Q1 2022 NFI Group Inc Earnings Call

May 5, 2022

Yes.

Welcome to the UNFI 2022 financial results Conference call. My name is Adrian and I'll be your operator for today's call. At this time all participants are in listen only mode. Later, we'll conduct a question and answer session. During the question and answer session. If you have a question. Please press zero, one and you touched on the phone.

As a reminder, this conference call is being recorded and now turn the call over to Stephen King Vice President strategy and Investor Relations.

King you may begin.

Thank you Adrian and good morning, everyone and welcome to our first quarter 2022 results Conference call. This is Stephen King speaking.

Joining me today are Paul <unk>, President and Chief Executive Officer capacity, <unk> Soni, Chief Financial Officer, Brian do Snip, President NFA parks, and the honorable Brian Tobin Chair of <unk> Board of directors.

Today, we will walk through an update on the temporary leadership plan, we announced earlier this morning, a quarterly results and provide our outlook for 2022 and beyond.

This call is being recorded and a replay will be made available shortly.

We will be using a presentation that can be found in the investor section of our website.

While we will be moving to slides via the webcast link we will also call out the slide number as we go through the deck for participants on the phone.

Starting with slide two I would like to remind all participants and others that certain information provided on today's call may be forward looking and based on assumptions and anticipated results that are subject to uncertainty.

Should any one or more of these uncertainties materialize.

The underlying assumptions prove incorrect actual results may vary significantly from those expected.

Please also note that certain financial measures used on today's call do not have standardized measures prescribed by international financial reporting standards, and therefore may not be comparable to similar measures presented by other issuers you're advised to review the risk factors found in enterprise press releases and other public filings on SEDAR in more detail.

We also want to remind listeners that <unk> financial statements are presented in U S dollars. The company's functional currency 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 zipped consist of battery electric hydrogen fuel cell electric trolley electric buses.

Quibbling units four eus <unk> is a term that we use for both production slots and delivery statistics.

The majority of our vehicles represent one equivalent unit, while articulated 60 foot transit bus takes two production slots, therefore equal to two equivalent units.

On slide four for those of you new to the NFC story, we are a leading independent global provider of sustainable Boston coach dilution. We are leaders in our core market, which includes heavy duty transit coach and aftermarket parts North America heavy duty transit.

Parts in the United Kingdom, and the World leader in double deck transit buses.

Turning to slide five our purpose and mission is simple we exist to move people very simply our products transport precious cargo.

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

We've made our sustainability pledge in 2000 and it still holds true today, a better product a better workplace and a better world.

We've implemented numerous advancements on the ESG front, where environmental social governance in 2021 and to start 2022.

Full details of all our various ESG initiatives, including our diversity equity and inclusion survey and a materiality mapping exercise will be outlined in our fourth annual ESG report, which will be released in a few weeks.

Slide six is critically important as it shows the breadth of our full offering NFC solutions include vehicles charging infrastructure connected buses and coaches telematics aftermarket parts and service and finding solutions. We are truly a partner of choice for bus and coach customers offering comprehensive customizable solutions.

I'll now pass the call over to Paul.

Thank you Steven.

And for those of you that caught Stevens title at the start pleased to announced that Steven has been promoted to our vice president of strategy and Investor relations at very well deserved promotion and really really strong part of our team. Good morning, everyone earlier today, we announced that I will be taking a temporary medical leave of absence, having recently been diagnosed.

With an aortic aneurysms.

As I undergo further testing to determine the most appropriate treatment that will be on leaves for a few months and in the interim <unk> Board has appointed Brian <unk> currently president of identified parts the role of acting CEO during my absence.

I've worked closely with Brian for almost nine years now and on slide seven we provide details of his background and his leadership experience Brian joined <unk> in 2013 through our acquisition of North American bus industries or Nabby and at the time of acquisition volume was <unk> CFO and then became president of <unk> Post acquisition.

Brian has been leading NFS parts since 2017 and under his leadership that business has seen strong growth in both revenue and profitability from product diversification market expansion and cost optimization efforts.

In addition to his extensive financial and operational experience Brian holds an MBA in finance and both Masters and Bachelors degree in mechanical engineering.

While it pains me to take leave.

Navigates edified navigates through this serious global supply chain and logistics challenges.

That is in my best interest and the company's best interest that I take time to focus on my health.

With the board unequivocal support Brian and the rest of our executive team will continue to execute on our strategy and navigate through the latest supply chain hurdles and disruptions.

I know that the business is being left with great hands and I am committed to actively returning as soon as my health permits so before I dive deep into our first quarter results I wanted to give Brian that opportunity introduce himself to our investor and stakeholder community go ahead, Brian .

Thanks, Paul.

Take on the role of vacuum.

So although I, obviously wish if not under these circumstances.

I've had the pleasure of working directly for Paul.

The acquisition of <unk>.

At that time, <unk> was a leading provider of heavy duty.

Transit buses in North America generating over $320 million in annual revenue.

Following the acquisition I became president of <unk> to lead the integration with the broader new Flyer business.

I, then let NFS 2015 acquisition of MTI, given the exposure to another major industry segment with both public and private customers.

After working with Paul on the Mci transaction I moved into the President role at <unk> 2017, we've had tremendous success in the aftermarket segment driving revenue growth and margin performance through cost optimization efforts.

Following numerous acquisitions by UNFI, we launched a program to consolidate our distribution facilities going from 21 warehouses six.

We've also launched new product lines and service models on a new web store.

We're fortunate that Paul has developed a strong leadership team at all levels of the organization led by talented executives.

As I step into this new role there are numerous initiatives underway that have already been engaged with.

My fellow executives, who will now go deeper as acting CEO .

I'll be working closely with Chris started and David White as they navigate through the near term supply disruptions and execute on plans to mitigate module shortages within new flyer.

I'll be working closely with capacity of Sony as we look to finalize our credit agreement in the second quarter and will also be focused on driving us towards our 2022 financial guidance.

Our near term headwinds that need significant focus like Paul Im always keeping our focus on the long term future. We will continue to make the right investments in capital asset people and products in 2022 and 2023.

To ensure NFIB maintains its leadership in our core markets grows in new areas and drive the transition to zero emission mobility.

As acting CEO I'll be working closely with our customers and supplier groups.

Groups I know well from my current role identify parts and from my previous positions at NAV.

It is critical that we engage with our customer partners. During these challenging times as we work with them on delivery schedules, new bid and purchasing schedules contract awards vehicle acceptance processes and aftermarket services with.

With supply chain disruption a key focus will be working extremely closely with our suppliers and other tiers of our supply chain to ensure we continue to identify and mitigate any potential disruptions.

Finally, Steven and I will maintain the open and transparent environment, Paul has created with our investor and analyst community with that I will turn the call back all the recap of our first quarter results.

Thanks, Brian So we're now on slide eight.

First quarter was another difficult period impacted by the continuing global supply chain disruption and heightened inflation.

While our results reflect those realities. They also reflect the strong demand for our market leading products and services in the quarter. We received new orders of 1407 equivalent units. We recorded a book to Bill ratio of 164%, we grew our backlog by 5% sequentially up to eight.

980 use with a total value of the backlog.

$5 billion and we had another 1192 equivalent units in bid award pending which means we've been advised of an award by our customers, but we await the formal contractual documents. Once they are received they will be recognized as award for the second quarter. This is an important number as it showcases we will see another peer.

A significant awards and new orders, which we expect will deliver another year.

Other period of backlog growth.

MFA has normally been successful in securing new orders were also witnessed the bid environment grow back to 2017 levels at the end of the first quarter. There were 5562 equivalent units in active bids out for procurement and 26000 706371 used in our total North American public.

Bid universe, which measures active bids plus a five year outlook for demand based on agency and operators fleet replacement plans on the zero emission front, we received orders for another 222 equivalent units in the quarter now.

Now representing 16% of new firm and option orders.

Our total backlog is now made up of nearly 1500 equivalent units for zero emission buses, which equates to approximately 70% of our total backlog.

Our total public bid universe is now 43% zero emission buses and other solid signs that the transition to zero emission is well underway and we will continue to advance our leadership.

Our aftermarket business had another strong quarter with revenue up 16%.

In North America aftermarket operations International markets continues to be a bright spot in a challenging manufacturing environment, So kudos to Brian and if our parts team and the Paul Davis is ADL International aftermarket group for very strong performance despite themselves dealing with supply chain challenges.

First quarter did see improvements some parks.

Some of our parts supply with more consistent supply of things like windows plastics, and fiberglass, but overall, we remain constrained and unable to operate efficiently or increase our planned production rates as we originally intended.

Any part with electronics or microprocessors is on high alert.

Our engineers have redesigned parts are identified alternative parts, where possible. Our supply teams are also working now in some cases four levels down in the supply chain and their efforts to mitigate problems or to complete early detection of potential supplier disruption.

As we discussed last week, we're now faced with a module shortage caused by a lack of a certain microprocessor chip.

That will impact our operations, specifically at new Flyer in the second and third quarters of this year as we noted in our press release, we have a detailed plan to address this issue and let me take you through a little bit of the plan on slide nine.

The multiplexing module is essentially the brains of the bus. It connects all the electronics systems and provides control instructions to various other components.

