Q4 2023 NFI Group Inc Earnings Call

Operator: Ladies and gentlemen, thank you for standing by. Welcome to the NFI 2023 fourth quarter and full year financial results call. At this time, all participants are in a listen-only mode.

Ladies and gentlemen, thank you for standing by welcome to in that's I 2023 fourth quarter and full year financial results call. At this time all participants are in a listen only mode. After the speaker's presentation, there will be a question and answer session.

Operator: After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising that your hand is raised.

To ask a question during the session you wouldn't need to press star one one on your telephone.

Didn't hear an automated message advising your hand is raised to withdraw your question. Please press star one one again please be advised that today's conference is being recorded I would like now to turn the conference over to Stephen King Vice President strategy and Investor Relations. Please go ahead.

Operator: To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would like now to turn the conference over to Stephen King, Vice President, Strategy, and Investor Relations. Please go ahead.

Stephen King: Thank you, Michelle. Good morning, everyone, and welcome to NFI Group's fourth quarter and full year 2023 results conference call. This is Stephen King speaking.

Thank you Michelle good morning, everyone and welcome to in if I groups fourth quarter and full year 2000 twenty-three results conference call. This is Stephen King speaking joining me today, our policy brief President and Chief Executive Officer, possibly Sony are outgoing Chief Financial Officer, and Brian are newly appointed cheaper.

Stephen King: Joining me today are Paul Soubry, President and Chief Executive Officer, Pipasu Soni, our outgoing Chief Financial Officer, and Brian Dusnif, our newly appointed Chief Operating Officer. On today's call, Paul and Pipasu will provide an update on our financial results, the operating environment, market demand, and our outlook. Brian will introduce himself and provide some insight on our financial guidance and his areas of focus as he assumes the CFO role. This call is being recorded, and a replay will be made available shortly.

On today's call Paul them for possible provide an update on our financial results the operating environment market demand and our outlook.

Ian will introduce himself and provide some insight on our financial guidance in his areas of focus as he assumes the C. F O.

This call is being recorded at a replay will be made available shortly will be using a presentation that can be found in the investors section of our website.

Stephen King: We'll be using a presentation that can be found in the investor section of our website. While we'll be moving the slides via the webcast link, we will also call out the slide numbers as we go. Starting with slide 2, I would like to remind all participants and others that certain information provided in today's call may be forward-looking and based on assumptions and anticipated results that are subject to uncertainty. Should any one or more of these uncertainties materialize, or should the underlying assumptions prove incorrect, actual results may vary significantly from those expected. In addition, certain financial measures we referenced today are not recognized earnings measures and do not have standardized meanings prescribed by international financial reporting standards.

We'll be moving the slides via the web castling, we will also call up the slide numbers as we go.

Starting to slide too I would like to remind all participants and others that certain information provided on today's call maybe forward looking at based on assumptions and anticipated results that are subject to uncertainties.

Any one or more of these uncertainties materialize should the underlying assumptions prove incorrect actual results may vary significantly from those expected. In addition, certain financial measures. We reference today are not recognized earnings measures and do not have standardized maintenance prescribed by international financial reporting standards.

Stephen King: We advise listeners to review the risk factors, financial definitions, and non-IFRS measures found in our press releases and other public filings on CDAR for more detail. We also want to remind listeners that NFI's financial statements are presented in U.S. dollars, the company's reporting currency, and all amounts referred to are in U.S. dollars unless otherwise noted. On slide 3, we have included some key terms and definitions referred to in this presentation. Of note, Zero Emission Buses, or ZEBs, consist of battery-electric, hydrogen fuel cell-electric, and trolley-electric buses.

R. S. We advise listeners to review the risk factors financial definitions and non <unk> measures founded our press releases and other public filings on SEDAR for more details.

We also want to remind listeners that enterprise financial statements are presented in U S dollars the companies reporting currency and all amounts referred to her 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 zev consistent battery electric hydrogen fuel cell electric trolley electric buses equivalent units or he used as a term we used for both production slots and delivery statistics.

Stephen King: Equivalent units, or EUs, is a term we use for both production slots and delivery slots. Slides four, five, and six provide a brief overview of our company. For those interested in a more in-depth introduction to our business, please visit our investor section of the NFI Group website. Slide seven provides the latest statistics showcasing NFI's leadership in zero-emission transportation, what we call ZEVolution. Since 2015, NFI has delivered 3,603 EUs of ZEVs that have completed over 150 million electric service miles in more than 150 cities in six countries. Our infrastructure solutions team has also installed over 445 chargers totaling 72 megawatts of charging capacity since 2018.

Slide four five and six provide a brief overview of our company for those interested in a more in depth introduction to our business. Please visit our investor section of the Enterprise group website.

Slide seven provides the latest statistics showcasing enterprise leadership and zero emission transportation, what we call does evolution since 2015 N F. I as delivered 3603 E use a Z that have completed over 150 million electric service mild and more than 150 cities six countries our infrastructure.

Solutions team is also installed over 445 charges totaling 72 megawatts of charging capacity since 2018.

Stephen King: Demand for ZEVs continues to accelerate. 36% of our current backlog is ZEVs, and based on our analysis, we see over 50% of anticipated customer purchases over the next five years being electric vehicles. We continue to project that at least 40% of our 2025 deliveries will be electric. Sustainability remains a key component of our strategy, a core company value, and critical to our broader ESG program.

Demand for his ebbs continues to accelerate 36 per cent of our current backlog, there's ebbs and based on our analysis, we see over 50 per cent of anticipated customer purchases over the next five years being electric vehicles. We continue to projected at least 40 per cent of our 2025 deliveries will be <unk>.

Sustainability remains a key component of our strategy core company value and critical to a broader ESG program a slide.

Stephen King: On slide eight, we outline some of our 2023 sustainability initiatives, including the establishment of a sustainability council made up of company executives and leaders with direct oversight from our board. And we have also embedded ESG into our long-term executive compensation. Our ESG report for 2023 is in the final stages of development and expected to be issued in May 2021. To find out more, please visit the ESG section of our website.

Slide eight we outline some of our 2023 sustainability initiatives, including the establishment of a sustainability Council made up of company executives and leaders with direct oversight from our board and we also embedded ESG into our longterm executive compensation programs are ESG report for 2023 is in final stages of development and expect it to be issue.

2024.

Find out more please visit the ESG section of our website.

Stephen King: Moving to slide nine, earlier this month, we announced that Brian Duesniff has been appointed Executive Vice President and Chief Financial Officer of NFI Group, effective March 1st, 2024. Brian joined NFI through our acquisition of North American Bus Industries, or NAVI, in 2013, where he was the CFO. Prior to his new position, Brian acted as the head of strategy, leading the due diligence and acquisition of MCI, and then went on to be the president of NFI Parts, where he played an instrumental role in consolidating numerous aftermarket businesses into one parts business, growing revenue, combined distribution facilities, improving margins, and lowering overall costs. He also led our ARBUC shuttle bus manufacturing business since 2022. We'll hear more from Brian later this month.

Moving to slide nine earlier this month, we announced the Brian <unk> has been appointed executive Vice President and Chief Financial Officer of N. F. I group effective March 1st 2024, Brian joined N F. I through our acquisition of North American bus industries or Navvy in 2013, where he was the CFO prior to his new position, Brian acted as the head of <unk>.

Strategy, leading the due diligence and acquisition of M. C. I and then went on to be the president to verify parts replayed an instrumental role in consolidated numerous aftermarket businesses into one parts business grew revenue combined distribution facilities improve margins and lowered overall costs. Brian also let our our Buck shuttle bus manufacturing businesses 2022.

We'll hear more from Brian later this morning, I will now pass it over to Paul to walk us through the high level of financial results for the fourth quarter.

