Element Fleet Management Corp
TSX:EFN
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Element Fleet Management Corp
Earnings Call Analysis
Q3-2024 Analysis
Element Fleet Management Corp
In Q3, Element Fleet Management showcased resilient performance, posting double-digit year-over-year growth across revenue, adjusted operating income, EPS, and free cash flow per share. Specifically, net revenue surged 12% to $280 million, driven by solid commercial momentum and a capital-light business model. The adjusted EPS reached $0.29, reflecting a 12% increase compared to last year, while adjusted operating income climbed 15% year-over-year to $161 million.
The company recently completed the acquisition of Autofleet, enhancing its capabilities in digitization and automation for fleet management. This strategic move aligns with their plan to drive innovative solutions for clients and tap into new revenue streams. Further, Element added 38 new clients this quarter, with 42% of them being self-managed conversions, signaling robust growth in client acquisition.
With the focus on cost control, Element improved its operating margins. Q3 margins are anticipated to mark a high point for the year, and there are plans for modest improvements in overall margins for the full year 2024. The adjusted operating expenses for Q3 rose by 9% to $118 million, primarily due to increased salaries linked to headcount growth, reinforcing Element's commitment to investing in its workforce.
Looking to next year, incoming CFO Heath Valkenburg provided initial guidance forecasting net revenue growth between 6.5% to 8.5% for 2025. This growth is expected to be supported by strong core initiatives, including the Autofleet acquisition, resulting in anticipated growth in adjusted operating income and EPS at high single to low double-digit rates. The company plans capital expenditures of around $80 million, focusing on leveraging Autofleet’s capabilities to expedite its digitization strategy.
Despite these advancements, the management acknowledged challenges such as the impact of foreign exchange fluctuations, particularly involving the Mexican peso, which has depreciated significantly in recent months. This situation is projected to impact revenue growth, though core operations are expected to maintain low double-digit service revenue growth. Moreover, the company plans to expand peso funding to mitigate some currency exposure while managing capital costs.
The redemption of Series C preferred shares for $95 million left Element with no outstanding preferred shares, optimizing its capital structure. The management expressed intentions to renew its normal course issuer bid (NCIB) and to actively engage in share repurchases, balancing this return of capital with dividends. An increase in the annual common share dividend to CAD 0.52 underscores a shareholder-friendly approach, representing about 27% of free cash flow per share over the last year.
Overall, Element Fleet Management appears well-positioned for continued growth, benefiting from new strategic initiatives and an optimized capital structure. The outlook for 2025 reflects manageable challenges with a firm commitment to enhancing operational efficiency and delivering shareholder value. As they navigate external impacts such as currency fluctuations, the company's strong business model is expected to support ongoing resilience and growth.
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Good morning, ladies and gentlemen and welcome to Element Fleet Management's Third Quarter Financial Results for 2024. [Operator Instructions] And you are reminded that this call is being recorded. [Operator Instructions]
Element wishes to caution listeners that today's information contains forward-looking information. 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 measures -- 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. Please go ahead.
Good morning, everyone and thanks for joining us today. I want to start by thanking our Element team members for their hard work and dedication, which drove our strong financial and operational performance again this quarter. As we drive forward with our purpose to move the world through intelligent mobility for our clients, we are delivering solid results for our shareholders. Our strong results speak to the strength and resilience of our business, the commitment of our team members and the trust our clients place in us.
Our commercial success has allowed us to capitalize on our momentum. We added 38 new clients this quarter, 42% of which were self-managed conversions and we added 330 share of wallet services while continuing to drive higher services penetration and utilization rates. Thanks to this momentum, we have delivered double-digit year-over-year growth in each of net revenue, adjusted EPS and adjusted free cash flow per share while enhancing adjusted operating margins. We raised our annual common dividend to CAD 0.52 and with the completion of the redemption of our preferred shares, we intend to renew our normal-course issuer bid in order to continue to be in a position to return capital to our shareholders in 2025.
We also invested in our business. On October 1, we completed the acquisition of Autofleet. As we shared previously, this will enable us to serve our clients by accelerating our digitization and automation efforts in fleet management, with optimized mobility solutions and will help us expand into new value-added services. We are doing this under the incredibly talented leadership of the Autofleet co-founders, Kobi Eisenberg and Dor Shay, along with their world-class team. And, of course, we are pleased to welcome Heath Valkenburg as our incoming CFO, following Frank's decision to retire in March of 2025 after a very accomplished career.
