provides us the opportunity to continue returning capital to shareholders. In this regard, we are pleased to have announced an increase in our annual common dividend by 20% to $0.48 per share annually. In addition, we anticipate redeeming our remaining outstanding preferred shares as they come due this year and next. Finally, we have reauthorized our NCIB to be able to utilize additional excess capital to repurchase common shares over the next 12 months. Before I get into our third quarter results, let me elaborate on the strategic initiatives that Laura spoke to. Echoing her comments, we expect our leasing strategic sourcing and digitization and automation initiatives to yield significant intermediate to long-term benefits. We anticipate the leasing and strategic sourcing initiatives to contribute profitable revenue growth and operational efficiencies beginning in 2025, which will conservatively scale to between $40 million and $60 million of run rate net revenue and $30 million to $50 million of run rate AOI by full year 2028, with the leasing initiative representing the significantly larger portion of these benefits. We will incur approximately $25 million to $30 million in aggregate of nonrecurring setup costs related to these strategic initiatives. These setup costs will be recorded in operating expenses through Q2 2024 with $3.9 million incurred and accounted for in our G&A this quarter. We will continue to call out these nonrecurring setup costs in our disclosure materials so that you can more accurately measure and model our business and the true run rate performance of Element without them. And next quarter, when we report our full year 2023 results, we will provide you more detail as to the expected quarterly amounts and cadence of this spend. These nonrecurring setup costs are related to recruiting, relocation, office setup, IT, severance and professional fees associated with the leasing and sourcing strategic initiatives. The setup costs have an estimated 2.5 year payback period based on conservative estimates of the quantum and timing of run rate benefits we're creating. These are exciting times at Element, and we are investing to benefit our clients, our business, our people and ultimately, our investors. Lastly, before I move on from this topic, I want to be clear that our full year 2023 and 2024 results guidance do not include these nonrecurring setup costs related to both the leasing and sourcing strategic initiatives because the setup costs are short term and temporal in nature and do not increase Element's run rate expense base. Turning to our 2024 results guidance. We expect continued strength in originations growth, client demand for Element services and financing and enviable levels of commercial success to drive solid performance again next year. As you saw in our disclosure materials, we expect full year 2024 to deliver the following financial results. net revenue of between $1.365 and $1.390 billion, adjusted operating margins of 55% to 55.5%; adjusted operating income of $750 million to $770 million, adjusted EPS of between $1.41 and $1.46 and free cash flow of $1.75 to $1.80 per share. Our per share metrics are based on a full year weighted average share count of approximately 397 million common shares for 2024, reflecting the conversion of our convertible securities into common shares upon their maturity midyear 2024. Regarding 2023 guidance, before the nonrecurring setup costs associated with the strategic initiatives we expect to report full year results on our key financial metrics that are near at or above the high end of the various guidance ranges we provided previously. Before I walk through our third quarter results, let me level set by highlighting the following: First, as previously disclosed, we benefited from $17 million of nonrecurring net revenue in Q3 of last year. Excluding that $17 million from year-over-year comparisons, represents what we call organic growth, so exciting growth on that basis. Second, the growth measures I cite are in constant currency because the strengthening of both the U.S. dollar and the Mexican peso benefited our Q3 results as reported. Our third quarter results were very strong. We grew net revenue at 15.6% year-over-year to a record $333.8 million for the quarter. Adjusted operating income, also a record, grew 16.1% on the same year-over-year basis despite increased investment in our commercial capabilities. Adjusted operating margin was 55.4% for the quarter. Adjusted EPS were $0.35, which is a 20.7% improvement year-over-year, and free cash flow per share was $0.42, which is a 7.7% improvement year-over-year. Looking more closely at our net revenue growth, it was driven by services revenue and net financing revenue. Service revenue growth is the first pillar of our capital-lighter business model and services revenue was up 18.2% year-over-year driven by share of wallet growth, namely increased penetration and utilization in the U.S. and Canada as well as double-digit growth in Mexico and modest growth in AMC services revenue streams. Net financing revenue grew 11.7%, driven by net earning asset growth, with gain on sale growth also contributing. Now I'll briefly turn to the second per pillar of our capital lighter financial strategy, which is