Q2 2021 NFI Group Inc Earnings Call
[music].
Good day, and thank you for standing by work on through the N F..2021 second quarter financial results call.
This time, all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask the question. During the session you will need to press star 1 on your telephone keypad. If you require any further assistance. Please press star zero and I would now like to hand, the conference which of your.
First speaker today, Mr. Stephen King. Please go ahead.
Thank you Henry good morning, everyone and welcome to and if I group second quarter 2021 results conference call the.
This is Stephen King speaking joining me today, our policy of President and Chief Executive Officer, and capacity of Sony Chief Financial Officer.
For your information and this call is being recorded and.
The replay will be made available shortly on this mornings call we will be walking through of results presentation that can be found and the investors section of our website.
While while we will be moving the slides via the webcast link we will also call out the slide number as we go through the deck for participants on the phone.
Starting with slide 2 I would like to remind all participants and others that certain information provided on today's call may be forward looking and based on assumptions and the anticipated results that are subject to uncertainties should any 1 or more of these uncertainties materialize or should the underlying assumptions prove incorrect actual results may vary significantly.
<unk> from those expected.
You were advised to review the risk factors found in the enterprise press releases and other public filings on SEDAR for more details. We also want to remind listeners the enterprise financial statements are presented and U S dollars the company's functional currency and all amounts referred to are on U S dollars unless otherwise noted.
On slide 3 we've included some key terms and definitions referred to and this presentation of note zero emission buses or zips consist of battery electric hydrogen fuel cell electric and trolley electric buses.
The equivalent units or use is a term we use for boots for both production levels and delivery statistics. The majority of our vehicles represent 1 equivalent unit, while and articulated 60 foot transit bus takes 2 production slots and therefore is equal to 2 equivalent units or to use an <unk>.
<unk> 4 for those of you new to the NFS story, we are a leading independent global provider of bus and motor coach solutions. Our purpose and mission is simple we exist to move people and <unk>.
The words, our products move precious cargo and we are focused on designing building and delivering exceptional mobility solutions on the slide. We've also included our stakeholder matrix that drives our strategic decisions and core operating principles that govern our behavior.
I'll now pass it over to Paul to recap the.
Thanks, Steven and good morning, everyone.
Now turning to slide 5.
In 2021, Q2, we experienced numerous positives as we executed on our strategic priorities of a winning the evolution to the zero emission mobility b lowering our cost structure see strengthening our balance sheet and D supporting our customers as markets recover and as they transition their fleets.
While there has been significant progress related to vaccine rollouts and easing of government frictions COVID-19 is not yet over the pandemic continues to impact our people and has created notable supply chain challenges, which in turn is disruption of our production schedule.
It's not an excuse we're hiding behind and it's a reality now we have and we will manage through it and we anticipate supply chain challenges to be transit transitory and like most other manufacturers, we are navigating daily disruptions and working closely with our supplier partners.
On the positive side, we have seen exciting growth and active procurements with bids up almost 50% from 2021 Q1.
And our North American public sales team is the busiest that it's ever been.
In addition to the growth and procurements, we've also seen broad signs of market recovery and unprecedented levels of government support with multibillion dollars planned and public transit investments to come on.
Although we view funding is the key driver for procurements. It is also worth noting that transit ridership is more than 80% up from early 2020 levels and some of the U S communities.
We continue to lead the evolution of zero emission and <unk> are now 16% of our total backlog and we've been awarded large the E. B Awards, and the United States, England, Scotland, and Ireland, and we recently announced entry into the Australia and market by a strategic partnership.
In addition, we delivered our best performance ever on the U S. Federal Transit administration's low no grant program.
Plus in 2021 to date, we've launched 7 new zero emission products and we remain on track for approximately 20% to 25% of our annual deliveries this year to be zero emission.
Our company wide transformation initiatives launched last year and EFI forward is on schedule and continues to meet its targets and anti forward is designed to make us a simpler and leaner company with fewer business units and the reduced footprint to drive margin improvement as topline revenue growth.
In May we released our third annual environmental social and governance report for 2020 the.
The report focused on the 3 main components of MSI sustainable sustainability pledge of better product better workplace and a better world.
The ESG report also introduced <unk>, 4 pillar approach, including vehicles infrastructure smart connected technology and workforce development directly supporting the evolution of zero emission technology, the need for equitable access for mobility and people don't and that will drive more sustainable future.
Once again, we are reaffirming our full year 2021 guidance for revenue of approximately $2.8 to $2.9 billion and adjusted EBITDA of approximately $2.20 million to $240 million additional insights will be provided on today's call I'll now turn it over to our CFO for the past the Sony to review <unk> second quarter financial results.
Thanks, Paul turning to slide 6 you will see that our backlog decreased slightly due to deliveries and the quarter expiry of older options.
The date back to 2016 and timing of new orders, our backlog remains at a robust 8000, and 168 use with 16% being zeb's our year over year deliveries were up and all product lines, primarily due to the idling of facilities and Q2.2020.
Turning to slide 7 and total revenues increased by 75% year over year, largely driven by idling of production facilities and 2020 and from record quarterly aftermarket revenues aftermarket performance was driven by Asia Pacific volumes and significant volume increases and North America, the U K and Europe the.
Continued improvement and Asia Pacific Transit markets is a good sign for broader market recovery given those markets were impacted earliest by the pandemic.
Adjusted EBITDA was up by $76.1 million from the combined benefits of higher deliveries and the pie forward savings and the receipt of $18 million and government support largely provided to assist with retention of skilled personnel going forward, we expect volume recovery and margin improvement will replace the impact of wage subsidies.
Received free.
Free cash flow was up by $58.5 million of.
136% increase over 2020 Q2, a significant factor contributing to this increase was and if I forward savings of approximately $13 million and additional free cash flow savings of approximately $1 million.
Liquidity at the end of the quarter was 389 million and increase of $70 million from the previous quarter, primarily driven by working capital improvements.
During the quarter, we repaid 46 million of debt for a year to date repayment of $161 million. In addition to repaying debt and funding strategic and met investments.
We remain focused on returning capital to shareholders through dividends and a.
A key priority for 2021 is a focus on working capital we saw the benefits of this approach as we lowered working capital days by 6% from the previous quarter generating of $62 million inflow of these improvements have come from better supplier payments increased usage of purchasing programs and improved collection processes going forward we.
We anticipate continued improvements to working capital metrics, although supply chain challenges product mix and seasonality may cause some quarterly variance.
Turning to slide 8.
I'll explain some of the dynamics.
We're seeing with <unk> tax exposure.
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 1 time items for which we normalize as discussed at our previous financial results call for 2021 Q1 on an annual basis.
