Q4 2022 NFI Group Inc Earnings Call

[music].

Thank you for standing by and welcome to the NN.

Group's fourth quarter 2021 financial results call at this time, all participants are in listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During this session you will need to press star one on your telephone as a reminder, today's program may be recorded and now I'd like to introduce your host for today's program.

Stephen King Group Director corporate development and Investor Relations. Please go ahead Sir.

Thank you Jonathan Good morning, everyone and welcome to N F I group's fourth quarter and full year 2021 results conference call.

Joining me today are Paul <unk>, President and Chief Executive Officer capacity Soni, Chief Financial Officer, David White Executive Vice President supply management.

Today's call will be longer than our usual quarterly calls we had originally planned on holding an investor day in January 2022.

With the onset of the COVID-19, Micron berrien ongoing and escalating supply chain challenges facing the manufacturing and transportation industries. We felt it was best to delay that event until a later date we.

We do think it is important to provide a detailed update to our investors and stakeholders. So today, we will discuss how we finished 2021 provide information on the current record vehicle bid and funding environment. The ongoing supply chain challenges that are impacting operations and an update on our longer term outlook.

Since we completed our last Investor day in January 2021, a significant number of milestones have been achieved both internally and externally that position <unk> extremely well for the future.

I'll remind our listeners that today's call is being recorded and a replay will be made available. Shortly we will be using a presentation that can be found in the investors section of our website, while we will be moving to slides via the webcast link will also call out the slide number as we go through the deck for participants on the phone and web.

Webcast participants can submit a question on the portal under the ask a question.

Yes.

Starting with slide two I'll remind everyone that certain information provided on today's call may be forward looking and based on assumptions and anticipated results that are subject to uncertainties 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 are advised to read.

These risk factors found in enterprise press releases and other public filings on SEDAR for more details. We also want to remind listeners that enterprise financial statements are presented in U S dollars, the company's functional currency and all amounts referred to are in U S dollars unless otherwise noted.

On slide three we've included some key terms and definitions referred to in this presentation of note zero emission buses or zips consist of battery electric hydrogen fuel cell electric trolley electric.

Equivalent units or Eus is a term we use for both production slots and delivery statistics. The majority of our vehicles, representing one equivalent unit well articulated 60 foot transit bus two production slots, therefore equal to two equivalent units.

On slide four for those of you new to the enterprise story.

Leading independent global provider of sustainable bus and motor coach solutions. We are leaders in our core markets, which include North American heavy duty transit coach and aftermarket the UK heavy duty transit and aftermarket and a world leader in double deck transit buses.

Turning to slide five our purpose and mission is simple we exist to move people in other words, our products move precious curve.

We are focused on designing building and delivering exceptional safe and turnkey mobility solutions.

You've made a sustainability pledge originally in 2006 Theres still hold today.

That is a better product a better workplace a better world.

On the ESG front, one of our key actions in 2021 was to engage an independent third party to conduct a diversity equity and inclusion survey of our organization. We continue to leave that the findings of that survey and other ESG metrics into the fabric of our day to day operations and our long term plan.

Slide six is critically important as it shows the breadth of our full offering our solutions include vehicles infrastructure connected data and telematics aftermarket parts and service and financing solutions. We are truly a partner of choice for Boston coach customers offering turnkey solutions on.

On slide seven we've included our stakeholder model that drives our strategic decisions and our company values used in our daily operations achieving balance for all our stakeholders is critical to the long term success.

Especially true as we've managed through COVID-19, pandemic and the ongoing global supply challenges.

Moving to slide eight we are often asked about our total addressable market or Tam as you can see we have leadership positions in our core markets, which represent a tam of nearly $9 billion.

Of which we are currently capturing approximately 33% we expect that our share of this market will grow over time as we lead the transition to zero emission transportation.

In addition, we have an additional tam opportunity of at least $10 billion coming from potential new market opportunities in the North American and U K bus and coach space combined with geographic markets, where we already have a presence and other new potential geographic regions.

Our international expansion is made possible through Alexander Dennis limited or ADL, which was acquired in 2019 and why it has been significantly impacted by the pandemic and associated supply chain challenges. It continues to expand its reach on slide nine we walked through this growth ADL has secured E V Awards in New Zealand grown in Hong Kong.

Continued to establish its presence in Singapore and has also seen significant European expansion with contract wins in Ireland, Germany. For example, Ada will deliver almost 200 double deck buses into Berlin. This year.

Finally in 2021 ADL entered into a strategic partnership with a local builder in Australia to grow its presence in that attractive market.

And if I had been on a growth and diversification journey since 2010 with slide 10, showcasing this transition in 2010, we were solely operating in the North American heavy duty transit market with 99% of our volumes coming from buses powered by internal combustion engines by 2019, we had changed our business with over 13% of our revenue coming in.

Outside of North America offered through three different vehicle segments, and 6% of volumes coming from electric buses by 2025, we expect that 25% of revenues will come from international markets and then we will see stronger contributions from heavy duty transit vehicles, driven by expectations that more than 40% of our deliveries will be zero emission.

Losses.

Government support the key driver for trains of Procurements is at an all time high with billions of dollars committed for long term multiyear fleet investments and the transition to zero emission, where <unk> has a very successful win rate.

Putting all this together on slide 11, as NFS investment rationale as discussed we have leadership positions in the markets that are transitioning to electrification with record demand in funding tailwind.

This will this will grow both top line revenue and bottom line earnings we have decades of combined bus experience and track record, which is critical to our customers and a key differentiator when compared to new entrants. While we are leaders in zero emission battery and fuel cell electric propulsion. We are also propulsion agnostic offering legacy diesel CMG and diesel hybrid electric.

Options, we can support our customers in whichever stage. They are in their transition to zero emission. This is another key differentiator for many of our competitors.

Finally, while there have been challenges in the recent term and Empire has historically delivered above industry performance outperforming our peers and we anticipate significant margin growth to 2025.

I'll now pass it over to Paul to recap the quarter and fiscal 2021.

Thank you Stephen and good morning, everyone.

I'm well aware that our results will create a very difficult day in the market for our shareholders. These results reflect today's reality and I'm sure. Many will show frustration with our outlook in 2022.

The last two years have been like no. Other from 2012 to 2019, we assembled a group of World class bus and coach companies with the most recent being Alexander deaths in 2019, which we acquired effectively with debt.

We were excited about our next chapter, but the reality is the world for us changed and for many in Q1 of 2020.

The pandemic has gone deeper and longer than we ever could have imagined and the resulting impact on the global supply chain is unprecedented and Kinder continues with no obvious or quick relief insight.

Our reality is today, we have 2000 less people than we started 2020.

People that have been here and stuck with us as we've asked them to idle the stopped to start to slow down speed up and slow down again.

Our business is not a simple one but were darn good at it and we have a bright future. We've proven we will be transparent with our employees with our customers and with the street and we will make difficult and in some cases unpopular decisions, but we will and have do we have and we'll do the right thing for our future.

Let me be clear, we don't have a demand issue, we don't have a product or a service gap.

We have a backlog and we have track record, but today's reality is we have an unreliable and unpredictable supply chain.

It's not pretty right now, but we will manage through it we lead this market we let it before the pandemic, we're leading in the middle of the pandemic and we will lead it after the pandemic when supply chain gets healthy.

So for today's discussion I'll start on slide 13.

Like the other global manufacturers Edifies fourth quarter and full year 'twenty, one results and operations were again impacted by supply chain challenges that caused unpredictable and sudden deterioration the availability of critical parts components and chassis.

We responded quickly to these issues, we are assisting our suppliers with input constraints and improving our securing alternate sources of supply where possible we've lowered our production rates and idled facilities at times, which assisted in minimizing reprocessing of buses and avoided buildup of excess work in process. Our orders are highly customized vehicles engineered.

Each customers unique specifications and their selected suppliers da Vinci individual order sizes are smaller.

And have long lead times. In addition, we often had to adhere to local content rules such as buy America. These factors make our business very different from automotive or trucking industries, where customers often buy more standardized or pre configured products. It also limits our ability for quick substitution or alternate suppliers on individual <unk>.

Yeah.

Our supply chain is built for this world.

And has delivered years of exceptional performance, but they are experiencing unprecedented constraints, we're not highlighting this as an excuse but simply the reality of our business and our industry is the way it is.

With those details in mind, we review, our fourth quarter and fiscal 2021 results summarized on slide 14.

While the core continued to be impacted by supply chain and pandemic related absenteeism, we had numerous positives that position <unk> well for the future with strong growth in active procurements are up 70% year over year, we added more than 1600, <unk> to our backlog backlog, resulting in a book to bill ratio for the firm.

Time in a long time of 115% are.

<unk> zero emission buses made up 31% of our quarter deliveries and we achieved milestones of more than 50 million zero emission miles driven and over 275, EV Chargers installed by our infrastructure team.

39% of our total North American bid Universe is now zero emission buses. This represents over 10000 units of opportunity supporting our view of significant increase in demand for electric buses going forward.

We delivered an additional $18 million of NFS forward savings in the quarter and now $65 million for the year when combined with cash flow savings, we strengthened our balance sheet through equity raises and convertible debt issuance and finally, even in the face of the pandemic and supply chain related challenges, we saw quarterly aftermarket EBITDA increased 13.

Percent up 47% year over year.

We've asked David White, our EVP of supply chain to join US today, and David who will walk you through some of the details of our supply chain of specific challenges that impact 2021, David will also talk you through some of the things. He is working on to improve our outlook going forward. After that capacity will take you through our financial outlook for 2022 over to you David.

Thanks, Paul.

In my entire 20 years of leading supply management, New Flyer, we have never experienced supply shortages and disruptions from our suppliers even on accumulative basis like those we have seen over the past 12 months.

We're in the very difficult situation of having a strong order book with near record demand countered by this insufficient supply.

Slide 15 shows the dramatic drop in our production throughput, resulting from the pandemic and the escalating global supply chain challenges two.

2019, we were producing over 1300 units a quarter with a very strong and reliable supply base with proven execution.

