TORONTO, ONTARIO--(Marketwired - Feb. 20, 2014) - Element Financial Corporation (TSX:EFN) ("Element" or "the Company"), one of North America's leading equipment finance companies, today reported financial results for the 12-month and three-month periods ending December 31, 2013 with all five business verticals delivering record originations volumes contributing to a 30 percent increase in the Company's Net Finance Receivables of $3 billion as at December 31, 2013 versus $2.3 billion as at September 30, 2013. After tax adjusted operating income increased to $15.0 million in Q4-2013 producing $0.09 of operating earnings per share for the period in line with the consensus of analysts' estimates.
"We were very active across all segments of the business in the fourth quarter which allowed us to show the core strength of this management team's ability to grow Element's asset base both organically and through strategic acquisitions," said Steven Hudson, Element's Chairman and CEO. "This record performance in the fourth quarter, together with continued favourable trends for the acquisition of new capital equipment in the markets we serve in North America, positions Element for continued strong growth in 2014 across each of our business verticals," added Mr. Hudson.
Across all segments, new originations grew to $997 million for the three-month period ended December 31, 2013 versus $410 million in Q3-2013. Commercial and Vendor Finance (Canada) accounted for $196 million of Q4 originations versus $166 million in the previous period. Commercial and Vendor Finance (US) accounted for $113 million of Q4 originations versus $94 million in the previous period. Aviation Finance accounted for $462 million of Q4 originations, which included a $243 million contribution from the acquisition of GE Capital Corporation's helicopter portfolio, versus $92 million in the previous period. Fleet Management accounted for $114 million of Q4 originations versus $58 million in the previous period. The Rail Finance vertical, which was established in December of 2013 following the launch of Element's strategic alliance with Dallas-based Trinity Industries, contributed $112 million to Q4 originations.
The Company's adjusted operating expense ratio continued to decline during the fourth quarter to 2.26 percent of average portfolio assets versus 2.49 percent in the third quarter. The Company's financial leverage ratio declined to 1.31:1 as at December 31, 2013 versus 1.93:1 as at September 30, 2013.
"As we continue to add scale to our asset base through 2014, we expect our OPEX ratio to continue to fall and our leverage ratio to begin to rise allowing us to push more of our top line growth directly through to operating earnings and better returns for our shareholders," noted Mr. Hudson. "For example, in the fourth quarter of 2013, we absorbed more than $1 million of unallocated transaction pursuit costs into our operating expense line as we invested resources in identifying and analyzing various acquisition opportunities that have yet to be harvested. While we expect to continue to invest in pursuing these and other acquisition opportunities over the near term, the impact of these costs is expected to diminish as we add further scale to the business throughout 2014," added Mr. Hudson.
Element expects to organically originate more than $3.8 billion of new equipment loans and leases during 2014 across the Company's five North American market verticals representing an increase of 80% over the $2.1 billion Element organically originated in 2013.
Financial revenue for the quarter increased to $50.9 million versus $46.4 million in the previous quarter generating net financial income of $34.2 million for the quarter versus $31.8 million in the previous quarter. Adjusted operating expenses were $13.8 million for the quarter versus $13.5 million in the previous quarter resulting in adjusted operating income before income taxes of $20.4 million for the current quarter versus $18.4 million for the previous quarter. After tax adjusted operating income was $15.0 million or $0.09 per share for the current period versus $13.5 million or $0.09 per share for the previous quarter. Total assets increased to $3.5 billion at the end of the quarter versus $2.7 billion at the end of the previous quarter and book value per share increased to $7.66 versus $5.72 reported at the end of the previous period.
Finance receivables increased to $3.0 billion at the end of December 2013 versus $2.3 billion reported as at September 30, 2013. Average finance receivables for the quarter were $2.45 billion versus $2.16 billion for the previous quarter. Delinquencies represented 0.29% of total finance receivables as at December 31, 2013 compared to 0.38% as at September 30, 2013. At the end of the period, the Company had 188.9 million common shares outstanding.
Audited Statements and MD&A
Element's audited financial statements and related management discussion and analysis as at and for the fiscal year ended December 31, 2013 have been filed on SEDAR (www.sedar.com).
