Q3 2022 NFI Group Inc Earnings Call
The conference will begin shortly to raise your hand during Q&A you can dial star one one.
[music].
Good day, and thank you for standing by and welcome to the N F. I groups third quarter 2022 conference call. At this time all participants are in a listen only mode. After the speaker's presentation there'll be a question and answer session to ask a question. During the session you will need to press star one on your telephone you will then here.
Automated message advising your hand is Reyes. Please be advised that today's conference is being recorded I would now like to hand, the conference over to your speaker today, Stephen King Vice President of strategy and Investor Relations. Please go ahead Sir.
Thank you Norma good morning, everyone and thank you for joining US joining me on today's call are Paul <unk>, President and Chief Executive Officer, Awesome Soni, Chief Financial Officer.
Today, we'll walk through our Q3 2022 quarterly results provide an update on discussions with our banking syndicate government partners with respect to liquidity and Covenant relief and then provide comments on the broader macro environment and our outlook.
Following that we will open the call for analyst questions.
We have not been able to access the data and option of this call. Please pose your question in the webcast, yet and we will read them aloud.
This call is being recorded and a replay will be made available shortly.
We're using we will be using a presentation that can be found in the investors section website.
We'll be moving to slides via the webcast link as we present. This morning, we've also call out the slide as we go through the deck of participants on the webcast.
A webcast.
Turning to slide two I would like to remind all participants and others that certain information provided on today's call.
Forward looking.
Assumptions and anticipated results that are subject to uncertainty.
One or more of these uncertainties materialize or should the underlying assumptions prove incorrect.
Actual results may vary significantly.
Sure.
Please also note that certain financial measures used in today's call do not have standardized meanings prescribed by international financial reporting standards, and therefore may not be comparable to similar measures presented by other issuers.
Advised to review the risk factors at the Enterprise press releases and other public filings on SEDAR com.
We also want to remind listeners that enterprise financials.
U S dollars the company's reporting currency all amounts referred to are U S dollars unless otherwise noted.
On slide three we've included key terms definitions referred to on this presentation, but now zero emission buses or is that is that the battery electric hydrogen fuel cell electric trolley electric buses and coaches.
Sir you used the term that we use for both production slot delivery statistics. The majority of our vehicles represent one equivalent unit well articulated 60 foot trains at bus takes two production flat therefore equaled two equivalent.
On slide four for those of you noted the NFS story, we are a leading independent global provider of sustainable Boston Motor coach solutions.
Market leaders in our core markets, which include heavy duty transit motor coach in the aftermarket in North America heavy duty transit and aftermarket in the United Kingdom.
World leader in double deck trains.
We operate under our sustainability pledge to deliver a better product a better workplace a better world further details on our environmental social and governance programs can be found on our website and our annual ESG.
Slide five shows the breath identify solutions, which includes the vehicles themselves charging infrastructure telematics aftermarket parts and service training and workforce development and finally financing solutions wherever required we provide highly customized engineered to order buses and a suite of bespoke mobility solutions to meet the.
It needs of our customers.
I'll now pass it over to Paul.
Thanks, Steven and good morning, everyone.
If my voice sounds a little rough this morning, I apologize it will try to speak slowly and clearly.
As if my luck couldn't get any worse. Despite four vaccinations I tested positive for Covid. This past weekend for the second time.
So I've been working remote.
I'm now on slide six and we'll try to summarize the quarter as we explained during our October 24th update supply chain disruption in supply or underperformance has been a challenge for our business since mid 2021.
But recent supplier delivery misses a day commitments on critical parts have compounded an already difficult situation.
Let me be clear from the onset overall NFIB doesn't have a demand problem, where short critical parts to efficiently build and Delaware contracted but contraction buses.
The supply disruption has led to lower than planned line entries completions and deliveries in the quarter and forced us to change our plans once again at increasing production rates in the fourth quarter to fulfill contracted off orders.
It's also resulted in further growth of our offline work in process inventory ending the third quarter with over 400 buses that have been built that missing certain critical components were now focused on delivering as many of these offline vehicles as we can before the year end.
The challenging macro supply environment is not unique to edify is primarily electrical some sub components, which include microprocessors electrical connectors wire nurse and other items remained constrained globally, which impacts us and all vehicle manufacturers.
We know for a fact that our peers in the bus manufacturing space are also facing these supply disruptions and also experiencing a buildup of green complete workflow work in process and it also had low line entry weeks, while we anticipate these challenges to continue in 2023, there are signs of improvement, which we'll discuss later on this call.
And if I continues to lead the evolution to zero emission mobility in buses and coaches in the third quarter of 2022, 13% of our overall deliveries towards zero emission buses and they make up 21% of our backlog and NFL electric buses and coaches have now completed over 85 million electric miles in service.
In addition, our infrastructure solutions team is now installed over 330, EV Chargers a base of over 55 megawatts that we expect to install at least 120 more charges in 2023.
In our aftermarket segment revenue was flat year over year. However, adjusted EBITDA was down slightly due to unplanned freight surcharges and some higher input parts costs, we were able to pass on the majority of these increased costs through our transactional pricing programs, but we were not able to do so on certain fixed price contracts and programs.
While 2022 has been challenging our longer term outlook remains very strong driven by significant increases in our demand metrics and our win rates.
Our North American active.
<unk> bid universe is up 14% year over year at 10170 use we submitted the highest number of bids on record during the third quarter of 2022 at more than 7000 teus in that quarter alone.
Access on these bids will help us drive additional growth and our future backlog in our future contract wins that will expand extend over multiple years.
Unprecedented government funding continues to drive this activity and we expect that this elevated demand for our products will continue into 2023 and beyond.
It is important to note that our zeb's are critical component of government funding programs as part of their net zero objectives, and now represents 48% of our total public bid universe.
And Thats why its total backlog was down slightly from Q2 2022, driven by the timing of New awards and higher option expires with the number of older diesel options expiring lease expiring in the quarter as agencies ramped up their plans to acquire zero emissions.
Reflecting the individual timing of each transit agencies unique approval processes in board meetings. We ended the third quarter was an additional 1360 Eus a bid award pending meaning <unk> has been selected as a preferred provider, but final contract documentation to start been finalized once the paperwork is received and the contract signed.
These units will recognize as awards and added to our pending backlog.
Excuse me.
We also continue to advance our <unk> forward and <unk> initiatives with a total of 18 million in combined adjusted EBITDA and free cash flow savings realized within the quarter.
In 2022, Q3, we closed a legacy.
Parts distribution facility in Delaware, Ohio, and integrated into our existing NFA parts distribution footprint. We are also on track to close Mci's public more course completion facilities.
And in North Dakota that we announced early this year in the first half of 2023.
As we noted in our update on October 24, and our third quarter results released last evening based on our fourth quarter financial expectations, we had.
Dissipate will not be able to comply with certain credit facility covenants will become applicable at the end of the fourth quarter.