In 2020, our production rates decline with the pandemic impacting customer demand and as we entered 2021 the surges in COVID-19 impacted labor and capacity at both our plants and our suppliers around the world leading to elevated disruptions in supply on key inputs.

As we manage through the impact of these challenges to our facilities, we decreased our quarterly production rates.

While we are working to resolve key issues.

And I do anticipate recovery. The first half of 2022 continues to be challenged and we will operate at lower levels to match supply availability.

Turning to slide 16.

Our supply team is very proactively communicating schedules and requirements to all of our supply partners.

Through a detailed risk assessment process, our team continually monitors and evaluates the risk and potential impact of supplier disruption.

To do this we review supplier's financial strength, we monitor their past performance, we work proactively to understand their tier two supply and other risk factors with category categorize suppliers based on these risks and we consider severe impacts of players as those who can result in a line shutdown.

The need to lower production rates or significantly impact completing buses.

We navigated through 2020, and we started 2021 with without any major disruption from severe impacts suppliers.

Basically the similar performance to what our supply chain has delivered for years.

By the fourth quarter of 2021. These disruptions escalated to 50 severe suppliers across edify impacting key components, such as Windows Air conditioning emission systems plastic silicone hoses and many key electrical components and systems, which contained microprocessors.

Our team has worked tirelessly to assist suppliers and resolving lower tier or sub supplier constraints as well as improving and finding alternate alternative sources wherever possible.

However, there is only so much we can do an alternative source and given the dynamics of our customer commitments and our product specifications.

For my industry conversations our competitors are experiencing the same challenges often from common suppliers I'll note that even in the face of these challenges we have not seen a single cancellation from a customer due to supplier the resulting delay in the timing of our delivery.

Further compounding these supply issues in January 2022, a fire occurred at our supplier.

Sub supplier of one of our primary North American electric bus battery supplier.

While it diligent recovery plan is in place. This has resulted in a three months disruption to new Flyers electric battery bus supply.

With very little ability to accelerate other orders in the production window.

We are in development of our next generation qualification program using alternative battery supply in this program, which started in 2020 will launch into production during the fourth quarter of this year.

As we look forward for the balance of 2022, the risks remain elevated as global supply chains are constrained and sensitive to further shocks.

I do remain optimistic that we will see improvement in the second half based on the actions taken by our team and our supply base to address all the current constraints.

It just is not happening as soon as we had expected.

I'll now pass it over to El Paso to walk through the financial impacts on 2021 from these disruptions in the outlook for 2022.

Thanks, David turning to slide 17, we've illustrated the impact of the pandemic and the follow on impact of supply chain challenges just discussed.

During the first half of 2020, we iron loggers buildings for approximately two months in response to the pandemic. During this time, we received both Canadian and U K government wage subsidies to assist us in retaining our people.

In the second half of 2020, we were able to catch up on delayed production as supply was not significantly impacted.

Moving into 2021, our adjusted EBITDA was essentially split between weight subsidies operations in the second half of 'twenty. One we received fewer wage subsidies and experienced a rapid decline in operational performance and supplier disruption accelerating.

It is important to note that as we head into 2022, we do not expect to receive any further way subsidies versus the 54 million received in 2020 and $56 million received in 2021. This makes year over year comparisons difficult.

Slide 18, we outline the impacts to our net earnings and adjusted net earnings our net loss for the quarter increased by $17 2 million.

Compared to the same period in 2020 due to lower new vehicle deliveries continuing supply challenges and lower wage subsidy assistance for the full year net loss improved due to lower restructuring and COVID-19 related costs, while adjusted net loss, which normalizes for nonrecurring onetime items decreased due to stronger.

Adjusted EBITDA, while the pandemic has challenged our business we have not been passive in on our response.

On slide 19, we outline the numerous initiatives we have completed to offset pandemic related impacts. We originally launched our transformative NFA foreign initiatives in July of 2020, with a goal to achieve $67 million in annualized run rate savings by 2003.

We are well on our way to achieving that target through $55 million and overhead and SG&A reductions the closure of a number of facilities in North America, and the U K and sourcing savings.

Outside of antibody forward, we've increased our use of third party manufacturers in the UK and Asia Pacific. We also strengthened our balance sheet through a combined $738 million Canadian and equity raises and convertible debenture issuance.

Turning to slide 20. This shows the results of these efforts with net debt decreasing by $464 million and liquidity improving to nearly $800 million. Our convertible debentures are excluded from our leverage calculations and come with cash settlement options.

These raises position <unk> well for the future as well as as we have financial flexibility and a diversified balance sheet.

I'd now like to turn my focus to our outlook for 2022 with our guidance on slide 21.

We anticipate revenue growth driven by a higher percentage of zero emission bus deliveries and product mix.

We expect adjusted EBITDA of $100 million to $130 million, reflecting supply chain disruption and associated production inefficiencies, especially in the first half of the year.

In addition, we anticipate zero government wage subsidies.

Offsetting these reductions are anticipated NOI forward savings generated in 2022.

We do expect the majority of our revenue and adjusted EBITDA will come in the second half of the year, reflecting timing of our customer orders and improvement in supply chain.

While we have hard from suppliers that we should see recovery in the second half we are cautious and focused on ensuring that we continue to manage our cost web levels and net debt during that period.

Also impacting 2022 is a period of heightened inflation from supplier price increases and purchased raw material commodities.

To counter these rapid increases we have repriced certain contracts and leverage clauses, where purchase price index can be applied to pass on cost increases.

For those contracts, where these causes are not applicable we are seeking price increases and surcharges through negotiations with customers. These potential benefits of those surcharges are not included within the guidance ranges provided.

Turning to slide 22.

As there is pressure on financial results in the first half of 2022, we do expect that it will have a lower trailing 12 months adjusted EBITDA when our covenants resume in the third quarter of 2022.

As such we may not be able to comply with certain financial covenants, including the interest coverage ratio and total leverage covenant.

This is a calculation challenge rather than a liquidity issue our banking partners have been very supportive throughout the past 24 months, assisting us and focusing on our long term business, while managing near term challenges. We are currently in ongoing discussions regarding additional covenant flexibility into 2023 to address this.

Issue.

While our focus is on finding a solution with our banking partners. There are numerous levers that we are exploring to lower our leverage including accounts receivable financing receipt of customer advance payments and deposits with expectations that we will receive several large deposits in 2022 based on recent awards and potential for others supplier finance.

<unk> program customer surcharges to offset inflation related price increases and various cost reduction programs across the business in aggregate. These items could generate significant net debt reduction and improvements to adjusted EBITDA.

Turning to slide 23, while we believe the supply chain challenges are temporary.

Have made the prudent yet difficult decision to reduce our current dividend by 75% to five per year, given the strength of our order book combined with expectations of supply recovery in late 2022, and increasing demand of our products and services, we do see an opportunity to <unk>.

Increase the dividend supply chain.

Important.

Before I hand things back to Paul I will close with an update on slide 24, which reflects our near term expectations.

Provided with our Q3 2021 results we are seeing phase one of the recovery plan as importantly, with recovery in bid activity private.

But market travel resuming and the initial rollouts of record government funding into public transit.

As we now move to phase two we have anticipated that we will see significant new project Awards plus overall continued growth in private market as vaccine mandates are lifted and leisure travel resumes finally in phase III. We believe we'll see the true benefits of recovery as will begin to deliver on the significant awards received in 2022 and full rollout of new government.

Funding now that we've covered 2021 and 'twenty two Paul will walk us through our strategic outlook as we drive toward our 2025 targets of over $4 billion of revenue and adjusted EBITDA of $100 million to $450 million.

Excuse me thank you Patrick.

Now on slide 26.

The transportation industry is a leader in the adoption of battery electric vehicles and this is even more pronounced in public transit, which is our largest market commitments to zero mission and our focus on shifting away from single car usage to share transportation is a critical driver in helping cities states and provinces and countries achieved their net Z.

Our goals.

<unk>, playing a leadership role in this zero emission evolution of what we call. This evolution.

On slide 27, we outlined some of the key milestones and Differentiators for our business.

Combined our businesses have over 450 years of bus and coach experience and specifically 50 years now of electric bus experienced in North America with the number one provider of zero emission buses in North America and the UK.

Based on 2020 and estimated 2021 deliveries.

We have electric vehicles installed or on order in over 80 major cities with recent awards in California, Colorado, Michigan, New Jersey, Texas and.

In Scotland and England.

This year, our buses reached a milestone with over 50 million zero emission miles in service and we can produce over 8000 vehicles of all propulsion types on a common production lines at our facilities.

So far this year, we've completed zeb charging infrastructure solution projects in nine cities with projects in process in a further 19 cities.

Our history of innovation, our leadership position and our strengthened zero emission vehicle production has placed us in pole position on our path to 2025.

On slide 28 in January 2021, we've provided our investors with an outlook for the market and we first introduced our 2025 targets that capacity just took you through since that time many of our expectation plans have come to fruition and we continue to see that path to achieve our targets as you heard from Steven David and capacity 2000.

<unk> 'twenty and 2021 had its challenges and in 2022 will also face headwinds, but the underlying key drivers of our business have improved and strengthened.

I would now like to walk you through the items that will give growth for our 2023 to 2025 plant.

Starting on slide 29, we discuss our transformative NFIB forward initiative.

As capacity mentioned originally launched in 2020 with the goal to reduce our overhead and SG&A by 8% to 10% from 2019 baseline levels and to generate additional sourcing savings. The program has seen tremendous success. We continue to expect that we will achieve our target of $67 million adjusted EBITDA plus an additional $10 million in free cash flow savings by 2002.

23, we've completed numerous projects, our newest projects and objectives related to the facilities optimization and centralization of certain functions. We're laser focused on the sourcing savings with expectations for significant benefit in 2022, and 23 coming from agreements with suppliers and increased sales of electric vehicles.

As we've made great strides with these projects, we're now planning to launch <unk> forward to Plano. Another series of initiatives aimed at lowering our cost base, improving our competitiveness and are driving additional free cash flow. The first of which is the closure, but another U S. Part distribution facility in Delaware, Ohio that we acquired as part of the <unk> acquisition back.

In 2013, which was announced earlier this week.

