TSS Inc. and Element Fleet Management Report Strong Q2 2024 Earnings

TSS, Inc. (TSSI) Q2 2024 Earnings Call Transcript

Good afternoon. My name is Brianna, and I will be your conference operator today. At this time, I'd like to welcome everyone to the TSS Second Quarter 2024 Earnings Call. Please note that today's call is being recorded. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. [Operator Instructions] I will now turn the call over to Danny Chism, CFO. Please go ahead, sir. Danny Chism Thanks, Brianna, and good afternoon, everyone. Thanks for joining us for TSS's conference call to discuss our second quarter 2024 financial results. Joining me today on this call is Darryll Dewan, the President and CEO of TSS. As we begin the call, I'd like to remind everyone to take note of the cautionary language regarding forward-looking statements contained in the press release we issued today. That same language applies to comments and statements made on today's conference call. This call will contain time-sensitive information as well as forward-looking statements, which are accurate only as of today, August 14th, 2024. TSS expressly disclaims any obligation to update, amend, supplement, or otherwise review any information or forward-looking statements made on this conference call or replayed to reflect events or circumstances that may change or arise after the date indicated except as otherwise required by applicable law. For list of the risks and uncertainties that may affect our future performance, please refer to our periodic filings with the SEC. In addition, we will be referring to non-GAAP financial measures. A reconciliation of the differences between these measures with the most directly comparable financial measures calculated in accordance with U.S. GAAP is included in today's press release. Darryll will kick off the call with an overview and commentary about the quarter and year-to-date performance. Then I'll provide more details about our financial quarter results. And then turn the call back over to Darryll, to recap our strategy and direction. Darryll? Darryll Dewan Thank you, Danny, and welcome to our team. Danny joined us in early June, and he's already making a significant impact bringing energy and innovative ideas to help drive our growth strategy. With over three decades of experience, Danny has a proven track record of delivering sound financial strategies and improving operational efficiencies during periods of rapid growth. His expertise spans crucial areas that will be increasingly important to TSS, including transactional experience, capital raising, and Investor Relations. His addition to our leadership team is a key part of our ongoing commitment to building and strengthening our organization. Speaking of growth and opportunities, let me share some insights on our current position and future trajectory. 2024 marks a pivotal transition for TSS, building momentum for accelerated growth and expansion for 2025 and beyond. Our current trajectory demonstrates significant progress, setting the stage for even greater achievements ahead. On today's call, I will provide additional context to illuminate our position and share why we're optimistic and poised for acceleration. Our turnaround strategy has progressed through key milestones as we previously communicated in the earnings call and announcement. To review, we began with a comprehensive operational cleanup, completed in the first half of this year and culminating in our ISO certification. Next, through our investment in people, systems, and physical layout of our main facility, we successfully demonstrated our ability to scale within our current capacity, addressing a crucial concern for our customers. Now we're entering a third phase, ramping up revenue, earnings, and cash flow. We are already seeing the beginning of this growth as our Q2 results reflect. Our execution has been established by solid operational foundation and proven scalability, positioning us for accelerated expansion ahead. Our performance in the first half of this year underscores our significant progress. We delivered $28 million revenue, total revenue, a 33% year-over-year revenue growth while simultaneously investing in the business and expanding profitability. The growth was driven by our more profitable businesses, our systems integration facilities management. This growth translated to even more impressive bottom line results. Operating income surged 530%. Adjusted EBITDA increased 331%. And we achieved $1.4 million in net income, a remarkable turnaround from last year's $500,000 loss. Our financial performance stems from our unwavering focus on operational excellence, our commitment to strengthening and expanding our team, and our enhanced go-to-market efforts. This strategic approach has not only driven our financial success, but also solidified our position as a trusted partner in delivering infrastructure crucial for AI and high-performance computing occurring in our increasingly digital world. As we move forward, these results validate our strategy and set the stage for continued growth and innovation. We're not just improving our numbers, we're helping to shape the future of digital infrastructure. Operationally, our success is driven by our ability to execute, meet the demands of rapidly evolving AI landscape and a need for high-performance computing infrastructure while remaining responsive to our customers' needs. The demand for AI continues to catalyze our expansion, creating significant opportunities for TSS as we support our primary OEM partner, expand capacity, and enhance services to meet their needs, as well as those of other prospective partners and customers. Allow me to share some insights on the AI market, current state, cutting through the speculation to dominate headlines. AI presents significant challenges in infrastructure procurement and planning, primarily due to the rapid evolution of compute power. At the data center level, we're seeing an unprecedented surge in power density. Just recently, a single rack would typically consume 10 to 15 kilowatts of power. Today's AI racks push 80 kilowatts, and we anticipate soon reaching 120 to 150 kilowatts in the next couple of generations. Industry roadmaps project over 200 kilowatts within a couple of years. This is an incredible growth in power density in a remarkable short period of time. This swift advancement is causing uncertainty for data center equipment buyers, and may cause some lumpiness in our growth trajectory. However, there's no doubt that AI is dramatically accelerating the overall data center capacity pipeline. Moreover, this compute density increase brings a formidable challenge, heat. Cooling methodologies are evolving rapidly to keep pace with the increasing power density. This evolution presents both challenges and opportunities. TSS is positioned not just to adapt, but to lead in this rapidly changing landscape. Our nimble operational model enables us to adjust quickly as customers seek to make on-the-fly architecture changes, and our rapid testing capability provides more immediate feedback to customers by narrowing configuration options, including cooling. During Q2, we made a significant investment in our production capacity, which came online at the beginning of June. This expansion significantly increased our volume capacity, and decreased the cycle time to complete each rack within our existing facility. The expansion was driven by the surge in demand for server racks built in the pipelines of our customer, OEM customers. Our committed OEM customers are seeing the benefits of our actions and are very supportive. We have in recent times received customer funding for capacity and capability expansion to meet future needs, a compelling reflection of our customers' view of us as a partner. We continue to actively engage in discussions with them to further expand our capacity as we fulfill their needs and execute our goal to become a primary production partner for their future AI-related endeavor. We value our relationships. This is truly a partnership for success. Demand increased in Q2, and we began delivering complex AI integration solutions on time, and I want to stress, on time, including the first stage of a highly publicized program. That initial program began in June and is being carried out into Q3. As a result, we finished a quarter with a record run rate of rack integration revenue. Rack integration revenues from the first half of