We however are in detailed discussions with our banking syndicate with export development, Canada or EDC, a member of our current syndicate and the governor Manitoba to evaluate financing structures to obtain relief required as we launch into the next few years of recovery with increased increased contractual backlog and strong bidding activity.
Based on the potential solutions being discussed with the government and banking partners I anticipate <unk> will be able to obtain a covenant leaf relief required.
On slide seven we present, our third quarter 2022 deliveries and our total backlog, which is now has orders out to 2027.
At the bottom of the slide you can see that the Korea deliveries were slightly with him.
Up slightly within the heavy duty transit space as the third quarter of 2021 was also under duress from supply chain disruption.
All of our product lines deliveries are down significantly on a year to date basis, reflecting the ongoing challenge supply environment I want to stress that it's not all parts, but certain critical it's not all the parts, we need but certain critical electronic electric system parts related continues to be the most problematic.
On slide eight we've that we've provided an update on two macro impacts to our business inflation and foreign exchange or FX for inflation.
With firm and option orders within our total backlog.
Generally our firm orders are manufactured and delivered within 12 to 18 months of an award being received well.
When we make our original bit we will obtain specific pricing for more than 50% of the vehicles components from our suppliers as they are often uniquely specified by the customer.
For many other non specified components, we use internal sources, including Carfare for fiberglass fabrication or <unk> for metal fabrication electrical kit assembly plastic thermal forming.
We incorporated an inflation adjustment into all of our contacts to reflect the time between award and manufacturing.
As inflation escalated rapidly in 2022, we experienced a significant supplier surcharges effectively.
Pushing us to pay for it or don't get the parts and actual costs exceeded estimates on certain firm contracts from suppliers. The majority of which were bid prior to 2022.
The ability to resource or reengineer other parts into the build is very limited and for the impacted contracts, we launched a campaign with customers requesting price increases surcharge recovery and contract prepayments.
We have seen success on these initiatives with over 42 million in prepayments received as of October <unk> 2022, and certain press pricing adjustments have also been received by customers.
We continue advanced discussions on similar programs and expect additional benefits in Q4, 2022 and into 2023, but.
But please keep in mind that each customers funding mechanisms are different as to the actual contract as is the actual contract language and their local and political and budget dynamics take considerable engagement for many customers and time to complete.
Some customers have even responded with offering future bus volume and option convergence, but unfortunately this does not help our 2022 results.
In 2022, we updated our bidding and pricing strategies to reflect heightened input costs and higher inflation adjustments rules vehicle and aftermarket part contracts and because of these actions. We anticipate the inflation will primarily impact 2022 margins with some carryover into 2023.
Inflation related margin pressure is expected to erase the second half of 2023 as the majority of our legacy contracts impacted by the onset of rapid and hyperinflation will have been completed.
As a reminder, inflation on option orders is a different situation for the majority of our options convergence when a customer execute on an option in the future. There is a repricing opportunity that factors in a producer price index or a government PPI costs or in some cases other type of inflation instrument contracts that have a PPI.
<unk> cause at a price increase at the time, the option is actually executed which projects margins, which protects margins from future inflationary pressures.
<unk> total backlog is currently split about 49% firm orders and 51% options. The majority of today's FERC.
To more juruti of today's firm contracts reflect our updated inflation affected costing and therefore our pricing.
With respect to currency movements or foreign exchange or FX energy generally.
<unk> prices contracts in local currencies for example in Canadian contracts are priced in Canadian dollars UK contracts in pound Sterling and so forth, while parts and components come from different jurisdictions with different currencies.
We have a macro hedging strategy in place at LSI group level to address potential FX exposures, but given the rapid rise in the U S. Dollar in 2022, we expect there to be some negative impact from FX on certain contracts bid last year or earlier. This year that are built late in 2022 are in 2023.
This is primarily a function of higher than normal portion of new flyer contracts being with Canadian customers plan for 2023, offsetting this negative impact will the benefits of lower wage costs for our Canadian based employees and lower interest costs on our Canadian convertible debentures.
Now turning to slide nine and.
In the second quarter of this year, we provided a summary of our workflow work around plan to address the specific micro processor shortage impacting the supply of critical control modules to new Flyer and Mci in 2022.
This work around program has been a success as we source microchips three levels down on our supply chain and completed buses on the production lines using flex units. We've now delivered nearly all of your effective buses that were missing this specific module showing the success and creativity of our team and.
Unfortunately, we are experiencing similar issues with other critical parts, such as wiring harnesses electrical points and destination signs today.
As explained in October 2020 October 24th press release, and subsequent Investor call. We launched another action plan this quarter to address key Mexican ports, including the temporary halt of new line entries that all new flyer plans for a number of weeks to allow our suppliers additional time deliver backward parts to our facilities.
And like our module work around plan that we announced earlier this year and if our people are working diligently to create creative working diligently and creatively using a build and hold approach we're required to accommodate missing parts. We have retro team's been created in every one of our plants to finish buses with missing parts as they arrive.
Given the supply chain for certain critical parts are not yet reliable we will continue to run operations at a lower new line entry rates to minimize that buildup of other station work and therefore excess offline inventory a.
As a reminder for every hour, we miss installing parts of the production line in the planned work cell as the buses being built it requires three to five person hours to address offline in other states shore, which is both very costly and extremely constructive to production.
Slide 10 is an overall supply chain health chartering.
Despite the focused and tireless efforts of our supply chain the unplanned disruptions to our production lines of critical components is simply continued longer than we anticipated. Once again, we saw this destruction accelerate quickly early in the fourth quarter of 2022, with some suppliers suppliers, providing less than a week's notice that they could no longer meet committed.
Delivery schedules to our plant.
The overall parts availability has been improving.
If you walk into a plant you would see 98% 99% of all necessary parts on hand, and then station, but certain critical parts remained challenged and it becomes even worse, especially when they are significant cascading impacts for example, a wiring harness has massive cascading impacts downstream production.
We do expect these parts delays to continue into the first half of 'twenty three and as a result, we've delayed once again the increase in production rates in 'twenty, two and now plan to begin increasing line rates in the first half of 2023.
Given the wide variation in bus propulsion types and unique customer specs. This is not a simple process and we are taking a measured approach to add capacity conservatively, allowing for proper training of skills and to ensure supply chain health.
We are targeting a return to pre pandemic run rates by late 'twenty three and into early 'twenty four.
I remind you again this is not a demand issue, it's primarily a supply dynamic I'll now turn the call back over to pass through to summarize the financial results for the quarter.
Thanks, Paul turning to slide 11, we highlight some of our key financial metrics as previously mentioned it has been a challenging quarter based on the unpredictable at unreliable nature of certain supply chain elements.
We continue to have nearly 99% of our parts on hand in the appropriate build or production station, but the unique 1% causes habit on our build efficiency bus completions and financial performance. We are an engineered to order manufacturer of highly customized buses, therefore, any challenges and supplier performance.