We will provide more details on this initiative and other <unk> programs with our first quarter 2022 results in May.

Turning to slide 30 at this time last year, we were awaiting numerous procurements that we knew we had been delayed due to the COVID-19 pandemic and timing of government funding announcements were.

We're pleased to report that in the second half of 2020, and we saw the rapid increase of bids to levels not seen since 2017.

The significant increase in bid activity is driven by delayed orders plus recent transformative investments made by the governments in North America.

As you can see in 2017 following the peak in bids we added significant new orders to our backlog in 2018, and we expect a similar profile now in 2022 with the potential for edify to receive up to 3000 units in orders over the next six to 12 months some of which have already been verbally confirmed to us and will be announced in due course.

On slide 31, it is important to note that we expect this bid growth to continue throughout 2022 and 'twenty three based on our Q4 'twenty 'twenty. One experience. There are over 1700 units awarded from our active bids in Q4 2021 with NFL, receiving 83% of those new awards and nearly all of.

Those awards.

Were replaced with additional new bids hitting the street.

Turning to slide 32, this strong period of order activity helped drive our 2021 book to Bill ratio back above 100% driven by expectations for continued growth in bidden Barents, we anticipate our backlog will continue to grow in 2022, we also expect to see our option conversion metric to continue improving in 'twenty three as.

As we move past some of the legacy internal combustion engine options and gain more zero emission and hybrid orders.

It's important to note timing of lead times from when bids and awards are issued to when they show up in our facilities and make their way through our financial results on slide 33, we provide timing of approximate details of approximate timelines discharge chart shows the average month's from pre bid the period when we first hear about an upcoming bid.

Through the award preproduction and delivery and acceptance process as you can see these different by market and by product type and our longer when we look at new markets. The majority of our business comes from North America heavy duty transit and I'll highlight is generally a 15 month lead time from when we first hear about a bid to other vehicles are delivered.

We expect that late 2021 and 2022 bid activity will drive our financial portion performance in 'twenty, three and beyond both from firm orders that we have today and and options that will be exercise.

You've consistently heard from us about leadership position in zero emission over the next few slides I'd like to walk you through some of the details of our electric vehicle business.

Starting on 34, we highlight customers, where we secured zero emission orders in North America, New Zealand and the United Kingdom and as you can see our working with some of the largest operators in these markets.

On slide 35, we highlight twenty-twenty of advancements in our zero bus strategy with the launched announced last year of six new models, including North America's first level four automated transit bus.

In 2022, and we expect to see the first sale of Alexander Dennis is new hydrogen double deck buses and the launch of next generation batteries as David discussed for our North American bus customers.

We've strategically chosen to be smart buyers of technology and supplier Ignostic on our battery cell and modules given the need to be agile with rapidly changing technology we.

We assemble our own battery packs for North American market in our facilities and we're experts of integrating electric propulsion systems into our overall vehicle systems, it's not an easy task and it provides an integrated solution to our customers providing them with confidence and stronger performance going forward. We expect that our continued focus on being value creators and battery pack source.

And integration space will create margin opportunities for EFI as we deliver higher volumes of zero emission vehicles.

A major development from 2021 that drives the path to our 2025 financial targets is the final now the announcement of record government investments in public transportation in all of our end markets government support for public transit vehicles, and specifically zero emission infrastructure is at an all time high.

Starting on Slide 36, we will look at the United States Landmark one trillion investment infrastructure investment and jobs Act II J E T.

J a is the successor to the Historic Fast Act is the main funding mechanism used by U S transit agencies for new vehicle purchases. It generally provides 80% of the capital for a new vehicle that can provide and can provide 100% under certain programs. As you can see from the chart. The Iga provides 64% higher fundings.

The fast act, reflecting higher cost of zero emission vehicles and associated infrastructure and the acknowledgment of increased demand. In addition, certain bus programs have seen massive funding increases, including the low or no emission grant program, which has grown from $180 million of grant dollars in 2020 one to know.

One 1 billion in 2022.

And if I was successful and supported the highest number of low no grants with customers in 2021, and we expect to see significant contribution to our backlog from the 2022 program. In addition, just yesterday Congress unveiled a 1.5 trillion omnibus appropriations Bill which was unveiled.

It includes an additional $250 million for bus and bus facility program, bringing the total fiscal 'twenty two bus and bus facility funding to over $2 $3 billion compare that to <unk> 2021 fiscal 'twenty, one which was only $808 million.

There is no question the Iga Ey will drive bus market recovery in the United States and it supports our view that the market will cover to deliver approximately 6000 units per year with a higher percentage coming from better margin battery and fuel cell electric buses going forward.

On slide 37, we take a look at the Canadian funding dynamic, which is also in record size and scale with commitments to replace 5000 internal combustion engine buses with zero emission. The Canadian government has launched dedicated annual funding plus specific funding through the Canadian infrastructure bank for infrastructure and financing we've already seen an hour.

So for new programs in Edmonton, Alberta, Ottawa, Ontario in Brampton, Ontario through the CIB, plus a $5 billion joint Federal Provincial program in Quebec, Canada has historically been a strong market for EFI and we see great opportunity for growth through these investments by the government.

Finally on slide 38, we provide an outlook on the U K market, where governments have also made significant estimates with the goal of putting 4000, new UK built zero emission buses in the service while the pandemic slowed the timing of announcements and funding we've seen distributions through the Scottish government zero emission bus specific programs supporting orders already.

For 300 units at Alexander Dennis.

UK vehicle deliveries were low prior to the pandemic as operators weighted on the rollout of government funding for electric vehicles part of the attraction to acquire Alexander Dennis was the expected recovery of that market with the programs firming up we anticipate volumes to grow to 2500 50 units by 2025, and we expect a larger percentage of use of these vehicles.

We'll be battery or fuel cell electric creating an opportunity for higher revenue better gross margins and improved adjusted EBITDA at Alexander Dennis.

I'll now turn it over to the passive to tie all of these act. These actions on our part and macroeconomic factors to our financial targets and provide additional color on our bridge to 2025.

Thanks, Paul with reference.

So the dividend the revised dividend earlier.

The revised dividend will be <unk> in a quarter or 2008.

Canadian per year.

Picking up on slide 39, we recap our targets for 2025, I'll dig into the underlying assumptions and drivers on slide 14, we provide a bridge on the key areas that take us from our 2019 pro forma results. The first period that includes ADL to 2025, we expect volume improvements as we deliver a higher number of <unk>.

With a stronger contribution from LNR bottle as Stephen mentioned at the beginning of this call ADL is growing in new markets, including Germany, Australia, Ireland and New Zealand. This expansion will help increase 80 million.

Of our total revenue and margin in the total in the forecast period. In addition, both volume and mix will benefit from a higher percentage of zero emission buses with approximately 40% of our deliveries coming from battery and fuel cell electric vehicles in 2025 versus less than 10%. We saw in 2019, our aftermarket business will.

Also see growth as private market recovers and we increased sales of cutaway bus parts. All of these volumes will be delivered on a lower cost base stemming from the reduction provided by the NFIB forward initiatives. In addition, we.

We see opportunities for further productivity improvement coming from continuous improvement initiatives and efficiencies gained from economies of scale and delivering more electric vehicles.

25.

As Paul outlined earlier on this call the demand for <unk> is growing and we will be beneficiaries of these growth on slide 41, you can have EBIT VEB only made up 5% in North American transit deliveries and 10% of U K transit deliveries in 2018.

Based on estimates both markets have already doubled in size in 2021, and we anticipate they will grow further 17% of our current backlog, our zeb with a larger percentage of international backlog coming from battery and fuel cell electric vehicles Slide 42 highlights this trend of EV transition.

Average price of a heavy duty transit bus and backlog has grown by 14% since 2018 and the average price of Coke has grown by nearly 50%. We expect this trend will continue as we deliver more higher priced higher margin <unk> in.

In 2022 and 2023.

I'll close on slide 43 by briefly touching on our capital allocation policies that management and leverage reduction remain our top priority for 2022, and we are working closely with our banking partners on near term Covenant relief in both 2022 and beyond we will continue to invest in the capital projects that enhance our competitiveness.

And provide the highest ROIC see return and possibilities for EPS accretion. These.

These can come from products facilities, our tax restructuring, while we have again temporarily reduced our dividend, we fully expect to be able to grow it as we move beyond the supply chain challenges, we feel antibodies shares are undervalued and under pressure due to near term headwinds and do not reflect the long term value of the company based on.

On our plan, we believe there will be valuation improvements as quarterly results improve as we grow our backlog drive topline revenue and margin enhancement and deliver on our commitments.

I'll turn the call over to Paul to wrap up before opening the line for questions.

Thanks, Bert pass through I hope from our presentation. This morning, it's clear to everyone that our recovery in 2022 is not muted by demand. It is muted by our supply challenges, but our backlog our order book and our market opportunities remain very strong and extremely encouraging.

In addition to the items that we've already talked about in our 2020 targets. There are numerous other upsides that we're exploring.

On slide 44, we outline these in three categories continued market expansion continued operational improvements and a constant leveraging of our technology.

We believe it is prudent to not include the potential benefit of these opportunities into our 'twenty five 'twenty 'twenty five targets, but we do see real potential here to drive Quantum's financial contribution and will keep you informed as we firm up programs for growth and diversification in these areas make no mistake, we are focused on 2022 and delivering to our customer.

Commitments.

In closing on slide 45.

Looking back at the past two years no one could have predicted the disruption headwinds we've seen.

As we've done since the beginning of the pandemic and a file will remain focused on our people and the bigger picture, we will deliver for our stakeholders today to the best of our abilities and for the future.

We're well aware of the past years have been turbulent road for <unk> investors.

Thank you for your patience and hope today's call displays the depth of resilience and response.

That has United our team and the recovery path forward as we move beyond the challenges facing today's business. There is no doubt 2022 will be difficult, but we have demonstrated a resilience.

Whether it's growing our bid activity recovering from private travel in the United States, increasing transit ridership back to more normal levels. The lifting of various COVID-19 mandates the rollout of incredible.