this year are just a bit under what we achieved for all of 2023. Our procurement business, where we sourced third-party hardware, software, and services, delivered another solid performance in Q2, although it was down slightly year-over-year. Following a modest forward Q2 -- Q3 projections for our procurement business indicate very robust growth, potentially surpassing $50 million in revenue for the quarter. For those familiar with our history, recall that our procurement segment often experiences quarter-to-quarter fluctuations due to size, timing, and revenue recognition methods of the deal. However, its overall trajectory remains upward, consistently contributing to our profitability. While we're encouraged by this growth trend, we maintain a prudent outlook on this business line and remain cautiously optimistic. Our modular data center business, or MDC business, continues to show year-over-year growth and remains a promising long-term opportunity for TSS. While the overall MDC market hasn't expanded at the rate analysts initially predicted, largely because rapid industry growth favored greenfield-type development over capacity augmentation using MDCs, modular data centers, we're now seeing signs of a potential shift. The challenges I've highlighted earlier, rapidly increasing compute density involving evolving cooling requirements, may finally usher in the area for modular solutions. Whether this materializes as predicted remains to be seen. However, TSS, we are strategically positioned to capitalize on this trend, particularly if AI clusters start being delivered as freestanding racks or modules. To be clear, the overall volume ramp that we've been anticipating is now underway. Our OEM customers have very robust pipelines and we're seeing deals begin to close. We believe our Q2 performance is a harbinger of the good things to come. Our strategic inclusion in key customer programs signals a bright future as OEM pipelines materialize. This growth trajectory may not be a smooth upward linear line. The pipeline deals of our OEM partners are large and we anticipate some variabilities the market adapts to rapid technological changes. But make no mistake, we're witnessing a dawn of a transformative era in our industry and TSS is at the forefront. This is not just exciting, it's validating. It confirms our strategy, our investments, and more importantly, the tireless efforts of our exceptional team. I'm proud of this team and as we navigate this dynamic landscape, we're just not riding the wave of AI revolution, we're helping to propel it forward. So now let me turn it back to Danny to discuss our numbers. Danny? Danny Chism Thanks, Darryll. I'm excited to be here and excited to share the detailed financial results of another strong quarter for TSS. Before I jump into the earnings for the quarter, I'd like to make a couple of observations about our financial position. We again ended the period debt-free with an untapped available line of credit and just over $8 million of cash on hand. As Darryll mentioned earlier, an OEM partner with whom we work closely agreed to fund a significant portion of the capital investments we made during the quarter to enhance our capacity to rapidly build AI-enabled server and network racks for them. You can see this $1.7 million capital investment in our statement of cash flows. The portion of the reimbursement not yet amortized into revenue is included in our balance sheet as part of the deferred revenue balance. You'll also notice a $2.6 million increase in inventory compared to December 2023. That relates to configuration and systems integration work that was ongoing at the end of June. Our contract and other receivables also increased by just under $3.5 million. As the majority of our annual facilities maintenance management contracts were renewed July 1st and the invoices for those were sent out shortly before quarter end. The revenues for those, as in past years, will be recognized primarily over the next 12 months. Now I'd like to turn to the operating results for the second quarter. Ordinarily, I wouldn't be very enthusiastic about sharing with you a 16% decrease in our total revenue. However, if you look at the gross profit for the quarter, it's up 41%. Driven by a revenue shift mix to higher yielding services. The revenue decrease was driven by a $5.7 million or 54% decrease in our procurement revenue. It's a great business that adds to the bottom line and we'll take as much of it as we can get. Plus, it provides some cross-selling opportunities for systems integration work. The movements and revenues from the procurement business itself have a much smaller impact on our overall gross profit and bottom line than do movements in our facilities management and systems integration businesses. We had a 46% growth rate in revenues from facilities management activities. Largely tied to a couple of discrete projects during the quarter. And an impressive 108% increase in systems integration revenue. The last item is particularly exciting as it was driven largely by our starting to integrate AI-enabled RAC, which began late in Q2. At least in the near term, we expect the demand from this business to be a bit lumpy, as Darryll mentioned, with some spikes and valleys in demand from our OEM partners and customers. And somewhat dependent on the timing of the next generation of AI chip sets from the big chip manufacturers. That being said, in the first six months of the year, our systems integration team processed more than 80% of the system racks we integrated in all of 2023. As of the date of this call, we've already eclipsed the number of racks we integrated in a full fiscal 2023. Our SG&A expenses increased a bit in dollar terms and improved 8 percentage points to 59% of gross revenues from 67% this quarter last year. Through effectively leveraging our expense structure, the 41% growth in gross profits translated into a 74% improvement in operating income. Ending the current period at $1.7 million. Our net interest expense represents almost exclusively the cost of factoring our accounts receivable from our largest customer. This factoring arrangement ends up having an effective interest rate of only around 6%, a far lower rate than we could get if we were to utilize a bank loan or revolving line of credit to finance those receivables ourselves. The net result of the above factors is that net income swelled to $1.4 million, up 345% from this quarter last year. And EPS moved from $0.01 in the prior year period to $0.06 per share in the current period. Adjusted EBITDA, which excludes interest, taxes, depreciation, amortization, and stock-based compensation, was just under $2 million, up from $1.2 million this quarter last year. Now let's take a look at the six-month period into June 30 compared to the comparable period of 2023. Total revenues were up 33%. With a good portion of the overall growth in total revenues coming from higher-yielding services, our gross profit increased 48% to $7.3 million. Similar to what we saw in the quarter, our SG&A costs improved to 70% of gross profit from 90% in a prior year-to-date period. Adjusted EBITDA was a bit more than three-fold what we produced year-to-date last year, ending the period at $2.5 million. The gross value of procurement transactions processed in the second quarter of 2024 was $21 million, compared to $42.9 million in the second quarter of last year. In the current year-to-date period, we processed $40.9 million of gross value of procurement deals, compared to $49.6 million this period last year. Procurement revenues are highly dependent on the timing of customer needs and can fluctuate widely from quarter to quarter. All in all, it was a great quarter for us financially, and we look forward to achieving similar results as we continue to scale the business. With that, I'll turn the call back over to Darryll to share some insights into our expectations for the future and provide some closing comments. Darryll? Darryll Dewan Thanks, Danny. It's great to have you on Board. Thank you. We, TSS, remain strategically positioned to drive growth in both the burgeoning generative AI market and traditional cloud computing. AI's transformative impact spans every sector, and TSS, alongside our partners, stands ready to meet this surging demand. Looking ahead, we anticipate continued growth in our rack integration business. The expansion of our capacity, completed in Q2, will yield significant benefits throughout the