Q1 2021 NFI Group Inc Earnings Call
Thank you for joining your conference will begin shortly thank you for your patience and please standby we will begin shortly.
[music].
Yeah.
[music].
Yeah.
[music].
Okay.
[music].
Okay.
Welcome to the and if I <unk> 2021 first quarter financial results call.
And you must feel that and I will be your operator for today at.
At this time all participants are in a listen only mode and later, we will conduct a question and answer session.
During the question and answer session. If you have a question. Please press star and then one using your Touchtone phone.
And now I would like to turn the call over to Mr. Stephen King.
<unk> director Treasury, and corporate development and Investor Relations. Mr. King you may begin.
Thank you Hilda good morning, everyone and welcome to <unk> first quarter 2021 results conference call.
This is Stephen King speak joining me today are Paul <unk>, President and Chief Executive Officer, and capacity, Sony and Chief Financial Officer.
For your information this call is being recorded and a replay will be made available shortly.
And this mornings call, we will be walking through our results presentation that can be found and the investors section of our website. We will we will be moving to slides via the webcast link, but we will also call out the slide number referred to as we walk through the deck for participants on the phone.
Starting with slide two I'll remind all participants and others that certain information provided on today's call may be forward looking and based on assumptions and anticipated results that are subject to uncertainty.
Should any one or more of these uncertainties materialize or should the underlying assumptions prove incorrect actual results may vary significantly from those expected you're advised to review the risk factors and the enterprise press releases and other public filings on SEDAR for more details.
We also want to remind listeners that <unk> financial statements are presented and U S dollars. The company's functional currency all amounts referred to are and U S dollars unless otherwise noted.
On slide three we've included some key terms and definitions to refer you to as you review the information contained within the rest of this presentation.
Of note zero emission buses for <unk> as we refer to them.
Just a trolley electric hydrogen fuel cell electric battery electric buses.
Equivalent units or use.
Is a term we utilized for both production and deliveries the majority of our vehicles represent one equivalent unit, while and articulated 60 foot transit bus takes two production slots and therefore is equal to two equivalent units.
I'll now pass it over to Paul who will recap the quarter.
Thanks, Steven and good morning, everyone before I get into the details of the quarter for those not as familiar with NFL quickly provide a little bit of background and our business specifically, our leadership positions zero emission and battery electric fuel cell electric mobility, and how we are driving the transition to a cleaner electric future for what we call. This evolution.
And now on slide for <unk> as a total mobility solutions provider offering a full turnkey solutions of our infrastructure installations vehicle production aftermarket support training and telematics with a strongest zero emission bus offering and all of our core markets with the widest range of battery electric mass transit vehicles, ranging from single day.
And to double deck articulated medium duty and motor coaches.
Our combined businesses has over 450 years of bus and coach experience and we've been making electric buses for more than 50 years now our track record shows that we have and innovators and drivers of new technology for decades, we led the adoption of clean diesel natural gas hybrid electric buses and North America, all of which still.
And we may still make today and we are now leading the transition to battery and fuel cell electric vehicles.
Zero emission buses represents about 10% of our first quarter deliveries and our backlog is now at 18% being zero emission.
And if I has the capacity to produce up to 8000 equivalent units annually and we anticipate that 20% to 25% of our 2021 production will be zero emission buses more than doubling the 2000 Twenty's EEP production on.
On April 20, <unk> to celebrate Earth day, we achieved a major electric vehicle milestones, including the completion of over 40 million service miles by a battery and fuel cell electric vehicles and the installation of over 200 electric charges.
Through this mileage milestone NFS evs have prevented nearly 112000 and imperial tonnes of greenhouse gas emissions from the <unk> and entering the environment there.
<unk> of removing 23000 cars from the roads of Canada, the United States, The U K and New Zealand for one year.
Turning now to slide five I'll quickly touch on some of the other highlights from the quarter.
While we continue to feel the impact of COVID-19, pandemic, we did see numerous encouraging signs of market recovery with growth and our active procurements and and our backlog. We also saw unprecedented government funding announcements and the quarter. The combination of recovery from COVID-19, and a strong funding environment will propel and <unk>.
Profitable growth as we support agencies operators, who are building back better from the pandemic.
Our companywide trans transformative initiatives and forward continues to meet our targets and EFI forward is designed to make us a simpler leaner company with fewer business units and a reduced footprint.
Q1, and 2021 results included $11 6 million and adjusted EBITDA savings and an additional 750000 and annualized free cash flow generation from edify forward <unk>.
During the quarter and EFI forward execute the combination of Alexander Dennis is north American parts business into and if I parse network, eliminating redundant inventories.
Part stocking locations and additional facility investments.
As part of our focus on deleveraging and strengthening our balance sheet on March 1st we completed a $250 million Canadian dollars bought deal equity offering.
The proceeds raised were immediately used for debt repayment and the liquidity and flexibility gained from the equity offering allows us now to pursue operational and strategic goals, such as investments and our zero emission products and electric propulsion technology.