Two commitments resulted in production inefficiencies and lower than planned deliveries at higher material cost. We saw this in the third quarter and when combined with a lack of government wage subsidy grants in 2022 compared to the $14 million. We received in Q3 2021 led to year over year.
Lines the.
The majority of our financial pain in our North America bus and coach business, where most of our contracts are with government agencies as Paul mentioned the dynamics of the contractual process does not allow us to easily pass on supplier, our freight surcharges and inflation to government customers instead, we enter into negotiations.
Seeking price adjustments <unk> advanced payments to help offset inflationary or timing impacts we have actively pursued these programs and while we have seen some success certain contracts remain in negotiation.
In summary for Q3, 2022 sales were up 5% year over year, but adjusted EBITDA decreased by $47 million with positive adjusted EBITDA in the aftermarket segment offset by negative adjusted EBITDA in the manufacturing segment.
Negative EPS and adjusted EPS.
<unk> 56 per share at <unk> 63 per share respectively.
Our third quarter, ending liquidity was strong at 471 billion inclusive of our $250 million minimum liquidity requirement. This is an improvement of over $150 million from last year, but down over $150 million sequentially, primarily due to an increase in long term debt which was.
Used to finance growth in inventory and other working capital balances related to supply chain disruptions.
As our vehicles are delivered they moved from inventory to accounts receivable and it takes some time to convert to cash as each customer has unique payment terms, we do expect to see an improvement in liquidity in the fourth quarter, reaching over $500 million driven by the lowering of total with combined with the benefit of customer prepayments due to the <unk>.
<unk> of cash conversion some of the benefit from the completion of deliveries of vehicles won't be seen until the first quarter of 2023 on.
On slide 12, we reconcile net earnings to adjusted net earnings or adjusted net loss in the quarter net loss was impacted by the same items that impacted adjusted EBITDA offsetting some of these negatives were fair market value gains from our interest rate swaps. We currently have two swaps in place one for five.
$40 million at $2 two 7% at another for 200 million at two 4%.
This greatly limits our exposure to floating interest rate increases as rates have been otherwise we saw a strong gain in the period, which we normalize.
The chart on the bottom of the slide walks through the normalization is made year to date in 2022.
Turning to slide 13, we summarize our revised 2022 guidance that was updated on October 24, 2022 based on year to date results. Our guidance suggest that fourth quarter 2020 will generate adjusted EBITDA between negative six had positive 14 billion dependent at supply performance.
We have complete ship at ultimate bus deliveries to our customers.
I'll now turn the call back over to Paul to provide insight on our outlook.
Thanks for the past excuse me I'm now on slide 14.
As we noted our public bid universe continues to grow we now have over 10170 equivalent units and active bids, which will drive new orders and awards in the coming months.
Longer term, we see over 20000 ease of potential opportunities from our five year bid universe in total our public bid universe is at record levels over 30000 equivalent units with 48% of them being zero emission buses.
A reminder, that the E buses.
Zero emission buses are higher margin and higher dollars per.
Higher revenue and higher dollar margins per unit.
I want to point out that <unk> has now received more than 1000 vehicles.
Towards from purchasing schedules since the start of 2018, which is showing theyre growing used by U S. Public transit agencies as it procurement alternative to the traditional one off public RFP process in North America. These.
These purchasing schedules are not recorded in backlog as they do not have defined quantities allocated to MSI or any other Oems.
Once the customer agrees to purchase a bus using one of these agreements. The award is at record it recorded immediately as firm orders in our backlog.
On another positive note, we continue to see positive signs of bus ridership recovery with after reporting that September 2022 public transit ridership in the United States has now surpassed 70% of pre pandemic levels as general travel resumes and his business offices reopen.
This will assist our customers farebox revenues lower their city congestion and lower emissions in their local communities. While ridership is very important the primary driver of public transit procurements in Canada, and the U S is federal state or provincial and municipal funding that assist operators execute on their fleet replacement plans.
Which has now been turbocharged by the environmental emission reduction targets, thus incredible funding.
On the topic of funding on slide 15, we recap of our performance on the 2022 U S FTA lower no emission buses and bus.
These grant programs I do want to point out that there was an error in our previous announcements on these 222 FTE grant programs and full details of the reconciliation provided with our Q3 2022, MD&A and our press release.
New Flyer was named directly as a preferred partner on nearly $200 million of grants with 15 agencies. This is a significant improvement from 2021 performance, where the named partner and $40 million, where we were the named partner on $40 million of grants with nine agencies.
While new Flyer was named partner with New awards will not be added to our backlog until contract documentation is completed and a formal purchase orders received new flyer success with low no buses and bus lose grants provides future backlog growth opportunities.
In addition to the named awards. There is another 800 in the FTA low no grant program, where that were provided to public transit agencies that have not yet formally named a preferred zero mission partner, which is generating future zero emission, but bidding activities for <unk>.
On slide 16, we hired a few global wins from our third quarter, including a 50 unit double deck award for ADL from the transport for greater Manchester and the United Kingdom and in order for 40, <unk> low floor cutaway from Las Vegas in 2760 foot articulated electric buses for Madison, Wisconsin.
Even better new subsequent to the quarter. We also announced that <unk> received the largest individual bus orders in the United Kingdom since 2019 for 200 low emission double deck buses.
On slide 17, we highlight the growth in the average sales price in our North American backlog. The chart shows heavy duty transit bus and motor coach average prices have grown significantly.
The impact of updated pricing additional zeb orders and highly spec options on buses. These average prices will flow through to our future revenues and margins.
On Slide 18, our book to Bill has continued to grow with the third quarter LTM at 130% positioning us well for the future.
We did see a decline in the LTM option conversion, which was expected by us as there were a number of options for certain ice propulsion buses that some customer decided not to convert as they now plan to update their fleet with more zero emission buses for clarity with FTA funded programs customers may refine or tweak the specification.
With bus builders after contract award, but they are not allowed to make cardinal changes as propulsion type and therefore, when an option it internal combustion engine option expires, they must re tender zero emission buses.
On slide 19, we have not moved off our long term targets and are confident that MFS roll cover from the supply challenges and continues to lead the evolution to zero emission buses for.
For 2025.
Can you to target at least $400 million of adjusted EBITDA from revenues between $3 90 to $4 1 billion.
These expectations not require massive change to our business as we delivered adjusted EBITDA of $332 million in 2019 on a pro forma basis accounting for the partial of the acquisition of Alexander Dennis and prior to any savings from the NFA forward initiatives.
These targets are based on higher anticipated sales and Margaret from zero emission buses recovery and production rates as we move beyond current supply chain challenges increased penetration and expansion into international markets and volume leverage as you produce a higher number of vehicles on a lower cost base, resulting from MSI forward and EFI forward to Plano initiatives.
Finally on slide 20.