Conference Call
A conference call to discuss the results with analysts will be held on Friday February 21, 2014 at 8:00 a.m. ET. The conference call can be accessed by dialing the following numbers:
| North America Toll- Free: | 1-866-696-5910 passcode 2707932 | |
| Local & International: | 1-416-340-2217 passcode 2707932 |
The call will be recorded and can be accessed until March 6, 2014 by dialing 905-694-9451 or 1-800-408-3053 and entering the pass code 6626144.
Non-IFRS Measures
The Company's audited financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board ("IASB") and accounting policies adopted are in accordance with IFRS.
The Company believes that certain Non-IFRS Measures can be useful to investors because they provide a means by which investors can evaluate the Company's underlying key drivers and operating performance of the business, exclusive of certain adjustments and activities that investors may consider to be unrelated to the underlying economic performance of the business for a given period. Throughout this Press Release, management used a number of terms and ratios which do not have a standardized meaning under IFRS and are unlikely to be comparable to similar measures presented by other organizations. A full description of these measures can be found in the Management Discussion & Analysis that accompanies the financial statements for the year ended December 31, 2013.
The following table provides a reconciliation of non-IFRS to IFRS measures related to the Company:
| As at and for the three-months ended | As at and for the years ended | |||||||||||
| $ thousands (except % and per share amounts) | December 31, 2013 | September 30, 2013 | December 31, 2012 | December 31, 2013 | December 31, 2012 | |||||||
| After-tax adjusted operating income per share [basic] | C/M | 0.09 | 0.09 | 0.06 | 0.34 | 0.14 | ||||||
| Reported and adjusted income measures | ||||||||||||
| Net income (loss) | A | (278 | ) | 7,825 | (3,376 | ) | (1,650 | ) | (6,420 | ) | ||
| Adjustments: | ||||||||||||
| Share-based compensation | 4,212 | 3,467 | 920 | 11,949 | 3,107 | |||||||
| Amortization of intangible assets from acquisitions | 1,176 | 348 | 334 | 2,206 | 664 | |||||||
| Integration costs | 200 | 3,000 | 3,600 | 11,200 | 6,350 | |||||||
| Transaction costs | 14,560 | 0 | 9,859 | 35,060 | 16,159 | |||||||
| Provision (recovery) of income taxes | 489 | 3,722 | (4,641 | ) | 6,496 | (4,950 | ) | |||||
| Adjusted operating income | B | 20,359 | 18,362 | 6,696 | 65,261 | 14,910 | ||||||
| Provision for taxes applicable to adjusted operating income | (5,322 | ) | (4,814 | ) | (1,782 | ) | (17,581 | ) | (3,969 | ) | ||
| After-tax adjusted operating income | C | 15,037 | 13,548 | 4,914 | 47,680 | 10,941 | ||||||
| Selected statement of financial position amounts | ||||||||||||
| Finance receivables, before allowance for credit losses (1) | D | 3,013,354 | 2,312,809 | 1,324,020 | 3,013,354 | 1,324,020 | ||||||
| Allowance for credit losses | E | 11,071 | 11,384 | 9,403 | 11,071 | 9,403 | ||||||
| Finance receivables, net (1) | F | 3,002,283 | 2,301,425 | 1,314,617 | 3,002,283 | 1,314,617 | ||||||
| Average finance receivables, net | G | 2,454,446 | 2,163,841 | 1,052,733 | 1,893,778 | 629,485 | ||||||
| Secured borrowings | H | 1,893,910 | 1,713,973 | 989,128 | 1,893,910 | 989,128 | ||||||
| Average secured borrowings | I | 1,752,400 | 1,586,258 | 799,527 | 1,381,880 | 453,356 | ||||||
| Total shareholders' equity | J | 1,446,656 | 889,072 | 423,425 | 1,446,656 | 423,425 | ||||||
| Average shareholders' equity | K | 977,678 | 882,929 | 365,196 | 740,968 | 300,807 | ||||||
| Key annualized operating ratios | ||||||||||||
| Financial leverage ratio | H/J | 1.31 | 1.93 | 2.34 | 1.31 | 2.34 | ||||||