Paul Soubry: I will now pass it over to Paul to walk us through the high-level financial results for the fourth quarter. Thanks, Stephen, and good morning, everyone. I'm on slide eleven, and I'll provide a brief summary of the quarter, starting first with demand, which remains strong with a 143% sequential quarterly increase in new orders and a full year backlog book to bill ratio of 113%. The option backlog conversion rate also showed a healthy recovery, now reaching 41% for the fiscal year of 2023. Meanwhile, year-over-year bus and coach deliveries were up 19 percent. Quarterly revenue was up 15 percent, and adjusted EBITDA was up 642 percent. Gross margins also recovered well, reaching 11 percent, reflecting a strong contribution from the aftermarket business and a seasonally strong quarter from the previous market.

Steven and good morning, everyone I'm on slide 11, and I'll provide a brief summary of the quarter.

Starting first with demand, which remains strong with 143% sequential quarterly increase new orders at a full year backlog book to bill ratio of 113%.

The option backlog conversion rate also showed healthy recovery now, reaching 41% for the fiscal year of 2023.

Your your bus and coach Livers were up 19% quarterly revenue was up 15% and adjusted EBITDA was up 642 per cent.

Gross margins also recovered well reach at 11%, reflecting a strong contribution from the aftermarket business and a seasonally strong quarter from the previous market.

Paul Soubry: Our aftermarket segment delivered yet another quarter of outperformance and its strongest year ever with $551 million in revenue and $120 million in adjusted EBITDA. These results were primarily driven by increased aftermarket sales in North America, favorable product mix, and management of our freight costs and logistics. NFI's backlog remains very robust at 7.9 billion U.S. dollars with over 10,500 equivalents.

Or after market segment delivered yet another quarter of outperformance and its strongest year ever with 551 million of revenue in $120 million of adjusted EBITDA. These.

These results were primarily driven by increased aftermarket sales in North America favorable product mix and management are frayed cost and logistics.

And it flies backlog remains very robust at $7.9 billion U S dollars with over 10500 equivalent units the.

Paul Soubry: The average selling price for vehicles in our backlog also increased by 22% year-over-year, reflecting a higher proportion of zero-emission vehicles and pricing actions that we've taken in contracts from mid-2022 onwards to reflect the impacts of inflation and a changing product. We also ended the fourth quarter of 2023 with a very high number of equivalent units in bid award pending at a record 3,890, sorry, 3,832 equivalent units, where we now wait for formal customer paperwork, which will position us for another period of backlog growth in 2024. Slide 12 highlights the dramatic improvement in supplier performance where the number of high and moderate risk suppliers has continued to decline. We continue to experience some disruption due to certain parts or components, but these are generally short-term delays of a few weeks related mostly to supplier labor availability at their facilities.

The average selling price for vehicles and our backlog also increased by 22% year over year, reflecting a higher portion a higher proportion of zero emission vehicles and pricing actions that we've taken in contracts mid 22 onwards to reflect the impacts of inflation and a changing product mix.

We also ended the fourth quarter of 2023 with a very high number of equivalent units in bit award pending at a record 3890 3832 equivalent units, where we now wait a formal customer paperwork, which will position us for another period of backlog growth in 2024.

Slide 12 highlights the dramatic improvements supplier performance, where the number of high and moderate risk suppliers has continued to decline.

We continue experienced some disruption certain parts or components, but these are generally short term delays of a few weeks relate mostly to supply of labour availability at their facilities.

Paul Soubry: We are keeping certain suppliers at our medium risk rating even though their on-time delivery has improved significantly, and we do this to monitor their performance as they ramp up their production to meet our increased line entry rate. Slide 13 shows our quarterly inventory balances and line entry rates. Working capital declined by $64 million in the quarter as we began to lower finished goods and work in process inventory.

We are keeping certain suppliers that are medium risk rating is even though there on time delivery has improved significantly and we do this to monitor their performance as they wrap up their production to meet our increased line entry rates.

Slide 13 shows are quarterly inventory balances in line entry rates working capital declined by $64 million in the quarter as we began to lower finished goods and work in process inventory.

Paul Soubry: This was somewhat offset by higher raw material inventory balances that we put on hand to support stable supply, and an increase in receivables reflects the increased deliveries in the quarter. Our line entries were down slightly in the quarter, primarily the result of two holiday periods, which included U.S. Thanksgiving and the Christmas holiday break. We project line entries will show improvement in 2024 as we continue to ramp up our production. The wrap-up will be a phased approach, as we've talked consistently over many years, matching the supply of labor and supply availability with our customers' abilities to inspect and accept these vehicles. We are being measured as we ramp up to ensure that we do not see a buildup of offline buses or work in progress as they generate significant rectification and interest costs. I'll now ask Pipasu to walk us through the highlights of our fourth quarter and our full year 2023 financial results, after which Brian and I will provide some insights into our outlook. Now, over to you, Pipasu.

This was somewhat offset by higher raw material inventory balances that we put on hand to support stable supply and increase in receivables reflects the increased deliveries in the quarter.

Our line entries were down slightly in the quarter, primarily result of two holiday periods, which included USA Thanksgiving and the Christmas Holiday break we project line entries will show improvement of 2024, as we continue to wrap up our protection the.

Wrap up will be phased approach as we've talked to consistently over the many years matching the supply of lake of labor and supply availability from our customers abilities to inspect it accept these vehicles.

We are being measured as we wrap up to ensure that we do not see a buildup of offline.

Buses were working process as they generate significant rectification and interest costs.

I'll I'll ask the pastor to walk us through the highlights of our fourth quarter are full year 2023 financial results and after which Brian and I will provide some insights into our outlook over you over the past week. Thanks, Paul picking up on slide 14 hour multiyear backlog remains strong at 10586, EU split almost equally between firm an option orders backlog.

Pipasu H. Soni: Thanks, Paul. Picking up on slide 14, our multi-year backlog remained strong at 10,586 EU, split almost equally between firm and option orders. Backlog options now extend out to 2020. Year-over-year, we saw heavy-duty transit bus deliveries up 21% and coach deliveries up 20%. Low floor cutaway and medium duty deliveries were essentially flat.

Options now extend out to 2028 year over year, we saw heavy duty transit bus deliveries up 21% and coach deliveries up 20 per cent low floor cutaway and medium duty deliveries were essentially flat.

Pipasu H. Soni: Turning to slide 15, gross margins continued their positive progression, reaching 32.1% in aftermarket and 6.6% in manufacturing. We anticipate the manufacturing margin improvement will continue as we ramp up operations and deliver the remaining legacy inflation-impacted contracts in the first half of 2024. On slide 16, we have provided a chart showing segmented adjusted EBITDA dating back to 2019. You'll see significant improvement in the fourth quarter of 2023, with consolidated adjusted EBITDA exceeding expectations at $38.5 million, a nearly $46 million improvement from this time last year. For the full year 2023, we delivered 69.2 million of adjusted EBITDA, exceeding the high end of our guidance of 65 million. Of note, the manufacturing segment delivered its first positive quarter since 2021, further highlighting our trajectory of recovery. On slide 17, free cash flow saw improvement in the quarter, finishing at $2.7 million, an 111% increase from the fourth quarter of 2022. The improvement came from increased cash from operating activities, offset by an increase in interest paid, income taxes, and cash capital expenditures. When combined with changes in working capital, we generated $22 million in cash flow in the quarter.

Turning to slide 15, gross margins continue their positive progression, reaching 32.1% and aftermarket and 6.6% in manufacturing we anticipate the manufacturing margin improvement will continue as we wrap up operations and deliver the remaining legacy inflation impacted contracts in the first half of 2024.

On slide 16, we have provided a chart showing segmented adjusted EBITDA dating back to 2019.

You will see significant improvement in the fourth quarter of 2023 with consolidated adjusted EBITDA exceeding expectations at $38.5 million or nearly $46 million improvement from this time last year.