second half of 2024 and into 2025. Our ability to also provide on-site rack integration on a customer site with cabling services opens up new high-margin opportunities for TSS, expanding our total addressable market and customer base. Our expertise in handling complex integrations and our maintenance capabilities uniquely position us to capitalize on these trends and growing market demands. We believe we have the physical capacity to handle near-term growth that we anticipate. We also believe there is a potential demand looking into 2025 that might and may outstrip our capacity. We have begun initial exploration into further capacity expansion. Our procurement business remains strong despite quarterly fluctuations. In our modular data center business, while we've seen year-over-year improvement, we're now engaged in promising discussions with prospective customers. Our focus is on building a solid backlog to fuel revenue growth in 2025 and beyond. We're observing increased refresh activities in existing installations, though new builds are taking longer, particularly for AI solutions due to high GPU demand and anticipated technology releases. In the long term, we see potential synergy between AI and modular form factors, especially for use cases like autonomous vehicles and other time-sensitive applications in underserved areas. So, in conclusion, TSS now has the capacity, expertise, and track record to deliver for our partners and customers. We are very well positioned for the next wave of growth, and we continue to explore avenues to enhance our growth potential. I'm very optimistic of our future. I'm proud of our team. And with that, I'll open the lineup for any questions. Operator? [Operator Instructions] Our first question comes from Maj Soueidan with GeoInvesting. Please go ahead. Maj Soueidan Hi, Darryll. Thanks for taking the call. I have a couple of questions, really, and then I'll just go in the queue then. So obviously, it looks like you've got some growth in your rack integration, which is what we've been waiting for to see how that looks. Or kind of getting an idea of what that looks like in terms of the bottom line, based on what you've done in terms of efficiencies. So I guess my question is a couple of things here. Number one, can you start giving us an idea in terms of how much of your integration business is rack, so we can maybe start modeling a little bit in terms of your 10x kind of capacity expansion kind of goals moving forward? And number two... That's okay. Don't make this too complicated. I'm trying. Fair enough. Keep going, man. Maj Soueidan No, because I'm in the airport here and I want to make a noise in here. And so we're getting a glimpse of what you can do when you scale here at a rack integration. Are there more efficiencies down the line as you keep on growing that business? We're just trying to get an idea of what the larger picture might look like. And maybe the same question, really, with as modular it gets going, trying to understand the larger picture there as we move forward. That's really it right now. Darryll Dewan Okay. See if I can take this apart. So first of all, to your question on 10x. Yes, I think we're on track to go do that. That is measured in terms of the quantity of racks. The mix of racks is changing in that we're getting more -- I think we're planning for the future where there's going to be an increase in direct liquid cooled solutions as compared to what we have today. When I mentioned about heat and cooling, the future is looking like it's going to move to a larger percentage of direct liquid. So we've got to accommodate that in our capabilities in our factory. And what we're going to run out of is power. And we're not sounding like anybody else, right? I mean, customers are clamoring for power and they're trying to figure it out. And we're not that much different. So at some point, depending on the percentage and the timing and the forecast that we're going to get, we are planning for more power. And it may be at a different facility, being blunt. And we're going to do that really carefully. And we're not going to go just run away and just do it for the sake of doing it. But we're going to have to lean in and make some decisions on that pretty soon. Now, I think on the modular, and by the way, I think we've got the capacity to grow here depending on the mix of business. But if it rapidly shifts to direct liquid, then we're going to have to more rapidly move to another facility. We have some sites in mind. We're planning for it. But we're just not ready to fully make a decision on that. Danny Chism Yes, if I can jump in for just a second. One point I would make there also is we do have the ability to do some direct liquid cool today. We have that infrastructure. It's just not at the volume that we expect that to be in the future. Darryll Dewan Okay. And on your modular question, part of the issue, Maj, is the lead time for componentry. When I first joined the company, I was told, lead time is anywhere from eight to 12 months to get a container, to get the power units, et cetera. And I said, that's nonsense. We can fix that. Well, we can't. But we can build tighter relationships with the folks who are doing that work, like the Verdas, the Schneider's, the Eaton's, et cetera. And we're doing that. We're taking steps to go get closer to those partners. What's that translate to? We do have -- we have an internal goal on the backlog and the pipeline that we want to build that will turn into revenue in 2025 and beyond, given the lead time. We're not where we need to be yet. But we're making progress. We've got a couple of deals that have closed. And we've got a couple of others insight. And we're working as aggressively as we can. I don't know if I answered your question. But if I didn't, let me know. Maj Soueidan Yes, that was good, yes. I mean, maybe I guess one of my questions, if we can get more specific on it, or just maybe yes or no on it. Do you think that there's more efficiencies that come down the line here as you scale? You know, we got a glimpse of it here in Q2. Do you think the margin profile improves as you scale the business, especially with the rack integrations type of business, I guess, and maybe even modular? Okay, that was important there. Cool, cool. Yes, that's all I have for now, man. Thanks. Our next question comes from Jonathan Alvarado [ph], Private Investor. Please go ahead. Unidentified Analyst Hi, congratulations. I've heard reports that you guys added around 200 employees during the second quarter. Is that true? Okay, and were they largely all put to work right away? All right. And we've heard reports that you're working on Elon Musk xAI Data Center. Is that true? Darryll Dewan Jonathan, what we can't do is talk about the end user customer because it's very confidential to our relationship with our partner. So I wish I could answer that, but I can't. Unidentified Analyst Okay. But you are a Dell Premier Partner, and would you get more work if Dell gets larger deals? Darryll Dewan We are a Dell services partner, and we work very hard to get as much business as we can with our relationship. So it is our hope and our desire that as the market expands and Dell succeeds and potentially other customer partners succeed, we will succeed as well. We're also embarking on a game plan to go direct to the end user on certain services that would not be in conflict with any relationships that we do have with Dell or anybody else. And we're in the early stages of that. But right now, it's not material to report. Unidentified Analyst And the current performance on your existing contracts that you just completed, does that set you up for more work on those same projects? Darryll Dewan Jonathan, we hope so. We want as much business as we can get. So the better we do, the more we want. I would say, the level of expertise to which we executed, I think, demonstrates the skills that we've built internally and the expertise. And I do anticipate that will be recognized and probably should result in us winning more business. Our next question comes from Paul Simon, Shareholder. Please go ahead. Unidentified Analyst Hello. Congratulations and great results. I just have a couple of questions that I think you may not be able to answer based on your last answer. But I was going to ask, what percentage of your total revenue comes from relationship with Dell? No problem. No problem. Like I said, you can't answer it maybe because