Investments are edify forward and other potential growth opportunities and.
Environmental social governance matters are critical to <unk> operations and they drive our decision making.
As mentioned, we continue to see our products deliver emission reductions around the world and drive social economic change while internally, we have placed increased focus on diversity inclusion and our leadership and our work for US. We joined the 50 30 challenge and through continued advancement of our community benefits framework agreements with we are seeing great progress.
And the quarter was also source issue, our human rights statement and deliver our management information circular which will be voted on today at our annual general meeting.
We reaffirm our full year 2021 guidance for revenue of $2 8 billion to $2 9 billion U S and adjusted EBITDA of $2 20 to 240 million U S T.
Turning now to slide six our backlog was up by 82 equivalent units and the quarter showing signs that the market is now recovering from the pandemic. This was the first increase and the backlog following five consecutive quarters of decline.
Based on activity, we've seen so far and discussions with our customers around the world. We anticipate that we will see increased order activity in 2021 as previously delayed orders are released and the benefits of government funding and our announcements start to hit the market.
A major accomplishment subsequent to the quarter and was the execution of 198 option award option use from Bvd. The main transit agency and Berlin, Germany. The contract is Alexander Dennis first major entry into Continental Europe, and presents an excellent growth opportunity for <unk>.
Faced with a difficult comparative 2020, Q1 deliveries were down with all three of our production segments. This was a result of the first quarter of 2020, having nearly three months of pre COVID-19 activity. We continue to run at lower production rates during Q1 and 2020 as order delays.
Clearly had impacted our operations I'll now ask capacity and Sony to take us through the detailed financial statements for EFI.
Thank you Paul turning to slide seven and I'll touch on a few Q1 2021 performance factors and comparisons to 2020 Q1.
Total revenues declined by 19% driven by the lower deliveries from the impact of the pandemic that Paul discussed I will note that our aftermarket revenues were essentially flat a testament to the resiliency and global reach of our parks business. We saw declines in North American public and private operations offset by increased Asia Pacific.
<unk>.
We're up 316% overall in the quarter this improvement and Asia Pacific is a good sign for broader market recovery given Asia Pacific markets were impacted earliest by the pandemic and 2020. In addition, the aftermarket business saw strong purchases of our clean and protect product lines, which help our.
Customers provide a safer transportation experience through increased focus on standardization cleaning and air purification.
Adjusted EBITDA saw a slight year over year decline of 2% as we were able to offset lower deliveries through our focus on the NFIB forward initiative to significantly decrease materials overhead and general and administrative expenses by $11 6 million. We also saw the benefit of government grants from the Canadian emergency wage subsidy and you can.
Furlough programs to retain skilled people free.
And free cash flow was up $1 3 million or 2% as we had a lower current taxes realized cash flow benefits from EFI forward and positive proceeds from the disposition of capital assets liquidity at the end of the quarter was at $319 million and increase of $172 million from the same period and 2020 and.
86 million from year end 2020, this increase and liquidity was mostly driven by our recent.
Equity raise in.
In addition to putting capital to use our strategic investments we remain focused on returning capital to shareholders through continued dividends.
Turning to slide eight.
We saw significant improvement and net earnings and adjusted net earnings year over year, primarily from the benefits of EFI forward savings and the impact of government people retention programs normalization to adjusted net earnings included $1 $2 million and onetime non recurring restructuring charges and COVID-19 related cost plus.
At $1 1 million unrealized foreign exchange loss, and a $3 5 million of unrealized gain on our interest rate swaps.
Turning to slide nine.
We provide and update on edify forward and the expected future benefits the anticipated cost savings from and if I forward will impact both direct and SG&A cost and aggregate EFI forward is targeted to deliver and 8% to 10% reduction to both manufacturing overhead and SG&A based on the 2019 run rate.
Since inception, and 2020 and forward has generated $28 6 million and adjusted EBITDA savings and an additional $1 $75 million and free cash flow savings and note that the additional free cash flow benefits are on top of the expected cash flow that will be generated from the adjusted EBITDA savings.
We remain on target with our original plans and anticipate that we will reach a run rate of at least $67 million and annual adjusted EBITDA savings by 2023, plus an additional $10 million and annual free cash flow savings.
These cost reductions will generate significant leverage as markets recover we will grow revenues on a lower fixed cost base would drop through to adjusted EBITDA.
Yes.
On slide 10, we provide a summary of our 2000 and 'twenty one guidance, which we have reaffirmed for revenue adjusted EBITDA and cash capital expenditures today, we're providing an update on our adjusted effective tax rate I also wanted to add a comment on seasonality, we anticipate year over year revenue and adjusted EBITDA growth.
And the second and fourth quarter, while the third quarter will be flat to slightly down.
A reminder, for our listeners that in 2021, Q2, and Q3 will be a 13 week periods, while Q4 will be a 14 week period for total fiscal year up 53 weeks.
Turning to slide 11.
I'll explain some of the dynamics, we're seeing with our tax exposure as our financial results recover from the pandemic.
