Element Financial Continues Growth Trajectory in Q1-2013

$32 million in revenue delivers $0.08 per share of after tax operating income

• Origination volumes increased 27% over the previous quarter to $296 million
• Element Finance increased originations by 69% over the previous period to $186 million
• Financial revenue increased 45% over the previous period to $31.8 million
• Average annualized cost of borrowing decreased to 3.33% for the period versus 3.44% for the previous period
• Operating income increased 80% over the previous period to $12 million
• After tax operating income per share was $0.08 versus $0.06 for the previous period
• Operating expenses were 3.08% of average portfolio assets for the period versus 3.16% for the previous period
• Total assets increased by 17% over the immediately previous quarter to $1.8 billion
• Element Capital pipeline exceeds $1.6 billion

TORONTO, May 13, 2013 /CNW/ - Element Financial Corporation (TSX:EFN) ("Element" or "the Company"), one of North America's leading independent equipment finance companies, today reported strong financial results across all of its business segments generating operating income of $12 million for the three month period on finance revenue of $31.8 million resulting in after tax operating income per share of $0.08. Total assets increased to $1.8 billion and book value per share increased to $4.75.

Element Finance accounted for $186 million or 63% of the $296 million originated during the period.  Element Capital accounted for $51 million or 17% of the new business volume while Element Fleet originated $59 million or 20% of the period's new business volume. In addition to these organic origination volumes, the Company acquired $84 million of loan originations during the period as a result of closing the previously announced acquisition of Nexcap Finance Corp. Finance receivables increased to $1.5 billion at the end of the period versus $1.3 billion reported at the end of the previous period.

In addition to closing the Nexcap acquisition in early January, during the period the Company announced plans to establish the Element Equipment Finance Fund (the Fund) as a funding vehicle to more efficiently finance transactions in the $1.5 million to $25 million range. The Company closed a $173 million bought deal equity financing in mid-March in conjunction with the capitalization of the Fund which is designed to complement the Company's existing securitization and syndication arrangements.

"We have made very substantial progress on developing the capital foundations for the Fund since we first outlined our intentions to pursue this strategy several weeks ago," said Steven Hudson, Element's Chairman and CEO. "All of the work that has been completed since then by our bankers and the rating agencies continues to support our enhanced return expectations and we remain on track to operationalize this facility in the second quarter," noted Mr. Hudson.

Average gross interest income yield was 9.92% during the quarter compared to 9.03% during the immediate quarter ended December 31, 2012 benefiting from ancillary revenue from the two most recent acquisitions. Delinquencies continue to perform as expected and represented 0.26% of total finance receivables as at March 31, 2013 compared to 0.28% as at December 31, 2012.

Operating expenses as a percentage of average portfolio assets decreased to 3.08% from 3.16% during the previous period.  Element's financial leverage ratio decreased to 1.73:1 at the end of the first quarter from 2.34:1 at the end of the previous period.

"We continue to see strong and profitable business opportunities across each of our market segments and the results from the first quarter affirm our new business origination, operating income and earnings outlook for the year," added Mr. Hudson.

Selected Financial Information and Financial Ratios

The following table summarizes key financial data to be read in conjunction with the consolidated financial statements of the Company as at and for three-month period ended March 31, 2013. Such financial statements are prepared in accordance with IFRS and are reported in Canadian dollars.

(in $000's for stated values, except ratios and per share amounts)			As at and for the three-month period ended March 31, 2013	As at and for the three- month period ended December 31, 2012	As at and for the three-month period ended March 31, 2012
			$	$	$
After tax operating income (loss) per share (basic and diluted)			0.08	0.06	0.01
Total revenue			31,838	21,904	5,533
Operating income (1)			12,043	6,696	904
After tax operating income (1)			8,644	4,914	663
Income/(loss) before taxes			7,252	(8,017)	(16)
Net income/(loss)			4,685	(3,376)	(261)
Total assets			1,766,353	1,508,892	428,160
Finance Receivables, net			1,468,639	1,294,591	358,608
Loan originations     New originations     Loan acquisition			296,251 84,043	233,628 299,412	156,605 —
Secured borrowings			1,033,181	989,128	171,812
Average outstanding finance receivables			1,396,197	1,052,734	249,209
Average outstanding debt			1,085,630	799,527	158,979
Number of Shares outstanding (including Special Warrants)			125,414	102,542	66,384
Weighted average number of shares outstanding (including Special Warrants)			107,711	91,096	66,381
Total Shareholders' equity			595,913	423,425	239,014
Average total shareholders' equity			460,946	365,196	238,403
Net income (loss) per share (basic and diluted)			$0.04	($0.04)	($0.00)

(1)  For additional information, see "Description of non-IFRS measures" section.

