May 12, 2021
Operator
Thank you for standing by. This is the conference operator.
Welcome to the Element Fleet Management First Quarter 2021 Financial and Operating Results Conference Call. As a reminder, all participants are in listen-only mode.
And the conference is being recorded. After the prepared remarks, there will be an opportunity for analysts to ask questions.
Element wishes to remind listeners that some of the information in today's call includes forward-looking statements. These statements are based on assumptions that are subject to significant risks and uncertainties, and the company refers you to the cautionary statements and risk factors in its year-end and most recent MD&A as well as its most recent AIF for a description of these risks, uncertainties and assumptions.
Jay Forbes
Thank you, operator. And thanks to all of you for joining us this evening.
Frank and I will be sharing tonight's call with Aaron Baxter, the President of Custom Fleet, which is Element's business in Australia and New Zealand. We'd like to use our time with us to touch on elements first quarter results, including a drill down by Aaron on our ANZ performance, the solid progress that we've made in advancing our strategic priorities in the quarter, as well as an outlook on the balance to 2021, including our perspective on the global microchip shortage, its potential disruption to our OEM supply chain and the resulting potential impact on originations.
Before I begin discussing your results, I do want to acknowledge the continued presence of COVID-19 our communities. And in doing so I want to express my heartfelt gratitude on behalf of everyone at Element Fleet Management to the healthcare professionals and so many other essential workers who continue to brave the frontlines and advance the global vaccination efforts.
First quarter of 2021 represented Element's first three months of business following the conclusion of our very successful client-centric transformation Program. And the Q1 results were an encouraging demonstration of Element's performance capabilities on top our transformed operating platform and against the backdrop of our fortified financial position.
We grew global net revenue 4.4% in Q1 on a year-over-year basis, before the significant impact of a strengthened Canadian dollar on our results. Even with the FX impacts, we were able to grow net revenue by approximately 1% over Q1, 2020.
We delivered $137 million of adjusted operating income for the quarter, which is a 10.8% improvement over Q1 of last year before the impact of FX and equivalent to $0.22 per share. We expanded our operating margin by 180 basis points from our Q1, 2020 results to some 55.2% in q1 of this year.
Frank Ruperto
Thank you, Jay. And Good evening, everyone.
I'm happy to be here with you to talk for our Q1 2021 results, and the solid progress we made advancing our strategic priorities in the quarter. In regards to adjusted operating income and ETR, as Jay noted, our adjusted operating income for Q1 was $137.3 million, which is a 6.2% increase year-over-year, and 10.8% increase before the impact of changes in FX on that comparative basis.
As we've noted in our disclosures, this quarter, FX had a meaningful impact on results and is likely to continue to be a headwind, at least for the balance of this year. Adjusted earnings per share of $0.22 were flat for Q1 last year, which is a function of the increase in our effective tax rate on AOI up to 23.4% in q1 2021.
While we're on the topic, I recommend modeling our adjusted EPS based on a 23% to 25% effective tax rate in 2021. This is a reflection of the increased income levels we are achieving post-transformation and the mix as we grow disproportionately in relatively higher tax jurisdictions, namely, ANZ and Mexico this year.
Remember that the cash tax we pay is a lot less than the tax line items on our income statement. As such, we believe free cash flow per share is a better metric than adjusted EPS when evaluating the underlying performance of our business.
We originally did $1.3 billion of assets in the quarter, a $100 million decline quarter-over-quarter and a $744 million decrease year-over-year. Historically, Q1 originations have been lower than the preceding Q4 and client deferred orders that went unplaced last year continued to impact originations in Q1 this year.
The strengthening of the Canadian dollar against the U.S. dollar and Mexican peso also softened our reported origination volumes.
Aaron Baxter
Thank you, Frank. And good morning everyone.
Very much appreciate the opportunity to share with you Custom Fleet's strong Q1 '21 results and the progress we've made on our growth strategy in the quarter. All of the figures I'm going to reference are in Australian dollars.
So from a net revenue perspective, Custom Fleet generated AUD49.4 million of net revenue for the quarter, which is 35% more than Q1 '20 and 15% more than Q4 '20. Net financing revenue grew 56% year-over-year primarily driven by the strength of the Australian and New Zealand secondary market.