Our north American tax structure includes minimum tax components that are more fixed in nature, plus variable components based on profitability and the impact of nonrecurring discrete or one time items, we normalize for the nonrecurring discrete or one time items to calculate our annual adjusted effective tax rate. The current tax structure does cause us to have fixed components.
And both <unk> and FTC related taxes beat which is the U S base erosion and anti abuse tax and FTC generate significant impact to our current to our tax rate based on our pre tax earnings versus other Canadian companies. We are investigating options to exit this structure based on our 2000 and 'twenty one guidance.
Management expects identifier of annual minimum fixed tax expense will be between $18 million to $22 million, while its variable taxes will be based on a range of 21% to 23% of adjusted pre tax earnings. These ranges are based on current tax legislation and they did not contemplate the impact of potential future tax changes being considered by governments and the U K the U.
And <unk> and Canada.
Finally, I'll comment that identify is not immune from the impact COVID-19 is having on global supply chain delays and supply production and global shipping and freight challenges and supply and demand and balances for many parts and components, including a world worldwide shortfall of semiconductor chips.
Have all created supply chain challenges and if it does not source semiconductor directly rather our chip requirements is for parts and components that we acquire from suppliers bus and coach demand is much lower than automotive and truck Oems and as a result, the shortfalls have had have not had a material impact for our production, but a lack of consistent supply and <unk>.
Parts and components could cause adverse impacts to <unk> remaining 2021 production schedule and part sales I will now turn the call back over to Paul to discuss the factors driving our 2000 and 'twenty, one guidance and longer term outlook.
Thanks for <unk>.
Excuse me turning to slide 12, the first quarter of 2020 was a period two and story with a period that launched unprecedented government support for public transit and Canada, and the U S and the United Kingdom and.
And Canada, the government launched the largest public transit divestment program and Canadian history that will see $14 9 billion invested and public transit with $2 75 billion dedicated for zero emission procurements.
The program includes $5 9 billion and dedicated project starts in 2021 and ongoing permanent funding of $3 billion per year, beginning in 2000, and 626 and 2027.
We're very excited about the development is based on our U S experienced permanent and predictable public transit funding gives transit agencies much better visibility so that they can plant current and future multiyear procurements.
And the United States. The proposed $2 three trillion American jobs plan includes an eight year program with $85 billion for public transit and $174 billion to win the EV market and a commitment to replace 50000 diesel transit vehicles with electric vehicles.
The U S government continues to work on a five year invested America Act, which is the proposed replacement for the current Fast Act. The Federal Act by with transit vehicles are funded in the United States.
The U S government's corona.
Corona virus economic relief transportation services for certain program was created to support transportation service providers affected by the COVID-19 pandemic.
For the first time. This program now includes up to $2 billion and grants for motor coach. Operator. This is important stimulus for many of our private motor coach customers, who saw significant declines in revenue from the pandemic and who are now starting to resume operations as travel sporting activities and conventions return.
In the U K. The government continues to unveil details of its national bus strategy, and we will see more than 4000 zero emission vehicles put into service and the future during the quarter the Scottish government launched and ultra low emission bus scheme or Sue labs that provides funding for the purchase of electric vehicles ADL has already received orders.
For 172 electric buses from operators, who are using this program.
In addition to these major funding announcements on Earth day 2021, each of Canada U S and the UK announced new major greenhouse gas emission reduction targets for 2030, and 2035, the combination of reduction targets and strong stable funding bodes well for <unk> near and long term success as we leverage.
Our leadership position and core markets and our growing operations and Europe Asia Pacific to drive profitable growth and free cash flow generation.
Although the proposed legislation announcements are encouraging for the future of public transit, we do not yet have all the details of when the proposals and funds will materialize and the expected timing and impact on orders and financial performance and <unk> will continue to monitor and provide updates as appropriate through its quarterly and regular disclosures.
On slide 13.
Yes, we provide and update on the North American bid universe as mentioned early and encouraging sign is the 14% improvement and first quarter active bids as compared to the fourth quarter of 2020. A reminder, that active bids are procurements, where we have submitted a proposal and that our argued or are already in progress for submitting a proposal that.
It's been released.
Meaning they have most significant turn term near term impact on awards and operations.
The forecasted five year and North American industry Procurements developed through detailed discussions with transit agency was down slightly and about 8% from the quarter of 2020. This decrease is primarily a result of the increase and active bids combined with a transit agencies revisiting their capital plans as they evaluate the impact of COVID-19, and they look to the new.
Government funding announcements and adapt debt to their zero emission vehicle strategies as customers evaluate their electric vehicle transition plans some of those procurements for traditional propulsion have slowed and the interim we anticipate that the forecasted five year industry procurement will increase and 2021 as transit agencies and operators learn more about and are able to.
Yes, the multibillion dollar government funding programs as of 2021, and and 2021 and Q1 and $6 424 units or 27, 5% of our total bid universe is zero emission highlighting the ongoing evolution to zero emission buses and coaches and I'll also note that in addition to the traditional group.