And never unprecedented government funding or the continued advancement of our zero emissions leadership strategy NFA is extremely well positioned as a company and we have the right products and the right services for today and for the future. We're not behind we're supporting our customers as the attrition transitioning zero emissions and we will win.

That game, we will grow our backlog, we will deliver on our commitments to customers and we will drive long term shareholder value through earnings and return on invested capital improvement.

The entire NFL team is focused on the task at hand.

Were challenged but we're excited about the road, we're on and the futures in front of US. We got this we will now open the line for our analyst questions. Please provide instructions to our callers Jonathan Thank you.

Certainly ladies and gentlemen, if you have a question at this time. Please press Star then one if your question has been answered and you'd like to remove yourself from the queue. Please press the pound key.

First question comes from the line of Kevin Chiang from CIBC. Your question. Please.

Hi, Thanks, Thanks for taking my question and good morning, everybody.

Maybe maybe we could just start with.

I guess, how you're thinking about building the backlog here.

Especially during the period.

Uncertain supply chain.

New openings got better, but simply because liquidity is pretty low.

And other risks that you have.

Locking yourself into a price with the real certainty on cost and if you have to adjust.

Why change.

Youre kind of eating into the margin or well I guess, what flexibility do you have.

Adjusted supply chain as you deliver on the backlog in the event that you know.

The cost of goods sold though they'll end up exactly where you thought there would be when you bid on these a little bit on this.

So all of these contracts.

Thanks, Kevin It's a really great question, because we're facing it today based mix of the work that we're building today and we're going to see it as we bid on and win work going forward are.

A high percentage of our contracts have purchase price in this type of.

Clauses in them, meaning that as the <unk>.

Bus and truck index cost index moves up in the United States as we move into the future orders, we have the ability to recover that PPI index effectively matching the cost increase going forward.

There are contracts that we have today that were bid last year or bid the previous year that have a certain price and a certain cost expectation with them as David in the past we've talked about we're actively now working with our customers to look for either surcharges or price recovery or in some cases destocking buses to be able to allow them to live inside their budget.

Windows, but also still pass on if you will or share some of the economic hardship of let's call it hyper or unique inflation in these times.

The other dynamic that we're working on is significant cost reduction so as David outlined he's bringing online. The next generation, but also a second battery supplier for our North American business.

That is a significant cost reduction both in the pack that we buy as well as the U S.

The packaging of the actual buses into.

Containers, if you will that we've put into our buses.

We have adjusted where we can or repriced, where we can based on this kind of hyperinflation, we've seen over the last call it quarter and a half.

Going forward, we're obviously.

Laser focused now at negotiating with customers bidding, where we can to provide flexibility on cost.

And and price adjustments as that goes forward I can't imagine I may be wrong, but I can't imagine that this crazy hyperinflation that we're living in right now is going to continue at the same rate.

We are laser focused on ensuring that our bid order book is reflective as best we can on historical margins, but I will tell you that zero emissions have been very solid for us and we expect improved battery electric margins going forward.

That's helpful.

If I could just look at slide 40, we're capacity kind of give us a bridge.

Your.

400, plus million of EBITDA in 2025, and I looked at kind of the big moving parts here.

I guess that inflation bucket.

I don't know if you've laid this out last time when you initially released the 2025 target.

That number changed at all in and order that looks like.

Kurt you want inflation.

I get to vote.

Pulled us further it sounds like it was in FY <unk>.

I guess the pushback today, because it would be corporate level I'm getting to about 2025. So just wondering just how much inflation.

That has changed in this waterfall graph on that.

I mean, you kind of get to the middle of what you want to get too.

Seems like 542 point, though would be would be additive to this or do you think when you update that inflation number gets bigger given what youre seeing today and to point out is the offsetting that you end up in the same spot today, which is kind of 425 with EBITDA.

Yes, Thanks, David So let me start with faster than maybe you can jump in when we built our original 2025 targets in the let's call. It the fourth quarter of 2020, we did a bottom up based assessment of each business, which customers, which markets, which margin which facilities and so forth that we ended up at that kind of four to $4 50.

The range, we did exactly the same thing at the end of 2021, when we came up with our revised 2025 number which ironically was still consistently still in the same range of $4 to $4 50. The added inflation here no question reflects a lot of our learnings over the last six months on what's happening with pricing from <unk>.

Suppliers commodities labor increases and so forth.

We.

We have tried to assume.

And it's changed the markets were going after the certain customer mix that we project to win the margin mix on certain types of products or certain geographies has changed through that period, but we have not.

Baked in any significant changes associated with <unk> and quite honestly edify to point, though is not going to be at the same magnitude. It is part of that continued optimization and rationalization of our cost base, but also going after labor efficiency and schedule attainment.

Plus you have anything to add on it yes, just a couple of things. So Paul I think just from a bucket standpoint, one of the things we did just.

When we think about inflation for our contracts what we did was that as kind of priced into our gross number until realistically all we've done in our inflation cabinet, it's something that we just wanted to pull out but all of that is really overhead and SG&A inflation of the 2% to 3% that we expect from a regular basis of price increases that we get from salaries and other things.

So I don't necessarily think it's always been baked into our Mlps, we just pulled it out.

Okay. That's helpful. Maybe just last one for me.

Wondering if you're seeing any any.

Change in customer behavior away from kind of these highly respected vehicles, which I suspect that's exacerbated in the supply chain.

Issues.

Maybe a recognition that or maybe maybe it doesn't change things I don't know.

But maybe a recognition that if you kind of looked at it more standardized model, maybe a more simplified.

That shape that could alleviate.

Some of them.

<unk> pressures that that could improve delivery times.

Are customers looking at it that way or maybe I'm wrong, maybe you can standardize the supply chain issue.

Would it be impacted at all in the same place.

Great question again, Kevin you'd I've talked I know personally about this a number of times if anything.

<unk> vacations and customer unique demand has gone the other way away from standardization.

You have to put in context, now again, a private operator like a motor coach operator, yes, we have a much more pre configured vehicles that we sell to private motor coach operators and they're choosing from pre engineered options and so forth in the public transit world or even in our Alexander Dennis World and in the U K oar.

Or.

Internationally. The degree of customization is actually getting more sophisticated because the amount of electronics.

Pewter systems telematics.

<unk> route optimization, and so forth and remember that a transit agency in a major city is developing a specification based on its own unique fleet that they have today, so theyre looking where they tend to have commonality from a maintenance and support and training perspective.

We also are responding to that local communities special interest groups, whether it's the different communities in designing on a specification that is unique there environment I can honestly tell you we have still never bid on a.

Ah referenced bus or a standard vehicle.

And we continue to see an incredibly high degree of customization, including the definition of our specification of specific suppliers I want X guys Air Conditioner, why why guys seats I want Zed guys window.

And so we continue to believe the nature of the funding mechanisms the reality of public transit agencies in their local.

Pressures demands at operating environments customization will continue to be a very strong and prominent element of our of our customers' requirements and and let the risk of being a little bit too bold. We're bloody good at customizing the challenges that we deal with today.

Has only compounded the supply chain challenges as compounded because we're buying and small batch quantities for unique customer requirements and that has just made it even more difficult to try and optimize our production capacity, we firmly believe whether it's six months or nine months or a year from now that once our.

Light chain gets healthier back to that previous issue and it's not like we didn't have supply chain issues before the pandemic and the resulting.

The results of it that will continue to be able to be that very very strong customizable product supply for our customers.

That's great color Paul Thank you very much and good luck as we execute on 2022 here.

Thank you Kevin.

Thank you. Our next question comes from the line of Christmas from ATB Capital. Your question. Please.

Yes, thanks folks good morning.

Maybe thinking about the 2022 outlook and maybe what I'm sure will be helpful. If you don't mind, if you could maybe break down your expectations, a little bit maybe by lines of business and what I'm trying to understand is in.

In trying to shape how this works.

In mind going through maybe transit.

Coach the UK business, where maybe aftermarket separately.

Just trying to understand kind of cadence of production.

And where youre, where youre going I guess in each of these different lines of business.

And how you or if there are any sort of milestones we can be booking for.

Kind of is proof that we are at least on the right direction as we go through the year.

Sure. Thanks, Chris It's a good question and of course as you know our reporting is.

<unk> and then it's aftermarket and then of course, we break out by geography, but that doesn't give you enough sufficient Intel or insights I guess on some of these segments, let's start with some of the simple ones.

<unk> is a business that builds customized cutaway low floor cutaway vehicles as well as medium duty vehicles medium duty started a year and a bit ago and it's now starting to get some traction in that world. We control. We design, we optimize the chassis and then we build a buffer around that that market is starting to grow although its late.

Muted based on the overall market realities of supply chain. The actual cutaway work is totally dependent on the availability of chassis.

And to kind of context for for magnitude. For example, we expect maybe to get 140 150 chassis. This year from the various providers for GM or Chrysler to build to build cutaway.

Our firm backlog is now north of $5 50, or 600 units that if we had the chassis we build them tomorrow.

So obviously, we're a reliant on those chassis supplying up and we're engaging in governing the pace at which we expect to get those chassis and my <expletive> . Our assessment is that if Ford or GM has a spare chip lying around they're going to put it in an F 150, before they're going to put it in a cutaway chassis. So we're being realistic of the pace of recovery again that is not a.

Demand issue, it's not a contract or a firm backlog issue. It is truly a supply issue.

On the new Flyer side.

Macro level context, we've run this business almost I think for a period of time, but in the neighborhood of call. It 60 units a week across our various facilities.

We we were very volatile through 2020 , one starting stopping slowing down wrapping up and probably average somewhere in the 30 units a week depending on the eventual part of portion of the year.

Christmas strategy was to recover that in our 2022 with the assumption that the supply chain will get healthier starting to see real positive signs in the first half of this year and so our conversations for example, with the credit Syndicate is we're pulling the fire alarm right now on some of these covenants because quite honestly, we're pulling with fireeye and before the fire starts.

Quite honestly, we're not going to see that recovery is as healthy as quick as we would like which is why we've revised our effectively our guidance or expectations down.