And we expect our minimum fixed tax expense will be <unk>, the $22 million, while our variable taxes and we based on a range of 21% to 23% of adjusted pre tax earnings.
During the second quarter, we also saw a tax benefit from currency fluctuations, which lowered our total adjusted ETR. We may continue to see these impacts during the remainder of the year as foreign exchange rates are very difficult to forecast, we will report the fluctuations and actual results, but we will not provide of forecasting methodology for this component of the tax expense.
I'll also note that during the quarter, we had of $6.1 million tax expense related to the impact of UK legislative tax changes that will normalize for our adjusted ETR.
On slide 9 you'll note that net earnings and adjusted net earnings improved significantly from the same periods. In 2020, both metrics were positively impacted by revenue growth savings from EFI forward support from government wage subsidy and foreign exchange gains and the derivative financial instruments noted on the year to date reconciliation of it.
Adjusted EPS relates to pre tax gains on our interest rate swaps.
Turning to slide 10, the antibody forward initiative remains at or above targets included here are a list of projects that we've completed in the first year of the program and the projects that we are currently working on to generate further savings.
Since inception, and EFI forward has generated 41.5 million and adjusted EBITDA savings and an additional 2.5 million and free cash flow savings.
Note that the additional free cash flow benefits are on top of the expected cash flow debt, we will that will be generated from the adjusted EBITDA savings and our normal operating activities. 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 and.
$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 with expected drop through to adjusted EBITDA on slide 11, we reaffirm our guidance for revenue adjusted EBITDA and cash capital expenditures I wanted to add a comment on seasonality and we anticipate that revenue and adjusted EBITDA for the third.
Third quarter will be down from the same period and 2020 and similar in profile to Q2.2021. This is mostly driven by the impact of supply chain challenges and impacts on production schedule due to timing of customer orders fourth quarter orders revenue and adjusted EBITDA are expected to be higher than the comparative period in 2020.
A reminder of our listeners that in 2021, and Q3 will be a 13 week period, while Q4 will be a 14 week period for a total fiscal year of 53 weeks I would like to and I'll turn things back over to Paul to discuss the factors driving our longer term outlook.
Thanks for the passenger and now on slide 12.
On this slide we summarize the unprecedented government support for public transit and Canada. The U S. The U K and New Zealand a significant amount of this funding is focused on zero emission buses and infrastructure solutions, where MSI has leadership positions. These announcements are very encouraging but they are complex and they are still going through the approval.
Negotiation and unemployment face as such we do not yet.
All of the details of when these proposals and funds will actually materialize and the financial results and buying and delivering on buses.
Turning to slide 13.
What we attempted to do here was to present, our view of the timing of market recovery as it relates to public and private transit and motor coach markets.
Essentially of phasing of the recovery from the pandemic.
As mentioned the North American public bid activity is increasing and we anticipate that this trend will continue for the seeable future driven by unprecedented levels of government support.
We expect to start seeing an uptick and project awards and the latter part of 2021 and into 2022, and we expect production to significantly increase and the second half of 2022 no.
North American private coach markets are anticipated to reach 50% of their pre COVID-19 levels in 2020 to.
Recovery here will be driven by travel and leisure sports teams universities employee shuttles and colleges. We've already started to see a shift and optimism from private private coach more of coach operators. This market will take longer to recovery from the pandemic.
In Europe, the UK, and Scotland government support and customer demand is driving strong zeb adoption and overall order activity. We expect to see these markets continue to improve throughout this year into 2022 and beyond.
The Pacific is currently experiencing higher aftermarket volumes with new vehicle order activity expected to pick up again as the market enters its next purchasing cycle in 2023.
Overall, our view is that the markets will recover and 22, but it's likely 2023 before we see of returned to pre pandemic demand production and delivery levels.
On slide 14, we provide the latest update on the North American public customer bid universe as mentioned earlier active bids, where we have submitted or and the process of submitting a proposal, meaning that had the most significant near term impact on our operations increased by 48% from 2021 Q1.
The forecasted 5 year, North American industry procurements developed through detailed discussions with transit agencies and from their published fleet replacement plans is down slightly from the first quarter, but this is primarily driven by the shift to increased active bids with agencies revisiting their capital plans and they now gain a better understanding of the new government.
Funding programs available to them.
At the end of 2021 Q2, 38% of the total bid universe, where zero emission buses up 28% from the end of Q1, highlighting the ongoing evolution to zero emission transit.
We continue to see increased usage of purchasing schedules, which includes state and national contracts and cooperative agency purchasing agreements.
Since 2018, NFC has received more than 600 vehicle awards from the schedules, which highlights the growing importance within the North American transit agencies, as an effective and efficient bus procurement tool.
I want to remind everyone that the schedules are not recorded and <unk> backlog as they do not have of defined quantity associated with them allocated to MSI or any other Oems at point of award.
Once the customer purchases of vehicle using 1 of these agreements the purchases recorded of immediately as a firm order.
Turning to slide 15, it shows our targets through 2025, we are well positioned for the long sorry for the near and long term with expectations for growth with 3.9% to <unk> 1 billion and revenue and $400 million to $400 million and adjusted EBITDA in 2025.
Our performance will be driven by our sole focus on buses and motor coaches and where we have deep customer relationships and the ability to deliver highly customized vehicles. In addition, we will continue to grow and new markets through <unk> and our book.
We have a proven track record and delivering zero emission buses and we will lead the markets transition to zero emission future. We expect the 35% to 40% of the 2025 production will be higher price and higher margin zero emission buses more than tripling, our 2020 levels.
We had the largest of zero emission bus capacity in North America, and the U K with growing presence in Europe and Asia Pacific.
And if I forward will create volume leverage as we delever sorry, as we deliver higher revenue on a lower and more flexible and fixed cost base. This is evidenced by our 2025 targets included and expected revenue CAGR of more than 8%, but and adjusted EBITDA CAGR of more than 16%.
We have 1 of the largest aftermarket bus and coach parts business and the world supporting over 105000 of our own vehicles and service and others and delivering a recurrent revenue part stream we're.
We're pleased with our performance and we're confident and our business recovery and our market outlook I'll now turn it back to Stephen to summarize today's discussion following that we'll open the call up for analyst questions. Thank you.
Paul turning now to slide 16 for a quick recap, we had a solid second quarter performance and a very challenging environment, although the although the market is on the path to recovery. There are ongoing challenges from the pandemic primarily related to the supply chain.
We continue to see unprecedented government support for transit, which will help drive order activity and growth North American public transit bid activity is the pre COVID-19 levels and we expect to see production volumes back to normal and the back half of 2022.