First proposed proposals and the procurements, we continue to see and increased usage of purchasing schedules, which includes state and national contracts and a cooperative agency purchasing agreements. These scheduled allow multiple operators within the prescribed region or defined list to purchase buses typically typically in an expedited.
Basis and.
<unk> is currently named over 20 of these purchasing schedules.
Either directly or through our block dealers, we've received more than 600 vehicle awards from these schedules since 2018, which highlights their growing used by North American transit agencies as an important procurement tool. Please note that these schedules are not recorded and backlog as they do not have defined quantities for <unk>.
<unk> any other OEM once a customer and makes a purchase.
Under one of these agreements the purchase of the units is immediately recorded as a firm order.
Turning to slide 14, NFIB projected trajectory over the coming years through 2025 targets as shown.
We are well positioned for the near and long term with expectations for growth.
Getting to three nine to $4 1 billion and revenue and $400 million to $450 million and adjusted EBITDA by 2025, our performance will be driven by first our focus on bus and motor coaches, we have strong public and private customer base with long standing relationships. In addition, we will continue to grow new markets through Alexander Dennis.
And our book.
We have one of the largest aftermarket bus and coach parts businesses and the world supporting our 105000 vehicles and service and delivering recurrent revenue part stream. This segment of the business will help underpin our 2025 targets third we have the largest zero emission bus capacity in North America, and the UK with proven true.
<unk> record and delivering electric vehicles, and we will lead the markets transition to a service and future with expectations at 35% to 40% of our 2025 production will be higher price and higher margin zero emission buses more than tripling, what we had in 2021 2020 story.
Fourth and forward has and will create volume leverage as we delever deliver high revenue on a lower fixed cost base. This is evidenced by our targets, including an expected revenue CAGR of more than 8% with our adjusted EBITDA CAGR targeted at more than 16% and finally, we will continue to invest.
And our business and return capital to shareholders. We are pleased with our 2021, Q and Q1 and confident and our business recovery plan and our market outlook.
I'll now turn it back to Stephen to summarize today's discussion and then that following that we'll open it up for analyst questions.
Thanks, Paul turning now to slide 15, I'll recap this morning's call.
Q1, 2021 was a solid quarter with signs of significant improvement and active procurements and we have the view that the market is on the path to recovery from the COVID-19 pandemic.
We continue to see unprecedented government support for trains and this will help drive order activity and growth with a strong focus on a reduction of emissions. It's not a matter of if the futures electric and as a matter of when and if I is ready today for the transportation of Tomorrow.
Although we anticipate 2021 deliveries will remain lower than pre COVID-19 levels. We are positioned for market recovery and have already seen strong improvements from NFS forward to drive volume leverage.
Following the first quarter equity raise we have a much stronger balance sheet combined with our cash flow generation. We now have the flexibility to evaluate strategic investments to grow our zero emission battery electric and hydrogen fuel cell business.
We continue to innovate and disrupt ourselves and the market and we are excited about the future of NFS and we've had numerous new product launches this quarter, including new battery and fuel cell electric models, North America's first level for automated transit bus and clean and protect parts products and solutions to keep riders safe we are leading this evolution to <unk>.
Romish and future with strong 2021 guidance and 2025 targets that would see us drive topline growth and even better margin performance.
Before opening the call to analyst questions. We wanted to recognize our very own Jennifer Mcneill, Vice president of public sector sales and marketing for new Flyer and Mci Jennifer was named one of 'twenty six climate champions across Canada. She was recognized alongside others during a virtual ceremony, marking six months to COPD and the 2021 United Nations climate.
Change conference of the parties.
And highlighting and global efforts to tackle climate change, Jennifer as illustrated ingenuity, and leading our industry, leading zero emission future and she has been driving a driving force behind <unk> technology roadmap and strategic growth Congratulations Jennifer.
And I will now open the call for Q&A Hilda please provide instructions to our callers.
Thank you.
Like to ask a question. Please press star and then one youre, saying Youre Touchtone phone if you wish to be removed from the question queue. Please press the pound sign or the hash key.
And if you are using a speakerphone you may need to pick out for the handset first before pressing the numbers.
Once again, if you have a question. Please press star and then one you're seeing your Touchtone phone.
We have a question from Chris Murray from <unk> capital markets.
Thanks folks.
Good morning, and congratulations on ladies and quarter.
I guess the first question I've got is more going back to your comment about the fact that youre starting to see order activity pick up and.
And you noted the backlog it actually.
You had some increase and the backlog can you talk a little bit.
About expectations for order intake over the next couple of quarters and is there anything that youre seeing and that order intake could actually drive you above your guidance for 2020 one.
Hi, Chris Good question, Thanks for that so.
And we at every one of our business.
The order intake the number of sold slots and the length of the contracts. The number of units per contract continues to evolve and change and we know that the number of units per contract in 2021 is less than it was in 2019 or 2015 for that matter. So that phenomenon continues to happen.
And.
As we work through the year for the most part we work to almost somewhere between 20, and 30 week kind of pre production schedules, meaning we need we get an order we go through the confirmed.