The market chip shortage in Asia, where the vast majority of the vehicles we deal with are manufactured has constrained new vehicle supply and driven up demand and pricing of used vehicles. This coupled with recent improvements to our remarketing strategy and channels, is resulting in more sales to consumers and has allowed us to improve our gain on sale for Q1 '21 by 133% over Q1 last year.
Excluding gain on sale, we grew net financing revenue by 20% year-over-year, driven by increased margin and reduced funding costs. Service revenue and ANZ was AUD14.7 million in Q1.
This was 5% up year-over-year and 18% up versus the prior quarter. This increase is attributable to continued increase in product penetration, particularly our accident management business and our telematics offering, coupled with implemented conquest new business wins, which is translated into 9% unit growth for the year.
As Jay wrote in his Letter to Shareholders this quarter, Custom Fleets being built on 40 years of history in Australia and New Zealand with clear points of competitive advantage, including scale and automation of our operating system, and unparalleled client experience, a really smart, diverse and engaged employee base, and an extensive network of service partners. We've been able to build on this foundation in a number of ways as a result of being part of the Element family.
Custom Fleet participated in the transformation, which we're in the midst of undertaking at a local level, when Jay actually took the reins at Element in June of 2018. Custom Fleet's transformation benefited tremendously from the learnings and the collaboration which we're able to engage in with the North American business going through its own client centric reset.
We've taken advantage of the global organizations' investment grade balance sheet, and ample access to cost efficient funding to win self-managed clients buy sell and leaseback. And two great examples are the Salvation Army in Australia, and Oranga Tamariki in New Zealand.
And we're deploying the growth planning strategy that David Madrigal pioneered in Mexico to great effect, which was enhanced after our visit to Mexico City in early 2020. So following that visit, we quickly adopted Mexico's best practices, continue to refine our back office capabilities and heavily invested in sales force effectiveness, so that we would be poised for stronger profitable revenue growth in 2020.
So after 18 months, executing what is now the global element growth strategy, Custom Fleet very much in an optimal and scalable position. That pipeline of confirmed orders is the highest it's ever been.
Our service revenue is growing through a combination of new client wins and deepening share of wallets. The quality of the portfolio is improved with historically low levels of delinquency.
Our Net Promoter Scores are consistently strong. And we have not lost any material clients in 2020 through the pandemic and that remains true in '21 today.
The last thing I'll say is in relation to electric vehicles. And I'll be brief because I know Element has spent a lot of time with investors on this topic already.
I can tell you from the frontlines of Fleet electrification from New Zealand, that this is an exciting wave of change and growth opportunity for our industry. It's good for our clients, good for our people, good for our business and naturally good for the environment.
It will be good for our investors too. Element's well-positioned to lead the industry through the electrification of automotive fleets.
And we will continue to deepen our client relationships in the process. So with that, I'll turn the call back over to Jay and thank you.
Jay Forbes
Great to hear first-hand from you the successes that you and the team and ANZ have enjoyed there. And thanks for joining us.
Before we open the floor to questions, let me say a few words about market conditions, which are abnormal in a number of respects. The continuing strengthening of the Canadian dollar is one of those abnormalities.
Current indications are that the Canadian dollar will remain unusually strong against the U.S. dollar in particular for the balance of this year.
While we believe this is a temporary state of affairs, we're targeting year-over-year net revenue growth of four to 6% in 2021 before the impact of changes in FX. The COVID-19 pandemic also continues to make for abnormal market conditions.
Vehicle usage rates improved throughout Q1 and that trend has continued post-quarter-end. Nevertheless, usage remain below Q1, 2020 or pre-pandemic levels in the quarter.
As Aaron has indicated used vehicle markets are incredibly strong right now, especially in Australia and New Zealand as a result of these microchip shortages. And because we bear the residual value risk of our client vehicles in ANZ, we are earning unprecedented gains on the sale of those vehicles at the end of their lease terms.
Unfortunately, those are not normal market conditions for Custom Fleet. In the US and Canada and to a lesser extent in Mexico, the same microchip shortage is slowing the ability of OEMs to convert the significant volume of client orders that we're placing into delivery-ready vehicles.
From where we stand today, we see varying degrees of impact at different OEMs. And the big three U.S.
automakers said as much on their earnings calls last week. The upshots range from zero to 50% production volume headwinds in Q2, the present quarter, where headwinds are the strongest OEMs expect to catch up on production volumes almost fully by Q4.