Frank, on behalf of Element, thank you for your leadership, your friendship and your many contributions to Element. You have played an instrumental role within the company and we will always be grateful. Heath's appointment is a testament to both the leadership of our outgoing CFO and the strength of our internal talent. Heath is here with us today and he will share our initial 2025 guidance. He brings 20 years of finance experience and a wealth of industry expertise to the role, having most recently served as Senior Vice President and Corporate Treasurer. And prior to that, as CFO of our Australia and New Zealand business. Under his leadership, we anticipate continued financial success and a strong commitment to our purpose, our clients and our shareholders.
And with that, I will turn it over to Frank.
Thanks, Laura and good morning, everyone. In Q3, business performance was strong as we continued to deliver for our shareholders by building on our strengths and capturing the growth opportunities available to us. This quarter, we delivered strong results with double-digit year-over-year growth in each of revenue, adjusted operating income, EPS and free cash flow per share. Our revenue growth and focus on cost controls allowed us to expand operating margins. We anticipate Q3 operating margin to reflect a high point in the current year and we remain on track to modestly improve full year 2024 operating margin within our current guidance.
As in prior quarters, all dollar amounts cited today will be on an adjusted basis, excluding final costs associated with our Ireland leasing function of $2 million and $7 million in acquisition-related costs in connection with the completion of the Autofleet acquisition, which includes severance accruals. Since the Autofleet purchase closed on October 1, after the quarter end, their operating results will be reflected in our consolidated results starting in Q4. This morning, I'll review in more detail our results for the third quarter before turning it over to Heath to discuss 2025 guidance.
For the quarter, our adjusted operating income reached $161 million, up 15% year-over-year. This translates to an adjusted EPS of $0.29, which is a 12% increase from the same period last year. Additionally, our free cash flow per share grew 13% to $0.36. These increases were driven by robust revenue generation and positive operating leverage of over 300 basis points, partially offset by the increase of our common shares outstanding as a result of the conversion of our convertible debentures at the end of Q2.
Net revenue grew 12% year-over-year to $280 million. This increase was driven by robust year-over-year growth across all revenue categories, thanks to our strong commercial momentum and capital-lighter business model. Service revenue rose by $16 million or 12% compared to Q3 last year, reaching $147 million. This increase is mainly due to sustained higher penetration and utilization rates. Although VAM was relatively flat, due predominantly to the loss of 2 single service clients across geographies, the new clients we are acquiring have higher service attachment rates and greater profitability compared to the lower revenue single service clients. Growth in Mexico services also contributed to the year-over-year increase.
Net financing revenue grew $11 million or 11% year-over-year. This growth is largely attributable to higher net earning assets in the U.S. and Canada. We also saw higher year-over-year gain on sale, particularly in Australia and New Zealand, contributing to overall increase. The higher volume of vehicles for sale in ANZ more than offset a decrease in used vehicle pricing. Mexico GOS was relatively flat year-over-year. These increases were somewhat mitigated by higher funding costs, including higher standby fees to support growth in originations and the higher interest expense arising from the redemption of our preferred shares.
Recall that replacing these preferred shares with debt, while economically beneficial, moves the cost of capital from below the pretax income line to the net financing revenue line, affecting revenue growth and creating modest compression to net finance revenue margins for the remainder of 2024 and into 2025.
Shifting to syndications. We syndicated $1 billion of assets for the second consecutive quarter, highlighting the depth of this funding source. Syndication volumes were up 32% year-over-year, largely attributable to higher originations and our capital-lighter model. In addition, syndication yields rose 40 basis points quarter-over-quarter, mostly due to a favorable mix and beneficial rate volatility during the quarter. In terms of expenses, adjusted operating expenses for Q3 were $118 million, a 9% increase year-over-year. This increase mainly stems from higher salaries and wages associated with increased headcount to support business growth, along with higher professional fees.
We will continue to invest in our business to maintain our leadership position in the industry while committing to generating positive operating leverage and expanding our operating margins going forward. Continuing on growth. We originated $1.7 billion of assets this quarter, up 10% year-over-year. This increase was primarily driven by the U.S. and Canada, with higher 2024 vehicle prices playing a role. As expected, Q3 originations were down versus Q2 as OEMs reduced production to retool for the next model year in the U.S. and Canada.