The design and specification of the vehicle the customer that we do the non for current recurring engineering and the supply chain and building sourcing and building. So that we can build the bus on time.
So the ability to exceed our performance and our guidance for this year is probably less debt our ability.
And just given that timeframe, our ability to manage that complexity. The other dynamic debt capacity, we talked about today is like every other OEM and the world. We're all dealing with dynamics of chips and the impact it has on our supply chain, where steel and the middle of the pandemic as much as we were seeing some areas was positive.
Signs and we still have plants and suppliers that have been shut down as a result of COVID-19 and and Thats start backup and so forth. So.
And we reiterated our guidance of $2 20 to $2 40 on EBITDA, we know our schedules, we know where we have sold slots and where we had a little bit of uncertainty across all of our facilities.
Having said that the actual number of discrete rfps that are hitting the street is up that's positive which has translated into that increase and the bid universe and and of course now starting to see the recovery of the backlog, which is a really positive sign because as we hit COVID-19. It really just started to burn down and everybody kind of had pens down.
So I would think by the time, we get to the.
And of the second quarter into the third quarter, we'll have really good visibility of all the production slots for the rest of this year.
And again, hoping at that point and time, we feel confident we'll be able to reiterate our guidance at that point.
Okay fair enough.
And then just and just kind of moving on.
Other quick question for you I think it was a bit surprised that the.
And frankly the strength of.
The shipments in motor coaches.
And it was probably what we were expecting basically de Minimis, maybe public market.
Is there any signs that with a U S appearing to be getting better.
That's going to be changing or was Q1 more of just a flushing of existing inventory.
Just any color there would be helpful.
You've watched that market for a long time and as of all of our markets. It's the one that not only slowed down as a result of the pandemic. It's stock, which then led US you'll remember last year to a decision to relieve ourselves if you will or liquidate the entire preowned coach pool, which continues from our perspective to absolutely be the right decision at the at.
The right time.
Surprisingly and.
And we're seeing it and opening up for some of the Americas, The United Motor Coach Association, which has an annual conference that was canceled last year. They actually proceeded with their in person conference about 10 days ago or two weeks ago or so forth. The attendance was reasonable given that it was in person the discussion and temperament and interest of the operators.
And who are now starting to move again and starting to pull out.
In terms of their vehicles as positive.
We did sell some of the units we have continued to be very stingy on the trade ins and very smart around the evaluation of them.
We still have the private motor coach production capacity idled and as you know we still have completed units or what we call fast tracks Spect vehicles that have been built and will continue to burn those down but I would say my.
My outlook or gut feeling about the pace of recovery of motor coach and the pace of North American kind of opening up is higher today than it was three or four months ago that hasnt, yet really translate into a lot of buys yet and of course. The biggest factor. There is doesn't operator have the cash flow to be able to make the commitment and.
And what did they do with their own fleet and then can they get financing for the purchase of a new vehicle or a preowned coach vehicle and the other positive and I think it reflects and our first quarter results as debt.
And that's the essence or the importance of our business right now is that that transitioning and not have to beat a dead horse, but we continue to see it as a evolution, it's not going to be a light switch therein lies both while the strength of our business is zero mission goes faster, we build them on the same production lines and we can go fast.
And zero mission takes longer to transition we build the conventional vehicles and so we are profit opportunity and performance opportunity regardless of the pace of change that market. We're really pleased with the product portfolio and if you've seen our announcements I'm sure you've looked at the Chris over the last let's call. It six months right. We brought up the next.
Generation of the Excelsior Transit bus, we just yesterday launched the officially launched a fully electric motor coach the guys in the UK have a really.
Progressive partnership with BYD and electric vehicles, but they also announced the creation of their hydrogen double Decker, we launched the electric charge and that space. So we're going to continue to electrify our portfolio pleased at the progress really pleased that the performance that we're seeing on reports from pick one Seattle or King County, or Toronto and.
How we did relative to competitors.
And what's the was referring to is that we just can't keep our heads and the ground and so what we do in terms of supply chain, where we participate on we manufacture our own batteries with modules that come from another provider that the ability to be a smart buyer of both sales and battery packs.
And battery management system, and those things to be able to be really agile as that changes is really critical to us and then the other thing is we are getting pretty good if you will at managing.
That element of our business and so we're not going to keep just stayed or focused on where we are we're going to continue to look for diversification and growth as we grow our business and make no mistake 2021 is better than 2020, but we're still in the middle of a pandemic and there's lots of.
Water that's gotta go onto the bridge before we're in a normal marketplace.
Okay. Thanks for functional passionately thanks, Chris.
Thank you. Our next question comes from now I'm and Chatty from Liberation Bank.
Hi, good morning.
Turning to see positive recovery, not only and ridership, but and their performance financially. So so short answer is really encouraged by the progress we're seeing.
Okay, that's great and just.
And the supply side challenges that you had and I'm just wondering debt in terms of timings and delays. That's one thing but are you seeing any cost pressures as well because we have seen in some commodities like steel prices have gone up are they impacting you on the cost side and any way or that's still the same.