All OEMs are prioritizing the production of higher margin vehicles, such as the trucks, vans and SUVs that align with the strong majority of our clients' needs, which leaves element less exposed than broader vehicle markets to the chip shortage impacts. Moreover, OEMs have generally maintained their fleet allocations year-to-date and have committed to continue to do so for the remainder of the year.
This is because FMCs life element are the OEMs most reliable repeat customers at scale. Our clients continue to exhibit very strong appetites to place orders.
This is no surprise. These assets are critical to their business operations and their ability to generate and sustain their own revenues.
As such, and as expected based on the volume of deferred client orders from 2020, we've built the largest first quarter order book Element have seen in four years. We've been advising our clients to be decisive and place the orders as soon as they can commit.
We're recommending that our clients take the same approach to model year 2022 vehicles, and orders for those can be placed as soon as June and July with some of our OEM partners. We've also helped many clients meet their needs by evaluating, recommending and ultimately executing on alternative solutions, such as different models from different manufacturers.
This is all part of elements value proposition. Our network of supply partners is vast, and our expertise is deep.
And we help make those complex circumstances easier for clients to navigate. Recognizing this microchip situation is very fluid, there is the potential for up to $200 million of originations to slip from Q2 to Q3.
In closing notwithstanding the many and varied abnormal economic impacts of the pandemic, we continue to advance our strategic priorities. And we see ample evidence of the near and long-term viability of this growth strategy.
Accordingly, we expect to grow net revenue 4% to 6% in 2021 before the impact of changes in FX. We expect to expand our operating margins and translate this growth into higher growth in AOI to improve our ROE through migration to a capital lighter business model, driven by both growth and service revenue, and higher syndication volumes, and generate strong underlying cash flow and return the same to our shareholders through dividends and share buybacks.
We will continue to deliver a consistent superior service experience to our clients. We will continue to improve the effectiveness and efficiency of our market-leading business.
And we will continue to prioritize the safety and wellbeing of our people who truly are our greatest competitive advantage. With that, let's open the floor to questions.
Operator?
Operator
Thank you. We will now begin the analyst question-and-answer session.
The first question comes from John Aiken with Barclays. Please go ahead.
John Aiken
Good evening. Frank, want to start off with you if I may.
In terms of the cash taxes paid in - I think was New Zealand? Can you - first are you able to quantify it?
And secondly, can you give us a little color as to what was driving the situation?
Frank Ruperto
Yeah. Well, it's driven by the profitability in New Zealand and effectively you have the accumulation of those cash taxes in the fourth quarter, which then rolled over into the first quarter.
So it materially impacted our cash taxes for the quarter, John. That being said, we still are targeting $40 million to $50 million total cash taxes for the year.
So plus or minus order of magnitude $7 million to $10 million per quarter for Q2 through Q4.
John Aiken
Great. Obviously, the commensurate increase to free cash flow moving forward to the remainder of the year.
If I could the disclosure that you had in terms of the timing of the service revenue financing revenue between the U.S. and Canada and ANZ and Mexico, I found that very interesting.
Is there - what's driving the difference between the two regions? Is it regulatory or is it just structure the marketplace?
Jay Forbes
John, structure of the marketplace. In Canada, the U.S.
it's a very normal, when you steal share, for instance to immediately take on the services function on behalf of that new client within a quarter or two. So the transition of maintenance, accident management tools and violations et cetera migrates from the incumbent to us.
When we win that client mandates and within a quarter or two were up operational and move them off of the competitor platform onto our platform. And we begin to generate that service revenue.
Winning that mandate to look after the origination and maintenance of leases for that new client folds in. So the incumbent keeps the existing book of assets that they have, manage those from a lease point of view on behalf of the client, we as that asset matures, and needs to be sold and replace look after that sale the ordering and origination of that new vehicle and build our book over three or four years' time.
So that's kind of the established market protocol in in Canada and the U.S. Aaron, maybe you could just highlight the differences that that have emerged in the Australian, New Zealand marketplace.
Aaron Baxter
Yeah, sure, Jay. And if you look at our service revenue profile, as the fleet starts to ramp up our service revenue progressively ramps up in value commensurate with the scaling of the units and the scaling of the fleet.