Each new Flyer transit bus are required in a range of five to eight of these control modules, depending on its specification and complexity and without these modules to the bus simply can't operate.

Each module has printed circuit boards that include microprocessors or chips.

A few weeks ago, we were informed by a module supply our module supplier that the chip sub supplier was experiencing a shortage and we would therefore not be receiving a regular scheduled and confirmed orders of those modules starting in may of 2022 with expectations that the delays could last for a few months.

For context, our module supplier is a 20 billion dollar incredibly successful company and has provided us with time delivery.

For 20 years, and this was with successful time and delivery performance for 20 years and this was definitely an anomaly.

We've escalated to the highest levels of the module supplier the chip broker network and ultimately it's the chip manufacturing we've been assured that new Flyer, we will see the large delivery of modules in August as anticipate stronger chip supply in the coming months. In addition, we're also developing the next generation control module that will use a different.

Chip.

In a more readily available microprocessor.

This new module will be online in July .

<unk> August for installation on certain new vehicle builds as.

As we await the modules we will do the following.

Using a floated these modules that we have on hand, we will build buses and install modules on vehicles that go down the production line.

Once the vehicle Assembly is complete we will work with our customers to complete their onsite inspection and then we will park the bus in a secure location and remove the modules above.

About a four hour process.

The removed modules will then be put back into the production line installed when the next bus to be built the buses missing modules will remain part and as soon as the modules arrived they will be installed again, a four to five hour process.

Now the fully completed vessels will then be driven to customers, where they will complete the final inspection and ultimately be recorded as revenue.

We anticipate that these work in process buses will start to flow to our customers through August with nearly all of these buses expected to be delivered by year end.

New Flyer, and Mci President, Chris <unk> and his team with support David White, a VP of supply have developed a very strong plan and then one that we can expect will best meet the needs of our retaining our skilled team members delivering for our customers and position us to increase production later than planned in 2022 to meet the high.

Demand of orders, we expect to book and expect to deliver in 2023.

We are confident that we will receive significant shipments of these modules in August are both for our existing module and the next generation alternative module that we are developing but we will be closely monitoring this issue to ensure there are no additional surprises.

We meet weekly with both our module supplier and Theyre microprocessor supplier to ensure there are no changes to this planned delivery schedule.

We see any signs that there are deviations that would push module availability beyond August we will reassess our production rates and respond appropriately the.

The result of this plan is temporary buildup of work in process, but that's the Paso will detail later in the call we have more than sufficient liquidity to support that temporary investment now.

Now turning to slide 10 on.

On this chart, we show our backlog in our first quarter 2022 deliveries, we saw another quarter of backlog growth as I mentioned earlier with firm orders now representing 46% of our backlog and option backlog now extending into 2026, providing both near and longer term visibility we.

We are specifically encouraged to see the percentage of our backlog from low floor and medium duty products grow in this quarter.

At the bottom of the slides you can see that all of our segments experienced a year over year delivery decline. This reflects the supply chain realities that we saw in 2022 and that we did.

It did not have in 2021.

Or at least the first three quarters of 2021.

On slide 11, we provide some context on the impact of inflation on our backlog. A question. We have received lots of in the last couple of weeks Jenny.

Generally our firm orders are manufactured and delivered within 12 to 18 months of contract Award.

When we make our original bid.

We will obtain pricing for approximately 50% of our vehicles components from our suppliers as they are often specified by that customer in some cases by supplier name.

For many other non specified components, we will use external and internal sources like car fair for our own fiber glass or <unk>.

AMG for things like metalworking, electrical kit assembly and plastic thermal forming.

We make estimates for inflation between the time of award and manufacturing our contracts and given the rapidly increasing levels of inflation in surcharges being passed on to us from suppliers actual costs have now exceeded our estimates on some of the FERC contracts that were bid prior to this year.

So the contracts impacted by this we are discussing pricing adjustments with our customers and we're also negotiating relief where possible with our suppliers.

There will be cases, where we are successful and we have some already but we fully expect that on certain contracts, we will experience lower margins from these higher input costs.

For programs that are currently being bid we have increase the inflation adjustment contracts to reflect the macro environment and the reality of increased pricing and surcharges that we see from the supplier community.

On option orders are of different situations.

A majority of our option orders when a customer execute an option that is under contract and in backlog. There is a repricing that factors in a producer price index or PPI for short.

Some other similar type escalation or inflation instrument.

The PPI or its equivalent is prepared by the governments in the various jurisdictions and calculates the average movement in prices from production over time.

Chile is purposes to reflect the reality of current inflation.

In that sense, the contracts that have a PPA adjustment will add a pricing increase when the auction is awarded this contract clause.

US include the impact of inflation in future and protects our margins from downside inflationary pressures. Unfortunately, there is a time lag which is affecting us right now.

On the slide we highlight the rate of increase of what it's called PPI $14 13 for truck and bus bodies that is generally used for our U S contracts.

The aftermarket business, we have had some exposure to inflation on contractual sales, but the majority of our parts sales are transactional in nature, meaning we can reprice based on the last input costs from our suppliers.

With that I'll now turn it over to pass through to summarize the quarter over to you.

Thanks, Paul turning to slide 12, we highlight some of our key metrics as Paul mentioned the quarter saw significant challenges from supply chain disruption. The ongoing COVID-19, pandemic heightened inflation lower production and overhead cost absorption in summary sales were down 20%.

Adjusted EBITDA was negative $16 9 million with positive adjusted EBITDA in the aftermarket segment offset by negative adjusted EBITDA in the manufacturing segment negative EPS and adjusted EPS of <unk> 36 per share and <unk> 55 per share respectively.

Our ending liquidity was strong at $649 million, an improvement of over $300 million from the first quarter of 2021 liquidity was down from the fourth quarter of 2021, representing typical seasonality patterns and a slight increase in working process inventory buildup stemming from supply disruption and weather.

Other events delaying shipments.

On slide 13, we reconcile net earnings to adjusted net earnings in the quarter, we had a large fair market value gain from our interest rate swaps. We currently have two swaps in place one for $560 million at $2, two 7% and another for $200 million at 0.24%.

With increases in base interest rates in Canada, and the U S. We had a gain for which we normalize.

Turning to slide 14, I want to provide a summary of our Covenant amendment discussions.

As we outlined on our call last Friday, we are in detailed negotiations with the leads of our banking syndicate to develop a plan that addresses our needs with more appropriate covenants.

This has taken longer than we expected as we prepared our plan to address module shortages that Paul discussed earlier, we currently have over $600 million of liquidity and anticipate that we will need up to $200 million of that for work in process inventory in the second and third quarter as we worked through our build and hold plan related to module shortages we.

Expect to unwind the work in process inventory before the end of the year and anticipate returning to over 600 million in liquidity by the fourth quarter.

We anticipate that we will be able to achieve a suitable credit amendment program within the second quarter of 2022 and <unk>.

And we will inform the market when it is complete.

We are confident that we have sufficient capital to navigate through these immediate supply challenges and do not currently contemplate the need to issue additional equity.

On slide 15, we provide a brief update on NII forward with first quarter 2022, adjusted EBITDA savings of $16 million and an additional $4 million in free cash flow savings we have now.

I have an annualized adjusted EBITDA run rate of approximately $63 million well on our way to achieving our $67 million target.

The majority of our savings generated so far have come from overhead and SG&A reductions and we are now focused on additional sourcing and supply savings. Some of these are linked to volume and even with the challenges in 2022, we still expect to realize our $67 million target.

As we've made great strides with these projects. We are now looking to NFIB forward to point out and other series of initiatives aimed at lowering our cost base and driving additional free cash flow generation.

Given current supply chain environment management has focused its efforts on production and delivery, but we did make progress on the first NFA forward two <unk> initiative with the announcement of a closure of our of another U S plant distribution facility, the original Nabby warehouse and Delaware, Ohio.

Slide 16 outlines our guidance for 2022, we adjusted this guidance last week to reflect year to date results and the impacts of the module shortages and heightened inflation on our operations.

As outlined on this slide we anticipate $2 3 billion to $2 6 billion in revenue with 20% to 25% of manufacturing sales coming from Zeb's adjusted EBITDA 15 to 45 million and cash capital expenditures of approximately 25% to $35 million.

We expect the second and third quarters will see negative adjusted EBITDA. The fourth quarter. However is forecasted to deliver positive adjusted EBITDA as we ship buses that were missing modules benefit from improved battery supply and see the typical strong seasonality of ADL Mci.

I'll now turn the call over to Paul to summarize our outlook.

Thanks.

Now on slide 17.

As we noted our public bid universe continues to grow and we now have over 6300 equivalent units of bids submitted which will drive new orders and awards in the coming months longer term, we will see over 20000 equivalent units of potential opportunities in excess of five years in total our public bid universe is 26.

371, he used with 40% 43% of those being zero emission.

On slide 18, while our deliveries have been suppressed by supply chain disruptions or book to Bill has grown with another quarter of above 100%, 100% positioning us well for the future.

We've consistently heard from us that one of the driving factors in vehicle procurements is reliable multiyear government funding.

On slide 19, we summarize the major investments being made into public transit by governments and all of our core markets.

We've recap these numbers before so I won't go through them in detail now, but I will highlight several recent developments from the first quarter.

In the United States, which is our largest single market the lowest the low or no emissions Grant program was opened up in March of 2022.