Four year 2023, we delivered 69.2 million of adjusted EBITDA exceeding the high end of our guidance of $65 million of note.

The manufacturing segment delivered its first positive quarter since 2021 further highlighting our trajectory of recovery.

On slide 17 free cash flow solid improvement in the quarter, finishing at $2.7 million, 111% increase from the fourth quarter of 2000 2000 to improve.

Improvements came from increased cash from operating activities offset by an increase in interest paid income taxes and capital cash capital expenditures when combined with changes from working capital, we generated $22 million in cash flow in the quarter.

On slide 18, we provide additional key financial indicators, our total liquidity ended at $188 million up from $170 million at as of the end of the third quarter of 2023 at up from $144 million at the end of 2022 with improvements driven by improved.

Pipasu H. Soni: On slide 18, we provide additional key financial indicators. Our total liquidity ended at $188 million, up from $170 million as of the end of the third quarter of 2023 and up from $144 million at the end of 2022, with improvements driven by improved cash flows from operations. Working capital days also saw improvements sequentially and year over year as we work to lower the overall inventory balance. For the remainder of fiscal 2024, we expect a slightly longer cash collection cycle due to the significant increase in ZEBs and resulting time required for customers' final inspection and acceptance once on their properties. On slide 19, our net loss decreased by $150 million, primarily driven by higher deliveries, revenue, and adjusted EBITDA. Offset by increases in interest financing costs, a reconciliation of net loss to adjusted net loss is provided on the slide. I will now turn the call back to Paul.

Cash flows from operations working capital days also saw improvements sequentially and year over year as we work to lower overall inventory balances.

For the remainder of fiscal 2024, we expect a slightly longer cash collection cycle due to the significant increases the beef and resulting time required for customers final inspection and acceptance what's on their properties on slide 19, our net loss decreased by $150 million, primarily driven by higher delivery revenue.

You, an adjusted EBITDA offset by increases in interest financing costs. A reconciliation of net loss suggested that loss is provided on the Sly I will now turn the call back to Paul.

Thanks to pass suit.

Picking up on the slide under my size 14, right 21, I'm, sorry Patriot apologies.

Paul Soubry: Thank you. Thanks, Pipasu. Picking up on slide, where am I on slide 14? I'm sorry, I'm on the last page here. Apologies.

[noise] Ah slight totally from <unk> provided a summary of some of our key public demand metrics for North America.

Paul Soubry: On slide 21, we provided a summary of some of our key public demand metrics for North America. Total active bids of over 8,700 equivalent units included 7,631 equivalent units in bids submitted and another 1,101 in bids in process. We anticipate these bids will lead to significantly new awards, and when combined with the five-year customer outlook of 22,098 equivalent units, supports our view that Boston Coach Demand will continue to remain very strong. On slide 22, we highlight NFI's order and delivery activity for the quarter. As previously mentioned, we had new orders for 2,361 equivalent units in 2023 Q4, driving total orders of 6,121 equivalent units for the year. In addition, as I mentioned earlier, we had 3,832 equivalent units in bid award pending, many of which we expect will convert in the first quarter of this year.

Okay.

Yeah.

Total active bids of over 8700 equivalent units equivalent units included 7631 equivalent units in bids submitted.

Other 1101 and bids and process. We anticipate these bids will lead to significantly New awards when combined with the five year customer outlook of 2000 22098 equivalent units sports our view that bus and coach demand will continue to remain very strong.

On slide 22, we highlight edifies order and delivery activity for the quarter.

As previously mentioned, we add new orders for 2361 equivalent units in 2023 Q for driving total orders of 6121 equivalent units for the year. In addition, as I mentioned earlier, we had 3832 equivalent Yeltsin did award pending many of which we expect will convert and the first.

Quarter of this year.

Paul Soubry: On slide 24, we provide a brief summary of the record government funding for each of the major markets to help drive ZEB demand for our market and for NFI. On slide 25, we provide an update on the changing competitive dynamics within the North American market. In 2019, we had six key competitors and total market deliveries of 6,700 equivalent units. In 2023, one competitor filed for Chapter 11, with their assets subsequently acquired by a much smaller player, and another announced its exit from the U.S. heavy-duty transit market in 2025. Early in 24, a second competitor announced their exit from the business. These changes have led to a capacity decrease in the United States market and proven NFI's overall competitive position. All players who exited the market referenced the difficulties of high deflation, supply disruption, and working capital requirements in their decisions to exit.

On slide 21, before we provide a brief summary of the record government funding for each of the major markets to help drive zeb demand for our market and for NFIB.

On slide 25, we provide an update on the changing competitive dynamics within North American market. In 2019, we had six key competitors in a total market deliveries were 6700 equivalent units in 2023, one competitor filed for chapter 11 with their asset subsequently acquired by a much smaller clutter and another analysis exit for.

The U S heavy duty president market in 2025 early in 2000 for a second could better announced their exit from the business.

These changes have led to a capacity decrease in the United States market and prove it to Nfa's overall competitive position all players who exited the market referenced the difficulties of height deflation supply disruption in working capital requirements on their decisions to exit.

On slide 26, we discuss the task force led by the American Public Transit Association of our App and the response by the by parents Whitehouse administration and the FTA and their responses are significantly in serious adverse impact on us that less manufacturing capacity.

Paul Soubry: On slide 26, we discussed the task force led by the American Public Transit Association, or APTA, and the response by the Biden-Harris White House administration and the FTA to the significantly and seriously adverse impact on U.S. bus manufacturing capacity. In October of 2023, APTA, with the support of the FDA, created a bus manufacturing task force to recommend immediate actions that can support competitive and stable bus manufacturing capacity in the United States. NFI has been a very active member of this task force, along with other manufacturers, suppliers, and many, many larger and medium-sized U.S. transit agencies.

At October of 2023, Apter with the support of the FDA created a bus manufacturing task force to recommend immediate actions that can support competitive and stable much less manufacturing capacity in the United States.

<unk> has been a very active member of this task force along with other manufacturers supplier and many many larger and medium sized use transit agencies.

On February 7th 2024, I had the privilege of presenting at the White House round table and we discuss key recommendations for immediate changes to the U S bus contracting scenarios, which include price adjustments for existing contracts reflect inflationary impacts the ability to make progress payments than the use of price indices up firm contracts and incentives to <unk>.

Paul Soubry: On February 7, 2024, I had the privilege of presenting at the White House Roundtable, and we discussed key recommendations for immediate changes to the U.S. bus contract. I'm here to talk about the 2014-15 scenarios, which include price adjustments for existing contracts to reflect inflationary impacts, the ability to make progress payments, and the use of price indices on firm contracts and incentives to minimize excessive customization. The FDA has now issued a Dear Colleague letter to the U.S. transit agencies recommending that they adopt these changes in their existing and new contracts. The FDA also informed agencies that, going forward, preference will be given on certain new grants and procurements that adopt these changes.

Minimized excessive customization.

The FDA has now issued a dear colleague letter to the U S transit agencies recommending that they adopt these changes in their existing and their new contracts. Efca also informed agencies that going forward preference will be given uncertainty grants procurement that adopt these changes very encouraging from and edify perspective.

These recommendations have the potential for a material impact on the economics of our business, primarily as it relates to working capital investments and the interest costs associated with the financing are working process.

Many U S transit agents have already responded positively to these recommendations at our customer facing teams are actively engaged in a multi pronged approach to negotiate relief and our current contracts will also adopting these methodologies approach and active and future bids will provide updates on the financial and operational packs of these changes may have as they are implement.

Paul Soubry: Very encouraging from an NFI perspective. These recommendations have the potential for a material impact on the economics of our business, primarily as it relates to working capital investments and the interest costs associated with financing our work and process. Many U.S. transit agents have already responded positively to these recommendations, and our customer-facing teams are actively engaged in a multi-pronged approach to negotiate relief in our current contracts, while also adopting these methodologies in active and future bids. We'll provide updates on the financial and operational impacts that these changes may have as they are implemented or take effect through the rest of this year. I'd now like to pass the call over to Brian Doosan, who'll provide a brief introduction himself and some insights into our outlook.