Excuse me.
I'd like to recap our investment thesis.
While the past few years, specifically since March 2020, when the pandemic began we have been extremely challenged so that required us to revise our guidance and recovery expectations. Many times, we remain focused on long term.
The long term and delivery for our stakeholders, we're very focused on retaining the core talent and skills in our business with.
We've managed through an ongoing global pandemic sudden and significant hyperinflation unimaginable supply unreliability from many suppliers performed for EFI to a gold standard for over 20 years, and most recently rapid and material movements in currencies.
We continue navigating through supply chain challenges and the associated inefficiency created but we will move past these initial and recover and start recovering in 2023.
As we explore the possible options with our credit syndicate with EDC and our government partners for which we have said several deepen engaging meetings, we anticipate obtaining the necessary covenant relief.
As I've said before.
2023 will be a period of recovery in transition for MSI.
I fully understand that you have heard that many times for me, but we don't have an order book or a market demand problem, we won't increase our production rates until supply chain help warrants were optimistic based on record recovered pricing renewed supplier engagements and lead time agreements adjusted inventory enhanced strategy that both NFIB at our suppliers the clients.
Commodity prices and now lower shipping backlogs.
We will also benefit from a strong backlog position that has given us excellent excellent visibility into our planned 23 2023 delivers we've essentially sold out all of our 2023 production slots in North American public Transit and are further ahead of where we'd normally at this time for our other markets.
There will continue to be some supply chain impacts no doubt, especially in the first half of next year, but certain lower contract margins will carry into new year price new year, placing pressure on manufacturing margins overall, there will be improvement in 2023, but we anticipate these results will still be submitted below our pre pandemic levels.
<unk> remains the market leader in North American bus and coach with a market leader in UK transit with a market leader in Hong Kong double decks and a global leader in bus and coach two parts distribution, we've been growing our business internationally and continue to develop market leading products that will support our customers transition to zero emission transportation in our market.
It's not a matter of if it's a matter of when.
I want to sincerely, thank our people our customers our banking partners and our shareholders for their support as we continue to work through these headwinds.
No doubt we are not alone.
It's not been easy and required difficult decisions that impacted our team members and their families plus our shareholders and our other partners I am confident we will move beyond these issues and get back on track delivering for our stakeholders.
As I've always said, we're proud of our history and excited about our future, although if I'm totally honest I'd like to forget the past few years.
We do and we will continue to lead this industry and we will see recovery in 'twenty three on to 'twenty four that will drive further growth as we get back onto a path of our 2025 targets.
With that I'll now turn the call back to Stephen King to provide directions for the Q&A portion of this call.
Thanks, Paul we will now open the line for analyst questions attendees, who are listening via the webcast link you can't take your question to management through the chat function on that and we will read it aloud.
Bob.
Analysts are on the call Normals, we'll now open the lines and provide instructions to owners.
Thank you.
As a reminder to ask a question you will need to press star one on your telephone. Please wait for your name to be announced please standby, while we compile the Q&A roster.
And our first question comes from Kevin Chiang with CIBC. Your line is open.
Good morning, Thanks for taking my question, Paul Hopefully you start feeling better soon.
Maybe just on on on the comments you made around the liquidity and covenant relief it sounds like Youre working with your banking syndicate, but you also mentioned.
Can with EDC.
One of your banking partners as well as the government of Manitoba to maybe find.
Additional solution to improve liquidity.
I was wondering if you could elaborate on maybe what that is it sounds like you could be doing something with the backlog of Baird.
And does that need to happen first before the banking syndicate.
It looks at providing covenant relief or can this happen concurrently or are they two separate negotiations I guess no. Thanks, Kevin great Great question and so just.
Just building on what we talked about it in our script.
And back to that chart on supply chain dynamics.
We reset our covenants and put it in our revised credit agreement at the end of July we.
We had started to see.
Supply chain improvement in health and therefore continue to expect two things we burn off flip.
That we have built that was offline in two we'd be able to ramp up our production capacity again, we have contrary of orders for this stuff. It's not like we're building to put stuff on the shelf.
As we got through September and into October It became crystal clear that those two things we're not going to happen. We continue to have some pretty serious parts supply issues that are cascading and I used. The example on a script around the wiring harness.
You don't put the wiring harnesses in the bus in stages, two three or four or five of the build process the cash.
<unk> impact of all the other stuff you have to connect is absolutely suicide. So putting more units at the production facility only to create offline with that requires more offline people was kind of crazy.
As a result, we pulled the fire alarm early with the syndicate to say, we don't believe we are in default until the end of the quarter, but quite honestly. There is no way, we're going to be able to catch up and therefore, a heads up on some of these covenants we have put in place.
So the conversation is absolutely happening in parable parallel first and foremost we went back to our credits indicated <unk> had discussions about.
Those realities and low dynamics, we've provided them now with updated forecast for the quarter as well as for the five year plan Thats continues to be work in process in.
In parallel we went to our local province to see if theres any creative programs that they have in place that could help with a different kind of data or liquidity to help us manage on that obviously all on commercial terms and then we went to the federal government to say look we're not alone, but our business. Our industry has been inordinately are largely in.
<unk> with no ability to cure in the short term.
So working with many of the federal government apartments, and specifically with EDC, who is a current member of our syndicate, we're exploring all possible options.
Both liquidity, but also covenant flexibility.
Because it's impossible to say how fast things can snapback, we firmly believe based on our order book, we can recover a great degree in 2023, but to get back to pre pandemic levels as I said, it's going to get to 24 and beyond so we don't need runway for a quarter, we need some flexibility for probably a year to make sure that we can navigate as supply chain gets healthy but.
The response has been fantastic the acknowledgment of the critical nature of our business and what it does to specifically government targets around zero emission.
And the environmental impact. The response has been fantastic all of that stuff is happening in parallel wished I could have had more detail to provide you on today's call.
But we've got all hands on deck and all support we could ever ask for to try and come up with some solution. So state stay close and stay tuned to what those look like.
No I appreciate that I appreciate the sensitivity of the conversations today.
When I look at slide 10.
Kind of highlights you or that highlights your supply chain challenges when you look at that.
Mike back up from 24 high risk suppliers to 39.
It'd be interesting to know are those incremental 15 high risk suppliers I think new suppliers.
So far as they used to be up and when you have <unk>, where these kind of previously high risk suppliers out eventually.
You saw a moderation now they're kind of back to being high risk or just kind of how that how that's trending and then.
I guess are you seeing when you see these <unk> are you seeing like even your secondary supplier decommit is that creating a problem I know you've tried to find alternate.
But are they also decommissioning and which is now exacerbating this.
This results management process.
The most part.
It's the same cast of characters and they started off in everybody. If you go all the way back to 2020 and early 'twenty. One we always have a handful of customers just because of the unique customized nature sort of a handful of suppliers have challenges and some of it is their ability to get manpower summit is their ability to source individual pieces or components or microprose.