Before handing it over to Heath, I want to touch on a few other notable items about our capital structure, leverage ratio and taxes. On the capital structure side, we redeemed our Series C preferred shares this September for $95 million and as such, we no longer have any preferred shares outstanding, which optimizes our capital structure. Our strong performance and outlook led us to increase our annual common share dividend by 8% to CAD 0.52, which represents approximately 27% of our free cash flow per share over the last 12 months.
Additionally, we renewed our NCIB and intend to be more active on our share repurchase program in 2025, as we no longer need to redeem preferred shares. Striking the right balance between dividends and share repurchases will continue to be a focus of ours now, with our simplified capital structure. At September 30, our tangible leverage ratio was at 7x, consistent with our strong investment-grade ratings as we redeemed our final series of preferred shares this quarter.
Now let's briefly discuss our effective tax rate, which was elevated this quarter at just under 26% due to year-to-date adjustment. The increase in the quarter is due to a catch-up of the full year rate from 24.5% to 25%. We expect our effective tax rate for Q4 and for full year 2024 to be approximately 25%. Looking at the rest of 2024, we expect most of the financial metrics at or above the high end of such guidance before initial Ireland leasing and Autofleet acquisition-related costs.
I will now hand it over to Heath to take us through 2025 guidance.
Thank you, Frank. I'm pleased to be here this morning as Element's incoming CFO and I look forward to spending more time with our shareholders and analysts in the coming quarters. Over the past several months, I've worked closely with Laura, Frank and the entire Element team to develop our 2025 plan. As such, I'd like to share our initial guidance for the coming year. On the back of what will be a record 2024, we are confident that our business will continue to grow at or above our long-term targeted revenue growth rate of 6% to 8% in 2025 and into the future.
Specifically, for 2025, we expect to deliver net revenue growth of 6.5% to 8.5%, while generating positive operating leverage, thereby driving high single to low double-digit increases in each of adjusted operating income, adjusted EPS and adjusted free cash flow per share. We anticipate capital expenditures to be around $80 million as we leverage the capabilities acquired with Autofleet to accelerate our digitization strategy.
In addition, we expect that our 2025 effective tax rate will average between 24.5% and 26.5%. As Frank noted, we are focused on returning excess capital after investing in our business to shareholders with an annual $0.52 per share dividend and wish to balance the return of capital between dividends and share repurchases. For 2024, we expect most metrics to finish the year at or above the high end of our 2024 guidance. As such, we will share specific dollar value ranges for our 2025 guidance at our next quarterly call in February after finalizing our 2024 results.
Regarding 2025 revenue, we see core growth of 11% to 13%, with certain temporal or one-off items that may affect what would otherwise be double-digit revenue growth, which we have outlined in our supplementary information disclosure. These factors include the following: the FX impact from the movement in the Mexican peso, which has devalued at a historical rate in the last 6 months. For clarity, our 2025 plan assumes a peso to U.S. dollar exchange rate of [ 20.5 to 1, ] which compares to the 2024 year-to-date average of approximately [ 18 to 1 ]. In addition, we currently plan to increase peso funding in 2025. Our forecast assumes approximately $300 million of additional peso funding, which is at the upper end of our forecast, thereby reducing the peso exposure but incurring higher borrowing rates.
Thirdly, as we have discussed for several quarters, we have further optimized our balance sheet by redeeming our last 3 series of preferred shares which, while EPS accretive, will impact revenue with the cost of this financing moving from below the adjusted operating income line, up to the net financing revenue line. Finally, our guidance assumes a step down in the bonus depreciation rate to 40%. Should bonus depreciation be reinstated to 100% in 2025, it could contribute an additional $25 million to $30 million in annualized syndication revenue.
Again, our forecasted net revenue growth would have been approximately 11% to 13% without these previously noted items. Additionally, while we anticipate core origination volume to be strong next year, 2 factors may result in marginal headwinds to our growth rate. They are the FX translation impact of the peso devaluation and the expected reduction in volume from an originator syndicate client, which will have very minimal impact on our financial results. These items will reduce our expected origination volume growth from low double-digit range in 2025 to our guidance of low to mid-single digits.
It is important to note that neither factor impacts our core growth. Our commercial success and the value proposition of our service offering should allow us to continue to grow service revenue in the low double-digit percentage range in 2025. As always, what makes our business particularly attractive is the resilience of our business model to digest external impacts such as inflation, interest rates and supply chain, amongst others while still delivering strong financial results. With our strong business momentum, ample organic growth opportunities and expansion beyond our core we are focusing on continuing to create value for our clients, business and shareholders.