Or take effect through the rest of this year.

I'd now like to pass the call over to Brian <unk> private brief introduction himself and some insights into our outlook.

Thanks, Paul Good morning, I wanted to start by commenting on my enthusiasm as I assume then if I see it for rolling continued to advance our operational and financial recovery.

Having previously been a CFO navvy and president of both edify parts in our Mark.

I feel my background skill set knowledge of the industry will help drive value across the finance function.

My natural areas of focus over the coming weeks will will be getting acquainted with our investors and banking partners. Additionally.

Additionally, I'll be working with Paul on the business unit President's to advance our financial recovery working with the board in assisting our capital structure, managing our liquidity with deliberate focus on improving our working capital management and supporting our teams to achieve <unk> guidance and financial targets.

Brian Dusnif: Thanks, Paul. Good morning. I want to start by commenting on my enthusiasm as I assume the NFICFO role and continue to advance our operational and financial recovery. Having previously been a CFO at NABI and president of both NFI Parts and ARBOC, I feel my background, skill set, and knowledge of the industry will help drive value across finance. My initial areas of focus over the coming weeks will be getting acquainted with our investors and banking partners.

Turning to slide 27, we're reaffirming our 2024 financial guidance in 2025 targets.

For fiscal 24, we anticipate double digit revenue growth triple digit adjusted EBITDA growth and improved free cash flow.

Brian Dusnif: Additionally, I'll be working with Paul and the business unit presidents to advance our financial recovery, working with the board and assisting our capital structure, managing our liquidity with a deliberate focus on improving our working capital management, and supporting our teams to achieve NFI's guidance and financial targets. Turning to slide 27, we're reaffirming our 2024 financial guidance and 2025 targets. For fiscal 24, we anticipate double-digit revenue growth, triple-digit adjusted EBITDA growth, and improved free cash flow. We will see an increase in cash capital expenditures as we catch up on maintenance and invest in growth projects. We've adjusted our ZEB guidance metric to be ZEB deliveries as a percentage of total deliveries as opposed to a percentage of manufacturing revenue. This makes the metric clear to understand, matches our executive long-term compensation metric, and is easier to calculate from our financial results.

We will see an increase in cash capital expenditures as we catch up on maintenance and invest in growth projects.

We've adjusted our ZIP guidance metric to be exempt deliveries as a percentage of total deliveries as opposed to a percentage of manufacturing revenue.

This makes a metric cleared understand matches, our executive longterm compensation metric and is easier to calculate from our financial results. We.

We anticipate deserves to be 30 to 35 per cent of total deliveries in 2024 growing to over 40 per cent in 2025.

We also provided our 2025 targets.

Which include adjusted EBITDA greater than $350 million and expect to reach a $400 million annualized run right by the fourth quarter of 2025.

The multiyear growth in our financial projections is driven by a combination of volume recovery production efficiencies improved product pricing and an increase in in an increased number of higher margin.

Brian Dusnif: We anticipate ZEBs to be 30 to 35% of total deliveries in 2024, growing to over 40% in 2025. We've also provided our 2025 targets, which include adjusted EBITDA of greater than $350 million and expect to reach a $400 million annualized run rate by the fourth quarter of 2025. The multi-year growth in our financial projections is driven by a combination of volume recovery, production efficiencies, improved product pricing, and an increase in, and an increased number of higher margins. Zero emission bus delivered.

Zero emission bus deliveries.

We also anticipate that we will move beyond the majority of our legacy inflation impacted contracts. After the first half of 2024.

Based on our guidance and working capital expectations, we do not anticipate significant debt repayments in 2024, as we ramp up production volumes. This could change depending on the progress of the FDA Dear colleague letter Paul mentioned has on bus manufacturing contract structures in the U S and our overall success in increasing customer deposits.

[noise] milestone billings.

We maintain aerobic target of greater than 12% for 2025 with potential for outperformance almost metric as we lowered that balances and see improvement in working capital investments.

Brian Dusnif: We also anticipate that we will move beyond the majority of our legacy inflation-impacted contracts after the first half of 2025. Based on our guidance and working capital expectations, we do not anticipate significant debt repayments in 2024 as we ramp up production volume. [inaudible] This could change depending on the progress of the FTA Dear Colleague letter Paul mentioned on bus manufacturing contract structures in the U.S. and our overall success in increasing customer deposits and milestone billing. We've maintained a ROIC target of greater than 12% for 2025, with potential for higher performance on this metric as we lower debt balances and see improvement in working capital investments. Turning to slide 28, we provide some directional commentary on the seasonality and the impacts of inflation-impacted legacy contracts. In the first half of 24, we expect to deliver approximately 35% of our adjusted EBITDA, with 65% coming in the second half of the year. sequentially, we expect a decrease in adjusted EBITDA in the first quarter of 2024, as this is typically our slowest period in private markets and is also impacted by legacy contracts.

Turning to slide 28th we provide some directional commentary on the seasonality and the impacts of inflation impacted legacy contracts.

And the first half of 24, we expect to deliver approximately 35 per cent of our adjusted EBITDA with 65 per cent coming in the second half of the year sequentially. We expect a decrease in adjusted EBITDA.

And the first quarter of 2024.

Is typical is this is typically our slowest period of private markets and is also impacted by legacy contracts.

As you can see on the chart. These legacy inflation impacted contracts are expected to make up 9% of our first quarter deliveries and approximately 10% of total first half deliveries.

Finalizing delivery on these legacy contracts is expected to drive significant improvement in North American transit contribution margins with an expectation for a 30% increase starting to materialize in the second quarter of 2024 with the largest improvements expected and the third and fourth quarters of the year.

On slide 29, we highlight the average price of each unit in our total backlog. This is increase for both heavy duty buses, which is the dark from the line and motor coaches the light Blue light since 2020.

Reflecting a combination of higher than our borders inflation adjusted pricing and improved margins on our new contracts.

Brian Dusnif: As you can see in the chart, these legacy inflation-impacted contracts are expected to make up 9% of our first quarter deliveries and approximately 10% of total first half deliveries. Finalizing delivery on these legacy contracts is expected to drive significant improvement in North American transit contribution margins, with an expectation of a 30 percent increase starting to materialize in the second quarter of 2024, with the largest improvements expected in the third and fourth quarters of the year. On slide 29, we highlight the average price of each unit and our total backlog.

Missing from pricing environment supports our guidance on our 2025 targets I'll now turn the call back over to Paul to close out before Q&A.

Thanks, Brian and before we open the line to the questions from our listeners I want a thick and extensive to your gratitude.

For his act of leadership.

And dedication as our CFO from 2020 through February of 2024. The past has played a critical role in supporting advised navigation through the COVID-19.

And subsequent global supply chain prices, cultivating cultivating and leading the execution of a very comprehensive refinancing plan in 2023.

Capacity, we wish you luck to you and your family all the best as you return the United States and thank you for supporting the transition in Halo or of the CFO lanes to Brian over the next couple of months.

Paul Soubry: This has been increased for both heavy duty buses, which is the dark blue line, and motor coaches, the light blue line, since 2020. Reflecting a combination of higher ZEV orders, inflation-adjusted pricing, and improved margins on our new contract, this improved pricing environment supports our Guidance Center 2025 target. I'll now turn the call back over to Paul to close out before Q&A. Thanks, Brian.

With that now Michelle I'll hand, it over to you to provide instructions to our callers how to ask questions.

Thank you as a reminder to ask a question. Please press star one one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one one again if you are attending buy with cash you May also put your question in the chat box. Please stand by while we compiled the Q&A roster.