There is and so forth as we move through 2021, both the ones that are in high risk high impact.
Increased as well as the medium class guys and so as you can see at one time, we literally had a 100 10-Q, one of 2022 of our totaled 700 top suppliers that we had our eyes on 50 of which could literally shut our product lines down.
And then what happened is as we moved into Q2 and Q3 of this year, we started to see the high risk guys move into the medium category.
Performance is getting better.
The lead time management was getting better and so forth, but then all of a sudden this isn't new suppliers joining that party. These are those same suppliers that had planned to certain level of inputs, whether it's electrical connectors on a wiring harness the wiring.
Themselves micro processors that go into control modules.
And so it is.
Not like its a new group of stuff and the ability to alternate source sets us very difficult, which goes back to what I said before the reason we were successful in recovering the DMM module issue is we actually went down two or three or four levels in the supply chain and helped our supplier find a number of microprocessors because that improve their health that could then get us there.
These processes are those parts.
So look.
I think it goes to the broader dynamic around global supply of some of these key components.
And because of the bespoke nature of the customized nature, there are suppliers ability to alternate suppliers also compromised.
Historically, we've never worked below the first or second level and our supply chain and now we're actively doing that and back to the <unk> module for example, what David White and his team have done now is we're pushing our suppliers at two years of chips on hand or their inputs to give us the modules and so we're trying to push responsibly down to the supply chain that is not only us that need to be.
Gary buffer inventory, we can but our suppliers to do the same thing.
It sounds rather perverse that we're kind of excited about the possibility of some global recessionary dynamics, where some of the global demand on maybe some of these microprocessors electrical connectors gets offset a little bit that will free up some capacity or relieve some of the concerns that we have.
Okay that makes sense.
Yes.
I'll just jump in real quick just wanted to clarify too that this is definitely an industry issue that we're seeing on the second.
Decommitment and supplier challenges across the industry. So we've heard from our suppliers from our customers.
Our competitors as well that had to do temporary helps new vehicle production, that's seen a buildup of work in process inventory and so it's definitely this kind of.
Yes, Serge and kind of some supplier challenges.
Its something thats impacting the entire bus production industry. So it's not like it's just <unk>. We're also seeing it like I said it at all of our biggest competitors.
No that's fair.
That's great.
Great additional color there.
Just last one for me when you look at your backlog.
Firm and option is about in the call about half of it half of its options.
What percentage of those options would be pure diesel so ones that you would think are at risk of essentially being.
No not exercised as those transit agencies.
To transition to a low or no emission.
Vehicle type.
Stephen you probably have that data.
Steven are you there.
Just get off mute sorry about that.
Yes, I think.
The options that are still zero.
Ice traditional theres still quite a few in there, but most of them we did see quite a few get.
Expiry I don't Didnt get converted the third quarter and so so then we did see.
Okay.
Flow through this quarter, we'll still see.
Think before the end of this year and as we head into 2023 as we get beyond that more of the future options that we are starting to build up.
Are getting more and more zeb, all the time and there are definitely know and continue to be some CMG.
Hybrids some.
Diesel buses in that option backlog now not all customers.
Choose did not convert those options so certain customers.
<unk> third hybrid to order some diesel vehicles still but on the transition to zero emission, we definitely will see more customers focus on executing new orders to issue New battery electric fuel cell electric orders that will likely replace some of those options that don't get executed.
Alright, so now like Youll see that we have orders going out now to 2027 and quite a few of those are hybrids or electric orders and as Paul mentioned, 48% of our public backlog is now zero emission. So I think what we may see is.
Conversion, probably stays in that kind of.
60% kind of.
Maybe a little bit lower certain quarters, maybe a little bit lower at certain times on an LTM basis, but we will see I think the options that don't get converted be replaced by future options that are probably more zero emission.
Alright.
A replacement cycle there.
That's helpful. I'll leave it there. Thank you very much and Paul feel feel better.
Sure.
Thank you one moment for our next question. Please.
Our next question comes from Chris Murray with AB ATB financial your line is now open.
Yes, thanks folks good morning.
Just maybe going back to going back to maybe some of the discussions with maybe the province EDC in the credit facility or the credit syndicate.
I guess starting here.
You've talked a little bit about the fact that you have a covenant calculation as you're not really a liquidity issue. So I'm trying to understand a couple of things one.
What exact liquidity would you be looking for and would that be.
To reduce the liquidity draw off the.
Off the main credit facility is that how we should be thinking about this.
Second.
You did put some language in there around the dividend and probably that maybe having to go away.
In the quarter.
But just if you want to talk about dividend or any other incentives you may have to give to get this therapy that warrants or other equity that would be helpful as well.
Thanks, Chris.
All great questions.
<unk> is a little bit and the ability to provide you much more color.
A couple of things.
Last quarter, we are expecting to actually improve our liquidity a little bit as we burn off and deliver some burn offs of bad word as we complete and deliver some of this offline within parts come in there's a bit of a challenge there because every customer is different payment terms. So if we deliver.
This week, depending on when it gets arise or when it gets accepted and then with the accounts payable cycle for a customer works and so forth. So we don't expect a sub cash in the fourth quarter.
Which goes back to the issue really isn't in the short term liquidity dynamic as we ramp our business back up at the next over the next 12 612 18 months. It is.
It looks like we're going to need some more liquidity room to be able to give us.
Higher prices are highest higher priced bus.
Buses and manage the increased with associated with that.
So until the things done and solved we're exploring all possible options, whether it's the way that occurred.
Syndicate is made up as you know today, we have a $1 billion to five capacity with $250 million minimum liquidity.
We're looking at things.
Aside from that such as other examples of that from whether it's a government or type organization or subordinated debt type of examples.
So we're going to we're working through all that stuff to try and come up with a solution that makes sense for us as a business to operate with flexibility for our banking syndicate to make sure. They continue to support us going through this.
We get it they've been ridiculous the supportive over the last two and a half years as we've managed our way through Covid and supply chain, we get they're doing everything he can to manage their risk profile and.
And we've had super support from the government people, we've talked to and whether its provincially and federally about the importance of our business not only as an employer.
Across North America, and the World, but also quite frankly is one of the key enablers of the zero emission agenda.
So all.
All of those things are in play size time type shape of the debt.
Ultimate liquidity number the whole covenant package that makes sense for us to manage through this period of uncertainty.
I want to be flippant about it but they continue to go back to Rfps and bid universe is that macro level bid universe of what people say, they're going to buy us out.
At all time highs our backlog is very healthy we've got a whole bunch of stuff sitting in the Batter's box just wait for paperwork.
So it's not really a demand issue, it's around making sure we have the flexibility in our credit partners have the security and the risk assessment of the risk appetite that help us manage through that.
Not to be silly about it around to be simple about it its very complicated, but we are committed and we are confident we're going to get to that next level of flexibility to help us manage through.