I'd like to thank Laura, Frank and the entire Element team for their support and I look forward to collaborating with them as we continue driving Element's success. Thank you.
Operator, we are now ready to take questions.
[Operator Instructions] Our first question is from Paul Holden with CIBC.
Appreciate the 2025 guidance and all the details behind it, very helpful. Of course, it does lead to a few questions. First, I want to understand the increase in the effective tax rate in '25. So 2 questions there. Is it related to the lower bonus depreciation? And two, does the cash tax rate also increase next year?
Thanks, Paul. This is Frank. The answer to that is the increase in the tax rate, so at the midpoint of the range is about 50 basis points. As you know, our tax rate is very impacted or is impacted by where we earn our income. So with Mexico and ANZ, higher jurisdictional places, as those grow, we'll see higher tax rates effective with that. That's why we've got a relatively wide range of 200 basis points but our best guess is, or estimate is at roughly 25.5% for next year. So that's what's driving that component of it. Bonus depreciation has no impact on our ETR.
Got it. And then sorry, the second part of the question is just, if the cash tax rate is also moving higher?
Yes. We've said we should continue to migrate the tax rate closer to the OECD minimum rate of 15%, plus or minus. So yes, we would expect some modest increase in cash tax rate.
The next question is from Jaeme Gloyn with National Bank Financial.
Yes. Just wanted to get a little bit more color in terms of the operating margin outlook and positive operating leverage that's based on the guidance, it seems to imply that there's a lot more opportunity to drive expanding margins in 2025 versus what we've seen recently. Can you add a little bit more color as to what you're seeing there and thinking through in terms of that guidance?
Yes. Jaeme, absolutely. So obviously, our key focus is driving revenue growth and we are anticipating strong underlying revenue growth of 11% to 13% before the onetime items that are outlined in the supplemental. In terms of operating margins, we expect they will continue to expand through 2025 as we continue to scale and digitize our business. But ultimately, we'll also be focused on reinvesting into the business to drive further growth into the future. So certainly, we anticipate continued operating margin expansion through 2025 and beyond. But certainly, our key focus is driving revenue and we'll always drive -- revenue will always outpace our expense growth.
Mr. Gloyn, do you have a follow-up?
I thought we were only going to be held to one for now, based on Paul's question. Yes, I guess I mean the second question I'd be curious to hear about is in terms of the client growth. So a couple of clients leaving, any color in terms of their rationale or decision on why leaving? Or was it an Element decision to nonrenew? And then similarly, where are you winning your net new clients from outside of the self-managed fleet market, of course?
Yes, absolutely. So in terms of the VAM for the quarter, we had really strong VAM growth, adding almost 25,000 units. And what was particularly pleasing about those 25,000 units was that they had really strong service attachment and ultimately, revenue that came with them.
So in the U.S.A. and Canada, those units that we added had almost 4 products per unit. Offsetting that, we did have some units that we lost. And really, it was 2 clients that drove that. So 2 clients had approximately 22,000 units, both of those clients were single service-only clients. So just one service and a very low impact to revenue. So we continue to see -- while VAM was slightly down for the quarter, average revenue per VAM was certainly up as the ones that we added were strong service attachment rates.
The next question is from Graham Ryding with TD Securities.
Maybe I could start with the Autofleet. Any sort of progress or update there on where you're seeing opportunities to add new products to your existing, sort of, I guess, services portfolio? And then secondly, your revenue guide next year, 6.5% to 8.5%, does that include Autofleet in there?
Graham, it's Laura. So I'll start and I'll let Heath take the second question. So as you know, we closed Autofleet a mere 1.5 months ago. So still early days but I have to say we're absolutely pumped with what we're going to be able to accomplish with Autofleet. They will indeed help us fuel our growth and Heath can talk about that in a bit and that's with their existing product offering. So I have no doubt, we're going to be able to sell their services with our sales team. And they're also really going to be able to help us accelerate our digitization and automation efforts.
So early days but we are off to an incredibly solid start. We've had all of our meetings. We've already aligned on our key priorities, and we've got work that's already underway to deliver on them. In fact, we expect to be in the market in either the first or second quarter of 2025 with a new app for our client drivers. So I'm really happy with the acquisition. As you can appreciate, we're really focused on ensuring it delivers on expectation. Early days but it's looking really good, not just from an ability to generate more sales for Autofleet but also to help us move faster with our digitization and automation initiatives.