We continue to innovate and disrupt ourselves and the market. We've had numerous new product launches this quarter and we also announced entry into new EV markets in Australia, and Ireland, we reaffirm our full year 2021 guidance. Despite the challenging global environment. We are focused on achieving our ESG goals through initiatives aimed at reducing our internal footprint.
Creating equitable access to mobility and workforce development, we are leading this evolution to a zero emission future with strong 2025 targets that would see us drive topline growth and even better margin performance. We will now open the line for analyst questions. Henry Please provide instructions to our callers.
Thank you as a reminder to ask the question you will need to press star 1 on your telephone and do we draw your question press the pound key.
Your first question comes from Nolan and Saudi Laurentian Bank. Your line is now open.
Hi, good morning, everyone.
So my first question is regarding the.
The manufacturing segment.
I read this correctly. It is there is a little bit of pressure on the margin side. I'm. Just wondering is that has to do with the product mix or is there of supply chain pressures. If you could just provide some color on that front.
Okay. So let me just make sure I understand so 1 of the things that you are asking is from our manufacturing segment side of things.
You're seeing some margin pressure and from that perspective, you're asking about what's what's kind of causing that margin pressure that is correct. Yes.
Okay. So let me just kind of start out and then maybe we can kind of go from there. So I think 1 of the things that we're starting to see more of is from our from my perspective is we're starting to see a couple of things. So number 1 is we're starting to see more evs and with that EV mixed dynamic what's happening is we're getting a little bit more topline revenue, but when we talk about margin.
Percentage pressure, we are getting a little bit less on the margin percentage side, that's the way I'm kind of.
No just to be clear, though as we get more zero emission vehicles. The EBITDA margin for zero emission buses is actually at this point better than we're seeing FERC potential propulsion the problem is the.
And the sale price of the EV is materially higher and therefore by simple math the margin percent is slightly deteriorated.
Not viewing that as a fundamental dynamic yet in terms of our competitiveness on zero emission factor and a really good position there, but just the simple more top line of the higher sales price has a quite a significant impact on our margin percent calc.
And the demand just just 1 quick thing to there was some mix for sure and the second quarter. So we sold more and motor coaches and more vehicles in the UK and Asia, and North American transit and and some of that yes. It is related to just market dynamics and market recovery and a little bit of the issue too from the supply chain on some of the.
Idling of facilities and date and stuff like that so there was a little bit of a mix issue as well and the quarter.
Okay, perfect that's great color and just the second 1 it's more about maybe Paul can answer that there's a good slide on and.
And if I view on market recovery I'm, just wondering the solid.
Bid universe there.
What is really has to happen in the north American market for that to sort of translate into.
Backlog is that the infrastructure bill or.
Is there like something that needs to happen, where it actually gets translated or just the just like a normal cycle, where it will take a few quarters to translate into backlog.
It's a really good question and as we spend every day watching the news and <unk>.
The living and Washington, and watching what's going on in terms of the infrastructure build of replacement for the fast Act and all of those other things so theres kind of of micro and a macro dynamic first of all of the transit agencies that through kind of 18, 19, and 20 that were trying pilot projects on zero emission buses are starting to get their heads around.
The way they want to go the charging strategy of the size of the fleet the pace of adoption smaller vehicles versus 30, or 45 floaters versus Arctic and even now double deck and so forth. So there is the micro dynamic of them getting confident and the way. They want to proceed on the zero emission and having learned a little bit of round the requirements of infrastructure.
At the macro level. There is no question that the by the administration strategy and.
And policies and plans around.
Of dealing with congestion and cities dealing with the zero emission dynamic and funding the infrastructure has a really massive impact on future demand, but stability of demand and so there is a lot of people that are spending and our newborn and amount of time right now trying to understand the timing of that and the thing that often we tried to get across to investors and.
And the analysts of the stakeholders is even with an announcement today for example on the.
And the U S government of the Canadian government. It can be 18 to 24 months before that really solidly trends into actual build and delivery activity. So the good news is you've got the general market recovery and <unk>.
Economic recovery, you've got confidence from an operator and kind of starting to get his head their heads around the way they want to move to zero emission of the type of vehicles. The structures and then you have the macro tailwind of some pretty serious funding like we have never seen before so this is why I think between my comments on the Stephen comments. This morning, we kind of continue to see.
A little bit of noise through 'twenty, 1 a little bit more solid.
Order order and backlog development through 2022, and then what we think the recovery what was the previous replacement factors, if not a little bit higher in 2023 and beyond.
This is this is very helpful. And then maybe the last 1 before and head back into the night.
<unk> entered the Australian market with the partnership and I'm just wondering if you could.
Provide some color on the economics of such partnerships, you did 1 and New Zealand and direct and if it.
The big picture on that.
Yes, great Great point, so Australia, a little bit of history when.
And when we were just new Flyer and Alexander Dennis was on its own and Mark will polo before they had made it and divestments and new Flyer. There was a company that came for sale in Australia and the market leader all 3 of us bid on acquiring that business.
Our proposal was the successful player Alexander Dennis and bought another player in <unk>.
Australia is a smaller business and it really wasn't of success until the backed out of that market, but what they did learn was how the market operates the provincial dynamics of state dynamics and Australia, the local by requirements and so forth.
But this allows us to do is this partnership with an export allows us to actually build chassis kits, sorry body kits and work with that local partner to do final assembly of our buses on 8 of BYD chassis in Australia for the Australia and market and so it's not a new market to us in terms of understanding the market dynamics, but it's a reentry and.
To a market with the proven kind of strategy. The same thing we do for example, and New Zealand and worked with our local build partner to build it for the local market.
So it's not a home run, but it's another really solid we think interesting market for us to try and diversify from our current cost base and diversify and grow our revenue base.
Okay no. Thanks for the color and that's it for me. Thank you. Thanks. Thank you thanks for the month.
Next question comes from Kevin Chiang of CIBC. Your line is now open.
The.
Thanks for taking my question.
And.
Paul you talked about the bidding activity.
Elevated here.
The funding environment is good I'd be interested.
If you see any changes changes and how how transit agencies are looking on.
And I guess, replacing the fleet of building back the fleet.
Post pandemic.
Seeing considerations around how many people they want to put in a bus how theyre looking at capacity utilization.
Couple of buses they may want to order, while moving forward and maybe how do you view that.
The Patel.
Potential demand profile versus and maybe what the transit agency would've typically or the pre pandemic.
Let me start off of kind of a simple statement.
Kevin and then give you a little bit of color.
I don't think we're seeing anything difference and how they think about the future of operating the fleet and the mixed profile of the size of the vehicles all of them have strategies for on routes serviced their various route structures their pace or cadence of buses every X per hour and so forth they're on.
All have their own current facility strategy. Some of them are fairly advanced on adapting their facilities for either larger vehicles or to adopt the charging strategies and so forth. When COVID-19 started we saw and.