The following table provides a reconciliation of non-IFRS to IFRS measures related to the Company:

$ thousands (except % and per share amounts),			As at or for the Three-month period ended March  31, 2013			As at or for the Three-month period ended December  31, 2012		As at or for the Three-month period ended March  31, 2012
Reported and adjusted income measures
Net income (loss)		A	4,685			(3,376)		(261)
Adjustments:
	Share-based compensation		1,452			920		920
	Amortization of intangible assets from acquisitions		339			334		—
	Integration costs		3,000			3,600		—
	Transaction costs		—			9,859		—
	Provision (Recovery) of income taxes		2,567			(4,641)		245
Operating income		B	12,043			6,696		904
Provision for taxes applicable to operating income			(3,399)			(1,782)		(241)
After tax operating income		C	8,644			4,914		663
Selected statement of financial position amounts
Finance receivables, before allowance for credit losses		D	1,478,649			1,303,994		361,512
Allowance for credit losses		E	10,010			9,403		2,904
Finance receivables, net		F	1,468,639			1,294,591		358,608
	Average outstanding finance receivables, net	G	1,396,197			1,052,734		249,209
Secured borrowings		H	1,033,181			989,128		154,812
	Average outstanding secured borrowings	I	1,085,630			799,527		158,979
Total shareholders' equity		J	595,913			423,425		239,014
	Average shareholders' equity	K	460,946			365,196		238,403
Key operating ratios (1)
Financial leverage ratio		H/J	1.73			2.34		0.65
Allowance for credit losses as a percentage of finance receivables		E/D	0.68%			0.72%		0.80%
Operating income on average shareholders' equity		B/K	10.45%			7.33%		1.52%
Operating income on average finance receivables		B/G	3.45%			2.54%		1.45%
After-tax operating income on average shareholders' equity		C/K	7.50%			5.38%		1.11%
After-tax operating income on average finance receivables		C/G	2.48%			1.87%		1.06%
Per share information
Number of shares outstanding		L	125,414			102,542		66,384
Weighted average number of shares outstanding		M	107,711			91,096		66,381
Net income (loss) per share [basic and diluted]		A/M	0.04			(0.04)		(0.00)
After-tax operating income per share [basic and diluted] Book value per share		C/M J/L	0.08 4.75			0.06 4.13		0.01 3.60

Results of Operations - Three-month periods ended March 31, 2013, December 31, 2012 and March 31, 2012

The following table sets forth a summary of the Company's results of operations for the three months ended March 31, 2013, December 31, 2012 and March 31, 2012:

(in 000's for stated values, except per unit amounts)		Three-month period ended March 31, 2013	Three-month period ended December 31, 2012	Three-month period ended March 31, 2012
		$	$	$
Financial revenue		31,838	21,904	5,533
Financial expenses		9,043	6,872	1,563
Net financial income		22,795	15,032	3,970
Operating expenses		10,752	8,336	3,066
Operating income		12,043	6,696	904
Share-based compensation		1,452	920	920
Operating income/(loss) before business acquisition costs and taxes		10,591	5,776	(16)
Business acquisition costs
	Amortization of intangibles from acquisition	339	334	-
	Integration costs	3,000	3,600	-
	Transaction costs	-	9,859	-
Net income/(loss) before taxes		7,252	(8,017)	(16)
Tax expense/(recovery)		2,567	(4,641)	245
Net income/(loss) for the period		4,685	(3,376)	(261)
Earnings per Share - basic
	After tax operating income per share (1)	$0.08	$0.06	$0.01
	Net income / (loss)	$0.04	($0.04)	($0.00)

(1)	For additional information, see "Description of non-IFRS measures" section.

The following table summarizes key annualized operating ratios / yields to average portfolio assets derived from the Company's consolidated financial statements as at and for the three months ended March 31, 2013, December 31, 2012 and March 31, 2012, which management believes are key performance indicators in managing our business and in evaluating the operating performance of the Company. These selected ratios should be read in conjunction with the consolidated financial statements of the Company as at and for the three-month period ended March 31, 2013.