| Allowance for credit losses as a percentage of finance receivables | E/D | 0.37 | % | 0.49 | % | 0.71 | % | 0.37 | % | 0.71 | % | |
| Adjusted operating income on average shareholders' equity | B/K | 8.33 | % | 8.32 | % | 7.33 | % | 8.81 | % | 4.96 | % | |
| Adjusted operating income on average finance receivables | B/G | 3.32 | % | 3.39 | % | 2.54 | % | 3.45 | % | 2.37 | % | |
| After-tax adjusted operating income on average shareholders' equity | C/K | 6.15 | % | 6.14 | % | 5.38 | % | 6.43 | % | 3.64 | % | |
| After-tax adjusted operating income on average finance receivables | C/G | 2.45 | % | 2.50 | % | 1.87 | % | 2.52 | % | 1.74 | % | |
| Per share information | ||||||||||||
| Number of shares outstanding (including special warrants) | L | 188,935 | 155,399 | 102,542 | 188,935 | 102,542 | ||||||
| Weighted average number of shares outstanding [basic] | M | 160,530 | 155,321 | 91,095 | 138,423 | 78,132 | ||||||
| Weighted average number of shares outstanding [diluted] | N | 160,530 | 159,618 | 91,095 | 138,423 | 78,132 | ||||||
| Net income (loss) per share [basic] | A/M | 0.00 | 0.05 | (0.04 | ) | (0.01 | ) | (0.08 | ) | |||
| Net income (loss) per share [diluted] | A/N | 0.00 | 0.05 | (0.04 | ) | (0.01 | ) | (0.08 | ) | |||
| Book value per share | J/L | 7.66 | 5.72 | 4.13 | 7.66 | 4.13 | ||||||
Selected Financial Information and Financial Ratios
The following tables summarize key financial data and key operating ratios for the three-month periods ended December 31, 2013, September 30, 2013 and December 31, 2012:
| As at and for the three-months ended | |||||
| |
December 31, 2013 | |
September 30, 2013 | December 31, 2012 | |
| (in $000's for stated values, except ratios and per share amounts) | $ | $ | $ | ||
| After tax adjusted operating income per share (basic) (1) | 0.09 | 0.09 | 0.05 | ||
| Financial revenue | 50,945 | 46,374 | 21,904 | ||
| Adjusted operating income | 20,359 | 18,362 | 6,696 | ||
| After tax adjusted operating income | 15,037 | 13,548 | 4,914 | ||
| Income/(loss) before taxes | 211 | 11,547 | (8,017 | ) | |
| Net income/(loss) | (278 | ) | 7,825 | (3,376 | ) |
| Total assets | 3,454,653 | 2,725,955 | 1,508,892 | ||
| Finance receivables, net | 3,002,283 | 2,301,425 | 1,314,617 | ||
| New originations | 997,172 | 410,436 | 219,690 | ||
| Loan acquisitions | - | - | 299,412 | ||
| Secured borrowings | 1,893,910 | 1,713,973 | 989,128 | ||
| Average finance receivables | 2,454,446 | 2,163,841 | 1,052,733 | ||
| Average debt outstanding | 1,752,400 | 1,586,258 | 799,527 | ||
| Number of shares outstanding (including special warrants) | 188,935 | 155,399 | 102,542 | ||
| Weighted average number of shares outstanding (including special warrants) | 160,530 | 155,321 | 91,095 | ||
| Total shareholders' equity | 1,446,656 | 889,072 | 423,425 | ||
| Average shareholders' equity | 977,678 | 882,929 | 365,196 | ||
| Net income/(loss) per share [basic and diluted] | 0.00 | 0.05 | (0.04 | ) | |
(1) All ratios are presented on an annualized basis
Selected Financial Information and Financial Ratios
The following tables summarize key financial data and key operating ratios as at and for the year ended December 31, 2013:
| As at and for the year ended December 31, 2013 |
As at and for the year ended December 31, 2012 |
As at and for the nine-months ended December 31, 2011 |
As at and for the year ended March 31, 2011 |
As at and for the six-months ended March 31, 2010 |
||||||
| (in $000's for stated values, except ratios and per share amounts) | $ | $ | $ | $ | $ | |||||
| After tax adjusted operating income (loss) per share (basic) (1) | 0.34 | 0.14 | (0.01 | ) | (0.34 | ) | (1.42 | ) | ||
| Financial revenue (1) | 163,117 | 53,006 | 10,386 | 1,728 | 363 | |||||