Clearly in some cities of the bus goal of Sunday of holiday service. So the frequency change dramatically. The route structures really didn't change and as we saw them starting to come back we in some cases, we saw as many buses on the road, but limiting the number of people on the bus and so again every city every area was different depending on how many people were writing.
How many first responders or how many essential workers had to get onto those vehicles, but as they now start to get back into load factors starting to increase ridership going up.
The strategy is more around the evolution of the propulsion and their choice of either depot charging only or on route charging so less batteries, but charging more frequency or in some cases really starting to seriously look at fuel cell electric vehicles that give them a range benefit I'm not so sure it's changing the quantum.
Or the type of bus that they want to buy other than the real focus on the propulsion system. What is changing though is the pace now and maybe their fleet renewal. So lets say since 2018 to now not only the first part of 18.19 and aim to 'twenty was around what kind of zero emission do I want what's my strategy and then from then on here has now been kind of.
Survival and Adaptational theyre, starting to get their heads around what they really think they want and so when you sit back and think of fewer and I were running of transit agency and the average seated in the U S. The comfort today that the federal government is dead serious about a public transit.
<unk> about transit in every city available to allow congestion reduction and see our commitment to environmental responsibility and therefore zero emission, it's actually really encouraging and so if we sat here with Chris and his team and went through the actual bids on the street is like we've never had as many active bid opportunities that we have.
And then we have today in many cases the quantum of buses per bid is less because they are getting into that recovery phase, but the number of discrete opportunities is at record levels.
Okay.
Full.
Yes.
Let me kind of look at it and I appreciate I think on slide 13 here on your views on the book.
And the market will probably have thoughts on what to.
Very helpful.
Maybe if I looked at it.
And the performance of the first half of 2021 of a transition year you delivered.
And just under 2000.
New buses.
On mix played a role, but that's actually not too far from the the total you were you would deliver and the first half of August.
Pandemic year obviously.
With the much higher earnings attached to that so.
And interesting to see how you think about the recovery and earnings with the recovery of volumes.
Like what do you think by 2023.
The kind of back to pre pandemic levels on your way.
And the kind of a form of the possibility of EBITDA by 2025, but it'd be interesting I think like as volumes recover.
What are some of the marks we should be thinking about in terms of in terms of EBITDA as well.
Well, it's a really good question. So in fact I will take you to slide 15, Kevin If you don't mind just to give you.
Our look at it so preview.
Previously we have given the slide this case, we actually went back and showed you at 2019 and 20.
2019, we only had half of Alexander Dennis and our business and the basically what Youll look from 2019 to 2020.
And then you look at the start of the reject trajectory of recovery, we basically lost 2 and a half to 3 years of our lives. If you will in terms of getting back to pre pandemic EBITDA performance.
And so some of it it will have a mixed dynamic some of it will have the full year benefit of ADL coming in and some of it will have the reduction of our cost and therefore, the improvements and our performance. So.
So we kind of think and our.
Without giving the details of individual periods past 'twenty 1.
We think that you will take our 2019 numbers and kind of insert them somewhere in 'twenty, 3 and so forth and you'll see us with the very strong trajectory of returning back to what we project to be 4% to $450 million by 2025, and a reminder of what we talked about last quarter. We didn't just make up a number of based on units. We went back to the volume of each of our.
Our markets pre pandemic, we took cost out of our business. We added the conversion to zero emission we added a little bit of growth based on some of the strategies that Alex Senator hatch and that got us to the $4 to $4.50. So we've kind of looked at that a date of prudent responsible reasonable conservative approach to where we can get to.
The tailwind that we're seeing are really positive in terms of funding, but it's not tomorrow. It doesn't allow for a bus to be bought tomorrow the of.
Of the dynamic that all of you got to do is read the paper today, our click on.
The Internet there is not a supplier and the world that doesn't have supply chair of manufacturer with a dozen of supply chain challenges and so in addition to managing customer demand and build slots schedules and all of their stuff. The supply chain dynamics are really causing our inability to really try and speed up. So you were in a pretty good place today.
And we're relatively stable we've got continue to change our master production schedule darn near every week, that's really why we articulated this year is a transition year nobody should expect our business to bounce back.
But we've given guidance for 'twenty, 1 as we get close 2 of our path to the new year, we will give 'twenty 2 guidance and.
And we think its about 2.2 and a half year.
The.
The downgrade if you will relative to where we were in 2019, but we're well on our path on our path back now the 1 thing and again, Paul just to make sure Kevin I'm understanding you I think you were looking at 2019 and Youre not factoring of full year of ADL correct.
Yeah, exactly what you've been taking the 2020 pre pandemic guidance.
Issued I guess early early on.
And I guess, the local learnings and work is roughly the same.
Yes, yes, yes, I think free.
Sorry, Kevin Pro forma 2019, we would of did about 6100 units for a full year of <unk>.
Yes.
That's helpful and then.
And just last 1 for me here.
And though you do operate.
The stringent local content requirement environment, but there is.
And so a lot of headlines about the goal.
The binding the administration's push to move the overall biomedical.
On a percentage to 75% I believe it is and kind of.
And I know you're already operating at 70% of world, but.
Are you hearing anything of it.
Inclusive of the local content requirements and the U S and is there anything you think you'd have to do.
So to hit that if that is coming on the pipe.
Just the point of clarification, Kevin there are 2 different things by America is the provisions inside the FTA for the purchase of Rolling stock. That's the world We live in and it went from 60% to 65% to 70% as you just summarized by American is for construction contracts and in the United States that has nothing to.
With the purchase of buses, we have heard nothing in any of our and.
Investigations are lobbying efforts to increase and our world pass the 70%. So that's the first issue. The second issue is the the local procurement requirements. There is some lobbying by various organizations and the United States and try and get local content dynamics.
And we have seen none of that yet make its way into again the purchasing of rolling stock. So we have and the past setup local completion centers of local service centers and pick 1 on Ontario, California, Oregon, and Washington, or a fabrication facility and New York to try and assist with local content, but at this point we do.
And expect to have to change our footprint to accommodate any of that.
As far as we can tell.
And that's it for me. Thank you for taking my questions.
Thanks, Kevin and Kevin.
And.
Your next question comes from Cameron Dorfman of National Bank and is now open.
Thanks, very much and good morning.
Hey, Ken.
Just a question on supply chain and I think we're all familiar with what's going on on the chip shortages and things like that.
Maybe 2 questions here 1 is.
What gives you some confidence that we're going to start to see some normalization in that.
But by the end of the year and.
And I also wonder if you could talk a little bit about cost inflation anything specifically there that youre seeing.