And Heath, if you want to talk about guidance?
Yes, absolutely. So obviously, the acquisition date of the Autofleet business was the 1st of October. So we'll see their results come into our numbers from then and be in there for Q4 and into 2025. In terms of the revenue growth, obviously, we're targeting underlying growth rate of 11% to 13% before those one-off items that we outlined in the supplemental. What's going to drive that 11% to 13% is probably 4 key areas. So the first is continued VAM and NEA growth. So excluding white label, if we look at VAM, we grew 10% in 2023. We're currently tracking an annualized rate of 4% for 2024 and we expect VAM and our NEA to grow into 2025.
The second is inflation. So our forecast assumes an inflation rate of 3%, which will help to drive higher revenue. The third item is continued product penetration across our fleet. And we've had really good commercial success in this space in 2024. One of the key reasons why our service revenue is actually up over 16% on a year-to-date basis and we expect that, that momentum will continue through 2025.
And then finally is what will help to drive the revenue is our strategic initiatives. So there's the leasing business, which we've obviously called out in the past and we'll start to see the incremental revenue associated with that initiative. And then the other one is obviously driving new products and services into our existing business and Autofleet is the key one there. So the team is currently working -- the Autofleet team is currently working with our sales team to drive incremental revenue as we look to sell the Autofleet product set into our existing customer base. So all of those sort of core 4 items combined what will deliver the 11% to 13% before the onetime items.
Okay. Great. I appreciate that color. One more, if I could, just on the capital investments. I think you flagged $80 million for next year. Do I assume that that's both growth CapEx and sustaining CapEx? And if so, can you break out how much for each? Because I think your sustaining impacts free cash flow but your growth CapEx does not.
Yes. So to answer your first question, that is correct. We anticipate to spend approximately $80 million in CapEx into the business. Obviously, what we're seeing and working through right now with the Autofleet acquisition is, we expect that, that $80 million will go a lot further than it otherwise would have. And we'll get a lot more in return for our spend. In terms of the split between sustaining and growth, we are currently just finalizing our initiatives for 2025. It's relatively balanced across those 2 numbers.
The next question is from John Aiken with Jefferies.
Just wanted to clarify in terms of the commentary on the repurchase program. The fact that there was no -- none taken this quarter was due to the fact that we had redemptions -- the preferred share redemptions.
John, it's Laura. I'll take that one. Yes, that's right. We did have a muted buyback activity just given we redeemed all of our preferred shares. So for 2025, given we are projecting to have strong revenue and free cash flow growth, we do anticipate to be in a position to really lean in more to our share buyback program.
Laura, that's what I was leading into. Can you give us some color around the calculus that you use in terms of determining what you want to repurchase in a given period? What factors are in there? Is it cash flow? Is it share price valuation? Can you just give us some sort of color around that? So basically, you can help me model.
Yes. I'll help you with that. So what we really look at is, obviously, we look at our free cash flow generation, right? And then we look at, the guardrail is really tangible leverage or leverage overall on how we think about the business. So to the extent that we continue to grow our off-balance sheet financing, et cetera, that would be beneficial. But overall, we see a healthy degree of share repurchases next year as we move forward with those guardrails, like how much is free cash flow growing and where is our overall leverage sitting.
The next question is from Tom MacKinnon with BMO.
Two quick ones here. Given the healthy degree of share repurchases next year, why is the guide for adjusted operating income the same as the adjusted EPS? Or should we imply that, one, that the adjusted EPS guide would be higher than the adjusted operating income guide?
Yes, absolutely. So obviously, there's a range in all of those metrics. You would expect that your adjusted EPS will grow at a higher rate than your adjusted operating income with those share repurchases throughout the year, driving the lower sort of average share count.
Okay. And then the reasons you cited for the 11% to 13% underlying revenue growth next year seem to be pretty common with respect just to the business. I mean, continued product penetration growth in VAM and other strategic initiatives. And yet this 11% to 13% underlying seems to be significantly higher than your medium-term guide of 6% to 8%. So a question as to, should we be thinking that the medium-term guide of 6% to 8% is actually maybe a little bit lower? Or what's making your underlying growth next year in revenue, so much higher than your 6% to 8% medium-term guide?