syndication. We syndicated a record $1 billion of lease assets in the third quarter and generated $17.3 million of revenue as well as freeing up excess equity, which we can invest in the business and return to shareholders through dividends and buybacks. Turning now to adjusted operating expenses. The year-over-year increase was largely driven by inflation, capacity needs on our commercial capabilities and client-facing functions and strategic investment decisions. As I mentioned earlier, Q3 adjusted operating expenses included $3.9 million of nonrecurring setup costs related to the strategic initiatives. A larger portion of the increase is our ongoing investments in commercial capabilities. These are paying off handsomely with resulting net revenue contributions outpacing the adjusted operating expense growth that these investments represent. This has given us positive operating leverage and a 55.4% adjusted operating margin for the third quarter before the nonrecurring expenses. The combination of common share buybacks and dividends saw us return $188 million in cash to our investors in 2023 year-to-date. That return of capital will remain generous going forward, given yesterday's announcement of our 20% common dividend increase to 8% $0.48 per share annually. This dividend is at the midpoint of our 25% to 35% payout range based on last 12 months free cash flow per share. Before we take your questions, let me highlight 2 housekeeping items. In 2024, we anticipate $100 million to $110 million of total capital investments required with approximately $75 million of sustaining capital and the remainder to fund our digitization and automation and other growth initiatives. This is roughly consistent with our 2023 forecasted spend of $100 million with a modestly heavier weighting to growth initiatives. Second, we anticipate a cash tax rate of approximately 10% this year 2023, growing to an estimated 12% to 13% for 2024, which remains well below our adjusted effective tax rate of about 25%. In closing, let me say it's great to see the hard work of our people continuing to pay off for our clients, our business and our investors. Our collective efforts have brought us to this point, and we're incredibly optimistic about what lies ahead. That concludes our prepared remarks for this morning. So I'll turn this call over to the operator for your questions.
Thank you. [Operator Instructions] The first question comes from Geoff Kwan with RBC Capital Markets.
My first question is with respect to your customers, they've obviously gone through a number of years where vehicle replacements have been relatively modest. I'm just wondering like if we kind of go down the route of a recession, does that decrease their appetite to replace the vehicles? Or is it from a total cost of ownership perspective, is it still cost effective to replace the aging vehicles right now rather than just try and hold on to them longer? And are there exceptions where that may not be the case.
Geoff, it's Laura. So I would say, generally speaking, given how aged our clients' vehicles are that it is generally still cost effective just to replace them. So we expect that to continue to happen. That said, in the recession, we would expect to see some of our clients looking to see how they could pare back on the number of vehicles that they have, and that is something that we work closely with our clients with. So all about how to make what they do the most cost-effective. So takeaway is they're going to continue to replace the vehicle just given how aged they are. They need to do that, which is why we're comfortable with the originations and guidance that we've provided, but there will be some depending upon whether we go into a recession, what it's like some pullback in terms of overall numbers of vehicles into lease.
Okay. My second question was just on self-managed. Just wondering if you can give an update, progress on that front, but just qualitative comments on what's happening there, but also if there's anything you can do in terms of, say, for example, kind of quantifying the revenues, not just what you've got so far, but the embedded financing revenues because of those vehicles, if you are getting wins don't come into the revenues right away? And if you're able to give some sort of context of what's been done over the past couple of years since you started to focus on that segment more.
Yes. Well, I can't go into all the specifics in those details. What I will tell you is for the work that started a few years ago, it's really starting to pay off. As you would have heard, not just this quarter and last quarter, we're really starting to see a pickup in terms of self-managed fleets that we're bringing on with 22 having been brought on just this quarter. And directionally, we're seeing that our win rates are also up a lot this year relative to last year. So the work that our commercial team is doing, led by David Madrigal, is really paying off, and it's looking good. And we do think, as we've talked about in the past, with the electrification of vehicles and the desire of our clients to be cocognized that we're seeing a lot more interest from self-managed fleets to look at getting advice from companies such as ours. So we expect to continue to perform well in this space.