you just said you can't talk about relationships. That's fine. It's just something I had on my mind. But the second thing is you mentioned power. You mentioned power. And I'm curious about one. I haven't read anything about it or anything. I'm impressed with your results. Congratulations for everyone. I saw the stock jump up to $2.75 right before this thing. It's nice. Now, when you said power, are you considering solar or nuclear power or anything else to power these things? Because I understand that there's huge power demands. And like you said, you don't have enough power. Are there any other methods you're trying to use to make power, generate power? Darryll Dewan Well, what we need is power to the facility, electric power. And it's measured in megawatts. We've got a good amount of megawatts of power in our current facility. And the lead time to go get additional megawatts is longer than we want. And like, so what do you do? You go to another facility and you do the pricing and the costing and you make a decision on timeframe and money. And we're looking at that. Solar, nuclear. If you think about what is, you know, consistent that you can count on, with probably nuclear probably comes the closest. But what I've seen so far is not many people want to put a nuclear portable unit next to their facility. Not yet anyway. I just purchased a company today that does something like that. It's called NNE. But anyway, that's not what I call it, of course. This company's making portable nuclear, or not so much portable, but more portable than what, you know, normal huge thing would be, like three-mile island or whatever they call it. No, it's pretty, on a truck, it's portable. So, anyway. Darryll Dewan I looked at one company. We were introduced to a company that's based up in Silicon Valley that is doing something on a portable nuclear level. And we're engaged. I don't know if it's the same company, but what we're looking for, it simply is just that we need more power to the facility. And we'll consider anything. Anything that can help us get there, we'll consider. But realistically, in the short term, we haven't seen anything that really we could talk about today, besides regular power. Unidentified Analyst Solar can be bad, depending on the weather. And also, you have to have a lot of land for that. Or actually, roof space. Actually, roof space usually works, or sometimes. But no, thanks for the answer. And thanks for the great results. Like I said, I just noticed the thing jumped up to $2.75. I don't know, it just happened right at the end of the day, I guess. Thank you for the great results. Darryll Dewan Yes. And Paul, for you and all other investors, I think on behalf of not only myself, but the management team, we appreciate your trust in the business. And if you're going to put money into our company, we've got an obligation to do everything we can to give you a very good return on your investment. So, we're focused on that and customer value. So, thanks for your investment. Unidentified Analyst Well, thank you, sir. And I have a feeling we're going to see a rise tomorrow, because I think these over-the-counter markets obviously don't do much extended hours. I think tomorrow you're going to see a huge rise. That's just a prediction. I can't guarantee anything. Darryll Dewan Paul, we're just focused, we are focused on execution and everything else happens fifth grade. Execution, that's our goal. Unidentified Analyst Well, that's okay. I don't buy any stock that I don't see as executing. I guarantee you that. And every single one I have is executing. And so, you are definitely one of them. A guy at E-Trade told me, hey, that thing doesn't have much volume. Hey, this, that, and the other. I said, dude, look, I'm going to buy it for $1.75 and let's see what you say. Now, it's $2.75. Let's see what he says tomorrow. Anyway, he was just saying these small cap things, there's no volume, there's this and that. I said, listen, man, I know how to analyze. I went to college and I have a finance degree. Listen, this company has dominated this entire year. So, don't tell me about small cap, large cap. If you dominate, you dominate. So, thank you very much and have a great next quarter. Our next question comes from Mitch Swergold, a Private Investor. Please go ahead. Unidentified Analyst Hi, guys. Congratulations on a really great quarter. It looks like you're managing the growth of the company very, very effectively. I was impressed that you are receiving financing from your partner. Can you talk a little about the size and scale of that as well as how far in advance do you have to put the CapEx in before you can then generate revenue off of it? And then I have a follow-up question. Darryll Dewan So, like earlier, I wish I could give you the answer to your question, but that's proprietary. Not out of disrespect to you. It's just private. And I'll underscore it by it doesn't come easy, and we are very respectful of our relationship with our partner and the fact that they put some money into what we're doing. It's a beautiful thing. As far as the other part of your question, I'm not quite sure I know how to answer that. Unidentified Analyst Okay. The other question I have for you is I also have heard that you've done some significant hiring, so I just wondered if you can tell us, I think you had 80 employees at the end of last year. Can you tell us how many employees you had at the end of the quarter? Darryll Dewan We've gone public before. We had 83, which is the last time we quoted any volume. And I think for the sake of confidentiality, we're not going to get into a whole lot more, but we've doubled at least our headcount, and we need to do that to accommodate. Go ahead. Unidentified Analyst I didn't mean to interrupt you. So, in six months, you've more than doubled your headcount? Would it be safe to say that it's closer to triple than double? Darryll Dewan No. I respect where you're going with it, but I don't want to go any further with it. Not unexpected, based on the hiring trajectory we had. I've got to do a shout-out to our chief people officer and the management team. We were prepared and we were planning for growth at some point, and we did a lot of it through automation and heavy duty. We were interviewing and we were working weekends and nights, making this team what it is today. So, I just need to do a shout-out to the team, the management and leadership team, for making that happen. It would not have happened if we hadn't planned for it, we hadn't implemented some of the processes and the systems, and we had the people we've got in leadership positions. So, we did some really unique things in a very short period of time. Unidentified Analyst That's great. Last question. Can you talk about the duration of, what kind of duration and revenue visibility do you have? Duration on the contract and revenue visibility for the coming quarters? Darryll Dewan Let me answer it this way. We have much better signals today and information exchange between our factory leadership and also our partner than we've ever had. And while there's no guarantees in life, we have a working relationship, we've got trusted relationships that we know how it works. And I'm also ex-adult. So, not that that means a whole lot, other than when if you have any relationships with adult people, you know a lot of it's based on trust and integrity and relationship. And we really work hard on that, especially as it relates to future demand and investment decisions we make, because it impacts people. It impacts our business. And our partner knows that. So, it's a good, I call it bi-directional relationship, but I can't get into some of the details currently on the call. Totally understand. Thanks so much for your candor. We have no further questions at this time. I will now turn the call back to Darryll Dewan for any closing remarks. Darryll Dewan Yes. Thanks, Brianna. To everybody here on behalf of the leadership team, we really do appreciate everybody's support of the company and what we're doing. Your info and involvement is respected. We appreciate it. We're optimistic about the future. We know what we have to do. We're focused on ROI for everybody, return on investment, and profitable growth. So, thanks for participating in the call. Wish everybody a good evening and afternoon, wherever you're at. And wish us luck. This concludes today's conference call. Thank you all for your participation. You may now disconnect.