And you on the cost side.
Great great questions.
And so.
Putting context for all of our listeners the product that we build is not of standard vehicles sure. There are certain parts of that of the same on every vehicle, but every single 1 of the Ms customized and we're buying quantum of of parts to put on the vehicle based on a certain batch quantity of each customer.
So we are in daily communication with every single individual supplier based on each of those batches.
We don't buy microprocessors or chips directly the way.
Buy parts that have them embedded in and so yes, we've had situations, where we'll get forced measure of letters or will get customer and supplier and notifications of delays on all of these other things, but we're not our quantum of what we buy is nowhere near what automotive guys with buy and so forth.
In terms of confidence for the rest of the year, we're working based on our suppliers' ability to supply to us and so in that daily dialogue around do you have 15 of those are <unk> 50 of these that we have on order are we going to get them. This is part of the daily gymnastics that we go through of adjusting that.
The production schedules to meet production output and.
And in many cases will make judgment calls about delaying the line entry of a certain quarter based on concerns about supply chain and we will make game time decisions about knowing the line entry weeks to clean up way up or to adjusted production schedules, which is why you're seeing us dramatically recover.
Volumes in 2021.
In terms of commodity price increases.
Yes.
Most of what we're building today.
Was price and cost the year ago, or a year and a half ago and yes. There are some commodities that we buy that steel for example, I think it's 15 Grand of bus is raw steel and so we should see shorter term cost increases.
Almost all of our contracts are the vast majority of them have at least on the new flyer side have purchase price index elements to those contracts. So that go forward builds we're able to adjust the price based on the cost inflation. There is some risk in those numbers. There is also some opportunities the numbers, where we can kind of beat the inflation number.
So given the size of our quantities of our batches individual builds.
And our escalation of costs is managed at the micro level contract by contract to try and understand the impact on our business and so we think where there is no question. There is inflation on pretty well everything that we're buying we think we can manage for the most part of that inflation inside of our sales price adjustments as we go forward and of course everything we're bidding today.
Has reflects the current cost and the current price from our supplier and those in those proposals. So it's not like some of massive issue for us but it is no question of something we spent.
And in order the amount of time trying to manage the that we can maintain our margins.
Okay No. That's that's very helpful and.
Second question for you just on the aftermarket you've had a few quarters and rose year, where revenue has been very strong margins and strong.
And just wanted to maybe you sort of mentioned some retrofit.
Activity in Asia, and other things and I'm, just wondering the sort of the sustainability of the the current revenue run rate and margin run rate and the aftermarket is this kind of a new a new baseline for you.
It's a really good question Kevin.
Trying to be elusive on this 1 but it's kind of hard to tell in the Asia. There is no question, we have a big contract and Hong Kong and some others, where there's a retrofit that's almost like what we would see historically and North America, where we have a refurb type program. It is the quantity of vehicles, where we're managing with the customer and complete retrofit so I am not.
Sure of that side of the Asia market is sustainable, but it's a bit of a really good contributor through this period of Covid.
In North America, private motor coach and public motor coach.
Private motor coach and public transit I think what we're starting to see is as any of those operators have idled their fleet through COVID-19 as they are starting to get back.
Moving there is kind of catch up mode to some extent in terms of getting their vehicles ready some of the replacement parts. Some of it's kind of let's call it tuned up parts of or whatever.
To get the vehicles back into into Op daily operating service.
Whether it's sustainable and orders kind of.
It's tied a little bit to the pace at which they recover or replace their fleets, which as we just said isn't and overnight issuance of 2 or 3 year trend. So as far as we can tell for the next couple of quarters, we've got fairly.
The positive outlook on the aftermarket volume and margin in North America, and and the UK for that matter as the vehicles get back on the road.
Okay, no that makes sense I appreciate the time.
Ken.
Next question comes from Chris Murray of BTB capital markets and your line is now open.
Yeah. Thanks, guys good morning.
And just not to beat this 1 to death, but just thinking about the thinking about the supply chain issues and I guess of couple of pieces of this and maybe even looking out into the rest of the year.
So I guess I'm trying to understand what kind of risk we should be thinking about about you guys actually hitting your guidance numbers.
And the type of confidence you have about making the deliveries you've got we've had some issues before we get into Q4 and stuff has the push out of the year just just for some timing issues.
And the second piece of this is really how much of this is about external supply versus.
The internal issue say with the.
Kentucky manufacturing group.
And sort of any sort of color you can give us on your confidence level of debt. These are actually going to be transitory and we shouldnt be too worried about you guys hitting your numbers.
Really good questions, Chris, let's start, let's take them and reverse.
AMG.
And we dropped the ball and late 18 and into 2019, which caused us a bunch of problems.
We told everybody about us rethinking how to manage the facility we changed the leadership team. We added a bunch of resources get caught up and <unk> has been profitable now and even with reduced volume for a bunch of year and a half AMG is not our problem anymore, they've been a really really solid and tier internal supplier and quite honestly as you've seen.
From our <unk> forward documentation and we continue to in source more strategic parts into that building of that facility. So we're not worried about the AMD. The external supply is real and it's every day and it changes every day and every product every individual quarter has different implications and so we're doing on.
Best to manage that.
And again as I said a minute ago of few set every week and Christmas Crystal production team meeting there, making calls about the the.
The current cadence of what's on the line, but also the pace at which you will deploy or line of enter new product.
Based on their gut feel of how good the supply chain is going to be there is also some areas where our customers told us the hold slots for them. They haven't been able to get all of the the paperwork and the contract in place and so we're adjusting where line entering based on customer demand dynamics as well.
In terms of the and so our external confidence and our supply chain day.
David White and his team will tell you it's absolute hell today, but it's not that we're not managing our way through the third no question problems and in some cases, we're spending crazy amounts of money to airfreight of part in to meet the production line and that's part of some of the cost pressure or we're building things online and we'll make a conscious decision not to install a widget on and.
Sell too, but we'll do it and sell for which has retrofit dynamics or inefficiency dynamics or expedite dynamics and so forth, but now would you say Paul from a guidance perspective, and I think what we would say right now just based on some of the discussions we are and our monthly meetings as we have confidence and the 220 to $2.40 today well this is Scott.
Exactly.
It's a very dynamic situations and so so Chris the fourth quarter is no question, our strongest quarter expected this year.
We don't have this year the real.
Dynamic, where we traditionally sell a whole bunch of Mci motor coaches in December for U S customers to accept.
Vehicles to take advantage of accelerated tax and so it's largely a of transit bus delivery dynamic as well as of the Alexander Dennis dynamic.
We just reaffirmed our confidence of the $2.20 to $2.40.