| Adjusted operating income (loss) (1) | 65,261 | 14,910 | (428 | ) | (1,449 | ) | (128 | ) | ||
| After tax adjusted operating income (loss) (1) | 47,680 | 10,941 | (1,034 | ) | (1,449 | ) | (128 | ) | ||
| Income/(loss) before taxes | 4,846 | (11,370 | ) | (7,544 | ) | (1,449 | ) | (128 | ) | |
| Net income/(loss) | (1,650 | ) | (6,420 | ) | (6,071 | ) | (1,449 | ) | (128 | ) |
| Total assets | 3,454,653 | 1,508,892 | 416,715 | 47,073 | 6,450 | |||||
| Finance Receivables, net (2) | 3,002,283 | 1,314,617 | 231,537 | 37,586 | 5,095 | |||||
| New originations | 2,101,755 | 689,330 | 119,671 | 46,604 | 2,403 | |||||
| Loan acquisitions | 573,008 | 756,236 | 158,474 | - | - | |||||
| Secured borrowings | 1,893,910 | 989,128 | 172,517 | 33,250 | 5,379 | |||||
| Average finance receivables (1) | 1,893,778 | 629,485 | 168,099 | 17,782 | 5,108 | |||||
| Average debt outstanding (1) | 1,381,880 | 453,356 | 119,624 | 15,980 | 5,553 | |||||
| Number of Shares outstanding (including special warrants) | 188,935 | 102,542 | 66,380 | 4,412 | 292 | |||||
| Weighted average number of shares outstanding (including special warrants) | 138,423 | 78,132 | 33,302 | 3,923 | 90 | |||||
| Total Shareholders' equity | 1,446,656 | 423,425 | 238,341 | 8,001 | 379 | |||||
| Average shareholders' equity | 740,968 | 300,807 | 91,687 | 7,178 | 181 | |||||
| Net income (loss) per share [basic and diluted] | (0.01 | ) | (0.08 | ) | (0.18 | ) | (0.37 | ) | (1.42 | ) |
(1) All ratios are presented on an annualized basis
Consolidated Statements of Operations
| For the three-month periods ended | |||||
| December 31, 2013 | September 30, 2013 | December 31, 2012 | |||
| (in 000's for stated values, except per unit amounts) | $ | $ | $ | ||
| Net Financial Income | |||||
| Interest income | 43,344 | 37,011 | 19,379 | ||
| Interest expense | 16,745 | 14,525 | 6,872 | ||
| Net interest income before provision for credit losses | 26,599 | 22,486 | 12,507 | ||
| Provision for credit losses | 1,064 | 1,670 | 987 | ||
| Net interest income | 25,535 | 20,816 | 11,520 | ||
| Other revenue items | 8,665 | 11,033 | 3,512 | ||
| Net financial income | 34,200 | 31,849 | 15,032 | ||
| Operating Expenses | |||||
| Salaries, wages and benefits | 10,015 | 9,479 | 5,167 | ||
| General and administration expenses | 3,826 | 4,008 | 3,169 | ||
| Share-based compensation | 4,212 | 3,467 | 920 | ||
| 18,053 | 16,954 | 9,256 | |||
| Business acquisition costs | |||||
| Amortization of intangibles from acquisition | 1,176 | 348 | 334 | ||
| Integration costs | 200 | 3,000 | 3,600 | ||
| Transaction costs | 14,560 | - | 9,859 | ||
| 15,936 | 3,348 | 13,793 | |||
| Net income/(loss) before taxes | 211 | 11,547 | (8,017 | ) | |
| Tax expense/(recovery) | 489 | 3,722 | (4,641 | ) | |
| Net income/(loss) for the period | (278 | ) | 7,825 | (3,376 | ) |
Overall Performance Highlights
The Company is reporting net loss of $0.3 million for the quarter ended December 31, 2013 compared to net loss of $3.4 million for the same comparative quarter ended December 31, 2012 and compared to a net income of $7.8 million reported during the immediately preceding quarter ended September 30, 2013. The net loss reported in the current quarter is the direct result of the inclusion of transaction and integration costs of $14.3 million in connection with the acquisition of the railcar and helicopter portfolios on December 19, 2013, and $0.5 million of other costs. The net loss reported in the comparative quarter ended December 31, 2012 is a result of the inclusion of business acquisition costs related to the acquisition of CoActiv and Nexcap. Business acquisition costs will continue to create volatility in the Company's net income as the Company continues its expansion through business acquisitions.