Paul Soubry: And before we open the line to questions from our listeners, I want to thank and extend sincere gratitude to Pipasu for his active leadership and dedication as our CFO from 2020 through February of 2024. He played a critical role in supporting NFI's navigation through the COVID-19 pandemic and subsequent global supply chain crisis, cultivating and leading the execution of a very comprehensive refinancing plan in 2023. Pipasu, we wish you luck and all the best as you return to the United States, and thank you for supporting the transition and handover of the CFO reins to Brian over the next couple of months. Now, Michelle, I'll hand it over to you to provide instructions to our callers on how to ask questions. Thank you. As a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. If you are attending by webcast, you may also put your question in the chat box.

The first question comes from Tammy.

BMO capital markets. Your line is now open.

Hi, Good morning. Thank you for the questions first I had a question for how to four full day.

<unk> margin was quite strong slash surprised that your average selling price it was lower than previous quarters. Anna just would've thought that pricing would be my shanna can generate that strong margin and can you just explain dot com first.

Thanks, Tammy so as you know it as we've explained.

Zero emission buses have better margins generally in terms of dollars, but not quite as strong in terms of percentages.

That's one issue. The second issue is we still depending on which places were delivered in the fourth quarter, we still have some legacy.

Priced contracts that we're moving through the system. So that will have in some cases of lower selling price and then a lower March.

Third issue is that we had a high proportion of 60 foot buses running through the system in the fourth quarter of last year.

Operator: Please stand by while we compile the Q&A roster. The first question comes from Tamy Chen with BMO Capital Markets. Your line is now open. Hi, good morning.

Course, a 60 foot bus.

Is takes up to production slots.

<unk> average sale price per you is less so there's a lot of mixed dynamic that's happening in the quarter very pleased with the ultimate performance of recovery will continue to see that kind of noise going forward ice versus zero ambition mix and 40 versus 60 or double deck type buses as we marched through 2425.

Tamy Chen: Thanks for the questions. First, I had a question about how Q4 unfolded. The bus segment margin was quite strong, but I was surprised that your average selling price was lower than previous quarters. I just would have thought the pricing would be much stronger to generate that strong margin. Can you just explain that piece first?

Sure It sounds like a lot of these things for why I had one on the selling side effects.

Paul Soubry: Thanks, Tamy. So, as you know, and as we've explained, zero emission buses have better margins generally in terms of dollars, but not quite as strong in terms of percentage. That's one issue.

Again like a bus margin withdrawn so are there any.

Adoptions are efficiency that and you'll also benefit if I'm in the corner, it's trying to square away that definitely pizza here.

Paul Soubry: The second issue is that, depending on which buses were delivered in the fourth quarter, we still have some legacy-priced contracts that were moving through the system. So that will have, in some cases, a lower selling price and then a lower margin. The third issue is that we had a high proportion of 60-foot buses running through the system in the fourth quarter of last year.

Well.

I've mentioned many times over the years, we don't spend a lot of time looking at average selling price other than as an indication of the size of the backlog.

Depending on which buses got out of the system, depending on what our private versus public customers, who told Mci are very very period in the fourth quarter, which don't have a fairly large or don't have a significant compulsion of zero emission buses will continue to see the average selling price move up we saw it in twenty-three will see it in 2004.

Paul Soubry: And of course, a 60-foot bus takes up two production slots, but the average sale price per EU is less. So there's a lot of mixed dynamics that's happening in the quarter. Very pleased with the ultimate performance and recovery.

<unk> and of course, now we move into a world of differentially priced contracts with higher margins going forward a much higher percentage of zero mission I wouldn't read too much into kind of efficiency your productivity gains more around mixed dynamics.

Paul Soubry: We'll continue to see that kind of noise going forward, ice versus zero emission mix, and 40 versus 60 or double deck type buses as we march through 24 and 25. So it sounds like a lot of these things in Q4 were a headwind on the selling price. But again, like a bust, the margin was strong.

Okay, Sarah and my other question.

So 420 20 for your back pain from a volume pretty backhand 5000 <unk>.

Uhm quite high I don't know that you can fill out the gun not so can you talk about how you with my life.

Paul Soubry: So were there any cost reductions or efficiencies that you also benefited from in the quarter? I'm just trying to square away the different pieces here. Well, you know, as I've mentioned many times over the years, we don't spend a lot of time looking at average selling price other than as an indication of the size of the backlog. You know, depending on which buses got out of the system, depending on what our private versus public customers, you know, MCI, a very, very busy period in the fourth quarter, which don't have a fairly large or don't have We'll continue to see the average selling price move up. We saw it in 23, and we will see it in 24.

For that number and the contest.

Like what's coming from North America Transit is there <unk> a meaningful recovery expect any UK business, how 'bout motor coach and we've talked about how lay very still tight there's still some pockets of supply chain issue. So just wondering if you feel you've taken out can you spell it turns out our buffer and the.

<unk> 5000.

Thanks.

<unk>. It's a good question and of course, we've been through both volume compression and mix changes.

As we went through Covid and then supply chain dynamics just for context. If you take the full year of 2019 of course, we only owned Alexander Dennis for roughly half of the year, but a few pro forma the full year.

Paul Soubry: And of course, now we move into a world of differentially priced contracts with higher margins going forward and a much higher percentage of zero emissions. I wouldn't read too much into any kind of efficiency or productivity gains, more around mixed dynamics. Okay, fair enough. And my other question is, so for 2024, you're expecting, from a volume perspective, 5000 EUs. It's quite high. I don't know that you've historically done that.

Our business delivered about 6200 equivalent units in 2019.

That trough all the way down to 2022, where we were just over 3000 units. We did roughly 4000 units last year and we're projecting roughly 5000 news this year and if you do the math based on our forecasting in our volumes for 2025, that's roughly getting back to about 6000 units in 2025.

Paul Soubry: So can you talk about how you arrived at that number in the context of, like, what's coming from North American transit? Is there a meaningful recovery you expect in the UK business? How about motor coach?

I've been here 15 years now I have never seen the production schedule. The number of slots that have been sold in advance farther out than I've ever seen.

Paul Soubry: And you've talked about how labor is still tight. There are still some pockets of supply chain issues. So just wondering if you feel you've baked in conservatism or buffer in the guidance for that 5000 EUs. Thanks. Thanks, Tamy. It's a good question.

So from a new flyer perspective, the vast majority of our slots if not all of them are already sold and assigned to a customer.

If I'm at Alexander Dennis perspective, the same thing all the way through third quarter and in the fourth quarter, we still have some open slots, but we have high probability customers and there.

Our our block business effectively has every slot this year sold.

Paul Soubry: And of course, we've been through both volume compression and mix changes. You know, as we went through COVID and then supply chain dynamics. Just for context, if you take the full year of 2019, of course, we only owned Alexander Dennis for roughly half of the year, but if you perform it for the full year.

R. M C I business, which is about two thirds private one third public as the vast majority of the of the public units sold and has a high wind right on the private units.

So our confidence in delivering the 5000 units this year is relatively high.

The dynamic and why we adjusted our guidance earlier in January is we are cautious about labour availability and consistent parts supply.

Paul Soubry: Our business delivered about 6,200 equivalent units in 2019. That troughed all the way down to 2022, where we were just over 3,000 units. We did roughly 4,000 units last year, and we're projecting roughly 5,000 units this year. And if you do the math based on our forecasting and our volumes for 2025, that's roughly getting back to about 6,000 units in 2025. I've been here 15 years now.

Parts suppliers are absolutely keeping up with us at this point in time, notwithstanding a few changes and challenges here and there.

But we are not back yet in 2024 to what we saw in the 20 2019 period.

With our confidence had given the competitive dynamics given the funding environment given the frequent fleet replacement cycles of the customers. This is far more about execution focus, which we are gaining more and more confidence every day than it is about worrying about selling slots.