So very good summary from you, Jay.
John Aiken
Thanks. Thanks.
I'll re-queue.
Operator
Next question comes from Paul Holden with CIBC. Please go ahead.
Paul Holden
Thank you. Good evening.
So first question is with respect to servicing income. And Jay, I know you gave us a number of things to think about in terms of the potential recovery there.
So if I think about it, just getting back to pre-pandemic usage levels, which it will I think sometime soon, hopefully. And then the growth in the size of the fleet from a servicing perspective, should I not think about the potential for servicing income to be somewhere higher than it was pre-pandemic?
And I guess what I'm looking for is help in gauging that delta, once usage gets back to normal or pre-pandemic type levels. Like, potentially how much higher could servicing income be based on the growth in your fleet?
Jay Forbes
We're very bullish in terms of service revenue growth opportunity within the organization, Paul. And it is due to a number of factors that you've highlighted.
So one, there's just the normalization of consumption, as our current book of clients fully utilize those assets that form their portfolio. Secondly, the revenue assurance activities that we undertook through transformation allowed us to plug a number of leaks that again with full utilization of the existing fleet will result in better yield on those assets.
Thirdly, we have had opportunity to exert some pricing increases into the model. And as a consequence, we would expect those to flow through as incremental yield as well.
And then, over and above that, we have been doing a fair amount of work in the first quarter on both penetration and utilization. And we see a fair amount of white space within the portfolio - global portfolio to not only sell more services to existing clients, but to increase the utilization of those services.
When I say utilization for instance, when we have a driver of a client vehicle, who is getting maintenance work done outside our network that is harmful to the value proposition of reducing the total cost of ownership of that fleet. It hurts our client.
It also hurts our revenue. And so having our drivers utilize the network of service providers that we have established is a win-win for both the client and for our organization.
Over and above that when we think about penetration, as we've talked before. We see even more whitespace in the markets outside of U.S.
and Canada, in Mexico in particular. Madrigal and the team have done a great job, introducing a number of new service offerings into that market have found a strong receptivity.
And again, with a good size and better fleet in that marketplace, opportunity to add to what has traditionally been a leasing market, add more service offerings into that marketplace, offers yet another opportunity to penetrate that whitespace that we see in services. So yep, we continue to wait resumption and some degree of normalcy in terms of the entirety of our fleet being fully operational.
But as both Frank and Aaron have indicated, we're quite encouraged by what we've seen in Q1, April in terms of again, in return to normalcy and strong trend lines in terms of the consumption of services.
Paul Holden
Okay. So if I interpret your answer correctly then, and think about it relative to your 4% to 6%, overall revenue growth objective.
This should be, at least at the higher end of that range, and if not, possibly higher.
Jay Forbes
Yeah, I won't comment specifically on that. But I would call your attention to Section 1/2 of the supplemental, where we've given some additional disclosure around deals that closed in the quarter.
And we say deals that close these deals that entered contract. These are, work in progress, these are signed contracts.
And as you will see, the number of revenue units that we've added, which will be a combination of lease revenue units, maintenance revenue units, accident management revenue units et cetera. You could see that the book of business built very nicely in Q1.
And again, remember, this is within organization that is operating in an industry, where 11 or 12 months sales cycles is the norm. So knowing that we were just beginning to spool up the U.S., Canada operations in the second half of last year gives you an indication of the early traction that they have had and the continuing traction that Mexico and ANZ have had in terms of new opportunities, a number of which would be service related.
Paul Holden
Okay, thank you. I do have a second question.
And this would be a quick one is just, when I think about the additional performing credit allowances, that you're carrying that $13.5 million, what would sort of be the key triggers there for potential releases? Is it simply further updates to economic assumptions?
Or does it have to be something that's maybe more specific to Element's actual credit experience?
Jay Forbes
I think it's more the latter than the former. Though the former will obviously inform that decision.
But you would point to the delinquency rate, record low delinquency rates. You look at our unpaired receivables that at the end of the quarter were $16 million and subsequent to the quarter dropped to $4 million against the $90 million figure a year ago.
You look at the performance of the portfolio, the quality of the underlying asset and actually, the improvement of the credit quality of the portfolio year-over-year. It stands in a better position today than it has before.
So I think that will inform the decision in terms of releasing more of the allowance for credit losses.