As we have stated in the past, management believes that adjusted operating income, a Non-IFRS Measure, is the most appropriate operating measure of the Company's performance as it excludes business acquisition costs and non-cash items related to share-based compensation which do not relate to maintaining operating activities. The Company is reporting basic adjusted operating income of $0.09 per share for the quarter ended December 31, 2013 on 160.5 million average common shares outstanding after giving effect to the equity issue of 33.5 million common shares issued on December 17, 2013, compared to $0.05 per share for the quarter ended December 31, 2012 and $0.09 per share for the immediately preceding quarter ended September 30, 2013 on total average number of shares outstanding of 91.1 million and 155.3 million, respectively.
Adjusted operating income for the three-month period ended December 31, 2013 was $20.4 million, an increase of $13.7 million or 204.0% over the amount reported during the comparative quarter ended December 31, 2012 or an increase of $2.0 million or 10.9% over the amount reported during the immediately preceding quarter ended September 30, 2013. The increase over the comparative quarter ended December 31, 2012 is the result of: (i) the acquisition of CoActiv on November 30, 2012, (ii) the acquisition of Nexcap on January 18, 2013, (iii) the acquisition of the GE Portfolio on June 28, 2013, and (iv) strong organic growth which includes the acquisitions of the railcar and helicopter portfolios on December 19, 2013. The increase over the quarter ended September 30, 2013 is due to the continued impact of the organic growth of the Company's finance receivable portfolio including the contribution of the rail and helicopter finance receivable portfolios acquired on December 19, 2013.
Adjusted operating income on average receivable was 3.32% during the quarter ended December 31, 2013 compared to 2.54% for the quarter ended December 31, 2012 and 3.39% for the immediately preceding quarter ended September 30, 2013, reflecting the substantial improvement of the Company's performance year over year from a larger balance sheet and from integration initiatives. The small decline quarter over quarter is a result of reduced "other revenue items" which include syndication fees and other revenue. Syndication fees and other revenue items are dependent on the volume and the timing of individual transactions and not necessarily correlated with average finance receivables. During the quarter the Company experienced a lower volume of transactions in these revenue categories, including lower prepayment charges and wholesale program fees, offset by increases in fleet service revenues.
Similarly, adjusted operating income on average shareholders' equity was 8.33% during the quarter ended December 31, 2013 compared to 7.33% for the quarter ended December 31, 2012 and 8.32% for the immediately preceding quarter ended September 30, 2013. After-tax adjusted operating income on average shareholders' equity was 6.15% during the quarter ended December 31, 2013 compared to 5.38% for the quarter ended December 31, 2012 and 6.14% for the immediately preceding quarter ended September 30, 2013, reflecting a substantial improvement of the Company's performance year over year from a larger balance sheet, integration initiatives and the deployment of capital into finance receivables. While the result for the current quarter over the immediately preceding quarter are consistent, this was achieved with a much lower leverage ratio which was reduced from 1.93:1 as at September 30, 2013 to 1.31 as at December 31, 2013 resulting from the equity issuance on December 17, 2013.