So what Chris is now doing is creating a series of production schedules through 2022 that are kind of worst case reasonable case and high case. If in fact, the supply chain gets a little healthier now impacted on our Hearts go out to the group to the people of Ukraine, but impacted now with the whole dynamic of what goes on in the Ukraine, and Russia and global commodity.

And so forth.

So we are we are very concerned about what we don't want to do is is again the year is effectively sold out for new Flyer in terms of all of our slots. What we don't want to do is line into all of this stuff and not have enough parts, which then creates so much inefficiency in reproductive reprocessing and nonproductive labor, but it also sucks up with it and.

Dented rate.

So we're going to govern to get back into the $50. If you will of units over the next year year and a bit at a rate that we feel comfortable that supply chain can support, but we're not going to wrap it up quick even though we had the orders because we just don't have that level of confidence.

The one thing you may want to mention here.

As we think about that second half of <unk>.

22, our exit rate or Q3, Q4 is not necessarily the exit rate you got to really look at the Q4 exit rate for 2023 correct.

In 'twenty in the MSCI World.

Historically that business has been 60% private operators and 40% public or public contracts for this year, we know what we need to build and we're governing it again the rate based on the supply chain expectations with.

But Chris and the team have done now is restarted that the Mci.

Commercial or private market product line and we're ramping that production line has been effectively idled now for two years, we're ramping that business back up we have effectively the manpower and the resources to be able to do it we're going to be prudent at the pace that we increase that it will grow from effectively zero units on the J line last year too.

Our rate that we feel comfortable exiting 2022 into 'twenty three.

What is positive in what we hadn't expected is the is the positive sentiment of the private operators in the United States. We basically as you know we lifted liquidated our entire preowned coach pool last year of 350. Some units. We also were able successful last year to sell off all of the finished goods. If you will of private motor coach.

And if anything we now have a deficit of demand to what we're able to supply and that's why we're so focused on getting that J line back healthy the D line or the public motor coach line, we have good solid orders through this year and into next year and where we are governing that line again based on supply.

Alexander Dennis.

As you know sells buses in North America sales in the U K itself in Europe and it sells in Asia.

That market has.

Reacted slightly differently than the north American market, primarily because they are private operators performing a public service.

As Stephen and I talked about earlier in the presentation. We are seeing U K government funding, we're seeing Scottish government funding, we're now negotiating with customers or the pace of the recovery of dogs that are Dennis business and we are we have received really good positive results for deliveries in the Asia Pac region.

For that business and so it will recover.

And the only area that as we said in our presentation day. The one that we're worried about a little bit is what happens in Europe from a macro supply chain dynamic our current forecast today, we don't buy anything from Ukraine, or Russia, We don't source anything we don't have any customers in those regions, but we are having a.

A difficult time kind of handicapping, what impact that may have an Alexander Dennis So we don't want to over promise recovery in an area of uncertainty the last part of our business, which is actually very positive is the parts business.

Both the North American parts business, the U K parts business, the global logs and it is parts business had a very very strong year last year, we're seeing recovery in demand. Our problem right. Now is also supply chain. We are now at record level back orders with our customer with our suppliers. So when a supplier has a widget to sell us where.

Making tough calls or whether we send it to the OEM product line or whether we send it to the aftermarket business to sell it to a customer.

And that's again a reality that we think we're going to have to manage our way through 2022.

The amount of inventory that we have on hand continues to turn in turn relatively well we have record backlog from our customers of orders. So if we had a part tomorrow, we'd sell it and we have record back orders from our suppliers that market. We continue to think will be strong for us with that busy.

<unk> through 'twenty, two and into 'twenty, three and beyond by the nature of the business we supply today, but also the fact that we've entered alternate businesses, we now sell of goods.

Package and supply of parts for other bus manufacturers for a cutaway market and of course now the continued growth of Alexander Dennis Fleet, So long answer Chris, but hopefully I gave you some of the color on the various elements of our business.

Yes, no that's helpful.

My next question and you talked about the fact that a lot of the government support funding is going away.

But part of I guess the original concept of that was to allow you guys to keep your teams together.

The question I've got for you and we saw this a couple of years ago. When you guys are trying to set up <unk> was the availability of labor interesting being able to keep.

Basically build that production capacity.

What is it.

What's the risk that as you stay at these low levels of production.

Are you going to have the financial capacity.

To maintain.

The engine if you will.

So to bridge into 'twenty, three maybe when things start getting better.

Well I'm not sure. The two elements of your question one is financial capacity and two is the labor or manpower availability sold financial capacity look that's why we've worked so aggressively to try and adjust our balance sheet last year with the various raises thats why were working very cooperatively with our credit syndicate on getting.

More in additional flexibility on covenant calculations, we've got lots of debt capacity. If we if we need different more expanded financial capacity. The labor. The people issue is is today's reality in Canada. We don't have as big of a problem hiring people that as we do in the United States or in some cases in the U K.

So there's a couple of elements first we've lost 2000 people in many locations, where we've lost those people who have recall rights whether available or not is another thing, but there are there's a batter's box. If you will of people number two we're operating somewhere in that.

60% to 70% on schedule attainment, and labor efficiency, because we're reprocessing like crazy and so forth with parts and availability as that supply chain translates into availability of parts and therefore efficiency on the product lines, we're going to pick up some free capacity that today is unbelievably inefficient. The third element is there is no question.

All of our facilities, we're going to have to add some people and we've made it one of our major strategic initiatives.

Is the retention and sourcing of people, we're adding talent managers inside our business to talent acquisition and managers were focusing on right.

Not only retention, but the attraction of people and some of those unique communities. We've worked really hard in places like Alabama to outreach I think we have 10 community agreements now where they are helping funnel people are way as possible applicants and so all of that stuff is.

It is real force the single biggest lever issue problem challenges supply chain. Our next issue is going to be how we recover on the overall mandate or the overall availability of people both both direct labor and indirectly to get from that lower production relate we're at today or the muted rate backup to the rates that we want as capacity highlighted a minute ago, it's not a light.

Which we're going to ramp those volumes back up to the levels, we feel comfortable over the next year not over the next six weeks.

Okay.

And then I guess, maybe just my last question and this is really I guess, what we're all sort of struggling with.

Based on your expectations.

I know you don't want to put our guidance, but I mean should we be thinking again, and I think about it like supply chain normalizes. It feels like demand is certainly there.

Is the way to think about this as you know.

You're almost take a step jump if you get your supply chain back to normal in 2023, and then it sort of incremental into the 'twenty four 'twenty five targets or am I sort of maybe thinking about the pacing of those wrong.

No I think you've got it right Chris the reality of it is our world again, if we were building the same product on the same line. The same time and it was just a matter of volume. That's one thing we're building houses on an assembly line highly highly variable.

In many cases highly skilled or Semiskilled labor you just you can't take a person off the street and say started installing parts on a on a million dollar asset in our facility. There is training there safety, there's blueprint reading, there's all kinds of things. Our view is that this is not step change. This is gradual recovery through the next year to get to those.

Production levels that we think are both the sustainable from an order book, but also sustainable from an execution perspective, so youre not going to see us ramp up volumes week by week at any significant rate think of it as one or two incremental units a week on average running through our facilities and the various production lines to get to 2023.

And for volumes.

Again, I look at our order book I look at what's sold for this year I look at already the percentage of slots and assigned slots we have for 2023.

It's not a demand issue in any stretch it. The other issue is the last we want to do is to ramp up too fast and put product out there that has warranty issues or nonperformance issues and so forth.

We're going to see a dramatic increase in our performance in 'twenty in the back half of 'twenty, two compared to what we have today youre going to see it improve again in the first half and significant improvement in the second half of 2023 2025 back to capacity slide there's some growth in there the road growth really is around market recovery and around performance associated with supply improvement.

<unk> and <unk> and cost takeout in our business, we didn't promise to go from 50 units a week and Christmas World to 500, we're not promising to grow our businesses and our market shares by dramatic amounts. This is prudent decisions around the recovery of our business and now for the first time since I've been here the amount of government tailwind on funding is unprecedented it's not.

Demand issue.

Okay. That's helpful textbooks.

Thanks.

Thank you. Our next question comes from the line down <unk> <unk> from Laurentian Bank. Your question. Please.

Hi, good morning, everyone.

So my first question is more I think on the presentation on slide 33, where you have sort of provided the timeline on.

Once you get a bid and then eventually sort of gets into production and goes out.

The high bid activity that Youre seeing.

That would probably start to benefit you in 2024, because I'm, assuming even these 15 months long timeframe, that's not the entire order, that's probably one or two buses.

Transit buses that go out, but if you get it complete audio that takes longer than that.

Given that we're seeing broadly its profits into your backlog in second half and then eventual benefit of that is probably in 'twenty 'twenty four is that the right way to think about it yes.

Yes, I would I'd be careful because it's not a standing start we already have.

Inflated our escalated bid activity today, but.

But if you and I were running a transit agency and we now have political support and oversight locally to goal zero emission enhance AD Chargers go fuel cell or battery electric we've tried a couple of them were already in the market bidding today and looking for improvements the tailwind now a significant five year fun.

<unk> confidence really allows you to think about it.

Our fleet replacement plan, rather than a trial dynamic so back to one of the charts Steven had put it I think I went through if you go back a couple of years, while it takes 12 to 15 months when somebody says I think I want to buy a bus or a quantity of buses to when we actually deliberate we've got a lot of projects that are in the go in the backlog or bids that are on the street.

Today.

So we project what we bid on already will help fulfill 2023 and then what we're bidding on right now will help the second half of 2023.

The book to Bill ratio that we just completed in 2021 that I think was 115% is already going to have an impact on the second half of 2022.

Okay.

That's good color and just.

When I look at your balance sheet and high leverage I'm just wondering if if there any investments that you could have bought.

You wanted to put on zero emission buses technologies.

That's impacting your competitiveness.

Or is your new products or the new buses that you've launched what's.

Whats the feedback that you have from your customers on that front.

Yes, it's a really good question because the products. We're delivering are not brand new products. The continued evolution of proven platforms that have had diesel natural gas hybrid electric trolley now battery electric and fuel cell on the same platform. The work that we've done to integrate technologies into.