Paul Holden
All right. Great.
Thank you for your time.
Jay Forbes
Paul, thank you.
Operator
The next question comes from Geoff Kwan with RBC Capital Markets. Please go ahead.
Geoff Kwan
Hi, good evening. I have question on originations.
I just curious how your origination expectation for 2021 at the start of the year, kind of compares to what it is today. I know you mentioned kind of the shift of the $200 million.
But just wondering if you still think given everything going on that you can still hit your origination, what your internal target would have been? But also to with - on Amazon or I mean - sorry, Armada.
Again, given the chip shortage, what kind of gives you confidence that they'll be able to hit their origination target for 2021?
Jay Forbes
Yeah. Good evening, Geoff.
I would say when we look at for instance Q1 originations, this is a historically low quarter for us in terms of originations, and generally as the quieter quarter for originations for the organization. On top of that obviously, we had the deferral of orders from '2020 that also impacted the Q1 originations so in FX impacts.
And year-over-year Armada was also a heavy contributor to a lower level of originations in Q1 2021. There were virtually no origination this quarter versus the first quarter of 2020.
So I wouldn't look at Q1 as necessarily an indication of what our expectations or performance would be for the remainder of the year. We again, bought the biggest order book in four years for Q1.
Just an outstanding quarter in terms of those deferred orders coming home to roost the eagerness of our clients to place their orders, and get an allotment of vehicles. We're very encouraged by that as a sign of what we may be able to expect in terms of origination performance this year.
At the same time, the big unknown is this microchip shortage. We've been on this issue for six months, been working hand in glove with the OEMs since December of last year to try and size this try and prepare for this.
We've been out in front of this with our clients and hence, building of the order book over the last four months. And based on everything that we have been told, based on everything that that we have read, we can see some slippage from Q2 to Q3 in the neighborhood of $200 million as our best estimate at this point in time.
But all the assurances that we have been provided would suggests that this is a quarter-by-quarter slippage within the year, and it shouldn't melt into 2022. Might that occur?
Listen, this is a very dynamic topic. It's, unknown unforeseen and never encountered before.
So it's hard to predict with any degree of precision how this will all unfold. In talking with Jim Halliday our Chief Operating Officer who lived through the great recession in this industry, he was amazed by how quickly the OEMs bounce back after the great recession, despite all the financial issues that they were dealing with, to ramp up production and to meet the insatiable consumer demand for vehicles.
So fingers crossed. This is another one of those moments where they rise to the occasion overcome the short pause and produce such that we can indeed have all the order book that we have successfully built yet built in terms of new vehicles.
So again, really didn't want this. We felt like we were off to such a great start.
This introduces a degree of uncertainty. We're working in a collaborative fashion with the OEMs to plan for and to mitigate the impact.
And thus far, it feels like a quarter-over-quarter Q2-Q3 deferral. But we just need to see how this plays out over the course of the coming weeks.
Geoff Kwan
Okay, thanks. And it's my other question was that new exhibit that you have on the new client wins or expanding of existing relationships.
Thanks for that disclosure, and I guess the 152 new clients which is quite I guess, significant. Essentially, when you announced your Q4 results, you announced a number of new client wins.
Is it fair to say that there would have been a number of additional ones that have been closed since you reported the q4 results? But also just wanted to get your latest thoughts on the new customer pipeline?
Things like around geography, the self-managed opportunity, mega fleets that sort of thing?
Jay Forbes
Yeah. I think - and answer to your first question, yes, I think that's a fair assumption that there are additional deals that have been secured subsequent to our Q4 disclosures.
And as we sit here today, really like how the pipeline has developed in each of the three regions very strong. And further, just love how the teams are thinking about velocity and, and reducing the cycle time, from a very elongated 11 or 12 months down to something that could be 10 to 11 months from deal inception to signed contract.
So very encouraged by what we see share of wallet. And so maybe I start the other way.
So self-managed fleets are obvious in terms of our previous discussions and your knowledge of the marketplace and the size of the marketplace. And these would be a combination of the leases sense and selling services to prospects that have become clients have converted from self-managed to an FMC client.
Market share is obviously stealing share from our competitors. And I'm pleased to say that retention has been very strong on our side.
And so our batting average here has been very good, in terms of win-lose, very good. And shared wallet is, - there is a couple minutes of explanation.