Okay, and then any commentary around your thoughts around the dividend.
Well the dividend dividend will play into that same conversation right. There our calculations inside our current credit agreement that has.
This dividend tests and so forth. That's what issue second issue is depending on what our solution looks like whether it's a government support.
Program at commercial rates and so forth there may be restrictions associated with this syndicate is clearly interested in where any available cash goes. So there's no definitive decision yet on how that works or where that falls out you know that we've historically felt dividends was important part of our business want to retain that Boeing.
Forward at the right level.
Given the profile of our customers of our industry. The fact that it's not a massive growth business our growth industry. Its really replacement, one and ask a little bit in some cases more like utility than it does.
Any other kind of other business so.
It falls into the whole discussion about credit syndicate about liquidity about covenants and so forth so that will be part of the solution.
Whole thing ends up.
Okay. That's helpful.
My next question looking at Slide 16, and 17 for a second.
I guess, the first thing kind of interested in your commentary.
So first of all pretty pretty substantial step up in average selling price in the backlog, but you also make the comment that the dollars per EU contribution I guess, we would have thought that the EBITDA per EU type of type of number.
It's also got higher historically.
You've been kind of cautious about the way you had to think about.
EBITDA as sort of a fixed number is there something changing in the dynamic here or is this just more inflation catch up.
And normalizing of margins and how we should be thinking about this or just any color around that would be somewhat helpful. Yes. That's a really good question as well Chris because there is no question. If you compare our margins of 2019 or 2020 to today right. The massive impact has been.
Parts costs that we can't pass on and quite frankly labor inefficiency.
Just a silly example.
I don't necessarily a point.
Point in time example, every percent of labor efficiency in our factories worth about $2 million of EBITDA just in the new flyer side of our business.
And so the inability to build the buses.
Efficiency has not only the cost of increased material, but also tremendous labor efficiency, which is actually killing our margins. So there is no question. There is a normalization of margins. The other thing quite frankly, and we've been saying this since we saw zero emissions.
Come into our portfolio that is zero emission bus.
<unk> has a better margin, whether it's battery electric trolley electric or fuel cell electric and so the higher percentage of that in our business will impact the overall blend of EBITDA our margin per EU.
Okay. That's helpful and then <unk> talked a little bit sorry, sorry.
Christopher.
Jonathan shortly to I think on the EV.
<unk> side as well like a few years ago more so pilot brands smaller orders smaller.
Projects that customers were doing it.
Eyelets and now we are starting to get to those larger orders more economies of scale.
Larger commitments from customers on VEB, so that too I think is helping some of the revenue and margin profile on some of those electric customer programs.
No that's helpful. Thank you.
Just if I can just one more just looking at slide 16, I am thinking about the UK margin, although the UK market for second.
Lots of changes going on in the UK at the government level.
But I think on a positive note you start you saw I think you called it the largest order for Alexander Dennis since 2019.
We've been sort of waiting call.
Call It pent up demand for a while for the UK government to make some final decisions on where they want to go on spending and not only make those decisions from start getting funds flowing.
Are we starting to move into or are you starting to see signs that these orders are now materializing in.
If so how do we think about order growth out of out of the international group.
Into 'twenty three.
No.
When.
Boris Johnson was.
Prime Minister he planned massive funding for zero emission buses and of course as we know it's a private operator that bids on performing a public service through providing public transit.
That money announced the time was intended to help operators offset the cost between the diesel bus and zero emission bus that's pre COVID-19. So.
So COVID-19 kicks in and Theyre ridership goes in the tank the UK operators are heavily reliant on farebox.
So ridership has started to come back in fact, it's probably a slightly better in the U K than it is in North America. The operators have not really rejuvenated their fleets they've been trying zero emission we've had great success with the Alexander BYD partnership in the U K.
But that doesn't mean they have done the fleet the full fleet renewal uplift this.
Point in time, the fact that we've had a number of government changes over the last two or three years falling out of the original Brexit dynamic, which put a lot of stuff on hold and.
And the fact that there hasn't been the same level of government funding out of the UK government that was expected.
These latest orders for diesel buses as we're starting to see customers, saying, we clearly want to go zero emission, but without some help we need to rejuvenate our fleets.
And they've chosen to do that with with.
With diesel buses at this point in time most of the diesel buses now we still get zero emission bus orders were still making penetration across the UK didn't actually with within the Alexander Dennis BYD partnership.
We announced last year earlier. This story that we also did a revision to that would be with any partnership we're headed late 'twenty three 'twenty four will be offering our own Alexander Dennis zero emission offering.
The double deck space and the smaller bus space.
I think those things are positive for US, Scotland has stepped up with quite a substantial funding or the low emission type funding UK has lagged and I think we will continue to see a lag until we see that.
The global economy, the U K economy, specifically stabilize a little bit and quite frankly the government.
The feet underneath them.
Yes.
Okay. That's helpful. Thank you.
Thanks, Chris.
Thank you.
One moment for our next question.
Yes.
And our next question comes from Daryl Young with TD Securities. Your line is now open.
Hey, good morning, everyone.
First question for me is on the EV and just the rapid.
Growth in the demand for it and the projected future orders.
My question is.
Is the supply chain for <unk> specifically.
Robust enough that you could actually deliver on that kind of volume are you going to see bottlenecks.
Just from from lack of the volume of the key components that go into Evs.
In the future and I guess I'm speaking AG.
Agnostic to the current issues, but just that long term pipeline.
Componentry.
So that's a great question I think.
When our supply team has tried to do and unfortunately has learned the hard way through Covid is that we can't just order a part and expect that part to show up with us having understanding of the sub supply chain and the tiers that go into it are where the input costs input components come from and so forth.
I'll go back to what's going on in our production line right now 99% of the parts are there.
So building the buses.
The Big Challenge, it's critical components that are cascading impacts a lot of the market, our EV type or electronic related but for example, we're missing hundreds of brake pads or brake pedal sorry for motor coaches. That's got nothing to do a zero emission we had challenges in the last month or so with seat suppliers had nothing to do with zero emission.
That comes from.
Siemens or via either affect our zero emission buses or a hybrid.
We think our isolated to a couple of critical parts, where they have been sub supply chain type problems.
We are way smarter now at how we source and what we expect of our suppliers given the nightmare. We went through over the last year and a half and are now trying to embed those expectations of them, having buffer inventories of sub components on hand, and so on and so forth.
Never say never that we're through this thing and it's really hard to answer some of these questions about when you pass the supply chain dynamics, we will always have them at this point I think our team is not worried about.
Late 'twenty, three and 'twenty four.
The way, we are today, where we're hand to mouth and some of those key parts.
Back to the comments, we made in the script every buses difference in many situations and therefore, managing that bespoke nature of supply chain always has its unique challenges.
We are deeper and smarter at where and how we are buying the stuff and the expectations of suppliers.