Our buses for zero emission is again not a completely new platform. We have not held back on any investment on zero emission we've changed the timing on some of them. We brought some of them forward. We've changed moved some of them back we do not believe any of our <unk>.

Decisions that we've made in the last year or are making right now will inhibit the competitiveness of our product. In fact, we continue to win zero emission orders at a higher rate than our conventional internal combustion bids today.

Okay, No that's great.

And I think in the prepared remarks, you mentioned that <unk> and we actually saw that as well that you've expanded into sell off the markets. I'm. Just wondering that you have these challenges in the North American market and you already have that <unk> in the U K.

Is it.

Worth it to increase your footprint when you have all these challenges.

In your traditional markets and is it in terms of the future profitability from those markets like whats the thought process of entering those those markets. When you already have a quite a bit of challenges on your plate.

In the traditional market.

Well remember, we're not adding footprint and capacity.

In fact in North America, we've been trying to rationalize and optimize capacity.

Yes.

So when we bid on Ireland. For example are we bid on Germany. Those vehicles are made in our facilities that we currently have and the footprint we have when we win.

Work that goes to New Zealand or to Singapore, Hong Kong that that that product is made.

Cooperation with a partner that we have in China, So, we're not adding footprint and capacity. We're rationalizing it we're bidding strategically on new markets, where we think theres long term runway for growth.

And no man I think the only thing I'd add there in the <unk>.

<unk> new markets that same chart you talked about your first question on the timing.

We put in there kind of an average of 35 months. So some of it is just groundwork to Paul's point to get to that market and for 'twenty three 'twenty four 'twenty five and as Paul mentioned without major capital investments, because we will be using third parties or existing footprint for manufacturing Youre question on on new product development capital and.

Product enhancement.

<unk> of it as next generated evolution of proven platform. So enhanced power electronics enhance battery capability range in packaging enhanced electrical architecture of the bus.

Matt Battery module optimization size and performance next generation fuel cells, and so forth, it's not as if we're launching a completely new or different products.

Okay, No that's fair and maybe just one last one from my end I think it was studied before as well in terms of some of the contracts that you're trying to sort of renegotiate and just trying to get a sense like.

If there is a person data I don't know if you have it like how many of your contracts generally have.

Those price index baked into it and how much don't have it is that the private ones that don't have it at the public ones that have it any sort of share mix between those contract.

Yes, the private market in North America for example, private motor coach operators, those are mostly spot buys meaning hey.

Hey, I want 10, or two or five or whatever motor.

<unk> culture is whats the price today, so those will reflect the cost of those vehicles in the current market pricing.

The public markets, mostly in some cases, where you have multi year contracts, where either you do have a purchase price index or where in some cases, we may have been a a firm price I, sorry, I don't have that.

Top of my head or at my fingertips, the percentage that of our products are used each category.

The good news ultimately, though is that we're continuing to replenish our backlog.

Just on new pricing based on new cost expectations every single day. So there will be noise in the system, where we'll have some contracts that are challenging and other other scenarios, where we get the purchase price index that will have a significant impact both on our pricing, but also the positive margin towards it.

Okay. That's great color. Thank you thanks for taking my question.

Thanks very much.

Thank you. Our next question comes from the line of Jonathan Lamers from BMO capital markets. Your question. Please.

Thank you.

Looking at Slide 36 first of all.

And slide 38.

We're looking for North American transit volumes to return to 2017 levels next year of 2023 U.

U K volumes to.

To return to 2017 2018 ranges, that's a pretty dramatic recovery.

Paul based on the visibility you have today.

Could you could you just speak about the confidence you have in.

This strong of a recovery in what range of sensitivity you would put around this number.

Well, it's a it's an important issue Jonathan I think it's a good question, we put those numbers on the table here based on a customer by customer buildup, we work.

We have defined target customers, we have defined market totals, we talked to our supply community to all day long who talk to our competitors in terms of what their expectations are volumes are and so forth. So these are highly educated estimates of what we think the market recover we will look like keep in mind that our customer every single one of them.

<unk> has gone through.

Two years now of <unk>.

Delayed orders delayed.

Our challenge recovery in their businesses aging fleets.

Political pressure now at unprecedented levels to move to zero emission and so forth.

Again, we've put these down as our highest confidence level of what we think that rate of return, it's not a snap back to previous levels, but it is a good solid perspective on market recovery and if.

My litmus paper, where tester by gut check test would be if they were saying that to us based on what they want to do only that's one thing when you Peel back and say will you be able to be funded for this level. Those numbers are unprecedented I mean that low no is 10 times the amount of money isn't next year as it was.

This year, sorry, as it was last year.

So those kinds of.

Tailwind if you will the confidence of the transit agency to say I'm going to buy nextgen vehicles, and I'm going to place orders either for fuel cells, the battery electric and hybrid.

Start to move the electric journey are based on our best Intel and based on the funding background. The funding dynamics and I think just on the UK piece I mean, if you look at the UK chart depressed years 17, 18, 19 2021. So it does become an element of vehicle age and just necessity for replacement. So I think that in addition to <unk>.

Rivaling some of the 'twenty three 'twenty four numbers is that recovery of the combination of government funding and just that drive the necessary necessity to replace some of those vehicles.

Okay.

And maybe question for <unk> Passu on the 2022 guidance.

You laid out that 80% to 90% of the EBITDA is expected to be in the second half how much of revenue was weighted to the second half.

Given all the supply chain issues.

Let me take a look at that Jonathan I'll answer very shortly.

Okay I'll come back to you I guess, what I'm trying to get at as well is would you would you have an estimate for where.

EBITDA would be this year.

Without the supply issues.

Guidance is implying fairly low margins for the consolidated business I'm trying to get a sense of.

How much of that is a cost issue.

Okay.

That's for 2021.

I'm talking about the 2022 guidance.

Yes, so what we've done and again.

<unk>.

Maybe discuss this a little bit offline, we'll come back to you, but I think one of the things. We've done is we've tried to categorize everything that we do feel is supply chain related and it's really hard with the inefficiencies.

To determine that but I think when we start looking at the supply chain related we could we could see a path for getting.

Somewhere.

Close to $8 million in a range of things that can be.

Potentially considered supply chain related.

Yes.

And just to be clear those are all expenses.

No this would be volume related and some other things that are causing some of our issues.

Jonathan It's Paul here.

Yes.

Context.

We have worked really hard at trimming the cost and the expenses.

To navigate through 'twenty, one and through 2022.

To minimize the impact on adjusted EBITDA, but we haven't done.

My silly analogy is we havent cut off our legs, because we still want to think we can win the marathon.

We are dead serious about trying to stay focused on the overhead the facility capability that we have given our backlog given the bid rates. The last thing we wanted to just take serious serious action associated with the direct or even the indirect and professional labor and support like engineering for example supply chain people.

Because we fundamentally believe based on our order book and based on our bids based on where we've told we've won and we're waiting for a contract that we're going to recover to volumes and we're not proposing to recover the volumes we've never been at before we're recovering in 2023 to volumes that are still <unk>.

70, 80, 90% of the volumes we've done historically at each of those each of those facilities.

But we really don't want to make imprudent or irrational decisions in the short term that affect our recover our business back to that 2025 and beyond target level.

So it's a little bit hard to say, how much is directly related to supply or whatever youre seeing a very very soft first half of the year.

Because of the continued challenges supply chain and because we are not willing to take out dramatic cost reduction that inhibits or minimizes our ability in the future.

And I think just expanding on that job.

Jonathan.

The big items that was that was mentioned here plant overheads, returning to the volume et cetera. So it's really really tough to figure out the exact amount in terms of in terms of the numbers.

Right, So I guess, where I'm coming from our two issues. So one is if the supply.

Fly issues continue over the second half due to.

Neon semiconductor shortages et cetera.

How much lower could we sensitize. So this is why we put a range of our guidance of $100 million to $130 million.

I mean again you take this year's performance you take out all the the wage subsidy support that we got.

And again, it's not like every part is missing we get high 90% of the parts that we need but for example, if you can't get plywood marine grain plywood for the floor you cannot put the seats in the bus and so the cascading dynamic on certain parts causes that incredible inefficiency in our machine some of that stuff where today play.

Whack, a mole where solving this problem. Another one comes up anything to do with microprocessors. So we basically said, we think 2022 performance won't be any worse than 2021, we know the first half is going to be definitely muted.

But we're basically projecting that we're going to see some benefits and some relief in the second half of the year and we're keeping are the vast majority of our facility capability and ramp up capability.

Albeit.

Inefficient or.

Under utilized to be able to recover.

For our shareholders as we move into 'twenty, three and 'twenty four.

Got it.

Maybe just one conceptual question if I can just again on that slide 36, where you're laying out the.

Recovery in volumes to prior cycle.

Youre not expecting volumes to be higher than prior cycle. Despite the funding increase.

Could you review your.

Expectations on price are you expecting that all the <unk>.

Additional funding will be absorbed by.

Is that he be ticket essentially.

Well the logical just volume and how we come up with that number we take all of our major customers and we sit and go through their fleet replacement plans.

Now the bus that they are buying is more expensive than the bus they bought in the previous cycle. They're also having to put in charging infrastructure and they're having in many cases, the modified their maintenance depot or their yard operations.

So when we listen to adhere to them. They are not expecting our market to go back to <unk> to go up to seven or 8000 units. There are effectively managing to that fleet replacement, we think around the 6000, mark but there's a whole bunch of other demands for their money. The other part of it is it's not trivial to deploy a zero emission fleet into an existing transit.

Operator, you now have different technologies, you have skill increases that need to happen, putting five or seven buses in the corner of a depot today is kind of easy when it gets to 5% of their fleet or 10% or 20%, there's a massive impact on their ability to absorb buses.

And optimum and maintain them and so operate them inside of that window. So our projection is the market is going to stay plus or minus 500000 units around that 6000 unit Mark.

The funding only to US helps solidify that will recover to those levels from what we've seen through 2020 , one and 'twenty two as a direct result of the pandemic and the current supply chain issues.

Okay I'll pass the line for now.

So has anything further on the revenue.