This program can provide up to 100% of the cost of zero emission bus and the associated charging infrastructure for our public Transit agency in.

In 2021, the program had a total commitment of $185 million and in 2022.

Now $1 1 billion for an increase of almost 500%, reflecting the administration's view the need for public transit for everyone. The need to reduce congestion in cities and the need to drive the zero emission agenda, while EFI was leading the zeb manufacturing partner for transit agencies using loan.

<unk> grants in 2021.

We anticipate another strong year.

At these significantly higher funding levels.

In Canada. It was recently announced that there will be a $450 million investment into zero emission trended in Brampton, So as the Canadian infrastructure bank and in Quebec through the federal and provincial governments are rolling out a combined $5 billion program <unk>.

<unk> will be actively monitoring those opportunities and hopes to secure a significant portion of those orders.

In the United Kingdom, 62 million pounds of funding was awarded to bus operators through the phase one of the Scott that program. The Scottish Zero emission bus fund is designed to encourage the market to implement new and end of ways to finance and deploy zero emission buses and ADL has been the successful proponent with numerous customers.

And partners throughout this program.

Turning to slide 20, we recap and reinforce our 2025 financial targets.

We've received questions on our confidence in these objectives given the recent operating climate and I can say that the entire NFIB management team and board remains committed to delivering on those goals.

Achievement of these targets does not require a fundamental change to our business as we have the facilities the product portfolio the services and the team required to achieve them.

With improvement in supply chain, which isn't going to happen overnight, we see a clear path to 4% to $400 million to $450 million of adjusted EBITDA by 2025 coming from the growth of zero emission bus sales additional contributions from our Bakken ADL, which were acquired previous to the pandemic and continued strong performance of our aftermarket business.

And realization of NFC forward savings, which as you just heard from Pat <unk>, we're already close to our 6% to $67 million cost reduction target.

Finally on slide 21, we recap the investment thesis on NFC.

While the past two years have been extremely challenging and require that we revise our guidance and recovery expectations on a current basis, we remain focused on the long term and on delivering for our stakeholders.

We feel that our current share price does not reflect the true value of <unk> market, leading provost products services capabilities and competitive position.

No question there are headwinds now in front of and in front of us, but the tailwind has continued to grow everyday.

Whether it's new orders increased bid activity recovery of private travel through motor coach operators rising ridership rates the lifting of various COVID-19 mandates the rollout of a significant and historic government funding for the continued advancement of our zero emission leadership strategy <unk> is extremely well position.

As a company and we have the right products and right services for today and for the future.

The global the global COVID-19 pandemic.

And the resulting global turmoil that significantly impacted our business. We had over 2500 team members test positive for COVID-19, since March 2020, making the custom manufacturing of buses in close quarters, very challenging and something that Unfortunately, you cannot build a bus from home.

Given the bespoke engineered to order nature of our vehicles, we integrate in integrated innovative products and technologies from numerous suppliers to create market leading buses and coaches.

David White and the supply team have always managed a challenging supply chain environment. Given this bespoke nature of our products, but quite frankly as being one of our strengths and key competitive advantage to our success historically.

Since mid 2021, we've had numerous supplier disruptions in part crisis is that our team has successfully mitigated. The module situation described earlier on today's call is seriously disrupted, but I am confident that our supply and operations team will manage through it.

I've, even had people call me and ask why we havent dual sourced microprocessors or modules suddenly being suggested we should make our own.

<unk> chips.

Let me provide some additional context, we integrate components for more than 40 suppliers that require electric controllers or chips utilizing printed circuit boards that have microprocessors on them.

Each of these suppliers or their sub suppliers design and select the microprocessors to meet the particular needs of their proprietary products.

And all of our years of operations, we have never directly bought a micro processor before.

We're working up to four levels down in our supply chain now sourcing and purchasing materials.

We've never had to do before.

I was told yesterday that there are over 1 million cars already built in the United States that are finished and sitting in delivery lots waiting for parts that have chips missing in them, we're not alone in dealing with this global supply disruption.

Be clear, though.

This latest challenge is not fatal, but it does represent yet another significant roadblocks that will need to drive around no doubt, we will see more supply curve balls in the year ahead, but the entire NFL team is focused on the task at hand, and ready to execute our people all across our business in Canada, the United States, the UK and Asia.

At all levels and functions from engineering supply chain finance customer programs shop floor technicians quality.

Have all shown their resiliency and ability to adapt their loyalty is amazing we've asked them to start stop go home comeback hurry up.

And so forth over the last two years I have no doubt our team will manage through these hurdles.

We're excited about the path, we're on and the future in front of US we lead this industry and that will continue we're also leading the evolution to zero emission buses.

Bottom line is we will be prudent stewards of the capital and we will execute on our plans working through the supply chain disruption and we will <unk> for a recovery in 2023 and beyond.

We will not jeopardize our business our people for our future I'd now like to turn the call over to the chair of the ESI Group Board.

The honorable Brian Tobin to wrap things up and then prior to that and then after that we'll move to the Q&A over to you Brian .

Okay. Thank you very much Paul.

Well I'll acknowledge that it's not typical for a board shared economy during our quarterly conference call.

Given the significant events, taking place today and over the last days I thought it would be prudent to join the call today.

And let me just begin by saying that when Paul advise me as board chair.

The early part of last week.

He had a very serious medical issue that he was going to have to attend to.

On behalf of the board suggested that Paul that you take.

And immediately and I just want to acknowledge.

As is typical football and the leadership that he provides should know I am going to stay and going to work through the challenges we faced last week and as you know.

We updated our guidance last week.

And of course, we've got.

The AGM this week, which is today.

And I want to help you accomplish a very smooth transition.

Interim leadership.

Very selfless active pulse park.

But a very vital to ensuring what is really and has been a very smooth transition I want to acknowledge that and.

And Paul I wanted to publicly thank you for that that dedication.

And that contribution.

The board, obviously and clearly fully supports Paul's request to take this this medical leave.

And we wish him the best as he focuses on his health.

We have complete confidence in the strong management team.

That <unk> built which includes Standalone leadership with each business unit.

The complex business, we're in the best of times and following a two year global pandemic combined with a global supply chain.

Logistics dynamics.

We know and we're confident that this management team remains laser focused on executing its operating plan.

And we will continue to be the market leader in the.

Bus and motor coach industry I.

I want to say clearly that our entire board.

And yes, the entire leadership team.

Sure Brian .

Is the right choice.

Our interim president and CEO .

He has a deep track record within our company, having worked as an executive as Paul pointed out earlier.

The manufacturing and the aftermarket segments.

Relationships with key customers and suppliers.

And Brian enjoys a very strong track record of success.

Jordan Falls absence, I will also increase my involvement with the company.

Dissipate regularly management meetings and update calls in Dubai went to Winnipeg and had a chance to meet with the senior management team.

Just a few days ago.

My goal is to ensure that Brian had strong support as we work through these turbulent times and preparing the future where we see numerous opportunities for growth.

Financial performance.

And strong shareholder returns.

We know that Brian .

Tire and at my Executive team are well positioned to continue to implement the business strategy and run day to day operations falls away.

And we look forward to the day when <unk> is back in the chair.

Let me take this opportunity as well to think.

John Marrin Gucci.

Prior President and CEO of New Flyer served as a member of the NFIB Board since 2005 for his service to retires.

Today's annual General meeting John has been a great leader and has made great contributions densify for over 20 years.

And I'm also happy to welcome.

Later today, we will do so now.

The key is being nominated to the NFIB Board at the Companys 22, AGM, the Skus and accomplish business professional share about PG today was recently honored as a fellow from the corporate directors and as a fellow chartered professional accountant. We're excited to have when they join our board and look forward to adding.

Our expertise in finance and corporate governance.

And audit leadership.

As a final word for me I'd like to thank my fellow shareholders.

Including our two largest shareholders Coliseum capital management of our proposal.

For their continued support of <unk> during these challenging times.

On behalf of both policy and the marketable Greg installing units continue to serve.

<unk> boards, we will get through these near term issues.

And I look forward I am confident.

We'll see NFC strong success as it capitalizes on the numerous tailwind.

That will drive our success and with those comments.

Back over to Steven.

To provide directions for the Q&A portion of this call Steven.

Thanks, Brian .

Just to reminder, everyone. Our AGM is today at one PM eastern details on how to participate can be found on the Companys Web site. We will now open the call for analyst questions and.

In addition, if you have a question and you are on the webcast you can type that in and we will lead those aloud.

Dream, Please provide instructions to our callers and open the line for questions.

Thank you we will now begin the question and answer session.

Audio question. Please press star one on your Touchtone phone.

If you wish to be removed from the queue. Please press zero two.

Excuse me Speaker phone you may need to pick up the handset first before pressing the numbers.

Once again, if you have an audio question. Please press <unk> one on your Touchtone phone.

And we do you have to do.

You have Chris Murray from <unk> capital markets. Your line is open.

Yes, Thanks folks good morning, and Paul Let me offer my best wishes for a speedy return.

Thanks, I guess my first question.

My first question is just thinking about maybe the cadence since we kind of get between here and the end of the year.

You've talked about.

Negative numbers negative EBITDA numbers for manufacturing or I guess, some transit bus manufacturer more specifically certainly looks like the aftermarket business is going to be okay. Can you maybe walk us through in a little more granularity how to think about the EBITDA progression quarter to quarter.