It's a.
A good question. So first just on timing and delivery of course every business that.
And that works internationally or that buys either outside of their own country or wherever has logistic challenges has the whole computer chip challenge and the implications that has.
Sure.
Supplier ex that builds Wi for us is shut down for a week because of COVID-19 and their plant and on and on so we've got all of that kind of stuff. So far that has not materially impacted our business sure. We've adjusted production schedules. We've pulled units forward, we've pushed back we've level loaded our factories as best we can and that will continue it hasn't materially affected our business but.
Sure.
For sure keep the team and place so that that's the good news out of this we have not.
Forecasted significant government subsidy going forward into our guidance for the full year, So you and with our volume drops because.
Because we can't fill a slaughter because we have to adjust because of supply chain and whatever.
You have to believe that the government wage subsidy programs will will help bridge that gap to some extent if our volume stays as we currently have and forecasted and we don't get that subsidy. We still think we will live in that area of guidance of 222 for it.
And when are you still there yeah.
Yeah, Yeah, Yeah, no that's great color I get back into the line. Thank you alright, Thanks man.
Thank you. Our next question comes from Maggie Matilda from City Hall.
Gardening.
Hi, Maggie.
And.
Thanks for taking my question. So I'm wondering looking at is slight and your deck and all the various.
And incentives to put in place and it seems like there's new Wednesday, and that's every day and support and theory mission and transportation.
Development and growth and if you're starting to see any of those and put in for your your backlog. So and it was noted that 18% of your total backlog is now is your ambition.
[noise] products and that's from six per cent at the end of last year and wondering if this is just kind of you know.
Natural movement or if if some of these initiatives have actually started to push that push that up.
Sure, So I'll start Maggie and and get pull the jump and so I think the one that we've seen sofa. Initially has been the Zulu the Scottish Ultra low emission bus scheme. So a D. L was able to be named 172 units Uhm and the UK and Scotland from that program and then on the others. It's.
And we're still I think everybody still looking at what these government programs me and and what the funds are gonna mean, I think overall.
Side of the the recent government and now since we are starting to see agencies make that migration from you know before they were doing a pilot programs or smaller you know initial electric bus testing programs and now so that was you know kind of 510 15 20 units now they are starting to move towards kind of more of the 50 to 100 unit type orders.
But that migration is gonna continue to take time and bigger cities kind of do those.
Sylvia you would see a dedicated cell setup and the plant where we buy a module today that module comes from Exalt energy and the battery management system associated with it comes from and Exalt. We then are taking those individual tax if you will and embedding them into a we nicknamed.
Nicknamed juice box, but effectively a battery container with a certain kilowatts of power and there are ex number of battery containers on the individual buses. So we are doing effectively the assembly or manufacturing of the ultimate pack that goes on the bus and buying the component modules.
I think we've talked in previous calls and.
Investor discussions we continue to look at the strategy associated with sales.
Sourcing and ultimately where that comes and we today use pouch cells in both our new Flyers are equity or equity charges and our Mci.
And we are clearly evaluating back to my point and kind of our initial discussions or desire at this point just because the pace of change the cost reduction the global manufacturing dynamics, we're not going to be and the cell manufacturing game in some cases, we may amount to be into the cell packaging game, but today, we are not and.
And we want to be the smartest agile buyers now with respect to the other stuff our largest partner for example on the new Flyer program from a propulsion standpoint, as Siemens. So we will buy the powertrain and the electric motors and other things from Siemens to be part of that so our job is effectively to be the system integrator.
All that stuff does that help.
Thanks, Paul.
And for the zero emission transit bus work are you finding that the customers are more amenable to a standardized bus model or do they continue to require highly customized specs like certain seat layouts and.
Yes component systems.
And I.
I know you and I have actually had this conversation and number of times, we have not seen and.
Any any progress towards a standard seat layout a standard.
Window tint or thickness, the standard camera layout a standard whatever.
And so therein lies that continued.
Challenge of production and engineering and sourcing efficiency. The good news is thats what were built on and that's where we've been really successful is that high degree of rapid deployment of technology based on their customer specifications into our vehicles and then getting them into service and then of course supporting them through that and of course every customer is different.
I can honestly say that we haven't yet seen any progress towards the alike. My bus and how many do you want whether it's in the UK, even in Asia or North America in any way shape or form we still see a massive degree of customization.
And of course in today's environment, where the orders are have been smaller the non recurrent engineering for five of bus orders. The same amount of time as a non recurring <unk> for 50 bus order there and life some of the challenges around flexing the cost base. The other dynamic is that we have a cost base that today supports conventional.
Buses, but also a cost base that supporting zero emission, which is why this <unk> initiative was so important to really take a bite out of our overhead and SG&A and that's been very successful.
Thanks, So I would think the customization is a real competitive advantage and barrier to entry for new Flyer.
And just a quick question on the slide at the end with the market share gains for coach and ADL those were very impressive and 2020.