Alright, Thank you very much Jonathan Thank you.

Thank you. Our next question comes from the line of Mark Nimble from Scotia Bank. Your question. Please the revenue potential.

Hey, good morning.

Hi, Mark.

Hey, good morning, guys.

Maybe slide six I think.

So supply base.

The high risk or severely impacted suppliers I guess is that sort of financially stressed supplier I'm just trying to understand what that actually you.

No that would be basically I think there was one that would be basically zero to do with financial concerns. These would be major components suppliers.

Have very sophisticated supply chains, who were running into tier two and tier three constraints.

Which cause.

Delivery schedules into our facilities to be disrupted.

As Paul mentioned, we are receiving.

Over 99% of our parts, but.

But we have major suppliers, who have never failed us.

Who are providing shortages toward facilities, which are very impactful and it was it peaked at about 50 suppliers across the group.

It doesn't suppliers per operating business that were impacting production lines in one way or another but this is the same supply base with the exception of some maybe some of the new zero emission elements that has delivered for us for the last 20 years I mean theres names on there like Siemens <unk>.

Siemens is not a nonviable company, they've got a certain element issues or parts or theirs Cummins on there are others that today have a direct inability to get us a part that has a direct impact on our supply chain our ability to deliver robust.

Okay. Okay.

Okay I understand.

The sourcing savings that you've quoted from forward isn't.

Or is that hurting you know.

Given all the supply chain pressures.

Go ahead David.

The vast majority.

Alrighty, if not all of the sourcing savings and <unk> forward.

Our.

Very significant moves in our in our electric vehicles, New battery program, New new power electronics et cetera. So these are large number of savings as we implement new technologies and new suppliers into our <unk> zero emission buses.

More than offsetting more way more than offsetting inflationary increase on those vehicles. So it's not hurting us in any way shape or form. These are savings we have baked in.

For our bus that we're going to build now next week next month next quarter next year, where we now have a material cost reduction these are nothing but enhancing.

Our competitiveness at our profitability.

The one thing I would just add to that just here that we're all the same page here is remember on our savings for our buses for sourcing until we build it and get it approved.

Early count that at this stage. So the majority of the savings that you see when we talk about the $55 million SG&A overhead reductions I think probably about 95% to 98% of that is that number.

Okay. Yeah, no. So I guess my question was it's not like you cut a bunch of suppliers.

Save on procurements, now youre running into issues, it's not that it's all about.

Well, we certainly have that on Ice's vehicles today, we have cost reduction initiatives going on all the time and now we have offsetting inflation, but what we have in our outlook here to 2025, our step change product and cost reductions at our zeb vehicles.

All right.

And I guess, just a point of clarification, when you mentioned being sort of supplier agnostic for battery.

But I think you are sole sourced.

Full sourcing now.

Correct.

We are sole source to the new Flyer Transit program, we have at least three different battery suppliers today and the new program coming on for Q4. This year is a dual source and next generation for new Flyer transit, but.

But yes, we were sole source for new Flyer transit.

Okay.

Mark.

Why that.

Which is why the fire at one of their suppliers as caused us the window of time, where we're not building zero emission vehicles that is a that is not supply chain issue that is unique to <unk>.

A fire at a certain supplier that has inhibited our ability to get certain batteries for certain months.

Yeah that was the Genesis of the question exactly Yep Yep.

I guess just for FERC policy would be just on some of the other initiatives you've laid out I think one of them was factoring.

I guess just.

Is there any reason why you wouldn't do that I mean is there any pushback from the lending syndicate or anyone's suggest not to do something like that because it feels like pretty low hanging fruit.

Yes, definitely as low hanging fruit, we are looking at it we're kind of in discussions already with one of the banks to kind of do it is a little bit of an arbitrage move for us in terms of just the the differential right. So no.

Mark the challenge on that one is that every month every customer every contract is different.

And so we are we really believe that's a prudent thing to do where can do we're going to do it if it makes sense. We've got we've got to align.

The source of the factor to the customer dynamics, it's high high on our priorities and Youre absolutely right. It kind of makes good sense for us.

Sure.

Alright ill leave it there.

Thanks, Thanks, Mark my questions.

Thank you. Our next question comes from line of Maggie Macdougall from Stifel. Your question. Please.

Good morning.

Hi, Mike.

And so.

I guess this does play into supply chain event, but I'm wondering if you have to do any juggling four.

President <unk> proposed changes to buy America, or if you're already sufficiently sign up for higher buy American requirements.

I'll ask David to comment but.

One of the things that gets maybe misunderstood or not well communicated and the general media is there's two issues.

One is by America, and one is buy American.

We live in a world for Rolling stock whereby America means two things one the material that we buy and put into our U S.

Contracts, where companies or customers use federal funding has to have 70% U S material content and there are certain functions that we must physically do in the United States like put a door on a bus.

By American refers to primarily construction ridges roads capital projects.

Mr violence latest announcements have nothing to do at this point with the FTA requirement that we live in side. It has more to do with the construction world and the capital projects dynamic David maybe you can talk quickly about the work that you've done over the last five years as we've moved from 60% content to 70% contest and the.

<unk> with anybody going beyond that relative to the sub components of the individual products.

Well in the last funding Bill the fast act it move the U S content that need the U S domestic content and moved it from 60% to 70% over a four year period, we made all the adjustments in our supply chain, we opened up our <unk> facility moved work down there so that we deliver all of our vehicles today.

Complying with the 70% U S content, that's in place for buy America.

There were proposed changes, but those were all pushed off the table and the new funding that just came out with a five year funding. We spoke of had no changes to buy America. So there is no issue at all with US complying with this going forward.

Okay. That's helpful and then comments around the inflation.

Backs that youre seeing within your business the last week in particular on the commodity side has been.

Pretty extreme.

Let me close down nickel trading we've had spikes in oil you know all you name it it's occurred and given how fluid the situation is.

And I imagine how hard it is to plan around that.

And how have you sort of positioned yourselves for discussions with customers about the potential for very significant price increases should.

The kinds of moves we've seen in the commodity market in the last seven days.

Stickier than maybe we think they might be.

Yes.

While that is a fantastic question I can tell you that all of the people that work in the supply group that have to talk to suppliers about pricing are very busy.

And the impact on raw materials, and our bus has pretty well everything on it.

Adding radio and our emission system.

So the impact is there we felt some of it already we are managing through it effectively but.

But we also have a very high priced vehicle with expensive components, so percentage wise on those components.

Not far off from expectations, we had and that we build into our.

Into our bids going forward.

Maggie it's Chris daughter, if I could just add to that too is all of the parts you mentioned earlier.

And again, we've not had to do this I think in the history of our company, but we are having those conversations with all of our customers on vehicles delivered in 2022.

To lay out in front of them the hardship that we faced in <unk>.

Look for opportunities to pass some of those surcharges on or as Paul touched on a couple of different levers, we can either de content. Some of their buses going forward to have them stick within a budget. There's payment terms are as warranty terms, but in some ways. Some shape, we're going to have to recover that from our customers.

It is not it's not an easy task, but but that plant is in motion.

Okay, that's very good to know.

And then I guess.

The supply chain issues that you faced in the past have I'm sure been exacerbated by the war, which we've touched on through the course of this call.

Are you comfortable that should things not really improve too much before let's say the end of this year that you will be in a good liquidity and standing position with your lenders in order to just continue to kick the can down the road should you need to do that again in 2023.

Well.

Yes.

Good question. The work we did last year the capital raised in the first quarter and then the the convert and the capital raise in the fourth quarter and now.

Not fun, but necessary conversations with the syndicate about further flexibility and creativity on on the covenant calculations, we put in place a package that we felt gave us lots of runway.

And lots of debt capacity if the.

The worst of the worst case happens.

So.

Hard to predict the future we think we're in a pretty good place with.

The total amount of capacity that we have.

We've got a pass he talked about we're going to pull every possible lever that we've already pulled and others on.

On the <unk>.

Repricing, if you will with with customers on the work associated with balance sheet and cash flow. We've got a couple of customers that that wont give us price relief, but one of the scenarios is they'll give us.

Advanced payment terms and so changing the shape of our cash curve is another way of addressing liquidity and flexibility as we go through this stuff.

So short answer we feel that we've got enough room in the flexibility and the order book to be able to manage our way through 'twenty. Two just like we did 21.

And it's impossible to handicap, what the crisis in the war in Ukraine will do to the world commodity prices and so forth.

I continue to go back to.

Before we had a concern whether funding would be there and then there is an execution issue today the funding and demand is there.

Execution is really handicapped by number one supply chain and number two ensuring we've got the machine the facilities and people to build a build to work and we can do everything we can to kind of manage and never navigate away through that we've put up a pretty wide unfortunate range in for 2022 to give you some context.

And hopefully that you can back into the calculations about how much room and flexibility we think we need.

And maybe just to add to that look I'm extremely high level of confidence that we are not going to get into any kind of a liquidity issue.

If anything.

We're dealing with the calculation issue with these back discussions but from a liquidity standpoint, we look at that on a daily basis, we're not necessarily seeing any major changes to it even with the ebbs and flows that we've seen with our supply chain we've done.

An excellent job across the tangent with that.

Okay Fantastic and then just one maybe outside the box question.

I mean, it seems almost impossible you guys are not the only company feeling this pressure by the way I know, it's really crappy, but it's kind of ubiquitous across a bunch of different sectors and I know, we're all going to start feeling it in our pocket books at the pumps and in the grocery stores that the inflation that's been occurring.

Doesn't seem like a foregone conclusion, but I don't I don't see how we don't get some sort of economic sort of contraction as a result of what's going on in it.

In your case, I'm wondering and I'm thinking about this for a bunch of different businesses you never really had a post COVID-19 recovery in terms of demand because of all these challenges in your business if.

If we did get a recession or an economic contraction that was serviced valves that relief the pressure on supply chain and inflation could that be actually a positive for you at this point because what would the downside would be in the top line and profitability from that kind of is that given where we're at today.

Well.

Your assessment is consistent I think with the way we've looked at this thing I think a couple of things.

Some people equate our industry to ridership is what drives the bus demand.