As we get to Q4, because what I am trying I guess, what I'm trying to understand is we.

Bit of a negative number in Q1, maybe more than we would've thought are we expecting a pretty substantial number down Q2, because we won't have.

Modules to ship.

So is there any color you can give us on just what that pattern is going to look like over the next couple of quarters just to try to maybe take some volatility other things.

Thanks, Chris and thanks for your kind words.

As you know new Flyer is the single largest part of our entire company.

And of course, surrounded or what happens at ADL in.

And Mci in our block and then of course as you mentioned the parts business is good the reality of new Flyer is that this module issue right now has it started to affect our deliveries we're literally building buses.

And as I described in my discretion explanation, we are we're going to finish those buses.

The module is off and build another plus.

Our deliveries through the second quarter and the third at new Flyer are going to be seriously disrupt.

Now, what David and Chris are working.

With our from our module supplier in the chips provider is.

As a an aggressive schedule that we have with a defined schedule now when we'll get those modules.

Once we get the modules put them into a park that has four or five hours that bus doesn't go into Fedex package right. We have actually get final sign off by our customer and we have to deliver that bus all around North America.

Which doesn't happen overnight.

So we've got a schedule now of two things happening a burn down of the whip that we create and be a delayed ramp up of what we expected to actually build in this year and so as I've described many times.

CHRISTUS case on new Flyer, it's not a demand issue the schedule the slots to build slots are effectively all sold it's a matter of being very diligent at the pace at which we burned down as well as ramp up the continued build and Chris is laser focused on trying to get that to a reasonable run rate by the end of the year because our current schedule for 2000.

'twenty three is actually filling up faster than we probably ever seen.

So we're in a really good place from that perspective, so youre going to see muted revenue rec and therefore earnings through Q2 and into Q3.

And then of course Q4 is going to balloon we've got regular deliveries regular performance the rest of the business plus the catch up delivery of those modules. If we were able to secure some of those module earlier, you may see a third quarter that looks better than we're currently projecting but again that would be imprudent at this point because we don't have the module in our hand, just yet so I'll have to pass it add any other.

Color again of course, we are not.

We're trying to be heavily sensitive to a prudent forecast for both our customers who are waiting for their buses are employees, who are trying to figure out the production schedule and the realities on their impact but also the results for our investors in the past of any color you want to add yes. The only thing I would add is again as you know we both said negative for Q2 and Q.

But we do expect as we do some of the deliveries in Q3 Q3 will be better than Q2 as is kind of the best we can give at this stage from a guidance perspective, because as you know, we don't give quarterly guidance, Steve and anything else you want to add to that yes, I mean, I think I think you guys covenant like we said in our guidance for three quarters will be negative as our expectation as we sit here today and.

As Paul mentioned, the fourth quarter busy period as well in addition to the buses will get out of with its also thats typically mci private coach that's usually their busiest period and Alexander Dennis in the UK, that's usually their busiest period as well. So thats part of the reason I apologize mentioned there'll be that catch up plus the normal kind of cadence of when we see.

<unk> in the fourth quarter.

Okay.

My other question is just looking at the.

Some of your competitors, it's kind of interesting one of your major competitors.

It seems to be going through some challenges.

Probably similar to some of the challenges you guys are seeing but there their bookings are seeming to drop off in there and their parent is maybe backing out.

But I'm not sure Paul or Brian I mean, both are sort of experiencing going through these market disruptions, where competitors come and go and leave the market.

There's been a couple of cycles of about one new flyer ended up actually buying I think a number of the folks we went through something similar early in the two thousands.

Just what are your thoughts about.

Additional.

Concentration in the business I know it was kind of interesting you guys won the TTC order, which was historically.

One of their primary customers.

But then just run it won an order in New York. So just just thoughts about the state of the competition right now would be helpful, especially as we move back into 'twenty three.

Sure. It's a really good question, Chris and of course as you know each of those markets is not homogeneous. So let me be a little bit long winded to give you a color.

First let's start with the parts business. We are the biggest player by far in the marketplace and what Brian has done in the last number of years as consolidated all of our parts business is through the one machine in North America. He has also expanded its basket. We don't just sell NFS parts for buses, we sell parts for competitive buses. He has also added.

The cutaway space to that and he is also continuing to support the Alexander Dennis buses in North America and of course, Paul Davis has done much of the same internationally.

<unk> business is.

An interesting one in the cutaway space. There is $15 16000 units delivered in a normal year and you have one very very large player that makes high floor buses called Forest River.

And for US we are of course is a Berkshire Hathaway company. Our Bok has two things it has a low floor cutaway, but it also has a medium class vehicle that market in the low floor cutaway is severely hampered by.

Chassis supply that comes from a Ford or GM, and so forth and so Doug <unk> that runs that business. His order book is about three five times what is current production rates and cutaway because we just can't get the chassis that we need which is why the launch of the medium class vehicle and our other product developments to create more that rely on our own.

<unk> are great. We're in a very unique place in that low floor space.

The Mci world as you're referring to pre vote, which is a Volvo truck and bus company recently announced that they are backing out of the biomarker marketplace meeting public motor coaches that are sold to operators like New Jersey, or New York or others. They are not no longer to play in that space, which leaves the Mci really is a.

Sole provider and there's a couple of large rfps that are either on the street are coming out that reflect that space that should allow us to be.

Pretty successful in.

In the private motor coach space, there really hasnt been much movement to people coming or going we've all been dramatically impacted on the ability to secure private orders. Although you have seen in some of our materials you've seen in some of our comments today the private motor coach the movement of people in Canada, and the United States is starting to recover in fact in Paul Davis as Casey.

Motor coach in the UK is starting to recover but it is not a snapback. It's a slow progressive return, which is why Chris restarted his private market Mci motor coach production in the first quarter of this year.

But we haven't seen really entrants changing entrants or change in players other than that public motor coach issue with people exiting the market in the transit space in North America, New Flyer is.

The leader 45, plus market share we.

We have seen our friends at volatile struggle Novo bus, which is owned by public truck or bus struggled like we have with part supply in fact, the number of the parts that are specced by customers.

But from the same suppliers, yes, we have different module suppliers, we have different plc system suppliers. We have other things that are different but we're all impacted ultimately by that macro supply chain dynamic.

And so we've seen no the be aggressive in some places.

The Toronto competition that you referred to.

New Flyer was awarded a 100% of the 60 foot articulated buses and half of the 40 foot and.

And volatile that the other <unk> got the other half of the 40 foot.

Gilead is a privately held business a very successful competitor.

In some cases with a different customer base in some cases with the same.

We validated and confirmed gillies dealing with the same supply issues and has the same issues in the our ability to deliver the zero emission space as we talked a lot today continues to try and get traction we have everybody now playing all of the conventional guys plus the <unk>.

The startup they'll start up like a company like arrival, although arrival has not delivered vehicles. Yet arrival is struggling from our research on their ability to actually bring demos to market and of course arrival also has a dynamic of.

Russian ownership and so forth associated with it and then there is our friends at <unk>, which is done at a more marketable stock transaction, who now is not just the bus company. It's a bus it's a battery entity inside company as well as an energy system and infrastructure play.

<unk> continues to win their share in certain places.

I wouldn't suggest that we're in a situation today, Chris where we're going to see much more consolidation and in fact back to our strategy. The same buses now with the zero emission whether its trolley electric battery electric fuel cell electric so a complimentary offering to offer the same customers from our support and service perspective, and then of course, the bolt on of our infrastructure solutions.

That helps our customers put in that that entire kind of.

Ecosystem or ecosystem to help support.

I don't think youre going to see consolidation in the short term, we're all dealing with dramatic issues. The good news is the market demand is there hopefully all of that helps.

Yes, just the other question are there other pieces of that and I guess just to follow up do you see the risk if anybody is forced to exit the market.

Well, if I knew the answer to that I guess it'd be in Vegas, right now but.

We don't know.

We saw the <unk> removal themselves from the public market, which is a positive for our business I am not sure if were have enough Intel to really know whether anybody can exited in the short term I guess its always possible we've seen that historically.

Okay, Thanks folks and Paul we look forward to speaking with you hopefully soon.

Thanks, Chris.

And your next question comes from Cameron Jackson National Bank Financial your line is open.

Yeah. Thanks, very much good morning, and let me Echo My best wishes to you Paul hopefully we will see you back here very soon.

Thanks, Ken.

I just wanted to follow up on maybe some of the covenant questions. I mean, I know that came up.

AST week.

It sounds like you're obviously still very confident that youll get the covenant relief here.

It is really just a calculation issue, but I'm just wondering I guess what.

Maybe you could discuss the nature of the talks and what is sort of being requested from the lending syndicate side, I mean, obviously theres, probably a quid pro quo here of some sort if theyre going to extend covenant relief what should we expect in.

Youll have to give up as maybe some higher interest rates or just anything you can discuss on that front.

Well, let me let me give you the tone of the discussions and then pass who can walk you through because he is he and Jason pillars. Our VP of finance are really championing the dialogue.

So we start the year, we have a plan to wrap up our business we have covenant.

Tenant package that we think we can live into the.