Earnings call: Element Fleet Management posts a 14% increase in net revenue By Investing.com

Element Fleet Management (EFN), a global leader in fleet management services, reported a strong second-quarter performance for 2024, with a 14% increase in net revenue and significant growth in adjusted earnings per share (EPS) and free cash flow per share. The company also announced the strategic acquisition of Autofleet, a software platform designed to enhance fleet management systems and optimize fleet utilization for mobility operators. This move is part of Element's broader strategy to accelerate its digitization and automation capabilities. Additionally, Element Fleet Management has raised its full-year 2024 guidance for several financial metrics and completed the redemption of its Series C preferred shares, with plans to redeem Series E preferred shares in September. In conclusion, Element Fleet Management's second quarter of 2024 has been marked by strong financial growth and strategic expansion through the acquisition of Autofleet. The company's leadership is confident in the positive impact this will have on their service offerings and overall business trajectory. Despite some potential short-term financial drags, the outlook for Element remains bullish as they continue to innovate and expand their market presence. Operator: Good morning ladies and gentlemen and welcome to Element Fleet Management's Second Quarter 2024 Financial and Operating Results Conference Call. At this time, all participants are in a listen-only mode. And you are reminded that this call is being recorded. Following the prepared remarks, there will be an opportunity for analysts to ask questions. [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 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 call over to Laura Dottori-Attanasio, Chief Executive Officer of Element. Please go ahead. Laura Dottori-Attanasio: Good morning and thank you for joining us today. I'm delighted to share our latest achievements. As a team across Element, we created and unveiled our purpose. We are acquiring new capabilities in the digital and automation space. We delivered another strong financial quarter for our shareholders. Our centralized leasing initiative officially began operations in Ireland, on time and on budget, with no change to our expected benefits that we previously shared with you and we released our fourth annual sustainability report with a commitment to setting science-based targets that include intended reductions to our greenhouse gas emissions. Now, let me start with our purpose. To further strengthen our culture, our team members worked collaboratively over the past year alongside our clients and key partners to unlock our very first purpose statement, move the world through intelligent mobility. Our purpose is a reflection of our unwavering commitments to putting our clients first, to leading the industry and our ambition to effect positive change for a brighter future. To move the world embodies our dedication to intelligent, seamless mobility. And so driven by our purpose, we accelerated our digitization and automation initiatives with the acquisition of Autofleet. Autofleet is an end-to-end software platform that's designed to support fleet management systems, optimize and manage complex operations and maximize fleet utilization for mobility operators. It's led by a team of incredibly talented individuals, including its co-founders, Kobi Eisenberg and Dor Shay. They have built a world class team and a scalable digital platform that is built on a modern tech stack. Now having worked with the Autofleet team previously; we have experienced first-hand the cultural fit with Element and the value-add they bring to us and to our clients. This acquisition will enable us to better serve our clients by accelerating our digitization and automation efforts in fleets with optimized mobility solutions and it will help us expand into new value-added services. Now with regards to our quarterly financial performance; we continued our commercial success with the addition of more new clients by both earning share and converting self-managed fleets, along with increased share of wallet wins. For the second quarter, we delivered 14% net revenue growth with expanded margins, all of which translated into double-digit adjusted earnings per share and free cash flow per share growth. Our very strong performance is a reflection of our team's relentless passion and dedication to delivering the very best for our clients. So thanks to our clients for their continued support and to our Element team members for their great work. It's an honor to be part of such a great group of people. And with that, I'll hand it over to Frank. Frank Ruperto: Thank you, Laura and good morning, everyone. We delivered another quarter of strong results. The momentum we benefited from in Q1 has carried into Q2 resulting in robust growth across all key metrics. Notably, we saw continued double-digit year-over-year growth in services revenue, along with a substantial 16% increase in net financing revenue, compared with the same period last year. Our strong performance to date, combined with a positive outlook for the remainder of the year, led us to raise our full year 2024 guidance for most metrics. We announced the acquisition of Autofleet, which, although relatively small, with a purchase price of approximately $110 million, aligns with our goals of acquiring capabilities to accelerate digitization and automation efforts. We expect the transaction to be accretive in 2025 with a payback of less than 3 years. As with our previously announced strategic initiative, we will incur onetime, nonrecurring cost associated with this acquisition which we will call out and adjust in our Q3 results. For clarity, our revised guidance excludes these onetime costs. We expect the acquisition to close early in the fourth quarter. Let's now turn to our second quarter results. All dollar amounts cited today will be on an adjusted basis, excluding onetime costs of just over $2 million in Q2, incurred in connection with our Dublin and Singapore initiatives. These initiatives have been stood up on time and on budget. We anticipate the last of these expenses in Q3 consistent with our original budget. Q2 was another record performance for us in terms of net revenue, earnings, EPS and free cash flow. This success was driven largely by the resilient and recurring nature of our revenue as well as the robust and sustained commercial momentum we've generated, as we continue to deliver on our client value proposition and create increasing value for both our clients and shareholders. For the quarter, our adjusted operating income reached $153 million, up 15% year-over-year. This translates to an adjusted EPS of $0.29 which is a $0.04 increase from the same period last year. Additionally, our adjusted free cash flow per share also grew by $0.04 or 12% to $0.38 per share. We expanded adjusted operating margins year-over-year by 60 basis points to 55.7% this quarter. Moving forward, we anticipate operating margins to end the year at approximately 55% to 55.5%, assuming stable currency rates relative to Q2. Net revenue grew over 14% year-over-year to $275 million. This growth was largely driven by services and net financing revenue growth. Service revenue rose by $14 million or 11% compared to Q2 2023, reaching $140 million. This increase was fueled by robust origination volumes and sustained higher penetration rates from new and existing clients. As noted, last quarter Q1 services revenue benefited from $7 million in onetime items discussed last quarter. Excluding these amounts, services revenue was largely unchanged compared to a very strong first quarter. Net financing revenue grew $17 million or 16% year-over-year and $15 million or 14% quarter-over-quarter. This growth is largely attributable to higher net earning assets associated with the increased origination volumes in the U.S., Canada and ANZ. Gain on sale remained relatively unchanged year-over-year, as gains in Mexico were closely offset by lower gains in Australia and New Zealand as prices moderate. The increase in financing revenue was somewhat mitigated by higher funding costs and standby fees to support forecasted growth and originations. Overall, rates remained significantly more attractive than the prior year period. Shifting our focus to syndications, we successfully syndicated a record $955 million of assets this quarter. This represents a substantial 86% increase