Yes, absolutely. So obviously, our 6% to 8% medium-term guide is what we have guided the market to in the past. And ultimately, the revenue growth we are guiding to for 2025 is 6.5% to 8.5%. So relatively in line with that growth rate. In terms of the core items that's driving the 11% to 13%, we do see some opportunities that will give us some good revenue growth in 2025 from those strategic initiatives. So the leasing business, the Autofleet acquisition and driving the cross-sell, so that will give us -- obviously, those 2 items haven't been in our numbers before. So you're coming off a 0 base and that'll give us some strong growth in 2025.
[Operator Instructions] The next question is from Stephen Boland with Raymond James.
Just a follow-up on Tom's question there, just about the 6.5% to 8.5%. I mean, obviously, it is slightly higher than your medium-term target. So is this a precursor to maybe that target moving up? And I do have a follow-up.
Yes. So right now, we're comfortable with the 6% to 8% long-term guidance that we've put out there. Obviously, we have undertaken a number of strategic initiatives which are boosting growth from a core basis to that 11% to 13% next year, inclusive of all of the things that Heath mentioned, as well as some of the strategic initiatives that Laura has mentioned in the past, including digitization, insurance, small/medium fleet and those type of things, obviously, very early stage in some of those. But at this point, we're not in a position to say that 6% to 8% long-term growth is -- should be changed at this point but we feel very good about where we're sitting today.
Okay. And the second thing, I was just wondering if your 2025 guidance includes the discussion about putting in a new securitization facility that would help move assets off the balance sheet. I'm just wondering what's happening with that initiative timing? And is that included in the guidance?
Yes, absolutely. So at this point in time, we haven't included the impact of that in the guidance. And the reason for that is that we are yet to have a signed contract for that new program. In terms of the progress, we're obviously still working through that with potential investors. So that's something that we'll look to execute in Q4.
The next question is from Tom MacKinnon with BMO.
Yes. Just a question with respect to the FX impact in the quarter and the quarter-over-quarter growth in earning assets. To what extent was there any FX headwind in that in the quarter? And if that can be quantified?
Yes. So the peso depreciated roughly 4% on average over the quarter. So there was some headwind in the quarter associated with that depreciation, call it, mid-single-digit type of impact.
The next question is from Paul Holden with CIBC.
So 2 more for you. I guess the first one is, with respect to the lower syndication yields anticipated next year, how does that impact the proportion of originations that will be syndicated?
Yes, absolutely. So it doesn't materially impact the portion that we will syndicate and we still expect to syndicate a material portion of our originations in line with 2024. So really, it just impacts the potential yield that we would get on those leases. So current bonus depreciation is set at 60%. The legislated depreciation is set to reduce to 40%, obviously, with the change in administration, if that was to normalize or revert back to the 100% depreciation rate. From a syndication revenue perspective, that's an opportunity of anywhere from $25 million to $30 million on an annualized basis.
Got it. Okay. And the last one from me is just with respect to the originations in Mexico. So second consecutive quarter of a decline. And I get there was the peso impact this quarter. But I think if I take where the peso was in Q3 1 year ago versus this year, suggests that originations on a constant currency basis in Mexico are maybe flat year-over-year. Can you clarify; a, if that's right? And then; b, if it is sort of flat, what are the drivers behind that sort of that flat result versus sort of the high teens, low sort of 20s growth rate we've been seeing in the past?
Yes, absolutely. So the key impact when you look at the peso originations is the impact of the FX. So once you normalize in FX, it is slightly down quarter-on-quarter and there's seasonality in the originations. So Q2 is always the high watermark in originations and Q3 drops down. From a year-on-year perspective, it is relatively flat. No concerns from our Mexico business. It's really just timing of the client ordering cycle as well as some product mix in there. Our units under management and our NEA continues to grow in Mexico when you look at it through a peso lens.
And I know yourself and a number of people had the opportunity to get down in Mexico and view our business as part of our investor visit. We've got a really strong business with really strong growth opportunities, both from a driving VAM and net earning assets but also driving increased product penetration across the Mexico platform. So we're very comfortable with the Mexican business and expect that we'll continue to deliver strong results in 2025.
This concludes the question-and-answer session. I'd like to turn the conference back over to Laura Dottori-Attanasio for any closing remarks.
All right. Thanks for joining us. And I do want to take the time to offer a special thanks to all of our Element team members for putting our clients at the center of all we do because it really does make a difference. As we outlined today, we are very well positioned to continue to grow and deliver for our shareholders to drive forward at pace with intelligent mobility initiatives and to consistently offer the very best for our clients. We look forward to sharing our progress with you in the new year. Thanks, everyone.
This brings to a close today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.