The reality of the supply chain starts to really as we've described kickoff and anything with electric where the microprocessor or any kind of electronics really starts to kick in so in March as we are in deep conversations with our syndicate.

We have to tell the world we've got to revise our guidance for the year. The syndicate led by BNS.

The other three major players BMO National Bank in CIBC.

Working through the realities of what this means.

The module dynamic that just happened really set back those conversations not in terms of cooperation, but just in terms of the reality of what we thought the rest of the year forecast would look like.

And so trying to ramp through a credit package without really having a plan of how to March through this module dynamic would be irresponsible from our perspective.

From a syndicate.

So a couple of weeks ago, we were in Toronto, We had some really good conversations we've been incredibly transparent with that team. The syndicate partners to explain kind of where we're at what the issues are what the recovery looks like what that means for cash flow.

We use the simple words that we have a math problem not a liquidity problem. When we look at actually surging our working capital for a couple of months to do this module swapping dynamic we don't believe we're in a situation we need additional equity to our business. What we need is a package that allows that temporary growth of work in process I think.

The key issues from the banks perspective is that whip has not stopped going on a shelf somewhere that's contractually built sold work in process or future sale work in process for a specific customer to their specification theres not a concerned of whether we're going to sell that bus its just a matter of timing.

So we with the support of the syndicate and term sheets that continue to get involved in developed.

Our working through that right now of course, the good news is 11 lenders in the syndicate that have shared risk and diversified risk. The bad news is there is 11%. So we think it's irresponsible to try and ran something through that really doesn't have the support from the full syndicate as far as quid pro quo camera I'm not so sure we've seen anything that.

I would say are roadblocks or showstoppers in RM will there be a change ultimately and some of the interest rates potentially we will be.

<unk> types of covenants that get added to that package as we March with its work in process, possibly but they've been really supportive to help us understand this.

It's not a going concern issue, it's a timing dynamic so anything you'd add to the latest conversations you've had the syndicate I think Paul first of all Paul well said I think our biggest thing is theres, probably a few things number one is.

To Paul's point, the banks have been very supportive, especially our top four and our big thing here is obviously, we can get majority of <unk>, but we're looking to get everybody on board, which is obviously the other other members of our syndicate. So that's number one number two is they do understand our problem in one of the things that they're looking at is that a lot of our buses.

Specially with the plan that Paul had provided.

With the module plan that we had provided they understand that our buses are 99, 5% complete and they do see that we have an extremely strong order book so.

That's been extremely good and then the last few things I'll just kind of mentioned just so we can go to the next questions is the raises I just wanted to remind everyone that the raises that we did in 2021 help derisk the banks.

The backlog in orders are growing extremely well and the banks have realized that so I think when Paul joined us in Toronto with the four key bank it really kind of ease their mind to understand what the issues were and we did get an initial term sheet.

At the end of this quarter that gives us.

Really comfort that we should be able to get this deal done before the quarter is over Q2s over so Paul back to you.

Hopefully that helps Ken that's great great. Thanks, very much I'll leave it at one question. Thanks a lot.

Thanks Sam.

And we have no further questions in the queue.

Okay, well, thanks to everyone for joining and again, a reminder, that our AGM today at one PM eastern for anybody that's interested to attend details are on our website and at anytime do not hesitate to reach out to myself with any questions. Thanks and have a great day.

Yeah.

Thank you ladies and gentlemen. This concludes today's conference call. Thank you for participating you may now disconnect.

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Welcome to the UNFI 2022 financial results conference.

Call My name is Adrian and I'll be your operator for today's call. At this time all participants are in listen only mode. Later, we'll conduct a question and answer session. During the question and answer session. If you have a question. Please press <unk> one on your Touchtone phone.

As a reminder, this conference call is being recorded and now turn the call over to Stephen King Vice President strategy and Investor Relations.

Mr. King you may begin.

Thank you Adrian and good morning, everyone and welcome to our first quarter 2022 results conference call.

Stephen King speak joining me today are Paul <unk>, President and Chief Executive Officer, <unk>, Soni, Chief Financial Officer, Brian <unk>, President and parks and the honorable Brian Tobin Chair of <unk> Board of directors.

Today, we will walk through an update on the temporary leadership plan, we announced earlier this morning, our quarterly results and provide our outlook for 2022 and beyond.

This 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 the slides via the webcast link we will also call out the slide number as we go through the deck for participants on the phone.

Should any one or more of these uncertainties materialize.

The underlying assumptions prove incorrect actual results may vary significantly from those expected.

Please also note that certain financial measures used on today's call do not have standardized measures prescribed by international financial reporting standards, and therefore may not be comparable to similar measures presented by other issuers. You are advised to review the risk factors found in enterprise press releases and other public filings on SEDAR in more detail.

Okay.

We also want to remind listeners that <unk> financial statements are presented in U S dollars. The company's functional currency 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 Zed consist of battery electric hydrogen fuel cell electric and trolley electric buses.

Equivalent unit four Eus <unk> is the term that we use for both production slots and delivery statistics the.

The majority of our vehicles represent one equivalent unit, while an articulated 60 foot transit bus takes two production slots and is therefore equal to two equivalent unit.

Parts in the United Kingdom, and the World leader in double deck transit buses.

Turning to slide five our purpose and mission is simple we exist to move people very simply our products transport precious cargo.

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

We've made our sustainability pledge in 2000 and it still holds true today, a better product a better workplace and a better world.

We have implemented numerous advancements on the ESG front, where environmental social governance in 2021 and to start 2022.

Full details of all of our various ESG initiatives, including our diversity equity and inclusion survey and a materiality mapping exercise will be outlined in our fourth annual ESG report, which will be released in a few weeks.

Slide six is critically important as it shows the breadth of our full offering NFC solutions include vehicles charging infrastructure connected buses and coaches telematics aftermarket parts and service and finance solution. We are truly a partner of choice for bus and coach customers offering comprehensive and customizable solutions.

I'll now pass the call over to Paul.

Thank you Steven.

And for those of you that Cox Stevens title at the start pleased to announce that Steven has been promoted to our vice president of strategy and Investor relations at very well deserved promotion and really really strong part of our team. Good morning, everyone earlier today, we announced that I will be taking a temporary medical leave of absence, having recently be diagnosed.

With an aortic aneurysm.

As I undergo further testing to determine the most appropriate treatment I will be on leave for a few months and in the interim <unk> Board has appointed Brian Doosan currently president of identify parts the role of acting CEO during my absence of.

I've worked closely with Brian for almost nine years now and on slide seven we provide details of his background and his leadership experience Bryan.

Brian joined <unk> in 2013 through our acquisition of North American bus industries, Our Navy and at the time of acquisition volume was <unk> CFO and then became president of <unk> Post acquisition.

Brian has been leading NFS part since 2017 and under his leadership that business has seen strong growth in both revenue and profitability from product diversification market expansion and cost optimization efforts.

In addition to his extensive financial and operational experience Brian holds an MBA in finance and both Masters and Bachelors degree in mechanical engineering.

While it pains me to take leave.

Navigates edify navigates through this serious global supply chain and logistics challenges I know that is in my best interest and the company's best interest that I take time to focus on my health.

With the board unequivocal support Brian and the rest of our executive team will continue to execute on our strategy and navigate through the latest supply chain hurdles and disruptions.

I know that the business is being left with great hands that I'm committed to actively returning as soon as my health permits so before I dive deeper into our first quarter results I wanted to give Brian that opportunity introduce himself to our investor and stakeholder community go ahead, Brian .

Thanks, Paul.

Take on the role of acting President and CEO .

Although I, obviously wish of earned its not under these circumstances.

I've had the pleasure of working directly for Paul.

The acquisition of <unk>.

At that time, <unk> was a leading provider of heavy duty.

<unk> buses in North America generating over $320 million in annual revenue.

Following the acquisition I became president of <unk> to lead the integration with the broader new Flyer business.

And then let NFS 2015 acquisition of MTI, given the exposure to another major industry segment with both public and private customers.

After working with Paul on the Mci transaction I moved into the President role at <unk> Park in 2017, we've had tremendous success in the aftermarket segment driving revenue growth and margin performance through cost optimization efforts.

Following numerous acquisitions by UNFI, we launched a program to consolidate our distribution facilities going from 21 warehouses six.

We've also launched new product lines and service models on a new web store.

We're fortunate that Paul has developed a strong leadership team at all levels of the organization led by talented executives.

I step into this new role there are numerous initiatives underway that have already been engaged with.

My fellow executives, but we will now go deeper as acting CEO .

I'll be working closely with Chris <unk>, and David White as they navigate through the near term supply disruption and execute on plans to mitigate module shortages within new flyer.

I'll be working closely with capacity as Sony as we look to finalize our credit agreement in the second quarter and will also be focused on driving us towards our 2022 financial guidance.

Our near term headwinds that need significant focus like Paul I am always keeping our focus on the long term future. We will continue to make the right investments in capital asset people and products in 2022 and 2023.

To ensure NFIB maintains its leadership positions in our core markets grows in new areas and drive the transition to zero emission mobility.

As acting CEO I'll be working closely with our customers and supplier groups.

Groups I know well from my current role identify parts and from my previous positions at NAV.

Thanks, Brian So we're now on slide eight.

First quarter was another difficult period impacted by the continuing global supply chain disruption and heightened inflation.