It will always be a risk we're doing everything we can to manage it.
The other part of it I guess.
So the other part is trying where we can.
To have alternate sources of supply.
So historically, we had one battery supplier coming on later this year and into next year, you've got a second battery supply for zero emission buses today, we offer two different hybrid systems.
Alison and B E.
So we're trying where we tend to dual source stuff to add.
Only competitive tension in the supply chain, but also the ability to to ensure that we can solve our customers' problems are different way should we have supply chain challenges.
Yes, again, I'll add just to sorry to chime in if you would have seen announcements from us last week on ADL.
Bottom line, our new battery supplier. In addition to the legacy BYD relationship that they're working with and we're also.
Paul alluded to alternative suppliers that we're bringing on to North America as well.
Definitely expanding the supply base within the battery space is really important.
Okay great.
Then second question is just around the the increase in the average price of the Boston the backlog I think we're up over 30% now from 2020, 2021 period.
When a lot of that funding would have would have been announced so I guess my question is.
And I think the pricing will probably take another step function higher is the mix of EV continues to evolve so.
<unk>.
How much funding do we actually have available or.
Is that chewing into the amount of funding Thats been announced to date and do we actually need more funding.
I would say that of course, we manage and monitor and track dollars and units, what youre alluding to and therefore unit costs more money.
Q can you buy less units. So we watch and monitor every customers' fleet age of fleet and mix of fleet.
Take their fleet replacement plans that they publish and that we fly it forward that gives us our demand.
We have tempered.
There is a scenario that you could actually say well, we don't need six or $706 6500 units a year in North American transit, we need seven or 8000 to catch up with fleet replacement strategies, but we've tried to do is tempered the expectations of the oversize of Mark.
Total size of market expectations with that whole dynamic that buses are going to cost more the other reality is not only you can go buy a more expensive bus both operators still have to invest in the charging infrastructure and money's going to come for that as well whether it be local money federal money matched money and so forth.
The Great News is there is a lot of money out there both in Canada and the U S. Specifically.
That are incentivizing operators to push that zero emission.
And as Steven said earlier, we went through a period of orders of 357 10 electric buses and now we're starting to see $30 $40 $50 one hundreds.
So our view of recovering through the pandemic, but also the fleet transition looks very healthy given the total number of funding will they potentially more funding in the future absolutely.
Okay, and just one last one on the I'm sorry.
Sorry go ahead, so I hate to do that again I was just going to say, yes, I mean, I think what we've seen to as Paul kind of alluded to in Canada National Federal program Multibillion dollar program focused on really driving that transition to zero emission and then the U S 100 billion plus infrastructure investment jobs Act focus on public trains and investments.
And like the loan out for example went from $180 million to $1 2 billion year over year. So I think the governments have definitely done a good job of putting in a lot more frothy to focus on the higher cost of the vehicles, but as Paul alluded as we go forward it to get beyond 'twenty five 'twenty six will there need to be more funding more than ly.
To reflect the higher cost of these vehicles, but definitely feels like government has definitely stepped up and put a lot of additional funding.
<unk> driving procurement zero emission buses.
Okay. Thanks, and then just the aftermarket margins in some of those fixed contracts should we expect that to be a couple of quarters that needs to flush through still or are some of those fixed price contracts coming to an end.
Go ahead capacity.
Sorry, I thought we were on top can you repeat that question on the aftermarket margins.
Just curious if the fixed contracts that are dragging down the margin in the quarter. If those are going to extend over multiple quarters or.
They're close to running off.
I would say that at this stage, we are close to running off on those.
So I don't think they will extend farther out from our perspective.
I think the way to think about our business I think in aftermarket Paul correct me, if I'm, if I say anything wrong I think probably two thirds is transactional.
Somebody orders apart, we provided that one third contractual and those contractual contracts to a definitely shorter term I think so to <unk> point most of that impact will run off and that will be able to reprice and I'll make sure of that.
Adjustments are properly put in place.
We also do try to update our pricing on those contracts to reflect inflation wherever possible.
And I think one other thing we should add his.
Thank you.
Our next question one moment.
Our next question comes from the line of Mark Neville.
Scotiabank Your line is now open.
Hey, Good morning, guys can you hear me okay.
The one in the service mirror the.
The broader audience.
Yes, we can hear an area come through alright, yeah, great. Thanks perfect.
Look I appreciate that the discussions are sensitive and complex but.
I'm just curious sort of if you think that there is.
In.
A scenario or an avenue to sort of.
That you do this or you get.
Relief or further funding that would be non dilutive or avoid sort of some dilution for most of us.
Well clearly that's our goal Mark is to try and find a way to live with the liquidity that we can manage through with a little bit more patient.
That structure that has a little bit of runway to get us our volumes back up and therefore get into becoming a profitable business of generating EBITDA cash flow to pay down debt and therefore de lever.
Not that we're not looking but our last desire is to try and that is to do anything that dilutes our shareholders. We've done that twice in the last two years and so.
Clearly that's our objective.
And it's a delicate negotiation, which is part of the reason why we have engaged various levels of government to try and see if theres different ways to work with the syndicate to get to again manage their risks expectations, but also not hamper hinder the opportunity in the future of our business.
Right understood.
Wanted to ask that question. So are you just.
<unk> you talk about being sold out for 2023.
I mean, just sort of on what mine rate or sort of how should we think about sort of production rates next year and the fact that you're sold out.
Well insurance sort of what line rate that is so.
We will work through our guidance discussion for 'twenty three once we get our annual operating plan and our long range plan solidified through the through the banking discussion that we're working on as well as through board approval.
The current run rate of our business at.
All of our facilities all of our product lines is muted relative to pre Covid I.
I think I've said in the script today that we think we can get back to pre COVID-19 levels.
By the end of 2023 and into early 2024.
For example, new Flyers running its business today somewhere in the early <unk> in terms of new line entries every week.
Pre COVID-19, we were running north of 50.
So that's kind of our desire and because of the salt.
I would like to turn on the machine as you've been here not just turning the factory up you need skilled labor and unique parts availability and if you don't have both at the same time you have extreme inefficiencies in your cost base. So we don't want too much inventory sitting here too many people sitting around doing anything or we don't want people that don't have the materials to do that stuff. So wrapping up is delicate and so we've always said.
We do that here to go from call. It 35 buses a week to 37 two weeks later.
39, two in a few weeks later, it's a phased ramp up rather than a step change just have comfort in terms of how we build labor efficiency and quality.
But we want to get back to close to pre COVID-19 levels by the end of 'twenty three 'twenty four from a run rate perspective.
Okay. That's super helpful and just a last question just on the idling.
Just curious sort of is that completed and it's still ongoing it's been extended sort of leading objectives to sort of an update there yes. So.
We started it two and a half weeks ago, we extended it and adjusted it for each of the plants depending on their unique build schedules.
I stand corrected, but I think I believe after this weekend, we are back to line entries as the way they were previous to the idling.