Knowing that fourth quarter is going to be our strongest quarter of the year. So at this point, we're feeling we can continue to deliver the other dynamic which is a little bit orders and this situation. If we under deliver on certain volumes, we get an opportunity to potentially get a little bit more wage subsidy that helps our us retain some of these skills. So it's a bit of of circular discussion as of.
Today, we stand behind our $2.20 to 240 for this year.
Okay No that's helpful.
And then maybe.
Maybe just to follow on a little bit on Ken's question of what the aftermarket.
Look the guidance margins.
And that's the first time I've seen and pursue.
<unk> margin with the 2 in front of it and a few in the few years.
And so part of the I mean.
The question is also part of that was also about the integration of all of the different platforms.
And so I'm just trying to understand kind of like you've got some timing things and there, but how much of that is call. It. The end of <unk> forward plan or just kind of cleaning up and integrated on a common platform that you think is in that margin that might be the longer term structural.
Well there is no question as I said, the Cam Theres, some theres definitely some campaign and stuff and it's not if it's not and Hong Kong.
And Brian Doosan and for Chris will find a customer in North America, and that's working on and up retrofit campaign of iron ore driver of barriers or upgrading certain things and the vehicles you are.
Point on on ASI forward. It wasn't just about manufacturing facility rationalization or optimization, we made a conscious decision to reduce the number of stocking locations and I think it's gone from 22% to 9 or 10 in North America. In addition, we took Alexander Dennis is North American parts business, and our box part business and <unk>.
Put in the NFL parts, so what Brian business been able to do with the kind of reduce and strengthen the quality of his the distribution machine and put more parts through that the group.
Covering of the markets has definitely helped the drop through but Chris is the overhead as a percentage of sales is a couple of points down on what it was a few years ago, which reflects exactly that lets get really efficient and distributing aftermarket parts and the other thing thats actually kicking in and we've been talking about this for a long time.
More than any of other competitors, what Bryan <unk> team has done identify parts is trying to actually change or expand the way we sell parts. So theres no question, we get a phone call yet of winter wafer sure will sell to you today, but the ability to put programs in place with customers Min Max levels of consigned inventories vendor managed.
Inventory programs or even now we're flirting with some of these parts per mile type contracts on scheduled maintenance parts are really starting to help the performance of the business because it's now of the planning parts delivery as opposed to guessing and quoting and hoping we're winning so I think some of that stuff is no question sustainable on that business the movement to zero emission on.
<unk> is going to have a long term effect, because you'll have less parts being replaced.
And that isn't today that that's years to come and we're planning for that as we speak.
Okay.
But my question is for first of all thanks guys.
Thanks, Chris.
Your next question comes from Maggie Macdougall of Stifel. Your line is now open.
Good morning.
Good morning.
Following up on the conversation around outlook guidance et cetera, but leading most of the commentary on I'm just curious how we should be thinking about.
Work and progress on inventory cadence and the balance of the year, you've got some initiatives to reduce some of them.
Working capital days and.
You've also got I guess I'd call, it a bit of and unpredictable and lumpy supply chain. So.
Should we be thinking about the potential for increased work in progress.
Our keys tree falling in Q4, and you enter into that strong quarter or is it just kind of in the fall.
Following the historical pattern.
Yes, and maybe I'll just start out and then I'm sure Paul and Steve and can jump in so maybe I'll just talk a little bit of that cash flow and the jump into the working capital as well so at a very high level. If we start thinking about Maggie if we start thinking about what we expect to spend on capital. This year, we're kind of still looking at that $50 million range. The guidance that we provided.
A couple of things here from the inventory.
Did that all kind of mentioned here. So number 1 is our goal at the end of the day is to get back to the normal working capital days, which is which should be and the low fifty's overtime.
And I think we're kind of of that 60 range right. Now so we're kind of dealing with some of that there is a couple of things of your inventory levels for us.
We do expect those to be heightened on the private coach and some of the supply chain issues.
And from from our perspective, but.
No.
Some of the supply chain issues will kind of give us a little bit of a range, but we're still trying to get into that sub 60, obviously before the year and.
A year and is up and we kind of think about that from a 13 point working capital average, which as you know that's the.
And the internal metric, we use which is a very difficult metric to achieve from of target perspective.
And we've made really good progress on on reducing some of the working capital.
And we started the year as you know everybody knows we were worried about the fixed assets and fix the finished goods sitting on our motor coach pool, the private sales team and North America as well as they exit of Dennis sales team and and the UK of been able to actually really move some of those those are finished.
The private motor coaches and so that's been a positive contributor.
It's not like we warehouse spare parts to build buses, we build buy parts.
On to a specific bus and so its not really around the park. This is more around the patent the pace and cadence of delivery of product through the factory and so given some of the supply chain dynamics, we have seen definitely noise at our ability to finish and deliver of vehicle but.
And we kind of think where and the when the worst of it right now and as we head through the end of this year and into the first quarter and first half of next year that we'll see even better performance on on our working capital side and the only thing I think I'd add there is probably on the back half of this year, probably the a bit of the working capital investment I don't know, if it's something and the 20 to 30 million.
And for the back half of 2021 because of.
All of the factors the guys talked about if it's inventory levels more sales of zero emission buses and some of the supply chain challenges, but overall for the year I think it's a positive working capital benefit, but the but a little bit of and investment in the back half of 2021.
Great. Thanks, and then just in terms of how we should.
Monitored the situation.
And have fun the.
The level of detail that you guys have.
And should we be thinking about the clearing up of the chip shortage and the chassis shortage and and being kind of major markers for and indicator around your supply chain issues abating or is it a bit too nuance to be able to look at.
A couple of larger.
Parts of markets and determined.
And <unk>.
Well, it's a great question and I wish we had the fidelity to understand how the chip shortage is affects the sub suppliers and then our suppliers on us and so we're not really deep inside that world. We know when we phone a supplier of whether they can deliver to schedule and to the quantity that we need there is no question that that global dynamic has as.
It gets healthier Theres no question that will help us the second issue is the whole freight and logistics dynamics of the whole Suez Canal dynamic the the.
The pushing back of the global movement of freight and so forth parts and that's what we buy of light offshore, but parts of being stuck and containers and different things has had an issue on our business and so as that kind of clears itself as the macro indicators of Theres No question that will only help our individual business.
So I don't know if that helps you. The chassis shortage is directly a result in 2 issues, 1 and North America are blocked by the chassis and in some cases the chassis are.
And basically given to us by our dealer, who then we build the body on it and sell it back to the.
And that it's directly of chassis or a <unk>.
<unk> supply issue to the fords and the Gms and so forth that supply of those chassis and the other dynamic is Alexander Dennis in the U K bodies BYD chassis and so the ability for BYD build of chassis.