908, eus with a total value of the backlog.

$5 billion and we had another 1192 equivalent units in bid award pending which means we've been advised of an award by our customers, but we await the formal contractual documents. Once they are received they will be recognized as awards in the second quarter. This is an important number as it showcases we will see another peer.

A significant awards and new orders, which we expect will deliver another year.

Other period of backlog growth.

<unk> has only been successful in securing new orders were also witnessed the bid environment grow back to 2017 levels at the end of the first quarter. There were 5562 equivalent units in active bids out for procurement and 26000 706371 used in our total North American public.

Now representing 16% of new firm and option orders.

Our total backlog is now made up of nearly 1500 equivalent units for zero emission buses, which equates to approximately 17% of our total backlog.

Our total public bid universe is now 43% zero emission buses and other solid signs that the transition to zero emission is well underway and we will continue to advance our leadership.

Our aftermarket business had another strong quarter with revenue up 16%.

The first quarter did see improvements some parts.

Any part with electronics or microprocessors is on high alert.

As we discussed last week, we're now faced with a module shortage caused by a lack of a certain micro processor chip.

The multiplexing module is essentially the brains of the bus. It connects all the electronic systems and provides control instructions to various other components. Each new Flyer transit bus are required in a range of five to eight of these control modules, depending on its specification and complexity and without these modules to the bus simply can't opera.

Right.

Each module has printed circuit boards that include microprocessors or chips.

With expectations that the delays could last for a few months.

For context, our module supplier is a 20 billion dollar incredibly successful company and has provided us with time delivery.

For 20 years, and this was with successful time and delivery performance for 20 years and this was definitely an anomaly with.

We have escalated to the highest levels of the module supplier the chip broker network and ultimately it's the chip manufacturing we've been assured that new Flyer, we will see the large delivery of modules in August and is anticipate stronger chip supply in the coming months. In addition, we're also developing the next generation control module that will use a different.

Chip.

On a more readily available microprocessor.

This new module will be online in July or latest August for installation on certain new vehicle builds as.

As we await the modules we will do the following.

Using a float of these modules that we have on hand, we will build buses and install modules on vehicles that go down the production line.

Once the vehicle Assembly is complete we will work with our customers to complete their onsite inspection and then we will park the bus in a secure location and remove the modules about.

About a four hour process.

The removed modules will then be put back into the production line installed onto the next bus to be built the buses missing modules will remain part and as soon as the modules arrived they will be installed again, a four to five hour process now.

Now the fully completed vessels will then be driven to customers, where they will complete the final inspection and ultimately be recorded as revenue.

We anticipate that these work in process buses will start to flow to our customers through August with nearly all of these buses expected to be delivered by year end.

Demand of orders, we expect to book and expect to deliver in 2023.

We are confident that we will receive significant shipments of these modules in August of both for our existing module and the next generation alternative module that we are developing but we will be closely monitoring this issue to ensure there are no additional surprises.

We meet weekly with both our module supplier and their microprocessor supplier to ensure there are no changes to this planned delivery schedule. If we see any signs that there are deviations that would push module availability beyond August we will reassess our production rates and respond appropriately.

The result of this plan is temporary buildup of work in process, but thats. The Paso will detail later in the call we have more than sufficient liquidity to support that temporary investment.

Now turning to slide 10.

We are specifically encouraged to see the percentage of our backlog from low floor and medium duty products grow in this quarter.

At the bottom of the slides you can see that all of our segments experienced a year over year delivery decline. This reflects the supply chain realities that we saw in 2022 and that we did.

It did not have in 2021.

Or at least the first three quarters of 2021.

On slide 11, we provide some context on the impact of inflation on our backlog. A question. We have received lots of in the last couple of weeks generally are firm orders are manufactured and delivered within 12 to 18 months of contract award when.

When we make our original bid.

We will obtain pricing for approximately 50% of our vehicles components from our suppliers as they are often specified by that customer in some cases by supplier name.

For many other non specified components, we will use external and internal sources like carfare for our own fiberglass.

AMG for things like metalworking, electrical kit assembly and plastics thermal forming.

So the contracts impacted by this we are discussing pricing adjustments with our customers and we're also negotiating relief where possible with our suppliers.

There will be cases, where we are successful and we have some already but we fully expect that on certain contracts, we will experience lower margins from these higher input costs.

For programs that are currently being bid we have increased the inflation adjustment our contracts to reflect the macro environment and a reality of increased pricing and surcharges that we see from the supplier community.

Option orders are of different situations.

A majority of our option orders when a customer execute an option that is under contract and in backlog. There is a repricing that factors in a producer price index or a PPI for short or some other similar type escalation or inflation instrument that PPI or its equivalent is prepared by the governments and the various Juris.

Addictions and calculates the average movement in prices from production over time.

Sensually its purpose is to reflect the reality of current inflation.

In that sense, the contracts that have a PPI adjustment will add a pricing increase when the auction is awarded this contract clause.

US include the impact of inflation in future and protects our margins from downside inflationary pressures. Unfortunately, there is a time lag which is affecting us right now.

On the slide we highlight the rate of increase of what it's called PPI $14 13 for truck and bus body that is generally used for our U S contracts.

With that I'll now turn it over to pass through to summarize the quarter over to you.

Other events delaying shipments.

With increases in base interest rates in Canada, and the U S. We had a gain for which we normalize.

Turning to slide 14, I want to provide a summary of our Covenant amendment discussions as we outlined on our call last Friday, we are in detailed negotiations with the leads of our banking syndicate to develop a plan that addresses our needs with more appropriate covenants.

To unwind the work in process inventory before the end of the year and anticipate returning to over $600 million in liquidity by the fourth quarter.

We anticipate that we will be able to achieve a suitable credit amendment program within the second quarter of 2022 and <unk>.

And we will inform the market when it is complete.

We are confident that we have sufficient capital to navigate through these immediate supply challenges and do not currently contemplate the need to issue additional equity.

On slide 15, we provide a brief update on NII forward with first quarter 2022, adjusted EBITDA savings of $16 million and an additional $4 million in free cash flow savings we have now.

I have an annualized adjusted EBITDA run rate of approximately $63 million well on our way to achieving our $67 million target.

As we've made great strides with these projects. We are now looking to antibody forward to point out and other series of initiatives aimed at lowering our cost base and driving additional free cash flow generation.

Given current supply chain environment management has focused its efforts on production and delivery, but we did make progress on the first NFA forward to point our initiative with the announcement of a closure of our have another U S plant distribution facility, the original Nabby warehouse and Delaware, Ohio.

Slide 16 outlines our guidance for 2022, we adjusted this guidance last week to reflect year to date results and the impacts of the module shortages and heightened inflation on our operations.

As outlined on this slide we anticipate $2 3 billion to $2 6 billion in revenue with 20% to 25% of manufacturing sales coming from Zeb's, adjusted EBITDA of $15 million to $45 million and cash capital expenditures of approximately 25% to $35 million.

We expect the second and third quarters, we will see negative adjusted EBITDA. The fourth quarter. However is forecasted to deliver positive adjusted EBITDA as we ship buses that were missing modules benefit from improved battery supply and see the typical strong seasonality of ADL Mci.

I will now I will now turn the call over to Paul to summarize our outlook.

Thanks passive I am now on slide 17.

As we noted our public bid universe continues to growth and we now have over 6300 equivalent units of bids submitted which will drive new orders and awards in the coming months longer term, we will see over 20000 equivalent units of potential opportunities and exited a five years in total our public bid universe is 26.

371 use with 40% 43% of those being zero emission.

On slide 18, while our deliveries have been suppressed by supply chain disruptions or book to Bill has grown with another quarter of above 100%, 100% positioning us well for the future.

Consistently heard from us that one of the driving factors in vehicle procurements is reliable multiyear government funding.

On slide 19, we summarize the major investments being made into public transit by governments and all of our core markets.

We've recap these numbers before so I won't go through them in detail now, but I will highlight several recent developments from the first quarter in.

In the United States, which is our largest single market the lowest the low or no emissions Grant program was opened up in March of 2022.

This program can provide up to 100% of the cost of zero emission bus and the associated charging infrastructure for our public Transit agency in.

In 2021, the program had a total commitment of $185 million and in 2022. It is now $1 1 billion for an increase of almost 500%, reflecting the administration's view the need for public transit for everyone the need to reduce congestion in cities and the need to.

Drive the zero emission agenda, while EFI was leading the zeb manufacturing partner for transit agencies using low no grants in 2021, we anticipate another strong year.

At these significantly higher funding levels.

In Canada. It was recently announced that there will be a $450 million investment in the zero emission trended in Brampton should the Canadian infrastructure bank and in Quebec through the federal and provincial governments are rolling out a combined $5 billion program NFL.

<unk> will be actively monitoring those opportunities and hopes to secure a significant portion of those orders.

In the United Kingdom, 62 million pounds of funding was awarded to bus operators through the phase one of the Scott that program. The Scottish Zero emission buses fund is designed to encourage the market to implement new and end of ways to finance and deployed zero emission buses and ADL has been the successful proponent with numerous customers.

And partners throughout this program.

Turning to slide 20, we recap and reinforce our 2025 financial targets.