Unfortunately during the idling that means the number of people, who can actually temporary laid off which is not a fun thing to do to people, especially this time of year. We do have the number of crews retro crews volunteers in some cases that are willing to work during those London Orlando three weeks to help us burn off or complete the excess work in process.
The parts that are auto station that offline and the buses. So we're through most of that the objectives of getting supply to get caught up.
Briefing the other day that the vast majority of the parts that we expected have come in there is still a couple of problem parts.
But the guys are working on and expediting.
It has also helped us I don't know the magnitude quite yet, but it has helped us actually deliver some of the offline buses and it worked down those offline hours. So we will see that transpire over the next couple of weeks as we start to deliver more vehicles are complete and deliver more vehicles.
And so that whole period of time was at two objectives.
Not induct more units that would create or known offline with and number two.
Help us work off the excess work in process.
Sorry, just.
The jump in at all or correct, yes kind of next week is when we'll be fully back.
Back to kind of again.
Pre idling run rates, but everybody should be back in the plans next week.
Okay. Thanks for the time, good luck and bulk till then thanks, Matt.
One moment for our next question.
And our next question comes from Alex Hudson with National Bank. Your line is now open.
<unk>, Alex Hutton non for Cam derchin today.
I noticed that ADL recently won that 200 electric 200 bus reward in the UK, which is great to see but we've also seen some of your competitors in the UK market has some good order success as well, we're wondering how Alexander Dennis its market position in the UK and how the competitive environment changed just hoped.
To get a little bit of color on that.
Really good question. So there's three major.
Domestic competitors in the U K there is Alexander Dennis who is by far the market leader number two is Wright bus.
And number three is <unk>.
<unk> mobility, which used to be called up there. We also have buses that are sold that are manufactured offshore in China for example, by Utah and a few others.
Rape US number two player did go through a bank reorganization or whatever the words or in the U K a couple of years ago.
Has recovered somewhat but has nowhere near the volume they had pre that that registration process. Our market share has continued to stay upwards of 60 something percent of salt and delivered units in the U K and way in excess of that when it comes to the zero emission buses.
Great bus has now is now offering electric buses as well as fuel cell buses and have won some orders.
Up there or.
Switch has not really gained much traction and we see the continued same kind of penetration from the Chinese players.
I said before in one of the questions were pretty excited about what alexanders Dennis is doing the option to be able to deliver diesel if you will or hybrid buses on their own platform today the ability to offer buses on the Alexander Dennis body on a BYD electric platform and soon and all Alexander Dennis platform with <unk>.
Our own battery and battery management and electronics package.
Which has got tremendous response from a number of the operators.
Quite pleased with the market positioning the competitive performance and so forth of Alexander Dennis, albeit we bought the business six or eight months pre COVID-19 and so the entire market has been materially impacted by it.
I don't see our competitive positioning get any any any worse.
Any stretch it.
Yes, it's fantastic. Thank you so much for the color. Thank you.
Thank you one moment.
Yes.
And I have a follow up from Kevin Chiang with CIBC. Your line is now open.
Okay.
Thanks, just one follow up question for me, Paul You mentioned, just kind of ebbs and flows with.
I guess with your labor.
Labour now as your production ramps up and down.
Just wondering is that exacerbating.
Any labor shortage issues, you're facing or.
<unk> turnover.
Labor was.
It was an issue for you kind of through the pandemic not sure how that's a sedan and whether the supply chain issues are exacerbating that.
Well there is no question that labor is our problem and everybody's problem number two in our world and Steven talked about this and as the capacity of our competitors have had shutdown weeks, our competitors have offline with that theyre waiting parts and so forth, which then impacts their ability to run their facilities just like we have.
We have let's call it excess labor today in our facilities, because we have to both build buses online and manage and complete the offline with so theres not free but there is available capacity, what's the offline whipped goes away for us to actually increase with existing manpower levels to get back up to pre COVID-19 levels. There is no question, we are going to have to go and do.
More hiring as we get through 'twenty three it into 2024, which goes back to.
<unk>.
Perspective of maybe a broader recession in some markets might allow the availability of labor because it is no question of difficult to hire people in any of our markets today, and we've all had pressure on wage rates and benefits and those kind of things.
No. There is no question and no doubt that our number one problem over the last year and a half has been parts availability turnover in certain plants have been a little higher than others, but they have been.
We can tell under industry averages of turnover.
We have adjusted in many cases, the wage rates across the businesses. Some as a result of union negotiations some of that we've done on our own just to make sure we're competitive in those individual marketplaces.
The next chapter once we get more and more confident supply chain is to use that available capacity to build buses right. The first time, and then to selectively hire where we need to there are key skills that continue to be a problem and everybody's markets such as <unk>.
Tradespeople welders electrical people and so forth and so we've ramped up working with local institutions as well as similar to many of our own programs at kind of.
Apprentice ship or training trade programs in many of those key core skills, knowing going forward. The buses are not going to get less complex or maybe get more.
Perfect that makes a ton.
<unk>.
Thank you very much that's it for me.
Thank you and at this time Im showing no further questions I'd like to hand, the conference back to Mr. Stephen King.
Okay. Thanks, Nora we do have one question on our webcast comes from Simon Hu and it just says have you seen customers more hesitant in placing firm orders under our contract with NFL. After you announced the need for covenant.
Also read and respond to great question the answer is no.
And every one of our situations specifically in a public situations, we have often bid bonds or often performance bonds in place that help a customer understand and have comfort that we are or can deliver on the product that they've ordered with us.
We often are often in the vast majority of times, our proposals have financial statements embedded in them we have to.
<unk> disclosure to with our customers about our challenges and so forth. We have for the last two and a half years dealt with short term covenant dynamics and been very transparent with our customers to date, we have not seen any adverse impact.
Hey, Paul and just to add as well.
You covered everything but again as I mentioned earlier definitely an industry issue and so we haven't seen any public customers cancel and I think they all realize that as well our competitors have done similar issues. So cancel an order or if you went with a different provider, it's going to be that same delay delivery and challenge and I would say the good news for us.
As industry leaders as we get that track record of performance track Records.
The highest quality vehicles and best performance for our customers.
But again, yes, definitely an industry issue on the supply challenge, which I think our customers definitely realize I appreciate and as Paul alluded to we have definitely seen our backlog grow and seen our awards come in and like we said the highest bids on record in the third quarter. So demand is still very very strong.
And with that I think we have answered all the questions. So we will wrap up this call normal I know you will close it out but I just wanted to say it for everybody.
There will be recording this call on our website as well as the presentation and a copy a transcript of this call as well will be on our website and we will talk to everybody again soon thanks and have a great day.
This concludes today's conference call. Thank you for your participation you may now disconnect everyone have a wonderful day.
The conference will begin shortly to raise your hand during Q&A you can dial one one.
[music].
Okay.
Right.