The next question comes from Paul Holden with CIBC.
First question is for Frank. Any kind of guidance you can give us on medium-term expectations for the net financial margin? Obviously, you've been expanding over time, but a little bit of a pullback this past quarter, where roughly should that stabilize?
Yes. So Paul, I would expect there to be some modest margin compression driven by, in particular, gain on sale. And so gain on sale will moderate, as we've said before, coming off these very strong periods, and that has contributed to the expansion. That being said, we don't expect any material downturn in gain on sale, but even a moderation or flat would have some pressure on that net finance margin. Additionally, we will see, call it, roughly $13 million of incremental cost, which is strictly geography for refinancing the preferreds out of the -- that now show up below the line with debt, and those will now come up above the line. So that will give you some modest margin compression. And then obviously, there will be slightly higher funding spreads as we term out some of the VFN and/or do more senior note deals from that perspective. So that will be offset in part by growth in higher jurisdiction interest rate environments like Mexico and [indiscernible].
Got it. And then how should we be thinking about the financial leverage of the balance sheet in consideration of the optimization through 2024, i.e., where should the leverage sort of shake out at the end of the year? And I'm assuming, obviously, you've talked to the rating agencies about this and don't expect any change there. But has the -- I guess, the question I'm trying to ask is have the targeted financial leverage change increased to a point where the credit rating anteces are comfortable with higher leverage.
Yes. So our targets have not changed at all, Paul. I think where you'll see the change is in our as reported numbers. And so obviously, those have been running below 6x. Our target is plus or minus 6.5x. And as we take out those preferreds, we will drive closer to our targeted levels, which are materially below any ratings triggers. And so that is not something that we're very concerned at. And yes, we talked to the rating agencies consistently, and they are very comfortable with our plan and from a leverage perspective. And again, significant cushion before any rating triggers would actually even become under consideration.
Great. Okay. And then last question from me in terms of those strategic initiatives you highlighted this morning. Is there anything embedded in your guidance or the future increase in revenue for the digitization and automation piece? And if it's not, can you give us a sense, at least qualitatively, of how that might provide a financial benefit over time?
Sure. So there's 2 components to that. One is, first, I would say, very clearly, we haven't baked a lot in for the benefits of that digitization and automation at this point. One of the things that Laura has brought to the company is that focus from our past experience on the benefits of digitization and automation and she's spoken quite eloquently about that since he's arrived here as we move forward. And so bringing on a Chief Digital Officer and David Aprat will help us to push that more further. So he is doing that evaluatory work on where we're going to get the biggest bang for the buck from that perspective. I think there will be 2 benefits ultimately, financially, and I believe we will recognize some of those this year or begin to start to realize those. One is just from the commercial perspective, having a better product and ease of use from a driver perspective in regards to the digitation of our products. The second component is on the automation side, driving more efficiencies through our organization, which will improve our operating leverage overall. But again, I wouldn't expect very large impacts this year. We have looked at the costs, so the costs are built in for that evaluation, but -- and we should see some benefits. But I don't think that will be outsized given where we are in that journey.
The next question comes from Jaeme Gloyn with National Bank Financial.
Yes. Thanks. First question, just in terms of the order backlog and the excess order backlog that we're in today. In terms of your guidance, how much of that excess order backlog is assumed to unwind through 2024? Will it fully unwind? Or is it expected to persist?
Yes. Those are always something that's a little bit hard to call. But yes, we expect some unwinding of that order backlog through 2024 and depending on the pace of OEM production, we would anticipate that will have a big impact on. Does it all unwind? Or do we have some rolling over into 2025, which I don't think would be an unrealistic assumption where we sit here now. The other thing that I would just add is that when you look at our orders, we do have enough clients that are still on allocation from an order perspective. And so that could continue to either drive higher originations or keep the backlog a bit higher as we move forward here. And that's all a component of the OEM supply chain and that's getting healthier as we move forward. So we're still not near the original call it, 2019 normalized order to delivery cycle that we've seen back then. And until we get back to those levels, that will really be when we know that we are back to normal, and that backlog has unwound.