Paul Soubry: I have never seen the production schedule, the number of slots that have been sold in advance farther out than I've ever seen. So from a New Flyer perspective, the vast majority of our slots, if not all of them, are already sold and assigned to a customer. From an Alexander Dennis perspective, the same thing all the way through the third quarter and in the fourth quarter; we still have some open slots, but we have high probability customers. Our ARBOC business effectively has every slot this year sold. Our MCI business, which is about two-thirds private and one-third public, has the vast majority of the public units sold, and has a high win rate on the private units.

And why is it that when you've been revised guidance for 24, and 25 cents <unk> I'm 25 and was greater than 24.

<unk> neighbour availability in pie supply that with <unk>, maybe more of that impact is spelled yeah. So good here and then it just <unk> next year, so what <unk> would've had more negative and both University next year and that's it for me. Thank you.

Paul Soubry: So our confidence in delivering the 5,000 units this year is relatively high. The dynamic, and why we adjusted our guidance earlier in January, is that we are cautious about labor availability and consistent park supply. Our park suppliers are absolutely keeping up with us at this point in time, notwithstanding a few changes and challenges here and there. But we're not back yet in twenty twenty four to what we saw in the twenty twenty nineteen period. But our confidence, and given the competitive dynamics, given the funding environment, given the fleet replacement cycles of the customers, this is far more about execution focus, about which we are gaining more and more confidence every day than it is about worrying about selling slots. And why is it that when you did revise guidance for 24 and 25, the delta of the revision in 25 was greater than 24?

Well look Tammy the way, we work that guidance as we go literally plant by plant slot by slot customer by customer.

And we know what we've sold we know what our win rate is we know what we're bidding on in those periods.

We felt that the most prudent thing to do was to adjust to the 24 and 25 targets.

Being cautious knowing that we still have a delicate supply dynamic at a delegate labor environment and labor availability in the in the NFIB Cross the business for 2024, we don't have to add that many people. We went through a period of time, where a few parts can hold up million dollar assets and they can pile up in our parking lots very quickly.

Our single biggest concern was that we don't want it to get into a scenario, where we build product and we are buses offline waiting spare parts the cost of rectification and the cost of working capital of our interest on our working capital is so absorbed in it at this point in time. This is all about smoothing out the growth of the business.

Paul Soubry: If, you know, if you're cautious about labor availability and part supply, that would presume maybe more of that impact is felt nearer term, so this year, and then it just improves next year. So I would have thought the delta of the guidance revision would have had more negative trim this year versus next year. And that's it for me.

There is upside in our 24, there's upside in our 2025, but.

But we felt it more prudent to provide our shareholders or stakeholders with a.

Paul Soubry: Thank you. Well, look Tamy, the way we work that guidance is we go literally plant by plant, slot by slot, customer by customer, and we know what we've sold. We know what our win rate is.

Ah Ah Ah Ah Ah confidence.

If you will run right through 2425, the fact that we've had a number of competitors go away.

Ultimately changes the dynamic again at our ability to win and our ability to actually feel slept production slots with much much better healthier margin products.

Paul Soubry: We know what we're bidding on in those periods, so we felt that the most prudent thing to do was to adjust the 24 and 25 targets, being cautious, knowing that we still have a delicate supply dynamic and a delicate labor environment, with labor availability. In the NFI, across the business for 2024, we don't have to add that many. We went through a period of time where a few parts can hold up million dollar assets, and they can pile up in our parking lots very quickly. Our single biggest concern was that we didn't want to get into a scenario where we build the product, and we have buses offline waiting for spare parts. The cost of replication and the cost of working capital or interest on our working capital are so absorbent at this point in time. This is all about smoothing out the growth of the business. There is upside in our 24, and there is upside in our 2025.

Okay. Thank you.

Thanks to me please.

<unk> for the next question.

The next question comes from Camryn Dirkson with National Bank. Your line it's open.

Yeah. Thanks, Good morning, I, I guess I have a couple of questions on the potential impacts here from this this task for somebody I. Appreciate obviously, there's a lot of moving parts here, maybe it's kind of hard to predict what might happen from a from a casual perspective, if some of these.

Changes go through which does appear that they are going to I'm just wondering what the retroactive price adjustments you will obviously you potentially would be positive for you on existing contracts, but it seems to me that maybe most of these sort of lower price contracts me already be delivered by the time. Some of these changes come through them just wonder if you could comment on what potential positive impact my <unk>.

Paul Soubry: But we felt it was more prudent to provide our shareholders, our stakeholders with a confident, if you will, run rate through 24 and 25. The fact that we've had a number of competitors go away ultimately changes the dynamic, again, of our ability to win and our ability to actually fill production slots with much, much better, healthier margin profit. Okay, thank you. Thanks, Tamy.

Come from those price adjustments on existing contracts.

<unk>, it's a really good question and it's hard for us to explain in a couple of paragraphs to our our analysts are investors our listeners on the dynamic.

Operator: Please stand by for the next question. The next question comes from Cameron Doerksen with National Bank. Your line is open. Yeah, thanks. Good morning.

The context is that the Washington is very frustrated with the FTA in the transit agencies by the approach relative to contracting all the things. We can talk about for years, we don't get milestone payments that very difficult nature of adjusting pricing wentland, there's things like hyper inflation and so forth.

Cameron Doerksen: I guess I have a couple of questions on the potential impacts here from this task force. I mean, obviously, there's a lot of moving parts here, and maybe it's kind of hard to predict what might happen from a cash flow perspective if some of these changes go through, which it does appear that they will. I'm just wondering about the retroactive price adjustments.

So first and foremost the guidance that came out of the government basically says that as we submit proposals. There's no question that it's acceptable to government to have a price indices to to adjust for changes in economic conditions. There's no question about whether the FCAT will accept milestone payments and all those other things.

Cameron Doerksen: Obviously, that potentially would be positive for you on existing contracts, but it seems to me that maybe most of these sort of lower-priced contracts may already be delivered by the time some of these changes come through. I'm just wondering if you can comment on what potential positive impact those price adjustments might have on existing contracts. Morning, Ken.

And it comes to our current that existing contracts. The vast majority of the stuff that is massively hyper inflation effected is coming through in the first part of the second quarter of this year.

Paul Soubry: It's a really good question, and it's hard for us to explain in a couple paragraphs the dynamics. The context is that Washington is very frustrated with the FTA and the transit Agency over the approach to contracting. All the things we've been talking about for years, we don't get milestone payments, the very difficult nature of adjusting pricing when there are things like hyperinflation and so forth. So first and foremost, the guidance that came out of the government basically says now as we submit proposals, there's no question that it's acceptable to the government to have price indices to adjust for changes in economic conditions. There's no question about whether the FTA will accept milestone payments and all those other things.

There's still however are some that we have the potential to readjust the pricing. However, nobody is mandated to do that what this allows us to do now is have a clear roadmap to go back to their customers and try and negotiate but to get that there must be consideration.

So we're going to be asking customers for price adjustments, where we have been still hurt by certain costing elements, we're going to be asking customers or improved payments a milestone turns and to do so we're gonna have to find a way to insert them whether that be discounting on pricing, whether it be additional warranty coverage, whether it be parts credits and all those other.

Things.

So we are mildly excited about the impact on 2024 relative to any of those adjustments to existing contracts. We are very encouraged as we move through 24, 25, and 26 that we are actively bidding the vast majority of contracts with price adjustment clauses in there and with milestone payments embedded in our proposed.

Paul Soubry: When it comes to our current and existing contracts, the vast majority of the stuff that is massively hyperinflation affected is coming through in the first and part of the second quarter of this year. There are still, however, some that we have the potential to readjust the price on. However, nobody is mandated to do that.