from Q2 last year and double that of Q1, increasing syndication revenue by $4 million or 42% year-over-year. We expanded the volume and names associated with syndications which impacted mix from a yield perspective. These significant volumes illustrate the depth of this funding source for us and the ongoing appeal of our assets to syndication clients. On the expense side, adjusted operating expenses for Q2 were $122 million, an increase of 13% year-over-year. This increase was primarily due to higher salaries, wages and benefits associated with accelerated spend, including higher short-term incentive compensation accruals and targeted head count in G&A to support growth initiatives. We believe that the acceleration of our digitization efforts, expedited by the capabilities we will onboard as part of the Autofleet acquisition, will allow us to enhance our scalability over the intermediate term. It is worth noting that net revenue growth continues to outpace operating expense growth by 110 basis points year-over-year. And as I mentioned last quarter, we will continue to be purposeful in accelerating investments in the near term, as our top-line growth allows us to do so. This will help us ensure we are well-positioned to expand our leadership in the fleet management sector. Additionally, originations were $2 billion this quarter, up 5% from Q2 last year and up 28% from Q1. This growth can be attributed to 3 items. First, OEM production volumes have recovered from earlier supply chain constraints. Second, Q2 traditionally represents the quarterly high watermark, aligning with OEM windows, ordering windows and three is inflation in auto prices. Now, let's turn to guidance. Our strong financial performance and positive outlook for remainder of the year led us to raise our full year 2024 guidance for the following metrics. We anticipate net revenues to be between $1.06 billion and $1.08 billion, implying annual growth between 11% and 13%; adjusted operating income between $575 million and $595 million; adjusted EPS between $1.07 and $1.11; and adjusted free cash flow per share between $1.32 and $1.36. Again, these are before any onetime costs associated with our previously announced strategic investments and the cost associated with the acquisition of Autofleet. While Q2 foreign currency volatility has reflected in our revised guidance, we do not forecast currency. As such, the outlook for the remainder of the year assumes that FX will remain stable to those rates prevailing in Q2. Before concluding and opening the line to questions, I would like to walk you through certain changes to our capital structure, as previously communicated. We completed the redemption of our Series C preferred shares this June for a total of $91 million. Additionally, in September, we plan to redeem our Series E preferred for a total of $92 million. Recall that the result of replacing these preferred shares with debt will move the cost of capital from below the pre-tax income line to the NFR line, creating modest compression to NFR margins in the second half of 2024. Most importantly, these actions are EPS accretive and economically attractive to us. Additionally, in connection with conversion of our remaining convertible debentures, we issued 14.6 million shares from treasury which will impact our per-share financial results and are taken into consideration as per our guidance. We ended the quarter with tangible leverage at 6.5x and financial leverage for debt-to-total capital at 74.8%, both metrics providing flexibility to pursue strategic objectives, operate the business efficiently and continue to return capital to shareholders. In summary, we had an exceptionally strong first half of 2024 which allows us to continue investing in the business to sustain future growth and drive value for shareholders. Thank you, operator. We're now ready to take questions. Operator: [Operator Instructions] The first question today comes from Geoffrey Kwan with RBC Capital Markets. Geoffrey Kwan: My first question was on the origination side. Just given how often your clients typically hold their vehicles, for the vehicles that were not replaced during the OEM production shortage, what would be like your estimate of the percentage that have still not been replaced so far, even with the OEM production shortage, kind of being, let's call it, more normal in the past several quarters? Frank Ruperto: The best way I can put that, Geoff, is 2 ways. One is we have now, with the OEM production coming back to a normalized level, are working through and seeing some of the benefit of that come through the line, as we have over the last couple of quarters. But the best way to think about it is, we peaked at average age of vehicles, U.S., Canada, roughly 59 days. And now -- I'm sorry, 59 months and that is now down to 49 months. And I think I've told you before, 42 months is really the average hold on these vehicle assets. So we're starting to see those come back in. But the fact that we are still above the 42-month period indicates to us that there will be continued orders, strong order volume and originations as we progress through the year. Geoffrey Kwan: Okay, that's helpful. And then next question was on the net finance income. I think if I remember correctly, at the start of the year, you were kind of messaging modest growth. I think it might have been like low-single-digits for reasons like lower expected gain on sale, some of the impacts of dealing with the legacy capital structure and the impact on net financing revenue. I know that there's still that one pref remaining, but what we've seen from H1 '24 this year is the net financing revenue is up 9.5% year-over-year. So just wanted to get your thoughts. Obviously, you've revised the guidance, but just how to think about how that plays out through the second half this year. But also just going forward, because part of it, you mentioned, you flagged was a bit of a business or geographic mix issue that drove the higher financing income. Frank Ruperto: Yes. So we always have mix, right? So you have higher spreads in ANZ and Mexico. The biggest thing that's been driving the net financing revenue increase is just the growth in net earning assets. So we've had a significant growth in net earning assets as originations have picked up substantially to record volumes this quarter. And that will -- that is most of the impact, the benefit from the net financing perspective. Geoffrey Kwan: But wouldn't that have been as expected for you so it shouldn't -- so that it wouldn't kind of baked into your net financing expectation when you built the guidance at the start of the year? Frank Ruperto: So in the start of the year, we've actually seen better financing costs in the market as well. So those 2 combined would create most of that benefit. Geoffrey Kwan: Okay. Maybe if I can get one last question, it's just the Autofleet acquisition. Do any of your direct competitors use them? And then if so, would there be any plans on whether or not they would still be able to use Autofleet going forward? Laura Dottori-Attanasio: I'll take that one. Our plan is to have Autofleet continue to operate independently. And so they will be able to serve any companies that would benefit from utilizing them. We're really happy with this acquisition. We do think it's going to allow us to do more in the mobility space. And if it can help others do better for clients in this space, we're all for that. So yes, the answer is yes. Operator: The next question comes from Paul Holden from CIBC. Paul Holden: So a couple of questions on the Autofleet acquisition, just to make sure I understand the value proposition appropriately. First off, Frank, you provided some useful numbers in terms of year 1 accretion and then also mentioned, I think, a payback period of 3 years, if I got that correct. What's sort of embedded in that expectation? Is that primarily based on revenue to customers? Are there some kind of cost saving/automation associated with Element's own processes and operating costs? Just wondering how to think through that payback period and really, I guess, the value proposition here? Frank Ruperto: Sure. So it comes in a couple of areas. So let me address the accretion in year 1 first. This is a small acquisition. So it is very modest accretion in the first year, simply because of the size of it relative to us. So I want to make sure we're clear on that. In regards to the value proposition and the payback, it comes in 2 forms, as we move through and complete