We've received questions on our confidence that these objectives given the recent operating climate and I can say that the entire NFIB management team and board remains committed to delivering on those goals. The achievement of these targets does not require a fundamental change to our business as we have the facilities the product portfolio the services and the team required.

To achieve them.

And realization of NFC forward savings, which as you just heard from Pat <unk>, we're already close to our 6% to $67 million cost reduction target.

Finally on slide 21, we recap the investment thesis on MSI.

We feel that our current share price does not reflect the true value of enterprise market, leading provost products services capabilities and competitive position.

Question, there are headwinds now in France and in front of us.

But the tailwind continued to grow everyday.

And as a company and we have the right products and right services for today and for the future.

The global the global COVID-19 pandemic.

Given the bespoke engineered to order nature of our vehicles, we integrate in integrated innovative products and technologies from numerous suppliers to create market leading buses and coaches.

David White and the supply team have always manage the challenging supply chain environment. Given this bespoke nature of our products, but quite frankly as being one of our strengths and key competitive advantage to our success historically.

Mid 2021, we've had numerous supplier disruptions in part crisis that our team has successfully mitigated. The module situation described earlier on today's call is seriously disrupted, but I am confident that our supply and operations team will manage through it.

I've, even had people call me and ask why we havent dual sourced microprocessors or modules suddenly being suggested we should make our own microchips.

Let me provide some additional context.

Integrate components for more than 40 suppliers that require electric controllers or chips utilizing print printed circuit boards that have microprocessors on them.

Each of these suppliers or their sub suppliers design and select the microprocessors to meet the particular needs of their proprietary products.

And all of our years of operations, we have never directly bought a micro processor before.

We're working up to four levels down in our supply chain now sourcing and purchasing materials something we've never had to do before.

Let me be clear, though.

At all levels and functions from engineering supply chain finance customer programs shop floor technicians quality.

Have all shown their resiliency and ability to adapt.

Loyalty is amazing we've asked them to start stop go home comeback hurry up.

And so forth over the last two years I have no doubt our team will manage through these hurdles.

We're excited about the path, we're on and the future in front of US we lead this industry and that will continue we're also leading the evolution to zero emission buses.

Bottom line is we will be prudent stewards of the capital and we will execute on our plans working through the supply chain disruption and we will prepare <unk> for a recovery in 2023 and beyond.

We will not jeopardize our business our people for our future I'd now like to turn the call over to the chair of the ESI Group Board.

The honorable Brian Tobin to wrap things up and then prior to that and then after that we'll move to the Q&A over to you Brian .

Okay. Thank you very much Paul.

Well I'll acknowledge that it's not typical for a board your economy during our quarterly conference call.

Given the significant events, taking place today and over the last days I thought it would be prudent to join the call today and.

And let me just begin by saying that when call advise me as board chair.

The early part of last week.

He had a very serious medical issue that he was going to have to attend to.

On behalf of the board I suggested that Paul that he take.

And immediately and I just want to acknowledge Paul.

<unk>.

As is typical for Paul and the leadership that he provides said no I'm going to stay and going to work through the challenges we faced the last weekend.

We updated our guidance last week.

And of course, we've got the.

The AGM this week, which is today and I want to help you accomplish a very smooth transition.

With the interim leadership.

Very <unk> pulse Park.

But a very vital to ensuring what is really and has been a very smooth transition I want to acknowledge that and.

And Paul I want to publicly thank you for that that dedication.

And that contribution.

The board, obviously and clearly fully supports Paul's request to take this this medical leave.

And we wish him the best as he focuses on his health.

We have complete confidence in the strong management team.

That <unk> built which includes Standalone leadership with each business unit.

The complex business, we're in the best of times and following a two year global pandemic combined with a global supply chain.

Logistics dynamics.

We know and we're confident that this management team remains laser focused on executing its operating plan.

And we will continue to be the market leader in the bus and motor coach industry I.

I want to say clearly that our entire board.

And yes, the entire leadership team.

Sure Brian .

Is the right choice.

Our interim president and CEO .

As he has a deep track record within our company, having worked as an executive as Paul pointed out earlier in both the manufacturing and the aftermarket segments.

He holds relationships with key customers and suppliers.

And Brian enjoys a very strong track record of success.

Europe Falls absence, I will also increase my involvement with the company and participate.

Participate regularly and management meetings and update calls in Dubai went to Winnipeg.

A chance to meet with the senior management team.

Just a few days ago.

Our goal is to ensure that Brian had strong support as we work through these turbulent times and preparing the future where we see numerous opportunities for growth.

<unk> performance and.

And strong shareholder returns.

We know that Brian do slip and the entire executive team are well positioned to continue to implement the business strategy run day to day operations, while it falls away.

And we look forward to the day one <unk> is back in the chair look let me take this opportunity as well to thank John Bower Nutri.

Prior President and CEO of New Flyer served as a member of the NFIB Board since 2005 for his service to retires.

At today's annual General meeting John has been a great leader and has made great contributions densify for over 20 years.

And I'm also happy to welcome.

Later today, we will do so now Ms Wendy key.

Being nominated to the NFIB Board at the Companys 22, AGM, the Skus and accomplish business professional share of LPG. Today was recently honored as a fellow from these corporate directors and as a fellow chartered professional accountant. We're excited to have <unk> join our board and look forward to adding our expertise in finance.

And corporate governance.

And audit leadership.

As a final word for me I'd like to thank my fellow shareholders.

Including our two largest shareholders Coliseum capital management of our proposal.

For their continued support of <unk> during these challenging times.

On behalf of both policy and the market Paul Great fundamentals continue to serve on <unk>.

<unk> boards.

We will get through these near term issues.

And I look forward I am confident.

We'll see NFC strong success as it capitalizes on the numerous tailwind.

That will drive our success and with those comments I'll now hand, it back over to Stephen.

To provide directions for the Q&A portion of this call Steven.

Thanks, Brian .

Just to reminder, everyone. Our AGM is today at one PM eastern details on how to participate can be found on the company's website, we'll now open the call for analyst questions and.

In addition, if you have a question and you're on the webcast you can type that in and we will lead those allowed age.

Adrian please provide instructions to our callers and open the line for questions.

Thank you we will now begin the question and answer session.

Do you have an audio question. Please press star one on your Touchtone phone.

If you wish to be removed from the queue. Please press star two.

Speakerphone, you may need to pick up the handset first before pressing the numbers. Once again, if you have an audio question. Please press <unk> one on your Touchtone phone.

And we do have we do have Chris Murray from <unk> capital markets. Your line is open.

Yes, Thanks folks good morning, and Paul Let me offer my best wishes for a speedy return.

Thanks, I guess my first question.

Yes. My first question is just thinking about maybe the cadence as we kind of get between here and the end of the year.

I mean, you've talked about negative numbers negative EBITDA numbers from manufacturing or I guess, two transit bus manufacturer more specifically certainly looks like the aftermarket business is going to be okay. Can you maybe walk us through in a little more granularity how to think about the EBITDA progression quarter to quarter.

As we get to Q4, because what I'm I guess, what I'm trying to understand is we.

Bit of a.

Negative number in Q1, maybe more than we would've thought or were you expecting a pretty substantial number down Q2, because you won't have.

Modules to shift.

So any color you can give us on just what that pattern is going to look like over the next couple of quarters just to try to maybe take some volatility out of thanks.

Thanks, Chris and thanks for your kind words.

As you know new Flyer is the single largest part of our entire company and core surrounded it or who had happened at ADL in.

And Mci and <unk> block and then of course as you mentioned the parts business is good the reality of new Flyer is that this module issue right now has started to affect our deliveries we're literally building buses.

And as I described in my discretion explanation, we are we're going to finish those buses.

Total modules off and build another plus.

So our deliveries through the second quarter, and a third or add new fly are going to be seriously disrupt.

Sure, David and Chris are working.

With our from our module supplier in the chips provider is a is a.

An aggressive schedule that we have with them at a defined schedule now when we will get those modules.

But once we get the modules put them into a park that has four or five hours that bus doesn't go into Fedex package right. We have actually get final sign off by our customer and we have to deliver that bus all around North America.

Which doesn't happen overnight.

So we've got a schedule now are two things happening a burn down of the whip that we create and be a delayed ramp up of what we expected to actually build in this year and so as I have described many times.

In CHRISTUS case on new Flyer, it's not a demand issue the schedule. The slots. The build slots are effectively are sold it's a matter of being very diligent at the pace at which we burned down as well as ramp up the continued build and Chris is laser focused on trying to get that to a reasonable run rate by the end of the year because our current schedule for 'twenty.

'twenty three is actually filling up faster than we probably ever seen.

So we're in a really good place.

That perspective, so youre going to see muted revenue rec, and therefore earnings through Q2 and into Q3.

And then of course Q4 is going to balloon we've got regular deliveries regular performance the rest of the business plus the catch up delivery of those modules. If we are able to secure some of those module earlier, you may see a third quarter that looks better than we're currently projecting but again that would be imprudent at this point because we don't have the module in our hand, just yet so off the path to that any other.

Mueller again of course, we are not.

We're trying to be heavily sensitive to a prudent forecast for both our customers who are waiting for their buses are employees, who are trying to figure out the production schedule and the realities on their impact but also the results for our investors El Paso any color you want to add yes. The only thing I would add is again as you know we both said negative for Q2 and Q3.