So this share of wallet is not only the longstanding clients of Element's and maybe offering lease services to a service-only client or offering services to lease-only client or offering more services to at least in service client. But for instance, in Mexico very often, Madrigal and the team will work with the self - with an organization that manages their own fleet, win the mandate for trucks of that fleet.
And that will be that first tranche is recognized in the schedule as a self-managed when. As they prove their capabilities and win a second, third, fourth, and ultimately all of the fleet mandate that goes into share of wallet.
That's how we think about this. So when you look at share of wallet, think about that is a combination of increase in the penetration of our service and lease offerings to our longstanding organization or the clients.
But also selling and winning more of the mandates of these self-managed fleets that we've been able to identify and get a toe in the door.
Geoff Kwan
Okay, great. Thank you.
Operator
The next question comes from Jaeme Gloyn with National Bank Financial. Please go ahead.
Jaeme Gloyn
Yeah, thanks. Good evening.
First question is around the net interest margin. Obviously a really great job on the cost of debt and cost of fund side.
On the on the top-line, I just want to get a sense as to maybe the contributing factors to the increase there. Can you break out the contribution of the reserve release, the impact of gain on sale in Australia, New Zealand, and also the impact of mix shift as Mexico Australia New Zealand increase?
Jay Forbes
Absolutely, yeah.
Frank Ruperto
Yeah. Sure, I can take that Jay.
And typically, we wouldn't break out those components for that. But as you know, we did break out the provision for credit loss.
So that was a $3.5 million benefit there. There has been some very good positive momentum on gain on sale at Australia, New Zealand, as Aaron has pointed out, the strengths of that market as well.
So without getting into the specifics, I think you've hit on some of the key points. But underlying the strength really is the core business.
And what we've been able to do both from the top line piece of the origination side, as well as both the quantum managing the quantum and the cost of our debt over the term which has expanded those margins, materially. So, I think that's where you see a lot of it.
Now, if you were to look just at the provision for credit loss, which we did disclose on a year-over-year basis, that would contribute a reasonable call it 50-ish basis points of the improvement year-over-year. If you were to back out that $12 million charge last year, and then put back up to $3.6 million in this quarter.
But you still have a very significant improvement in your NFR yields for the business.
Jay Forbes
And Frank, that's really, to your point, once you strip out the allowance for credit loss variance, and normalize this for FX are still 2.5 percentage point year-over-year growth in, in net financing revenue and a continued expansion of the net interest margin. And again, it does come back to this mix and, the continuous syndication of the lower margin U.S.
portfolio. And the rapid growth in the ANZ and Mexican portfolios both of which have superior yields on their portfolios compared to the U.S.
And then obviously, the continued success that we've had in both reducing the quantum of indebtedness on our books down to 5-6 times tangible leverage at quarter end, but also the cost taking out over $1 billion of high cost financing from that structure. So all contributing to a very impressive.
Jaeme Gloyn
A great and second question, still I guess, in the same vein. But around the leverage of 5.56, as you just mentioned.
How are you thinking about that, for the rest of the year? Is this just the type of buffer that you're comfortable with running that, given we were at 5.7 last quarter?
Or how should we think about leverage going forward here as the economy continues to reopen?
Frank Ruperto
Jay, would you like to take the first crack at that?
Jay Forbes
Sure, yeah. So Jaeme, as you know, our longstanding objective was to hit that six times tangible leverage the light of that we were able to do so as part of the transformation of the organization.
And it's our belief that plus or minus 20-25 basis points, we should be at or around that to maintain, if not indeed, enhanced the credit rating that we have with the various step rating agencies. So, call it 575 to 625 is kind of our comfortable landing zone.
And recognizing that FX and syndication volumes can rapidly move that around, we feel that that 40 or 50 basis point range around the six times tangible leverage is where we'd ideally like to be. With the strength of the Canadian dollar and the continued strength in the Canadian dollar, that is taking us down to a lower level of tangible leverage than what we expected or wanted.
Recognizing that, there is an inefficiency for being under lever. And again, our fundamental assumption is that the strength of the Canadian dollar is temporary.
And it will in time weakening against the U.S. dollar and we'll be back to quote unquote more normal levels of relationships between the two currencies.