Paul Soubry: What this allows us to do now is have a clear roadmap to go back to those customers and try and negotiate. But to get that, there must be consideration. And so we're going to be asking customers for price adjustments where we have been still hurt by certain costing elements. We're going to be asking customers for improved payments and milestone terms. And to do so, we're going to have to find a way to incentivize them, whether that be discounting on pricing, whether it be additional warranty coverage, whether it be parts credits, and all those other things. So we are mildly excited about the impact on 2024 relative to any of those adjustments to existing contracts. We are very encouraged as we move through 24, 25, and 26 that we are actively bidding the vast majority of contracts with price adjustment clauses in there and with milestone payments embedded in our proposal. So, we just want to temper people's expectations not to see, you know, a step change in margin or cash flow in 2024, but as we move through 2025 and 2026, we expect a very different cash profile for our business. Okay, that's very helpful.

<unk>.

So we just want a temper people's expectations not to see step change in larger or cash flow in 2024, but as we move through 20 526, we expect a very different cash profile of our business.

Okay. That's that's that's very helpful and I I, just sort of related to the to the task force I mean, it it does appear that one of the goals here in making some of these changes is to perhaps encourage additional competition, obviously, there's sort of a duopoly situation now in the U S. So.

So I guess I wanted to get your thoughts around I guess the potential for new competition to come in obviously, not a near term impact, but I guess one of the things that was proposed in the task force was you'll having some sort of a bridge to buy America compliance does it sound like there was any resolution on that but just your thoughts around that as well.

Cameron Doerksen: And, sort of related to the task force, I mean, it does appear that one of the goals here in making some of these changes is to perhaps encourage additional competition. Obviously, there's sort of a duopoly situation now in the US. So I guess I wanted to get your thoughts around, I guess, the potential for new competition to come in, obviously, not a near-term impact. But I guess one of the things that was proposed in the task force was, you know, having some sort of a bridge to buy America compliance. Doesn't sound like there was any resolution to that.

The task force is chaired by the C E O of New York City Transit and the C E O of Chicago Transit Authority.

Both were customers of one of the competitors that have exited the U S market.

In many cases, we find ourselves as a sole bidder today or potentially two bidders as you alluded to earlier.

We do expect to see competitors coming to North America, we do expect the recovery of the overall market size.

Paul Soubry: But just your thoughts around that, as well. The task force is chaired by the CEO of New York City Transit and the CEO of Chicago Transit Authority, both of whom were customers of one of the competitors that have exited the U.S. market. In many cases, we find ourselves as a sole bidder today or potentially two bidders, as you alluded to earlier. However, we do expect to see competitors coming to North America.

It will take time for those customers for example of a European bus designed to metric standards and tests of the European standards to get domestic supply to get domestic to move it and converted into imperial <unk>.

Designs and steal sourcing and all that other stuff.

The proposal by one of the persons on the task force of allowing a honeymoon or a holiday for some of these international players to come the United States.

Paul Soubry: We do expect the recovery of the overall market size. But it will take time for those customers if they're, for example, have a European bus designed to metric standards and tested to European standards, to get domestic supply, to get domestic to move it and convert it into imperial designs, steel sourcing, and all that other stuff. The proposal by one of the persons on the task force of allowing a honeymoon or a holiday for some of these international players to come to the United States is completely in contravention to what the U.S. government's desire is for domestic capability. So that never made it into the recommendations.

Is complete in contravention to what the U S government's desire is for domestic capability.

So that never made it into the recommendations what it is was a concept of our thoughts floated by one of the transit agencies.

Never say never but I would be really surprised to see the U S government and whoever is in the administration, allowing imports a vehicle that don't that don't have the U S domestic capability supply chain or any of those other things, which is also part of our strategy is heavily beefed up over the years the amount of product that we would actually build physically at the United States.

And are complete compliance the.

Paul Soubry: What it is was a concept or a thought floated by one of the transit agencies. I would never say never, but I would be really surprised to see the U.S. government and whoever is in the administration allowing imports of vehicles that don't have the U.S. domestic capabilities, supply chain, or any of those other things. Which is also part of our strategy is how we've beefed up over the years the amount of product that we've actually built physically in the United States and are in complete compliance. The focus was far more, Cam, on price adjustment methodologies and working capital management of the supply, in relation to milestone payments for companies like us to finance the working process. I don't see some of those outlier-type recommendations making much progress.

The focus was far more calm on price adjustment methodologies and working capital men managing of other supply as opposed to.

In.

In relation to milestone payments for companies like us to finance the working process I don't see some of those outlier type recommendations, making making much progress.

Okay no that that's really helpful contacts to appreciate the time, thanks very much.

Okay.

Please stand by for the next question.

Next question comes from Krista freezing with C. I B C. Your line <unk>.

Hi, Thanks for taking my question <unk>, Good luck too passive and congrats Brian Uhm Uhm, a new appointment uhm.

Cameron Doerksen: Okay, that's really helpful context. I appreciate the time. Thanks very much.

I was just wondering <unk>.

Operator: Please stand by for the next question. The next question comes from Krista Friesen with CIBC. Your line is open.

Reading, Germany, they're they're cutting their subsea now for for E. D buses in part due to the strong demand and they don't feel the need for the subsidy anymore.

Krista Friesen: Hi, thanks for taking my question, and I just want to say good luck to you, Pipasu, and congrats, Brian, on the new appointment. [inaudible] I was just wondering, reading Germany, they're cutting their subsidy now for EV buses, in part due to the strong demand, and they don't feel the need for the subsidy anymore. Are you seeing or hearing anything like that? Sorry, Chris, we missed the

Are you seeing or hearing anything like <unk>, sorry could you could use that we missed the very beginning when you said it was cutting the substance.

Oh, sorry, Germany announced they're cutting that some subsidies four EV <unk> city buses and I'm just wondering if uhm.

Paul Soubry: You said was cutting the, Oh, sorry, Germany announced they're providing some subsidies for EV transit buses, city buses, and just wondering if you're seeing this elsewhere or hearing this and just how you think of potential eventualities, maybe in some of your larger markets. Thanks, Krista. So first of all, we sell today, and historically only sold diesel double deckers into Germany, the markets for which we're prominently playing in Canada, the United States, all parts of the United Kingdom, Hong Kong, New Zealand, and so forth. The amount of money, the amount of focus, the amount of incentivization, and push from the government to continue to convert their fleets from ICE to zero emission, in our opinion, in our view, has not backed off at all.

If you're seeing this elsewhere or hearing this and just.

Just how you think of that potential eventuality, maybe in some of your larger.

Larger markets.

Thanks, Chris So first of all we sell today have historically only sold diesel double deckers into Germany.

The markets of which were prominently playing in Canada, the United States.

All parts of the United Kingdom.

Hong Kong, New Zealand and so forth.

The amount of money the amount of focus the amount of incentivization.

Push from the government to continue to convert their fleets from iced zero emission in our opinion in our view and fax has not backed off at all.

Paul Soubry: We watch very carefully parallel markets like automotive, where demand and so forth may be changing. The OEMs may be pulling back at the pace of pushing zero emissions. Quite frankly, governments are using zero-emission buses as public policy to push an industry that they heavily subsidize anyway, moving in that direction. I would have said, quite frankly, the amount of money we're seeing in our core markets is advancing as opposed to receding. I am not really familiar with Germany's position on the bus dynamic.

We watch very carefully parallel markets like automotive where demand and so forth may be changing the oes, maybe pulling back at the pace of putting zero emission.

Quite frankly governments are using zero emission buses as public policy to push an industry in which they heavily subsidized anyway moving in that direction.

I would have said quite frankly, the amount of money, we're seeing in our core markets is advancing as opposed to retracting napster really familiar with Germany's position on the bus dynamic.

Paul Soubry: When we look at the number of units that we have either in backlog, in bid award pending, or the RFPs that we have on the street, those numbers are only increasing. In fact, 50% of the bid universe, these are bids that are either active or projected from our customers, today has zero omission. Five or seven years ago, that was 10 or more.