Got it. In terms of the capital structure outlook, the commentary was very clear in discussing the redemption of the preferred shares, it seems to not be as clear with the converts. So could you just reeducate us on your plan for the converts? Is it to redeem? Or is it to convert them to equity or just continue to hold or refinance? And what's the plan there?
Yes. So the converts, given where they are in the money, they will convert into equity. And so that is where our assumption in my prepared remarks that we believe $397 million of common shares outstanding for the full year is based on that conversion of those converts into equity.
Got it. And last one. Why Dublin? Why was Dublin so much more attractive than, say, Canada or somewhere in the U.S. where you're already currently located? If you could elaborate on that part of the decision process. And then I'll turn it over.
Jaeme, what I'd tell you is we considered quite a few locations. We thought about Toronto thought about Minneapolis, and we considered a host of other countries. Ultimately, we landed on Ireland as we felt there were more compelling reasons to set up our U.S. and Canadian leasing operations there relative to other locations, probably the leading one being that Ireland is recognized as the global center of excellence for leasing. There's almost, I think, almost 5,000 leasing companies that are based out of Ireland. It's also closer to our Val, our global alliance partner. And we like that it really gets us access to industry-leading resources. So in Ireland, there is top leasing talent. And so we think that can help strengthen our product development capabilities. So all of that setting it up separately, we think gives us just better visibility, more control around optimizing our revenue and overall performance. And we think this approach is really going to drive the most incremental value for our shareholders. Does that help?
The next question comes from Graham Ryding with TD Securities.
Maybe I could just start with the utilization side of your servicing has been a healthy driver of your growth rate there. If we do go into a recession or a soft landing backdrop, is that one area of your business where we could see some impact or softness just clients utilizing their fleets or your services less because of lower demand for their services.
Yes. I think the way to think about utilization is it's directly tied to miles an hour -- miles driven and hours used for those vehicles. And so in a recession, if those miles driven or the hours of use engine time on those vehicles were to decrease. They would need less maintenance, less tires, et cetera. So that would be what would impact that utilization rate.
Okay. Great. You highlighted earlier in 2023, some mega fleet wins. Are those fully ramped up now and in your numbers that we're seeing today in the run rate? And then any other mega fleet wins that you would flag perhaps in the quarter.
Well, I'll start. We have had mega fleet wins last quarter, and it does take time. So again, as you know, when we bring new clients on, depending on what they're doing with us, whether it's leasing or services, it does take quite a delay for all of that to show in our numbers. And so you will see that represent in our numbers over time. But I'd say we're making some really good progress without going into any specific names, but we're making really good progress in that segment as well. And go ahead, Frank, if you wanted to add.
Yes. The 2 things I would say, Graham, are, first, remember on the leasing component, those mega fleet wins take 4 years roughly to ramp up. So you're just seeing a small component of that and probably not even a full quarter of it yet as we've gotten onboarded those clients, et cetera. Second, in regards to the services component, I've said before, if all -- if the services take 6 to 9 months to get those vehicles on, obviously, you only get about a half a year of those services. There are circumstances with certain clients where parts of their fleet take a bit longer to come on. A good example of that is clients that are doing merger integration or otherwise and need to deal with some of their internal complexity before bringing those additional units on. So there's also some of that. So the answer -- the answer to your question is, there's more to come in regards to those wins that we've discussed over the last 3 or 4 quarters.
Okay. Understood. And one last one, if I could. Just not sure if I missed it, but did you give any guidance or expectations for your origination volumes in 2024 versus this year? Any commentary there?
No, we did not. But the commentary I can provide you on that is we typically look to gross syndications consistent with growth in originations. And so as we see originations pick up, you should see syndications pick up because they are a critical component of the funding piece of it. And the real strength is that as we syndicate those lease assets, we keep all of the services revenue associated with those assets. And additionally, then have capital to put into the next transaction and therefore, self-fund the growth from that perspective. So just think about growing originations business, which we believe will continue strongly over the next several years, both as the backlog unwinds and as consumer -- as client demand stays strong and then syndications growing in lockstep with that.