Have any of the competitors.
Left those markets.
Like I'm, just thinking about your 2025 guidance and what.
What you might be assuming for for the shares there.
It's a good question.
We haven't seen anybody leave we've seen ever.
Everybody stumble.
US included if you will.
The market share on our new Flyer.
And it continues I think really to be underpinned by the fact that we can sell any kind of propulsion today and not all of our competitors can do that some of them can only provide a battery by some of them cannot provide whether it's and articulated or a double deck.
In the motor coach space, I think we have soften the blow and our business.
Selfishly or maybe.
Interest and looking but better than any of our competitors and we and the fact that we now have new flyer and Mci together as one operating entity and they're able to take cost out our ability to kind of manage our way through that to continue to provide the field service support and all of that parts has been really really good.
The U K market, we haven't seen anybody leave we saw one company up there that's.
And thats owned by Ashok Leyland.
And let's call it maybe stumble a little bit on some of their issues. We saw one of the other competitors Wright bus go through a chapter 11 or and administration process and this is recovering really betting their business to some extent on a hydrogen future. We continue to believe we gotta be propulsion agnostic, so long way of saying and Nobody's left.
I think some of them are hurting way more than we are again pleased the fact that we're a diversified business that we kind of handle the blows and the punches to some extent better than anybody else has.
And I guess, Paul is the only one I know van who will a few years ago and talked about putting our U S plant.
And they've thought that but they have left the market. They are still importing vehicles from Macedonia, which in itself causes some challenges, but nobody's left.
Thanks for your comments.
Thanks, Jonathan.
Thank you. Our next question comes from Cameron <unk> from National Bank.
Thanks, Good morning.
Hi, Kevin.
So a question for policy, we just on the I guess working capital and in Q1, I guess, the the cash flow investment and working capital was was really high I guess, mainly due to the payables change I'm. Just wondering if there was something unusual there and if you could maybe update us on your expectations for working capital investment for the full year I think previously it was kind of.
Expected there'd be.
I guess investment and working capital, but just wondering if and to the exchange.
No I think to your point camera, just just a couple of points as you know as you know how our year ended last year.
It was a it was a little bit of a timing thing there with our payable. So we did pay those and take care of those early this year was one number two is I think from a from a full year perspective, we are still expecting to have.
Some of the.
From a full year perspective, we do expect to have some cash tied up with working capital like we've kind of stated in the past, especially within.
Especially with our EV moves.
Yeah, and I think a camera and to just add and Q1 I know we were carrying some of that inventory that we had.
On some of the private coaches and retail coaches and the U K that were from order deferrals and stuff from 2020.
And so some of that was that the heightened in 2000 and Q1 and 2021.
Okay. Okay. That's good.
Good.
Second question just on the.
For the double deck order that you have in Berlin, and you highlighted that one and your prepared remarks.
I guess, maybe the I guess you originally thinking about ultimately are assembling that bus with our site and Continental Europe I guess the plan and maybe correct me if I'm wrong is to is to build all of those buses on that contract in.
And the U K, but I'm just wondering if ultimately you may need to have some sort of assembly capability on continental Europe, if youre going to pursue additional contracts there.
Yeah, Great question, Kevin and.
Here's the way we looked at it as we were able to successfully acquire ADL and <unk> in may of 2019.
Looking at the demand we expected in 2020 for the U K, we thought that our capacity might be a little bit challenged and so that's why we started looking at our continental build the second issue was the uncertainty around Brexit and what it would mean for import or export duties or chat.
Challenges in terms of moving parts and solar and solar and.
Of course, with Brexit behind us and with now a little bit more color at the pace of the UK recovery.
What you stated is exactly true we really think we can continue to build these things cost effectively in the UK and delivered to Berlin.
Longer term as the U K market gets back to some maybe fuller sense of normal there is a scenario that could mean, a continental build at this point and time. All we're doing is really assessed to continue to assess our options. We've looked at a number of sites. We've talked for a number of partners and if we needed to pull that trigger we've got some cards to play at this.
<unk>, we are really focused on the efficiency and profitability of the U K facilities building both for the U K market as well as Continental Europe market and that Berlin contract is a big big deal.
The incumbent was a German company and so for us to walk in.
Deliver or the ADL team deliver a couple of pilot buses that performed as promised or better and that now to be able to confirm that and there are still a couple of hundred options on that contract so really encouraging for the team.
Yes.
Okay. So you don't you would not expect it to say for future orders and Berlin or other German cities say that the contract requirements would require local assembly and it doesn't seem as though that was the case, we have not seen that.
GAAP now of course protection dynamics around the world on the recovery has changed a lot of different places and ours included a lot of industries at this point and time, we don't have a build in Germany, or a build and continental Europe requirement and Cui.
And honestly Havent Havent seen talk of that at this point at all.
Okay No that's great I appreciate the time, thanks very much thanks, Ken.
Thank you. Our next question comes from Daryl Young from TD Securities.
Thanks, Good morning, guys.