So, expect that we will probably end up closer to the 5.75, perhaps in the six times tangible leverage as we go through 2021, recognizing that a part of the performance that you're seeing is directly related to the FX situation and the strength of the Canadian dollar. And given that it will reverse in due course.
We will want to be overly aggressive in our share buyback. So, again, we'll probably run a little less levered than what we have planned.
But we're talking here 10 or 20 basis points from where we would otherwise plan. Does that make sense?
Jaeme Gloyn
Yes, completely. Thank you.
Jay Forbes
Perfect.
Operator
The next question comes from Tom MacKinnon with BMO Capital. Please go ahead.
Tom MacKinnon
Yeah, thanks. Thanks very much, and good afternoon or I guess it's good evening by now.
We're seeing good morning in Australia as well. So just a question on the free cash flow and just the relationship that it bears to your reported number, or your adjusted operating number, I guess.
If I look, five months or five quarters ago, it was $0.07 - free cash flow was $0.07 above that number, then it was six than it was three than it was two, then it was one. Now I can understand there's a little bit of New Zealand tax noise that might make it more like the free cash flow being more like if it wasn't for that maybe both $0.03 above your AOI per share.
But why is that - how should we be thinking about free cash flow relative to the AOI per share? Should it just be like a couple pennies above or $0.03 above?
Or should it actually start trending up to be higher like $0.06 and $0.07 a share above as it was about a year ago?
Jay Forbes
Yeah, Tom, when you look at the schedule in the supplemental that breaks it out. You can see actually, there's a high degree of congruency in terms of the inputs to that schedule and the financial reporting of the organization.
The one line that has changed materially over that period of time, is this plus or minus other non-cash items. And, behind that is originations.
Originations is a very cash accretive exercise for this organization. It's cash accretive in that.
It represents a, an opportunity for this organization to generate water revenue through the acquisition, interim funding, and delivery of vehicles that gets deferred and amortized over the life of the lease. And as you think about that source of revenue, we get all the cash through these various revenue sources all at once.
But it is actually deferred and amortized over the life of the lease. And so that creates a very substantial differential between reported earnings and cash flow.
The reported earnings, obviously, are delayed over on average 41 months, whereas the cash gets recognized right away. And so the pullback in originations has, in effect unwound some of that upfront benefit where we don't have all of that revenue associated with the acquisition upfitting interim funding remarketing of that vehicle for the client.
So as originations, come back to normal levels, you would expect that to live to come back to a more normalized level. I can do what we've enjoyed in the past as opposed to what we've enjoyed in the more recent quarters.
Tom MacKinnon
Yeah, thanks. That's very helpful.
And just as a follow up. I think, Jay, when you said in when you reported the fourth quarter results when you talked about $100 million in origination, slipping from the first half to the second half so there'll be no material financial impact.
And I assume, are you sticking with a no financial and material impact. Now that that numbers moved up to $200 million and it's sort of moving between the second and third quarter, or are there any other things that would be materially impacted as a result of the of the chip push out in terms of originations?
Jay Forbes
Yeah, with regards to the guidance that we have provided around the nature and extent of revenue growth, the nature and extent of AOI growth, free cash flow. All holds - the major amendment was indeed 4%-6% revenue growth, it's there.
It's just going to be masked by virtue of the strength in Canadian dollars and the erosion due to FX. But the underlying growth as you're seeing in the results that we've shared with you is there.
So the model is being proven out. And as Frank has noted, there's a few things in the first quarter that aren't necessarily indicative of what you should expect for the year.
So while we do expect an expansion in the operating margin, 5.2% is definitely a high point. And so, we think we've given you a number of different data points that will allow you to better calculate how this all should flow through to your models.
That said, the premise that we set forth is intact save the caveat that 4% to 6% revenue growth will be on a cost occurrence FX neutral basis as opposed to nominal.
Tom MacKinnon
Okay, thanks very much.
Jay Forbes
Thank you.
Operator
This concludes the question-and-answer session. I would like to turn the conference back over to Mr.
Forbes for any closing remarks.
Jay Forbes
Thank you, operator. And more importantly, thanks to all of you for joining us today.
We appreciate the opportunity to discuss these results in greater detail. And look forward to any follow up questions that you might have others.
In the interim, stay well.
Operator
This concludes today's conference call. You may disconnect your lines.
Thank you for participating. And have a pleasant evening.