our digitization capabilities. The first piece is that we will become more scalable. We will be able to do more with less overtime and be much more efficient from an operating perspective in serving our clients. Additionally, that should also enhance our client experience, be more responsive to our clients and giving them better opportunities, better dashboards to see their vehicles and the like which could assist us and should assist us in winning new business with best-in-class client-facing technology. So that's one component. A major component of the payback is really our ability to accelerate our digitization effort and do more with less capital. So we still anticipate spending CAD 110 million roughly per year and -- sorry and that's Canadian, so USD 85 million per year in regards to the spend of capital over the next several years, but we will be able to accelerate and take somewhere between 1 to 3 years' acceleration depending on which projects we're looking at and getting those in place sooner, again, enhancing our ability to scale as well as better client-facing technology. Paul Holden: That's helpful. Okay. That's good on Autofleet. Third or second question would be on syndication. You syndicated a lot of volumes this quarter, what I would say is a relatively low syndication yield. So maybe walk us through the thought process there. Why such a high volume at a low yield? And then with that, maybe give us an outlook for the -- or expectation for syndication yield for the remainder of the year? Frank Ruperto: Yes. So think about syndication as our key funding mechanism for us. So with record origination volumes and the pent-up syndication that we hold back in Q1, we had significantly more volume to bring to finance the origination component of the business. As a result of that, we also had to go -- we had a mix shift. So our syndication team on the same names that we're syndicating, we're roughly on par to slightly better from a gross yield perspective, but the mix component of it had a material impact on the overall yield. So think about certain clients with significantly more volume in the quarter, but they tended to be lower yielding assets. So two points, one that we've made before, but that was a lower yield, but much higher volume this quarter; and then two, new names that have come in, that also decreased the yield from that perspective. And again, remember, we use it also to manage leverage, so we're roughly 6.5x right in the mid target of our range. Paul Holden: Okay. And sorry, the -- any way to give us sort of an outlook or expectation for the remainder of the yield? I mean, some of the things you highlighted maybe are more particular to the quarter, I would assume somewhat better yields for the remainder of the year, but what are you expecting, Frank? Frank Ruperto: It's very dependent on the size of the origination pool in the next call. So I think that we continue to see significantly higher volumes in origination for the rest of the year relative to last year which would tell me that plus or minus, we will see lower yields than we saw in Q1, somewhere depends around the current yields. But again, it will be highly dependent on mix. Remember, too, even though the yield is lower, every deal we syndicate is economically advantageous to us because the hold versus sell component of that is in our favor. So we get more value by selling that lease than we would hold it on book. Paul Holden: Understand. Okay. And then last question for me, originations. I think I saw they were down -- I mean, down small in Mexico, but down 1% year-over-year. Is this quarter sort of an aberration? Has anything changed in the growth outlook there? Frank Ruperto: So predominantly 2 things, the peso. So the FX impact on that originations number. So we're about 1.5%-plus [ph] lower quarter-over-quarter from a peso valuation. So there's part of yours. And then we also had a slightly lower mix in regards to the cost of vehicles and vehicle types that were bought in the quarter. That tends to be more idiosyncratic and lumpy. That mix usually doesn't come much into play. So those 2 will make up that small compression in origination volume. Operator: The next question comes from Jaeme Gloyn with National Bank Financial. Jaeme Gloyn: Did want to touch on syndication and the volumes in this quarter. I believe in Q1, you had made the decision to delay for some -- the potential tax advantages later on that didn't materialize. So in Q2 with this higher volume, is this reflecting some of that demand that would have been coming in Q1 and we should expect somewhat lower volumes going forward? Or is this reflective of where demand is from an institutional investor standpoint and perhaps maybe even increasing from these levels? Just some thoughts on that. Frank Ruperto: Yes. So first, on the demand side, the demand, I think, remains robust. And I think you can see a 30%-plus [ph] increase over our record volumes before very, very solid from that perspective. So the market is deep. They like these assets. We've said that before because of the safety of them and the very low default, right? So very good bank and LifeCo assets from that perspective. So the market is very deep as we look at it. I would say rough, rough, we probably held back on $150 million to $200 million of volume last quarter. And so that would have been come through this quarter. So you'll expect some lower volume than this record quarter in Q3 and Q4. That being said, it will still be at relatively robust levels versus historical periods. Jaeme Gloyn: Okay, understood. On the Autofleet, I just wanted to also maybe dig in and just get a little bit better understanding of maybe what were some of the gaps that were existing with the event today to go to a buy versus build strategy? And maybe a little bit more color on some of these value-add services that are coming onboard. I would assume that existing customers are using Autofleet and that was sort of the way into this transaction, but maybe a bit more color on those 2 factors? Laura Dottori-Attanasio: I'll take that. I think as we've talked about when we see all of the advancements, I'm going to say, in mobility, what we see with vehicle connectivity, re-electrification, etcetera, we know that we have to, I would say, continuously evolve for our clients. As we've shared, we've been on the path to build out our capabilities to be in a position to do more digitization and automation to better serve our clients. That is proving out to be expensive. And so we were looking to see could we partner or acquire capabilities such that we could move a lot faster. And so we found Autofleet. We really like the team. We think with them, we're going to be able to better serve our clients and it's really all about accelerating all of our digitization and automation efforts. It allows us to really fast track, if you will, our modernization plan. They have an AI-powered platform. Again, that's going to help us streamline, automate and just move faster. And as I shared in my prepared remarks, we found a world-class team that's a wonderful cultural fit with us. They've got a scalable digital platform. It's built on a modern tech stack. So we're feeling incredibly positive about what we'll be able to do with this acquisition for our clients. Some of the potential value-added services, they are in a space that we are not. They do a lot in the short-term rentals and ridesharing. They have really strong analytics and other capabilities. So those are some of the other services we'll be able to do, things like optimize vehicle routing, keyless vehicle entry, the list goes on. And so it gives us just really not just a great talent team, but really good tools that will help us better manage our clients and allow us to really optimize our business. So all of that should really translate into where Frank was at, synergies and whatnot over time, not just allowing us to go faster, but things that will make our client experience better jobs, better for our clients -- sorry, for our people and should also allow us to deliver better returns for our shareholders over time. Operator: The next question comes from Tom MacKinnon with BMO. Tom MacKinnon: Just a question generally on the impact of lower rates. I know from a finance revenue perspective, you're generally agnostic there. But perhaps what are you hearing from clients in the self-managed market and maybe their appetite to outsource as rates have come down? And I have a follow-up. Laura Dottori-Attanasio: We