But we do expect as we do some of the deliveries in Q3 Q3 will be better than Q2 as is kind of the best we can give at this stage from a guidance perspective.

As you know, we don't give quarterly guidance, Steve and anything else you want to add to that.

I think you guys covenant like we said in our guidance first three quarters will be negative as our expectation as we sit here today and then as Paul mentioned, the fourth quarter busy period as well. In addition to the buses will get out of with its also thats typically mci private coach that's usually their busiest period and Alexander Dennis in the UK, that's usually their busiest period.

Well, so thats part of the reason I apologize mentioned there'll be that catch up plus the normal kind of cadence of when we see deliveries in the fourth quarter.

Okay.

My other question is just looking at the.

Some of your competitors.

Interesting one of your major competitors.

Seems to be going through some challenges.

Probably similar to some of the challenges you guys are seeing but there they are.

Bookings are seeming to drop off in there and their parent is maybe backing out.

But I'm not sure Paul or Brian I mean, you both of our server experiencing going through these market disruptions, where competitors come and go and leave the market.

There's been a couple of cycles of about one new flyer ended up actually buying I think a number of the folks we went through something similar early in the two thousands.

Just what are your thoughts about.

Additional.

Concentration in the business I know it was kind of interesting you guys won the TTC order, which was historically.

One of their primary customers.

But then just run one on order in New York. So just just thoughts about the state of the competition right now would be helpful, especially as we move back into 'twenty three.

Sure. It's a really good question, Chris and of course as you know each of those markets is not homogeneous. So let me be a little bit long winded to give you a color Chris.

First let's start with the parts business. We are the biggest player by far in the marketplace and what Brian has done in the last number of years as consolidated all of our parts business is through the one machine in North America is also expanded as basket. We don't just sell MSI parts for buses, we sell parts for competitive buses. He has also added.

The cutaway space to that and he's also.

To support the Alexander Dennis buses in North America and of course, Paul Davis has done much of the same internationally.

<unk> business is is an interesting one in the cutaway space. There is $15 16000 units delivered in a normal year and you have one very very large player that makes high floor buses called Forest River.

And Fortunately of course is a Berkshire Hathaway company. Our Bok has two things it has a low floor cutaway, but it also has a medium class vehicle that market in the low floor cutaway is severely hampered by.

Chassis supply that comes from Ford or GM, and so forth and so Doug <unk> that runs that business. His order book is about three five times what is current production rates and cutaway because we just can't get the chassis that we need which is why the launch of the medium class vehicle and our other product developments to create more that rely on our own.

<unk> are great. We're in a very unique place in that low floor space.

In the MSCI world as you're referring to pre <unk>, which is a Volvo truck and bus company recently announced that they are backing out of the buy America marketplace meeting public motor coaches that are sold to operators like New Jersey, or New York or others. They are not no longer go play in that space, which leaves the Mci really is.

The sole provider and there's a couple of large rfps that are either on the street are coming out that reflect that space that should allow us to be.

Pretty successful.

In the private motor coach space, there really hasnt been much movement to people coming or going we've all been dramatically impacted on the ability to secure private orders, although you've seen in some of our materials you've seen in some of our comments today the private motor coach the movement of people in Canada, and the United States is starting to recover in fact in Paul Davis as Casey.

His motor coach in the UK is starting to recover but it is not a snapback. It's a slow progressive return, which is why Chris restarted his private market Mci motor coach production in the first quarter of this year.

But we haven't seen really entrants to change in entrants or change in players other than that public motor coach issue with <unk> exiting the market in the transit space in North America, New Flyer is.

The leader 45, plus market share we.

We have seen our friends at Volvo struggle Novo bus, which is owned by Bob will talk about struggled like we have with parts supply in fact, the number of the parts that are specced by customers.

Apart from the same suppliers, yes, we have different module suppliers, we have different plc system suppliers. We have other things that are different but we're all impacted ultimately by that macro supply chain dynamic.

And so we've seen no the be aggressive in some places.

Toronto competition that you referred to.

New Flyer was awarded a 100% of the 60 foot articulated buses and half of the 40 foot and.

And <unk> got the other <unk> the other half of 40 foot.

Gilead is a privately held business a very successful quarter.

In some cases with a different customer base in some cases with the same.

We validated and confirmed gillies dealing with the same supply issues and has the same issues and their ability to deliver the zero emission space as we talked a lot today continues to try and get traction we have everybody now playing all of the conventional guys plus the <unk>.

The start up that will start up like a company like arrival, although arrival has not delivered vehicles. Yet arrival is struggling from our research on their ability to actually bring a demos to market and of course arrival also has a dynamic of.

Russian ownership and so forth associated with it and then there's our friends at Portera, which is done at a more marketable stacked transaction, who now is not just the bus company. It's a bus it's a battery engine inside.

Inside company as well as an energy system and infrastructure play.

<unk> continues to win their share in certain places.

It helps our customers put in that that entire kind of.

Ecosystem, our ecosystem to help support.

Don't think youre going to see consolidation in the short term, we're all dealing with dramatic issues. The good news is the market demand is there hopefully all of that helps.

Yes, just the other question are there other pieces of that and I guess just to follow up do you see the risk if anybody is forced to exit the market.

Well, if I knew the answer to that I guess I'd be in Vegas, right now but.

We don't know.

We saw the <unk> removal themselves from the public market, which is a positive for our business I am not sure if were have enough Intel to really know whether anybody's can exit in the short term I guess its always possible we've seen that historically.

Okay, Thanks folks and Paul we look forward to speaking with you.

Sure.

Thanks, Chris.

And your next question comes from Cameron <unk> syndrome National Bank Financial your line is open.

Yes, thanks, very much good morning, and let me Echo My best wishes to you Paul hopefully we will see you back here very soon.

Thanks, Ken.

I just wanted to follow up on maybe some of the covenant questions. I mean, I know that came up last week.

It sounds like you're obviously still very confident that youll get the covenant relief here.

It just really just a calculation issue, but I'm just wondering I guess, what maybe you can just discuss the nature of the talks and what is sort of being requested from the lending syndicate side. I mean, obviously, there is theres, probably a quid pro quo here of some sort if theyre going to extend covenant relief what should we expect that.

Youll have to give up as maybe some higher interest rates or just anything you can discuss on that front.

Well, let me give you the tone of the discussions and then the capacity we can walk you through because he is he and Jason pillars that our VP of finance are really championing the dialogue.

So we start the year, we have a plan to wrap up our business we have covenant.

Current package that we think we can live into.

The reality of the supply chain starts to really as we've described kickoff and anything with electric with a microprocessor or any kind of electronics really starts to kick in so in March as we are in deep conversations with our syndicate.

We have to tell the world, we've got to revise our guidance for the year.

Indicate led by BNS and with the other three major players BMO.

National Bank in CIBC.

Working through the realities of what this means the module dynamic that just happened really setback those conversations not in terms of cooperation, but just in terms of the reality of what we thought the rest of the year forecast would look like.

And so trying to Ram through a credit package without really having a plan of how to March through this module dynamic would be irresponsible from our perspective or from a syndicate.

The key issues from the bank's perspective is that whip is not stuff going on a shelf somewhere that contractually built sold work in process or future sale work in process for a specific customer to their specification theres not a concern of whether we're going to sell that bus is just a matter of timing.

So we with the support of the syndicate and term sheets that continue to get involved in developed.

We are working through that right now and of course. The good news is the 11 members in the syndicate that have shared risk and diversified risk. The bad news is there is <unk>. So we think it's irresponsible to try and ran something through that really doesn't have the support from the full syndicate as far as quid pro quo camera I'm not so sure we've seen anything that I.

I would say are roadblocks are showstoppers in RM will there be a change ultimately and some of the interest rates potentially will there be different types of covenants that get added to that package as we March of this work in process, possibly but they've been really supportive to help us understand this.

<unk> point, the banks have been very supportive, especially our top four and our big thing here is obviously, we can get majority consent, but we're looking to get everybody on board, which is obviously the other other members of our syndicate. So that's number one number two is they do understand our problem in one of the things that they're looking at is that a lot of our buses <unk>.

<unk> with the plan that Paul had provided.

With the module plan that we had provided they understand that our buses are 99, 5% complete and they do see that we have extremely strong order book. So that's been extremely good and then the last few things I'll just kind of mentioned just so we can go to the next questions is the raises I just want to remind everyone that the raises that we did in 2000.

<unk>, one help derisk the banks and.

The backlog in orders are growing extremely well and the banks have realized that so I think when Paul joined us.

Toronto with the four key bank, it really kind of ease their mind to understand what the issues were and we did get an initial term sheet.

At the end of this quarter that gives us really comfort that we should be able to get this deal done before the quarters over Q2s over so Paul back Okay.

Hopefully that helps Ken.

Great great. Thanks, very much I'll leave it at one question. Thanks a lot.

Thanks Pat.

And we have no further questions in the queue.

Okay, well, thanks, everyone for joining and again, a reminder, that our AGM today at one PM eastern for anybody that's interested to attend details are on our website and at anytime do not hesitate to reach out to myself with any questions. Thanks and have a great day.

Yes.

Thank you ladies and gentlemen. This concludes today's conference call. Thank you for participating you may now disconnect.

Q1 2022 NFI Group Inc Earnings Call

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