First off just with respect to following up on Europe discussion, we've seen some some big headline numbers around hydrogen and investment.
And Europe and I'm, just wondering if you've seen any shift and I think you actually mentioned one of your competitors.
Sort of banking on the hydrogen shifts, but if you could just maybe talk about the dynamics there versus versus full battery electric and what youre seeing on the ground.
Yes so.
Let's focus a little bit to start up on the UK market. There are some hydrogen and buses being sold and the U K today, the most of the evs or zero emission buses or batteries and of course, our strategy today continues to be to work with BYD and as you know we announced previously that later this year, we will complete the process by which we're actually going to assemble the chassis.
On behalf of <unk>.
<unk> put them, our bus bodies and deliver them in.
And the evolution of the propulsion system strategy and Alexander Dennis Paul Davis, and the team are building on new Flyer success of embedding.
Hydrogen and fuel cells into a double deck vehicles.
And I believe by the end of the fourth quarter of this year will be and trials on that vehicle.
It is.
And as it is an interesting opportunity the strategy of being propulsion agnostic continues to play well for us.
And we continue to believe there is no one size fits all in Continental Europe, where today, we are really a niche player we sold double decks into Switzerland, and now into Germany.
The ability to provide a diesel going forward to build a clean diesel or a battery electric vehicle or now a hydrogen fuel cell I think is going to be important we're not going to be cell and buses and every city in Europe. We are very much where there's high volume high density and where double decks. It makes a whole bunch of sense and there at this point and time, we really don't have.
Ah singled ex strategy for Europe, and the ability to provide hydrogen will play well and of course, all you got to do is get in vault and the debates about whether hydrogen makes sense and the future, whether it's blue or green hydrogen where they get it from day to make it themselves and so forth.
That has to play out and every municipality and the politics of every country and region, but the ability to provide that I think is important for us and we're going to do it.
Great. Thanks, and then just one more.
With respect to some of the new.
Players that have entered the market through <unk> or other means.
Can you just remind us how long.
And the processes to get a buy American compliant bus and and.
And whether you've seen any new entrants looking to start that process.
So just.
To go back to step one and not to be too simplistic about it and there is no certificate from the government that says you buy America. We've heard some people talk about I am by America compliant well quite honestly every contract every build has to be buy American compliant and meet two major criteria. One is the content of material.
Content has to be a minimum now 70% and the second thing and Theres, a whole bunch a whole bunch of tasks that physically must happen in the United States for it to be buy American compliant. Simple example, we can't put up a door on a bus that's built in Canada, because that has to be physically done and the United States as a whole list of tasks.
And that's the ground rules of which we play that's how we've evolved our business. That's how we've evolved our supply chain over the years. That's how we've moved some of the fabrication capability to our facilities or two suppliers in the United States from a startup story, if you will or a new story.
Not to pick on them, but are our friends at prepare for example that business has been around for I think 14 or 16 years. They have 600 vehicles on the road and in that period of time.
And of course.
Their supply chain and their manufacturing just like everybody else has to evolve over that time.
Bigger issue than it is to be able to access the federal funds as all of those vehicles actually have to go through the Altoona track testing, which is the sanction track by the FDA and getting through our tuna.
And can be up to a year long before that happens and it's not like you test one bus and they're all passed every different variant has to be tested to the Altoona standards. So the ability to scale from a new startup or so forth is not as simple as it may seem on paper.
In terms of startups or new guys that have come through spacs.
We saw for Terra go through or in the process of a destocking process, but theyre already in place in the space today.
Lie and bus for example, and other Canadian company. That's in the process of Destocking. They don't make the kind of vehicles that we make so that's not really a competitive dynamic the only one of the other one that has come through the spa process that really maybe is targeting some of our opportunity is a company called arrival, which is a U K company that went through Destocking process I think theyre complete now.
And are talking about delivering a single deck.
Low floor transit bus.
There is no announced plans for them of testing that and North America, I know theyre going to be testing their single deck.
Vehicle, I think that with a customer and the fourth quarter of this year. So again, sorry to ramble that but does that give a little bit of color of kind of the it's not like a guy shows up and says do you like my bus how many do you want tomorrow.
Yes.
Great color and.
And.
What I was expecting.
For longer much longer time horizon to to.
And to come to market.
Yes.
Thank you and at this moment, we show no further questions I would like to turn the call back to Mr. King for us.
Final remarks.
So we do have one webcast question.
Just going to read that allowed and.
And then we will.
GAAP it up so our webcast question, how can NFL and move quicker to take advantage of the momentum in terms of manufacturing ramp up and profitability.
It's a good question if you dive deep into our materials and our business. We are already delivering zero emission vehicles on all of our production.
Facilities and all of our models. So it's not like we have to create a new product. The second issue. Then is if EV adoption goes faster. We then we will we don't have to convert our production lines anymore. We've already made the investment to build a diesel a hybrid of natural gas and electric trolley of fuel cell electric all on the same.
Production line and so we're talking about mix change on the product line as opposed to having to change the product lines.
[music].