continue to grow in that space. Have a lot of opportunity, great conversations with clients. I'd say demand continues to be strong. Look, there was a need just given what we have been through our clients needed to, let's say, decrease the average age of their fleet, notwithstanding where rates are, but a lower rate environment certainly makes our proposition more interesting. But as we've shared in the past, one of the big drivers for us to grow, particularly in the self-managed fleet space remains the complexity of the space as it evolves. Really when we think about fleet electrification and that complexity, that is really the opportunity for us and for these clients to deal with us, where we feel we can decrease their total cost of operation. So that's the main driver. I'll hand it over to Frank maybe that covers some of the lower rates as it relates to our overall business. Frank Ruperto: Yes. And I would just comment as well, the major reason why our self-managed fleet tends to go into an FMC (NYSE:FMC) is not because of the financing component necessarily. It is because of what we can do on the services side, as Laura said, really deal with the complexity of that fleet, lower that total cost of ownership. So that's absolutely critical. So we're -- the financing tends to be more of a commodity type of product. It really is from a self-managed fleet perspective, what we can do for them from a service perspective. Overall, though, when we went into this year, we have been able to term out our facilities at much better rates than we had seen historically in the last -- or in 2023 and we were -- '22 as well. So, that's a very good positive and has created some tailwind. One of the reasons why our guidance has been raised is that lower financing environment from when we set up the original guidance back in November. Tom MacKinnon: Okay. And then just with respect to the Autofleet acquisition, as you kind of onboard the software platform, do you foresee any potential disruption risk here at all? Or what are you doing to try to minimize that if there is one? Laura Dottori-Attanasio: Well, we are going to run Autofleet as a separate entity, so it will be run independently. Again, I just shared, we explored many companies, their people, their technologies. And with Autofleet, we found the one that was the best fit. We believe that all of the benefits here, I'm going to say, far outweigh any perceived risks in that our teams have spent considerable time collaborating together as we have worked together to serve some clients. We feel we share a common purpose, great cultural fit and then allowing a startup to operate independently will further, I'm going to say, decrease the likelihood of things not working out. This is a great transaction, not just for us, but for Autofleet, in that with our client base and our great sales force, this will allow Autofleet to grow at a faster rate. And with Autofleet's tech stack and very talented team, it's going to allow us to accelerate in the digitization and automation. And so deals work best when both parties win and both of us win in this transaction. And most importantly, this is going to be a great combination to better serve our clients, to make our employees' jobs, as I said earlier, better. And all of that, as we do it properly, is going to result in better performance for our shareholders. Tom MacKinnon: And naturally, this will help expand some of the services that you have, but can you elaborate on any other expansion of services that you might want to undertake even without having Autofleet? I think there were a few you spoke to before, but just wondering how your thoughts are there. Laura Dottori-Attanasio: Yes, absolutely. I'd say in the very first instance, it allows us to up our game as it relates to the digitization of our services, how our clients interact with us and how we deliver all of the different products and services we have. And so that is the, I'd say, the first benefit that our clients should see in short order as that gets done. As it relates to, I'm going to say, additional value-added services that we can provide, we'll be able to look at doing things in the telematics space. As I mentioned earlier, we're going to be in a position to -- for ride hailing, optimize even further with stronger data and analytics and AI capabilities the total cost of operations for our clients. I mentioned things like keyless vehicle entry. We'll have a lot of that that we can actually do. And so a lot of opportunity with them. And then, of course, we have the other opportunities that I've talked about previously as it relates to the insurance space that we were working on and the small- to medium-sized fleets. Those are 2 initiatives that we continue to work on. And we actually feel that in working with Autofleet, that that could allow us to move faster in that regard to just given the tool set that they bring and the digitization and automation capabilities. So we should be able to move faster with those 2 initiatives as well. And there'll be more to come on that in future quarters. Operator: The next question comes from Graham Ryding with TD Securities. Graham Ryding: Just first, I just want to make sure I'm understanding this correctly because there has been a lot of conversation on Autofleet. So just to sort of try to summarize, is this a way for you to basically leverage Autofleet both in a direct client-facing capacity in terms of what you can offer them, but also from your own processes in terms of sort of digital and automation behind the scenes you can leverage Autofleet as well? Should I think of it as both respects? Laura Dottori-Attanasio: Absolutely. You got it. Graham Ryding: Okay, great. And then my only other question would just be on guidance, Frank. I think the sort of the numbers that you've provided, they imply that you're not really expecting much growth in the second half of the year versus the first half of the year from a sort of revenue and adjusted EPS perspective. And I think free cash flow per share is actually expected to trend down a bit versus the first half of the year. Is that accurate? And then what would be driving that? Frank Ruperto: Okay. So a couple of things. Let me talk to the fundamental component of it. So again, we put out guidance, obviously, good revenue growth and good growth as you look at the back half of the year and think about the whole range. So we try to play guidance down the middle of the fairway as we look there at it. So we do see continued strong growth in the second half of the year as we move forward here. But recall, noneconomic, but we're going to have more drag from the preferred stock that will drag the NFR line as we move forward here as well as just our continued investment in the business consistent with that growth. On the per-share perspective, recall that we converted the debentures. So we now have $14 million incremental, incremental shares outstanding which obviously impact the EPS from a basic EPS perspective as we move forward here. The last thing I would just point you to is recall that we had $7 million in nonrecurring service revenue in Q1. And so we don't intend, because it's nonrecurring, that to recur as we move forward. And then finally, we continue to be cautious on gain on sale. As we look at it, it's held up well and that's been a benefit to us as Mexico has offset Australia and New Zealand and we've had more vehicles to sell, but we always keep our eye on that as well. But we feel very good about the second half of the year. Operator: [Operator Instructions] This concludes the question-and-answer session. I would like to turn the conference back over to Laura Dottori-Attanasio for any closing remarks. Laura Dottori-Attanasio: Thank you. Thank you for getting my name right. As we continue to grow and deliver for our shareholders, with strong financial results, we will drive forward and we're going to drive forward at pace with intelligent mobility initiatives and we're going to ensure that we consistently offer the very best to our clients. So thanks again to our Element team members for everything they do for our clients and for each other and a very special welcome to our soon-to-be new team members from Autofleet. And thank you, once again, for being with us today, and for your continued support of Element. We look forward to our next quarterly call. Have a wonderful day. Operator: The conference has now concluded. You may now disconnect your lines. Thank you for participating and have a pleasant day.