		Three-month period ended March 31, 2013	Three-month period ended December 31, 2012	Three-month period ended March 31, 2012
		%	%	%
Financial revenue		9.12	8.32	8.88
Financial expense		2.59	2.61	2.51
Net Financial margin		6.53	5.71	6.37
Operating expenses		3.08	3.16	4.92
Operating income		3.45	2.55	1.45
Share-based compensation		0.42	0.35	1.48
Operating income before business acquisition costs and taxes		3.03	2.20	(0.03)
Business acquisition costs
	Amortization of intangible from acquisition	0.09	0.13	-
	Integration costs	0.86	1.37	-
	Transaction costs	-	3.75	-
Net income before taxes		2.08	(3.05)	(0.03)
Tax expense (recovery)		0.74	(1.77)	0.39
Net income		1.34	(1.28)	(0.42)

Note: all yields have been annualized

The Company continued to execute on its growth plan and strategy during the quarter ended March 31, 2013 and is reporting improved performance from operations both over the comparable period of the previous year and the immediate previous quarter.  The improved performance is a result of the acquisition of TLS, CoActiv and NexCap that were completed on June 30, 2012, November 30, 2012 and January 18, 2013, respectively, and their integration into the Company. After tax operating income per share was $0.08 for the quarter ended March 31, 2013 compared to $0.01 for the quarter ended March 31, 2012 and $0.06 for the immediate quarter ended December 31, 2012.

Operating income was $12.0 million during the three months ended March 31, 2013 compared to $0.9 million for the same quarter in 2012, and $6.7 million in the prior quarter ended December 31, 2012. Management believes that this metric is the true measure of the Company's performance as it excludes non-cash items that have not and will never require cash settlement and it excludes business acquisition costs that used to be capitalized as part of the costs of acquisition in the past under Canadian GAAP but that are now required to be expensed under IFRS. This translates to a yield to average outstanding finance receivables of 3.45% during the quarter ended March 31, 2013 compared to 1.45% for the quarter ended March 31, 2012 and 2.55% for the prior quarter, reflecting the substantial improvement of the Company's performance year over year and quarter over quarter resulting from a larger balance sheet.

Financial revenue for the three month period ended march 31, 2013 was  $31.8 million, an increase of $26.3 million or 475.4% over the amount of $5.5 million reported during the quarter ended March 31, 2012 , and an increase of $9.9 million or 45.4% over the amount of $21.9 million reported during the immediate quarter ended December 31, 2012. These increases result from increases in average finance receivables outstanding during the periods which grew to $1,396.2 million during quarter ended March 31, 2013, from $249.2 million during the quarter ended March 31, 2012 and from $1,052.7 million during the immediate preceding quarter ended December 31, 2012.Finance receivables have increased to $1,468.6 million as at March 31, 2013 compared to $358.6 as at March 31, 2012 and $1,294.6 million reflecting respective increases of 309.5% and 13.4% resulting from a combination of (i) the acquisition of TLS on June 29, 2012, (ii) the acquisition of CoActiv on November 30, 2012, (iii) the acquisition of NexCap on January 18, 2013 (iv) the continued organic growth in originations which reached a total of $296.3 million during the quarter ended March 31, 2013 compared to $156.6 million during the quarter ended March 31, 2012 and $233.6 million during the immediate preceding quarter ended December 31, 2012.

Gross average yield (financial revenues before provision for credit losses) on average finance receivables was 9.57% for the quarter ended march 31, 2013 compared to 8.70% reported for the immediate quarter ended December 31, 2012 and 9.35% for the comparable quarter ended March 31, 2012. A proper comparison against the results for the quarter ended March 31, 2012 is not meaningful as a result of the numerous acquisitions completed subsequent to that comparative quarter and the resulting different mix of businesses. The increase in gross yields of 0.87% compared to the immediate quarter ended December 31, 2012 is also impacted from the acquisitions of CoActiv which was completed in November 2012 and the more recent acquisition of NexCap which closed on January 18, 2013 which have slightly different business mix profiles. However, the overall increase can be more explained by the increase in other revenues resulting from added contribution to this category from both CoActiv and NexCap and related more specifically to accessory services at CoActiv and the wholesale program acquired at NexCap.

Financial expenses were $9.0 million for the quarter ended March 31, 2013 compared to $1.6 million for the quarter ended March 31, 2012 and $6.9 million for the immediate preceding quarter ended December 31, 2012 reflecting respective increases of $7.5 million and $2.1 million over the amount reported for the quarter ended March 31, 2013. These increases are the result of increases in average outstanding debt outstanding during the periods the periods which increased to $1,085.6 million during the quarter ended March 31, 2013 from $799.5 million during the quarter ended December 31, 2012 and $159.0 million during the quarter ended March 31, 2012.The average cost of borrowing has however reduced slightly to 3.33% for the quarter ended March 31, 2013 versus 3.44% reported during the immediate preceding quarter ended December 31, 2012 and the 3.93% reported for the comparative quarter ended March 31, 2012 reflecting the continued improvement in borrowing costs as the Company continue its expansion and is able to negotiate better rates.