Batteries framed structure microprocessors, where the required and then ship that from China to the U K or from Europe to U K or some of the challenges associated with that supply.
No question, we hope that and expect to see that start to clear up throughout the rest of the year and into next year, which then it goes back to the market demand, increasing and our on our business and the reliability and stability of our own supply chain, which is why we continue to say.
2021 is it kind of of transition for US had we not had the supply chain dynamics, we'd be probably in the different place in terms of being far more sure of our confidence of the ramp up of our business and then as I said before we still have issues, where customers are the pandemic and a massive issue impact on of transit agency and so the ability to.
Plan their fleet replacement the ability to make sure that they have funding the uncertainty and yet positive news of the federal government funding are all tailwind that will help us, but if you walked into the middle of the transit agency today, there are still lots of pressures and dynamics around deployment and recovery of their fleets strategy around deployment of of zero emission charging things.
And so forth, so a little bit of a helter skelter to some extent.
Thanks, a lot.
And I appreciate your responses.
1 final thing from me I noticed that your infrastructure solutions Division is starting to pick up since the recognize it's pretty small, but I'm really curious.
All of that offering.
Plays into your conversations around the body.
Transition.
As you discussed and.
You know planning with the transit agencies around the replacement of fleet et cetera, and if you've noticed any patterns can be now whereby that has actually given new bit of an advantage versus the.
And maybe some of your competitors on that market.
While air tickets and important observation because the first number of deployments of couple of years ago, we were very frustrated.
And to build the bus delivering the bus to a customer and then the infrastructure side of it or the charging side of it and not being ready or are appropriate or easily to operate and so we got into that business may be have good luck and and have the foresight of trying to think about how to provide more of a solution and then just the vehicle it.
It has grown year over year and continues to grow. We're currently I think in 1 of our slides we had of stat and they're about 44 individual initiatives that were bidding on where were selling of vehicle and trying to tag the infrastructure side of it with it.
I think Chris Austin, and will give me a stat that says kind of for every 10 buses 10 bus contracts, maybe 6 times or so we will actually sell the infrastructure associated with it.
And so that's an important part of our business not only from a customer SaaS and of customer confidence and deployment perspective, but also it's now.
To some extent of profit opportunity for us the growth of the business is something we're spending a lot more time on all of all you've got to do is check.
Check the news or go on the Internet and everybody's talking about mobility as a service are charging as a service and where the energy going to come from and whether the bundle the buses witten and so forth. That's an area. We're spending a lot of time on trying to understand where the where where we migrate from just the vehicle provider to a solution provider and how deep do we get into that.
It's been a really good business I have to tell you as well and putting the Chargers in and then providing the customer support on terms of troubleshoot and their fleet, but also the Chargers has allowed us to learn an awful lot.
And how to make more reliable more robust buses going forward, it's going to be an area that work and the continued focus every 1 of our competitors talks about it but I think we've got a real leg up where we've actually had many many situations of deployment and lots of lessons learned whether it's depot level charging on route charging.
Thanks, again have a great good morning, guys.
Thanks, Patrick.
The next question comes from Mark Neville of Scotiabank. Your line is now open.
Sure.
Hey, good morning, guys.
Maybe just maybe just to follow up on the supply chain issues.
And I guess.
Considering the pull of the Maggie's question I guess, just thinking about the cadence of recovery.
You mentioned again, maybe youre ordering and much smaller batches and some of the auto movies and the can your opinions.
Good or bad thing and just curious if you sort of lead or lag sort of the recovery might be and really again I'm just trying to.
Sure and trying to figure out how to handicap the cadence of the recovery, yes. It's a really good question that I wish I had the answer for you of some days, we think hey, we only 50 of these widgets and so surely they can find the way to get 50 and get us our parks than we hear about fields of 150000 F 150 somewhere waiting for a certain number of parts of our components to build the bus.
Or to build the trucker finished the truck and deliver it so I'm not sure we really know the answer to that in many situations as you know Mark we don't get the choose our supplier many of them are specced by our customers. So we're.
And of the.
At the wheel, if you will of of our suppliers' ability to source of that stuff I think and net net the smaller quantities that we need are probably allowing us to be a little bit more flexible and getting things here.
Here or there so the chip shortage is 1 of it but we can't underestimate. The are also a number of suppliers like we had 1 supplier and I think it was I can't remember doors of Windows of some darn thing where the.
They had they had a COVID-19 breakout the place of shut down for 2 weeks well wait a minute, we're waiting for windows or bus and our doors to build the bus what are we going to do so that stuff is still real and who knows if we'll have a real fourth wave of COVID-19, but in some of the parts of the U. S. For example, we've seen suppliers have real challenges to get us the parks and it has nothing to do with.
And with microprocessors are chips so the.
It's just it's a really uncertain time right now both the combination of Covid and the supply chain dynamics and the chip supply.
I think net net are smaller batch quantities gives us the ability to be a little bit more nimble and quite honestly, Chris is really trying to be prudent about what he puts online based on what he knows is scheduled orders coming in and the comprehensive supply chain.
Youll remember in 2019, our balloon our whip ballooned.
Because of <unk> couldnt deliver parts, and we kept hoping and managing and trying to get those parts and we built up disproportionate with Chris is not doing that right. Now we are adjusting the input based on what we have known or have high confidence and supply chain and I'd, rather take a little bit short term pain or short term muted.
Revenue to make sure that we don't balloon and our whip or where we don't spend disproportionate cost trying to resolve those problems until that whole thing kind of works its way over the next year or 2.
But 1 of the things Paul and you'd probably add real quick just markets. We are taking a lot of trying to help with the supply chain issues and kind of balancing that out theres a lot of inventory coming out and that latter half of the year, especially on the Mci side of things. So I think we'll probably see a little bit of a balancing out of that with that and with ABL. So.
To kind of help us there.
Sure sure.
And I'm thinking about the 2021 guide.
How much of that I guess at this point would be sort of pre sold and where the real risk is and maybe you don't maybe you kind of at the low end and I'll hit the number for the year, but it's really just an issue where it gets pushed into 2022.
And if that's the case I mean is there any penalties for late deliveries and the transit authorities or the other customers and are they sort of working with you through the supply chain issues as well.
95% of our what we need to build in the back half of the year is effectively contracted work Theres a few slots, we still have that we've either got to secure it for this year or push it out into next year, but we don't have.
We have had and we manage individual contract signings and timing and so forth are issue for the back half of the year is more around the timing of what we put online and.
And the confidence and the supply chain as opposed to lost work to somebody else. So if Chris delays the deployment of a certain product online in 2021, its because he doesn't have confidence that he can get the paperwork and time from the customer or that he can get the supply chain to do it efficiently.