Financial revenue for the three-month period ended December 31, 2013 was $50.9 million, an increase of $29.0 million or 132.6% over the amount of $21.9 million reported during the quarter ended December 31, 2012, and an increase of $4.5 million or 9.9% over the amount of $46.4 million reported during the immediately preceding quarter ended September 30, 2013. These improvements result from increases in average finance receivables outstanding during the periods which grew to $2,454.4 million during quarter ended December 31, 2013, from $1,052.7 million during the quarter ended December 31, 2012 and from $2,163.8 million during the immediately preceding quarter ended September 30, 2013. Finance receivables have increased to $3,002.3 million as at December 31, 2013 compared to $1,314.6 million as at December 31, 2012 and $2,301.4 million at September 30, 2013 reflecting respective increases of 128.4% and 30.5% 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 acquisition of the GE Portfolio on June 28, 2013, and (v) continued organic growth, including the contributions of the railcar and helicopter portfolios acquired on December 19, 2013. Total originations reached a record total of $997.2 million during the quarter ended December 31, 2013, compared to originations of $219.7 million during the quarter ended December 31, 2012 and $410.4 million during the immediately preceding quarter ended September 30, 2013. Financial revenue as a percentage of average finance receivables has remained consistent year over year declining marginally by 0.02% to 8.30% from 8.32%, and declined by 0.27% from 8.57% for the quarter ended September 30, 2013. The decline quarter over quarter is a result of reduced "other revenue items" which include syndication fees and other revenue. Syndication fees and other revenue items are dependent on the volume and the timing of individual transactions and not necessarily correlated with average finance receivables.
Interest income average yield was 7.06% for the quarter ended December 31, 2013 compared to 7.36%for the comparative quarter ended December 31, 2012 and 6.84% for the immediately preceding quarter ended September 30, 2013. A direct comparison against the results for the quarter ended December 31, 2012 is not entirely meaningful as a result of the numerous acquisitions completed during 2013 and the resulting different mix of the business. The increase average interest yields of 0.22% compared to the immediately preceding quarter ended September 30, 2013 is a result of a slight increase in yields in the Commercial and Vendor Finance vertical and the impact of the addition of the rail portfolio acquired in December 2013at a higher rental rate and the positive contribution of added interest income from surplus cash during the quarter resulting from the equity issue during December 2013
Interest expense was $16.7 million for the quarter ended December 31, 2013, compared to $6.9 million for the quarter ended December 31, 2012 and $14.5 million for the immediately preceding quarter ended September 30, 2013, reflecting respective increases of $9.8 million and $2.2 million. These increases are the result of increases in the average outstanding debt during the periods which increased to $1,752.4 million during the quarter ended December 31, 2013 from $799.5 million during the quarter ended December 31, 2012 and $1,586.3 million during the quarter ended September 30, 2013. In addition, the average cost of borrowing increased to 3.82% for the quarter ended December 31, 2013 versus 3.44% for the comparative quarter ended December 31, 2012 and 3.66% in the immediately preceding quarter ended September 30, 2013 reflecting a change in the mix of borrowings and new debt structures entered into during the periods to allow for the continued growth and expansion of financing programs which result in proportionately higher expenses due to a lower leverage as the underlying debt facilities are not fully utilized.
Operating expenses were $18.1 million for the quarter ended December 31, 2013, compared to $9.3 million for the comparative period in 2012, and $17.0 million for the immediately preceding quarter ended September 30, 2013. Adjusted operating expenses were $13.8 million for the quarter ended December 31, 2013 compared to $8.3 million for the quarter ended December 31, 2012 and $13.5 million for the immediately preceding quarter, an increase of 66.0% over period ended December 31, 2012 and an increase of 2.6% over the immediately preceding quarter ended September 30, 2013. The adjusted operating expenses ratio decreased to 2.26% during the quarter ended December 31, 2013 from 3.17% during the quarter ended December 31, 2012 and 2.49% reported for the immediately preceding quarter ended September 30, 2013. The continued improvements reflect operating efficiencies from the growing balance sheet of the Company and the impact of the integration of recent acquisitions.