[Operator Instructions] The next question comes from Tom MacKinnon with BMO Capital Markets.
Wondering if you could talk about some of the pricing improvements you expect for leasing as a result of the accountability initiative in Dublin. I mean you currently have these Chesapeake funding vehicles. I assume are they going to stay in place? You going to roll them into something else? What is it that you roll them into that and why are those better? And so just some color with respect to how that's going to improve some pricing that you noted to.
I'm going to start, and then I'll hand it over to Frank. So what I alluded to in my remarks, some pricing had to do with actual lease pricing in terms of how we run the business. And so in centralizing U.S. and Canadian leasing and looking at doing more standardization, automation, processes, cleanup, et cetera, we expect to be in a position where we're more effectively pricing our clients as we'll be in a position to more effectively manage the portfolio. So that was my comment as it related to pricing, and we do expect to do better, which will translate into better performance in our numbers, which was part of the numbers that Frank gave when he spoke about the $40 million to $60 million run rate of net revenue starting in 2020. To your second question on what we're thinking as it relates to how we fund ourselves overall in Europe compared to Canada. I'll hand that over to Frank for his views, recognizing that it's still early days.
Yes. So in the grand scheme of things, we see no material impact to our funding -- no impact to our funding or to our lender base. So those lenders will be a critical part of our new funding structures as we move over there. We will be putting together a VFN in Ireland. But again, with the existing U.S. lenders and doing that to facilitate growth there, our senior line will remain in place with likely Ireland added as a borrower there. And we should be able to -- we will be able to issue ABS term notes and do all of the funding that we do today. So that should be a relatively easy process or seamless process as we move over to Ireland.
Yes. And just a follow-up, as you sort of centralized this lease pricing, none of the -- I assume you have people who are client-facing, and then they would say, well, okay, here's sort of what we're thinking about the price for the lease, but now I'm going to have to run it by Dublin. Doesn't that sound like a disruption in a process? Or just help me think through that little scenario, I just suggested.
Absolutely, Tom. So we are not moving any client-facing team members. All of our commercial team remains where they are. What we're moving is the operational part of leasing. And so it's 70 people. So we don't expect it to be, if you will, disruptive. And I'd say in the short term, limited impact, most won't notice it's happening as it's an internal operation that we managed. What I would say is in the longer term, we do this right. As I mentioned earlier, we'll have more streamlined processes, more standardization, more pricing discipline, automation in terms of how we do things, it will be simplified and all of that will translate into better client leasing experience. And because it will be easier for our clients than our sales team when they're dealing with the leasing function and all of that should be better returns for our shareholders. Does that clarify?
Okay. That's good. Yes. And just -- the last one here, just in terms of the S&P/TSX kind of sector move here. I think it went from to industrials from finance. Can you remind us how that gets initiated and what you're -- why it was? And what would the next steps be?
Yes. So answer in reverse order. We don't necessarily have a say in those type of sector moves. And so we do not believe there will be any material impact on us for our share price as we move forward here. We have some modest volume in some of those indices, which would -- my understanding is rebalance mid-December.
So that was entirely initiated by the TSX and then not. Do they have any communication with you before they do that or ask for your input or anything like that? Or is that just...
Yes, we...
Not target any of those discussions.
Tom, we didn't have any discussions. We learned the news at the same time everyone else learns the news, and so we're digesting it alongside everyone else. And so maybe back to you and everyone else on the call will be interested in your views post this call.
I would now like to turn the conference back over to Laura Dottori-Attanasio for any closing remarks. Please go ahead.
Thank you, operator. And thanks to our analysts for your questions and are thanking you in advance for the advice field share after this reclassification that we have. I wanted to just reiterate my gratitude to the Element team for all of your hard work delivering for our clients, and as a result, for our shareholders. As we shared when we started, we're really pleased with our third quarter performance, and we're really excited about the strategic initiatives that we've announced. And as Frank and I shared, we're very confident in our outlook for 2024. So we will finish this year strong, and we look forward to sharing our next set of results with you in late February. Thank you again.
This concludes today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.