Not really lost work at this far into the year and I think from your point also I think theres the penalty wise Thats emitter and yes.
We do have every contract has some element of liquidated damages.
And in many cases.
The vast majority of the cases, we are able to manage that with the customer by promptly advising and working on delivery windows and schedules and in some cases of few concessions here of there. We do have we do have LDS liquidity damages at times, but it's not a material number in any way shape or form.
Great.
Hey, guys, just 1 more question and I guess longer term and I.
And while you mentioned that the transition story and the activity and opportunity to become smaller but.
And as your infrastructure solution business grows and your installed fleet of charging and all of that group does that capex.
The potential of lawsuit or is it of.
And aftermarket opportunity of doing Roseville.
Thanks.
That's the that's a super insight and I think that comes directly from what we talked at our Investor day part of this year those revenue streams that we're starting to get or starting to look at that we never had historically and in the parts business not just the transactional sales, but all of the things Brian and team have done in terms of vendor managed inventories and now potentially parts per mile contracts on those.
End of things are going to give us revenue streams that will displace some of that transactional parts nature.
The infrastructure solutions.
And as a revenue stream, we never had before that now allows us not only the sourcing of it potentially to do some servicing or monitoring you're managing of it in fact most of the crystal.
Field service team today are actually not just helping with the deployment of the infrastructure, but actually troubleshooting and servicing on behalf of the customer our truck is going to be to figure out how to convert debt from a customer support dynamic into our go forward revenue stream, but that's exactly what we're trying to do which is why when people say to what's your parts business is going to go when we say well let to some.
The extent that's true over time, there is less.
Moving parts and the zero emission vehicle I will caution to say the vast majority of the propulsion and parts today, we don't sell Allison has their own distribution network Cummins has their own distribution network, we don't sell a lot of that stuff. We sell some so we're going to lose a little bit there, we're going to lose a little bit of a break revenue for example, because they are really efficient use of zero emission vehicles.
Use the brakes as much but there are other revenue streams that we've got today and that we're pursuing that we think and supplant that for the longer term outlook.
Thanks, guys.
Thanks Mark.
And.
Next question comes from Jonathan Lamers of BMO capital markets.
Good morning.
I know each of the finished goods inventory on the balance sheet was down at the end of Q2 from Q1 has there been any change and the private coaches and inventory.
And how confident are you that the private markets will start improving towards that 50% of pre COVID-19 levels by Q4.
Great observation, Jonathan Youll remember at the beginning of the year 1 of our biggest concerns as we finished through last year as we idled. The production line of both the private motor coach and North America, and the private motor coach in the U K through the plaques and brand.
And our concern was we would had too many finished goods of new buses are new coaches and used coaches the sale of the entire pool of the used coaches has proved to be extremely important and very very strategic and.
And because today, we're starting to see a little uptake in the purchasing and in the U S of motor coaches I'll admit earlier than we thought they would be.
And so Chris and team has done a really good job of burning down some of that excess finished goods as has the team and the U K to the point, where we're actually now really trying to put on the calendar. When we will restart our production lines for commercial coaches and North America, and and where we're looking at the end of the year is probably the point, where we'd be able.
To do that at.
And at any 1 point and time.
And we'll probably have plus or -50.
New private motor coach is on the shelf and it will depend on the timing of the year when we sell them Chris.
Chris is actually projecting now to have that he's got that down quite materially from what we had originally and by the end of the year, we may be down to as little as 25 pre owned or sort of new motor coaches on the shelf and that's exactly what the burning down the finished goods inventory.
Thanks, and Theres been quite of few questions on the revenue guidance.
And I'd, just like to follow up to make sure I'm not missing anything.
If if Q3 is lower than last year.
And then to achieve the low end of the range.
Manav suggests Q4 revenue would have to be.
Well above 2019 Q4.
Even after adjusting for the 14th week that we'll have this year.
Does that makes sense of J coach production is still down.
While we're still selling finished goods so that will contribute even though the production is down the.
There's a there's a volume dynamic and there's a mixed dynamic and as you know every time, we sell the zero emission vehicle, whether it's battery or fuel cell electric it has.
And 1.5 times the revenue of the conventional vehicle.
And I think Jonathan the only thing I'd add there when we're talking about being down year over year were mostly looking at the EBITDA margin on.
The revenue side.
It may be kind of up year over year.
On the topline yeah.
Yeah, and I think we're going to be getting a lot more ABL as well right. So I think there's some dynamics there that were that we've got to push it especially for the end of the year, which obviously is a little bit of that dynamic with the supply chain and right now we feel confident we'll get it but obviously, we're monitoring that daily.
Okay and last question for me I thought the.
Latest news from the U S. Federal government over the weekend was fairly encouraging with respect to the long term outlook for funding.
Funding.
Yes.
At least based on what's on paper today, the 100 billion plus that's listed on slide 12 of your presentation.
Do you believe that that would provide for.
Transit volumes to recover.
To the 6000 unit range.
And for the higher prices of zero emission buses.
Yes, I mean, I think we totally think so I think and 1 of the best things about the government funding that's coming through its multi year funding. So similar to the fast Act 5 year funding program, which gives us a lot of confidence to the transit agencies about the outlook of what's coming and what they can procure and that the funding is going to be available and I think.
And from what we saw in both the bipartisan infrastructure Act.
And in the invest and America Act. So the 1 that's on the house and then the ones and the Senate, they're both over 5 times more funding for zero emission buses and additional funding for more low new grants and additional funding for more infrastructure. So across the board. There has definitely been a I would say a lot more.
Focus from government on the cost the higher cost of of zero emission bus versus the traditional propulsion bus.
And that's in the U S U K and Canada, 2 where we've seen some major announcements from the Canada infrastructure bank $400 million in Ottawa and $450 million and Brampton.
Again, all reflecting debt they fully expect they are going to have to pay more for zero emission bus versus a traditional propulsion and bus. So I think our view is yes definitely that the funding as proposed would support getting the market back to those pre pandemic levels.
Thanks for your comments.
Thanks, Jonathan.
As a reminder to ask the question you will need to press star 1 on your telephone keypad.
Okay. Henry are there any other questions.
No further questions on the phone please continue sir.
Okay, well I think we'll wrap it up so thanks, everyone for joining us today, thanks to the parts of and Paul as well and thanks to all of the analysts for your questions.
Just wanted to let our listeners know that we are launching of new website with the new Investor section.
Should be done within the next couple of weeks in August and thank everyone for your time today all of the all the information discussed today can be found on the investors section of our website. We will now terminate the call have a great day.
This concludes today's conference call. Thank you for participating you may now disconnect.
Yes.
Okay.
Okay.
Yes.
Okay.
And.
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