Share-based compensation, which consists of non-cash expenses related to the fair value of options granted under the Company's stock option plan and deferred share units granted during the period, was $4.2 million during the three months ended December 31, 2013 compared to $0.9 million during the three-months December 31, 2012 and $3.5 million reported in the immediately preceding quarter ended September 30, 2013. The increase is reflective of additional options and DSUs granted during the period, and the impact of the amortization of the fair value of options granted.
Business acquisition costs which consist of the amortization of certain acquired intangibles from acquisition and transaction and integration costs associated with the acquisitions concluded in the current quarter ended December 31, 2013 were $15.9 million. Of that amount, $14.3 million related to the acquisition and integration costs associated with the acquisition of the helicopter portfolio and the execution of the railcar vendor finance program with Trinity and $0.5 million for other costs. As we have noted previously, business and asset acquisition costs will continue to create volatility in the Company's net income as the Company continues executing on its acquisition based growth plan.
Net income before income taxes for the three-months ended December 31, 2013 was $0.2 million compared to a net loss before taxes of $8.0 million reported for the three-months ended December 31, 2012 and net income before income taxes of $11.5 million reported in the immediately preceding quarter. The net income before income taxes for the three-months ended December 31, 2013 was negatively impacted by $14.8 million of transaction and integration costs associated with the recently acquired rail portfolio and the helicopter portfolio and the associated customer list. The net income before income taxes during the quarter ended September 30, 2013 was impacted by $3.0 million of integration costs associated with the acquisition of the GE Fleet Portfolio.
Consolidated Statements of Operations
| For the years ended | ||||
| December 31, 2013 | December 31, 2012 | |||
| (in 000's for stated values, except per unit amounts) | $ | $ | ||
| Net Financial Income | ||||
| Interest income | 135,715 | 47,398 | ||
| Interest expense | 49,525 | 16,156 | ||
| Net interest income before provision for credit losses | 86,190 | 31,242 | ||
| Provision for credit losses | 5,404 | 1,957 | ||
| Net interest income | 80,786 | 29,285 | ||
| Other revenue items | 32,806 | 7,565 | ||
| Net financial income | 113,592 | 36,850 | ||
| Operating Expenses | ||||
| Salaries, wages and benefits | 34,650 | 14,442 | ||
| General and administration expenses | 13,681 | 7,498 | ||
| Share-based compensation | 11,949 | 3,107 | ||
| 60,280 | 25,047 | |||
| Business acquisition costs | ||||
| Amortization of intangibles from acquisitions | 2,206 | 664 | ||
| Integration costs | 11,200 | 6,350 | ||
| Transaction costs | 35,060 | 16,159 | ||
| 48,466 | 23,173 | |||
| Net income/(loss) before taxes | 4,846 | (11,370 | ) | |
| Tax expense/(recovery) | 6,496 | (4,950 | ) | |
| Net income/(loss) for the period | (1,650 | ) | (6,420 | ) |
Overall Performance Highlights
Total originations were $2,101.8 million during the year ended December 31, 2013, an increase of 204.9% or $1,412.5 million over the comparative year ended in December 31, 2012.
Total originations from the Company's Commercial and Vendor Finance vertical was $986.7 million, an increase of $647.1 million or 190.5% over the $339.6 million generated during the year ended December 31, 2012. The acquisition of CoActiv on November 30, 2012 and Nexcap on January 18, 2013 collectively contributed $506.8 million to the total origination of the mid-ticket business for the year.
Total originations for the Fleet Management vertical initially acquired in June 2012 were $311.6 million during the year ended December 31, 2013, an increase of $189.9 or 156.1% over the prior year. Volumes of Fleet Management have increased year over year as a result of a full year of originations on the initial acquisition of TLS and the new volumes generated from the GE Portfolio acquired on June 28, 2013. The acquired GE operations contributed $82.5 million to the total originations in this vertical.
Total originations for the Company's Aviation Finance vertical which was established in January 2012, were $691.7 million for the year ended December 31, 2013, compared to $228.0 million for the year ended December 31, 2012, an increase of $463.7 million or 252.4%. The acquisition of General Electric Capital Corporation's helicopter portfolio contributed $242.7 million of this origination growth. As management has reported in the past, this business unit will not report even volumes over accounting periods due to the nature of the business. Aviation Finance continues to have a strong pipeline which is in excess of $1.5 billion at December 31, 2013.