Sure. It does in the private motor coach market the amount of people on an individual coach.

Transit World, whether they are public entities are private operators Theyre performing essential service, if we start to see real inflationary times. So we're seeing it if it gets worse and uglier.

The average person who today takes the wrong car, who fills up their car with X X dollars per gallon of gas, who pays for insurance and parking and so forth.

Our industry is poised to be able to say, that's only going to improve and enhance ridership of public transit.

Go back to the funding is more of a driver of demand of vehicles.

The support of public transit through use and through now zero emission, which has an emissions benefits and congestion benefits are all good things for us inflationary pressures in general should help maybe mitigate or put pressure on what supply chain expects for price or cost increases associated with our business net net that would be a benefit.

To us I think down downstream, if and that in fact that happens the trick in the short term is getting the bloody parks at what at the appropriate price that we can manage and manage with our customers and then building the buses.

Circling all the way back to the whole conversation, it's not a demand issue in the next window at the next chapter of the next four years of our life is very much an availability and an execution issue.

Okay. Paul Thank you so much gentlemen.

And I Hope your day goes okay, I know, it's going to be probably challenging.

Thanks Maggie.

Okay.

Thank you. Our next question comes from line of Daryl Young from TD Securities. Your question. Please.

Good morning, everyone and thanks for the fulsome presentation Thats very helpful.

Thanks Sarah.

First question is just around I think in your opening remarks, you mentioned market share north of 80% on orders in Q4 across the industry.

Just kind of curious is that a reflection of more EV orders coming through in that period, and you're kind of early dominance on the EEP side or can you just give a little bit of context on why it's such a huge market share.

Yeah, I mean market share the way, we measure it and report it as based ultimately on deliveries because you could win 80% of the orders that have both firm and options and you don't really know at this point, where the options will be converted.

I think our assessment of that high level of win rate in the fourth quarter. Its a couple of things.

We have a product mix that has both legacy <unk>.

Transition aerie.

Capability like hybrid so we do a number of our two different hybrid options as well as the zero emission dynamic of of trolley or battery electric or hydrogen fuel cell and so based on the number of rfps the mix and type of Rfps. We had a very very successful fourth quarter, we don't expect to win 80% of the bits going forward, we have one <unk>.

Percentage of our of our delivered market share in the last couple of years on zero emission and we have won approximately the same rate has historical market shares on the internal combustion type program.

It reflects on.

A transit agency, saying I've got a fleet of Flyers or I have history, with new flyer or I have a history with Mci I've got parts I've got training I've got confidence in the platform I've now seen a number of zero emission buses in action in any kind of operation, whether it's cold weather, whether its hills or mountains, and those kind of things and I think it also.

It reflects the reality of a transit agency acknowledging that this transition is not trivial as I said before in the reliance on our field service team.

And a dedicated zero emission team that can help support that transition and help teach and learn and deploy and troubleshoot their charges and all those things.

Bodes well for our company.

<unk> history of track record that we've had there's no question we've had issues over the years pick one we've been the first with all of the new propulsion Theres definitely learning curve, but what our strength is in what we feedback we get from customers is when there is issues will stand up and deliver and will ultimately come to the table to help get those buses back into service and support that that customer's operations.

So we're ecstatic with that kind of a win rate its not sustainable but it does reflect the offering that Stephen talked at the beginning of that its a very comprehensive offering it's not just us.

Okay. That's great. Thank you and then one last one.

As we progress through the next few years of transitioning to more and more evs.

I would assume that there is complexity in your in your supply chain, obviously and margin pressure associated with that.

You need to get back to effectively one core product.

Vast majority of your production coming from that to hit that 10% margin target that you have for 2025.

I guess said differently would you expect that normal margin pressure across the ramp up until we get.

Our leader product portfolio.

We're manufacturing.

Yes.

Intuitively you'd say that variation is going to cause complexity for quite some time quite honestly, though that's been our life ever since we build highly stacked highly variable different propulsion systems on the same production line, Chris and his team a couple of years ago, We're faced with a choice do I set up separate production lines for zero emission or Doug.

Build it on the same line inherently if you have a zero emission bus followed by a diesel followed by a <unk> youre going to have labor inefficiency on the dedicated line Chris's team chose the strategy as did Paul and the team at Alexander Dennis as does our box for that matter to build the same product on the same line and to vary the be able to handle very <unk>.

<unk> rates or I'm, sorry, various types of products on that line.

Because we can't handicap the pace of adoption.

We think we've made the right decision to be able to be agnostic on how we build that line.

Over time, we definitely believe through costing initiatives labor efficiency gain.

Getting for example to build hours on a zero mission to be the same build hours on a hybrid for example, all of those things are all going to be net net benefit to our production margin that we see today.

But I think we made the right choice to have variable production on the same line to allow us to adapt if zero emission adoption goes faster we're ready if it goes slower we're ready.

That is very different that are competitive that only has a zero emission or doesn't have a fuel cell or doesn't have a hybrid where today there are starved feast or famine and what you can build on our production line.

Got it okay. Thanks, very much everyone.

Thank you.

Thank you. Our next question comes from the line of Cameron <unk> from National Bank Financial your question. Please.

Yeah. Thanks, good morning.

Hey, Ken.

So just going back to the I guess the covenant question I mean, certainly the liquidity does not seem to be a major concern here as you mentioned really a calculation issue but.

We've seen in the past I guess when you have gotten covenant relief. There has in some cases, that's come with additional equity. So I'm just wondering if there's any risk we should thinking about here of a potential further shareholder dilution.

Yeah.

<unk>.

The work we did last year the raises that you and the others were part of last year was to try and set us up for an unknown period of time and we're seeing it now in 2022 and thank God you know in hindsight that we did that work and adjusted our balance sheet.

We are projecting to issue or planning to issue any more equity or to do our share shareholders in any way shape or form going forward.

We have work in front of US we have had really good conversations with the leads and the credit syndicator Buck.

Capacity, but more important calculation flexibility going forward.

The tailwind that was stated the current headwinds of supply chain and uncertainty of.

The predictability of our production rates and so forth the tailwind I think in our perspective.

Wait for the next period of time, where we can live inside that current.

Framework in capacity demand. So we don't plan to issue and no guarantees ever but that's not on our roadmap at any way shape today.

Okay understood.

Good.

And just maybe a quick second question.

Obviously supply chain is affecting all of your all of your competitors as well, but I guess this battery fires a new wrinkle, let's maybe specific to.

Two NFL I mean is there any I guess riskier round.

Cancellation of any have any dilutive orders or penalties from customers. Just wondering if you can sort of.

Handicap that.

Well, let me talk a little bit about cancellations and penalties and then David can talk a little bit more detail the.

The sub supplier to our battery supplier and it's really a window.

Issue as opposed to a systemic issue.

We haven't seen cancellation of quarters as a result of supply chain are not delivering a window.

If you think about.

The average transit agency back to that one slide they've gone through a massive amount of public consultation fleet analysis, a competitive bid process most of our contracts have delivery windows not delivery days and so they've been incredibly accommodating and as we've moved pulled forward pushback adjusted our production schedules. So we don't.

See that continue to happen have there been liquidated damages, yes are they material absolutely not have we had some negotiations with customers where contractually we owned 200 Bucks a day for a bust that we didn't deliver sure. What we did is negotiated with them a little bit more training, maybe a little bit more creative flexibility on field service or warranty and so forth we have not nor do we expect.

<unk> liquidated damages associated with contracts, we have had challenges with supply chain with respect to the battery dynamic David maybe comment a little bit about that and kind of how you're managing that with them and how it impacts the customers.

Yes, obviously, a very unfortunate.

<unk> stance on a sole source supply three months disruption solid recovery plan in place to resume in May as Paul said customers are very flexible enable.

<unk>.

To work with us on that.

And we will ramp back up starting in May and we have secondary sourcing coming on line with new new generation, which provides extra benefits in Q4, so a very solid plan to recover from this over the next few months and it's Chris started I'll just add every impacted customer clearly we spoke to the best we rescheduled to work. So they are all well aware schedule has been <unk>.

Pretty much.

Okay, that's great to hear I'll leave it there thanks very much.

Thanks, Tim.

Thank you. This does conclude the question and answer session of today's program I'd like to hand, the program back to instrument for any further remarks.

So are we just we did have two questions come in through the webcast. So both financially related so possible Paul point of view you guys. The first one was a question around Q3 to Q4 2021 deliveries.

Increased yet excluding <unk>, we didn't see that large of an increase in adjusted EBITDA in the manufacturing segment.

Well, it's a good question.

The quantum going through our facility.

Has both a mix on what were an impact from the mix and the margin that was bid at the time, but we'll go back to the comment I made earlier, where we've taken significant cost out of the business, but we have fundamentally not reduce our overall overhead or production capacity across the business and.

And so youre going to see always that's why we ask people to look at LTM numbers, not individual quarters youre going to see movement.

<unk> EBITDA positive or negative based on the mix at that time.

And I think to that same point deliveries remember were higher in Q4, but but we had our production was lower so we had a few higher inefficiencies in Q4 versus the Q3 perfect. Then the final question came in around guidance for 2022.

A question around the run rates, if we looked at the second half of the year based on our seasonality distribution.

If you did a run rate for second half 2022, not quite as high as our original guidance for 2021.

<unk>, maybe you can comment on that expectation of what is driving that run rate being lower for 2022.

So this is this is obviously, Chris could even add more color to this but at the end of the day, we have a ramp up scenario going through 2022, right and our goal is we would like to get to that I'll.

Get into that high $40 50 range. If we can by the end of the year. So as we exit 2022 into 2023, where we've got a really strong order book, we can have it running at that higher rate. So that that's why you would probably see a step change in 23 versus <unk> 22 in terms of EBITDA is kind of our thought process and again all.

This depends on supply challenges et cetera, and how far they go.

Okay, I think that covers it all so thanks, everyone for your questions at any time, please feel free to reach out to US all of our contact information and the IR Department is on our website. Thanks again and have a great day.

Thank you, ladies and gentlemen for your participation in today's conference. This does conclude the program you may now disconnect good day.

Yeah.

[music].