Operating expenses were $10.8 million for the quarter ended March 31, 2013 compared to $8.3 million for the immediate preceding quarter ended December 31, 2012 and $3.1 million for the quarter ended March 31, 2012 reflecting increases of 29.0% and 250.7% respectively. However operating expenses as a percent of average outstanding finance receivable has decreased to 3.08% during the quarter ended March 31, 2013 from 3.16% reported for the preceding quarter ended December 31, 2012 and 4.92% during the quarter ended March 31, 2012.  The continued improvements reflect the growing balance sheet of the Company and the impact of the integration of the recent acquisitions. Management expects continued improvement in this statistics as it continues to expand its business and operations.

Share-based compensation, which is a non-cash item reflecting the fair value of options granted, was $1.5 million during the three-months ended March 31, 2013 compared to $0.9 million during the three-months ended March 31, 2012 and $0.9 million reported in the prior quarter. The increase is reflective of additional options granted during the intervening period and the impact of the amortization of the fair value options granted over the service periods.

Business acquisition costs, which consist of the amortization of certain acquired intangibles from the acquisition of TLS, and integration costs associated with the NexCap acquisition were $3.3 million during the quarter ended March 31, 2013.  These costs would have been capitalized as part of such acquisitions under Canadian GAAP but are required to be expensed under IFRS. As we have noted previously, these types of expenses will continue to negatively impact the Company's performance going forward as it continues on its growth plan and where such costs will continue to be expensed as incurred under IFRS.

Operating income for the three month period ended March 31, 2013 was $12.0 million, an increase of $11.1 million from the amount reported during the quarter ended March 31, 2012 and an increase of $5.3 million over the amount reported during the immediate previous quarter ended December 31, 2012. The increase over the quarter ended December 31, 2012 reflects impact of the acquisitions of CoActiv and NexCap at the end of November 2012 and January 2013respectively and the continued impact of the organic growth on the Company's finance receivable portfolio.

Net income before income taxes for the three-months ended March 31, 2013 is $7.3 million compared to a loss of $0.02 million reported for the three-months ended March 31, 2012 and a loss of $8.0 million reported in the prior quarter. The net income before income taxes for the three-months ended March 31, 2013 was negatively impacted by the one-time integration costs associated with the acquisition of NexCap while the loss during the quarter ended December 31, 2012 was also impacted by acquisition and integration costs associated with the two acquisitions during that quarter. Management believes that readers should focus on the Operating Income as the better performance indicator as it removes the negative impacts associated with acquisition transaction accounting under IFRS.

Consolidated Financial Position

The following table sets forth a summary of the Company's consolidated financial position as of the dates presented:

(in 000's for stated values, except per unit amounts)		As at March 31, 2013	As at December 31, 2012
		$	$
Cash		68,442	9,997
Restricted cash		53,092	51,279
Finance receivables		1,468,639	1,294,591
Deferred income taxes		18,018	16,152
Non-portfolio assets		158,162	136,873
Total assets		1,766,353	1,508,892
Accounts payable and accrued liabilities		106,727	70,057
Secured borrowings		1,033,181	989,128
Derivative financial instruments		1,134	645
Deferred income taxes		29,398	25,637
Total liabilities		1,170,440	1,085,467
Shareholders' equity		595,913	423,425
Total liabilities and shareholders' equity		1,766,353	1,508,892

About Element Financial Corporation

With total assets of approximately $1.77 billion, Element Financial Corporation is one of North America's leading independent equipment finance companies.  Element operates across North America in three verticals of the equipment finance market - Element Capital provides large ticket equipment leasing, Element Finance serves the mid-ticket equipment finance market and Element Fleet provides vehicle fleet leasing and management solutions through the Company's TLS Fleet Management division.

Forward Looking Statements

This release includes forward-looking statements regarding Element and its business. Such statements are based on the current expectations and views of future events of Element's management. In some cases the forward-looking statements can be identified by words or phrases such as "may", "will", "expect", "plan", "anticipate", "intend", "potential", "estimate", "believe" or the negative of these terms, or other similar expressions intended to identify forward-looking statements. The forward-looking events and circumstances discussed in this release may not occur and could differ materially as a result of known and unknown risk factors and uncertainties affecting the company. No forward-looking statement can be guaranteed. Forward-looking statements and information by their nature are based on assumptions and involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statement or information. Accordingly, readers should not place undue reliance on any forward-looking statements or information. Except as required by applicable securities laws, forward-looking statements speak only as of the date on which they are made and Element undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events, or otherwise. 

 

SOURCE: Element Financial Corporation

Contact: 

John Sadler
Senior Vice President
Corporate Affairs & Investor Relations 
[phone] ext. 313 
[email protected] 

 
Michel Béland
Chief Financial Officer
[phone] ext. 225
[email protected]