Total originations for the Company's Rail Finance vertical were $111.7 million for the year ended December 31, 2013. Rail Finance was launch in December 2013, when the Company entered into a strategic alliance agreement with Trinity Industries, Inc. to provide lease financing for up to $2 billion worth of railcars over the next two years.
The Company's finance receivables portfolio of leases and loans has grown substantially during the year ended December 31, 2013 to $3,002.3 million from $1,314.6 million reported at December 31, 2012. The growth over December 31, 2012 is primarily due to the combined effect of the total new originations for the year in the amount of $2,101.8 million, the $84.3 million acquired as part of the acquisitions of Nexcap, and the $487.2 million acquired as part of the acquisition of the GE Portfolio, net of repayments and syndication activities for $974.3 million and others of $11.3 million.
The Company is reporting a net loss of $1.7 million for the year ended December 31, 2013, compared to a net loss of $6.4 million in the prior year ended December 31, 2012. Net loss per share was $0.01 for the year ended December 31, 2013, compared to a net loss of $0.08 per share for the year ended December 31, 2012. The improvement results from increasing operating margins as the Company gains scale and is able to better leverage its fixed cost infrastructure.
As indicated previously, management believes that adjusted operating income is the most appropriate operating measure of the Company's performance as it excludes non-cash items related to share-based compensation and business acquisition costs which do not relate to maintaining operating activities. For the year ended December 31, 2013, the Company is reporting adjusted operating income of $65.3 million and after-tax adjusted operating income per share of $0.34, compared to $14.9 million in adjusted operating income or $0.14 in after tax adjusted operating income per share for the comparative year ended December 31, 2012.
Consolidated Financial Position
The following table sets forth a summary of the Company's consolidated financial position as of the dates presented:
| As at | |||
(in 000's for stated values, except per unit amounts) |
December 31, 2013 $ |
September 30, 2013 $ |
December 31, 2012 $ |
| Cash | 12,401 |
52,258 |
9,997 |
| Restricted cash | 103,550 | 87,482 | 51,279 |
| Finance receivables | 3,002,283 | 2,301,425 | 1,314,617 |
| Deferred tax assets | 28,231 | 19,630 | 16,152 |
| Non-portfolio assets | 308,188 | 265,160 | 116,847 |
| Total assets | 3,454,653 | 2,725,955 | 1,508,892 |
| Accounts payable and accrued liabilities | 80,917 |
91,695 |
70,057 |
| Secured borrowings | 1,893,910 | 1,713,973 | 989,128 |
| Derivative financial instruments | 3,014 | 3,275 | 645 |
| Deferred tax liabilities | 30,156 | 27,940 | 25,637 |
| Total liabilities | 2,007,997 | 1,836,883 | 1,085,467 |
| Shareholders' equity | 1,446,656 | 889,072 | 423,425 |
| Total liabilities and shareholders' equity | 3,454,653 | 2,725,955 | 1,508,892 |
About Element Financial Corporation
With total assets in excess of $4.0 billion as of February 20, 1014, Element Financial Corporation is one of North America's leading independent equipment finance companies. Element operates across North America in four verticals of the equipment finance market - Commercial and Vendor Finance, Fleet Management, Aviation Finance and Rail Finance
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, including, among others, statements regarding new originations in the current quarter, the anticipated pipeline of prospective transactions, and proposed purchases of portfolios of finance assets. 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 Element, including risks regarding the equipment finance industry, economic factors, risks related to completion of the proposed purchases of portfolios of finance assets, and many other factors beyond the control of Element. 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.
Contact Information:
John Sadler, Senior Vice President,
Corporate Affairs & Investor Relations
(416) 386-1067 ext. 2313
jsadler@elementfinancial.ca
Element Financial Corporation
Michel Beland, Chief Financial Officer
Chief Administrative Officer
(416) 386-1067 ext. 2225
mbeland@elementfinancial.ca