When we look at the number of units that we have either in backlog and bid award pending or the Rfps that we have on the street those.

Those numbers are only increasing in fact, 50% of the bid universities are bids that are either active or projected from our customers today is zero mission <unk>.

Five or seven years ago that was 10 or 15%. So we're seeing quite frankly, the inverse of the way may be Germany is taking <unk>.

Paul Soubry: So we're seeing, quite frankly, the inverse of the way maybe Germany is taking an approach. The other reality is that zero-emission adoption is not a revolution. When you look at a city like New York that has 6,000 buses, or Chicago, 3,000, those are not going to flip to zero emissions overnight. It is an evolutionary story.

<unk>. The other reality is that zero mission adoption is not a revolution. When you look at in a city like New York, That's about 6000 buses or Chicago 3000.

Those are not gonna flip to zero mission overnight. It is an an evolutionary story.

Paul Soubry: And so we're seeing more and more movement and progression towards that. The pace of the curve may change, but we don't see any retraction from that stuff. And, you know, long term, we get lots of questions about whether the White House is controlled by the Republicans or the Democrats or whatever, and what happens with Congress.

And so what we're seeing more and more movement and progression towards that the pace of the curve may change, but we don't see any retraction from that stuff.

Long term, we got lots of questions about whether the.

The White house is controlled by the Republicans or the Democrats or whatever what happens with the with the Congress quite frankly, what we've seen over the last 10 years is the migration to push more public transit into the citizens in North America has really been a bipartisan dynamic.

Paul Soubry: Quite frankly, what we've seen over the last 10 years is the migration to push more public transit into cities in North America. It's really been a bipartisan dynamic, right? They're making big investments in zero emission in the United States, and we're a beneficiary of that progression. Okay, great, thank you. And then just switching gears on the aftermarket business, which has obviously been quite strong, both top line and and even the gross margin has kind of just continued to grind higher here. How much higher do you think gross margin for aftermarkets can go? And, and was 2023 kind of a standout year that maybe we should expect a little bit of normalization or at least maybe not as much growth in 2024. Well, I appreciate you calling it out. I think Brian's team has done a miraculous job, as has the team over at Alexander's Dennis Historic.

Right, they're making big investments and zero emission in the United States and we're a beneficiary of that progression.

Okay, great. Thank you.

And then just switching gears on the aftermarket business. That's obviously been been quite strong both the top line and and even the gross margin is kind of just continue to grind higher here at how much higher do you think gross margin for aftermarket can go and and it was.

2023 kind of.

Ah stand out here that maybe.

We should expect a little bit of normalization or at least maybe not as much growth in 2024.

Well I appreciate you you call it out I think Bryan his team has done proactive this job as has the team over at Alexander's that is historically.

Paul Soubry: The overall kind of summary speech on aftermarket parts is as follows. We at NFI have put together a roster of businesses, New Flyer, MCI, the Orion Parts business, NABI, and so forth. What Brian's been able to do is effectively bring all of those brands and all of those individual warehouses under one team, significantly rationalizing the overhead costs of running that distribution business, but also navigated COVID with, you know, freight increases and fuel surcharges and so forth. So a big lift on the EBITDA and cash flow coming out of the parts business has to do with the operational efficiency that has been generated. The second issue is that as fleets went through COVID and came through the supply chain crisis, demand for spare parts because they weren't replenishing their new buses as fast as possible went up.

The overall cut US summary speech of aftermarket parts is as follows.

We identified have put together a roster of businesses, new flutter, Mci, the Orion parts business, but navvy and so forth.

But <unk> been able to do is effectively bring all of those brands and all of those individual warehouses under one team significantly rationalized the overhead cost of running that distribution business, but also navigated through COVID-19 with.

Freight increases and surcharges fuel surcharges and so forth. So a big lift on the EBITDA in cash flow coming out of the parts business has to do with the operational efficiency that has been generated.

The second issue is that we saw as fleets went through Covid and came through the supply chain crisis <unk>.

Demand for spare parts, because they weren't replenishing their new buses as fast as possible has gone up and.

Paul Soubry: And we have been very careful and conscious about supplying to customers for both replenishing their parts on the shelf but also delivering parts to buses that are in service that require immediate parts. So from a margin perspective, it's, you know, a lot of it is still dynamically priced. Compare the parts business to the OEM business, where you have a, in the OEM world, you have a bid that is done, and then three or four hundred days later, we make the bust. In the parts world, if Brian's team gets a price increase, we're able to dynamically increase prices for the vast majority of those parts customers. So we're not absorbing inflation dynamics for longer periods of time.

And we have <unk> is a very careful and conscious about supplying to customers for both replenishing their parks on the shelf, but also delivering to buses that are in service that required immediate parts.

So from a margin perspective, it's it's still a lot of it is dynamically priced.

Compare the parts business <unk> business, where you have in the OEM World you have a bid that is done and that's three or 400 days later, we make the bus and the parts World If Brian team gets a price increase we're able to dynamically price increase for the vast majority of those parts customers. So we're not absorbing inflation dynamics for longer.

Paul Soubry: So I would suggest that the parts business has room to continue to grow in size and mix. We're trying to make some strategic decisions about how we do that. But I wouldn't expect the margin percentages to go higher in those businesses.

Periods of time.

So I would suggest that the parts business has room to continue to grow in size and mix.

Trying to make some strategic decisions about how we do that I wouldn't expect the margin percentages to go higher in those businesses.

Paul Soubry: There's a balance, obviously, in terms of continuing to support the customers but also doing it at a fair and economic return. So, thank you for having me. Thank you. Thank you. So, you know, that's your... Brian, I don't know if there's anything you'd want to add. You've been running this business. Any color you want to add to that discussion?

There's a balance obviously in terms of continuous support the customers, but also doing it at a at a fair and an economic return.

So that's what Brian I don't know if anything you'd Wanna add you've been running this business any color you want to add to that discussion.

Brian Dusnif: Yeah, you know, I think that's right. I think with the amount of uncertainty that was in the marketplace with the higher inflation and the transportation and logistics costs, we, as you mentioned, were able to price that into our product. And as we saw diesel fuel surcharges decrease and some other changes made to the business that allowed for some margin expansion, but I don't know that it's going to go much higher than where it is today. Okay, thanks. That's a great color.

You know I think that's right I think with the.

The amount of uncertainty that was in the marketplace with the higher inflation in the transportation and logistics costs. We we as you mentioned were able to price that into our product and as we saw diesel fuel surcharges decrease in some other changes made to the business that allowed for some margin expansion, but Ah.

I don't know that it's going to go much higher than where it is today.

Okay. Thanks that that's a great color I'll, let jump back in the queue.

Krista Friesen: I'll jump back in the queue. Thanks, Kristen. One moment for the next question. The next question comes from Daryl Young with Stiefel. Your line is open. Hey, good morning, everyone.

X Christian <unk>.

One moment for the next question.

Next question comes from Darrell Young with faithful your line is open.

Hey, good morning, everyone.

Daryl Young: Just a quick one here on the liquidity and the balance sheet and the expectations for working capital ramp-up across the first part of the year. It looks like you've made a few changes to lower the interest rate subsequent to year end and maybe some changes to the EDC credit, but just how you're feeling about the first half of the year and maybe the magnitude of the working capital investments. Well, it's a really important question and it's timely, Daryl.

Hey, Darryl.

Just just a quick one here on on the liquidity in the balance sheets and the expectations for working capital ramp up across the first part of the year. It looks like you've made a few changes to lower the interest rate subsequent to your and and maybe some some changes to the D C credit, but just how you're feeling about it.

The first half of the year and then maybe the magnitude of of the working capital investments.

Investments.

Well.

It's a really important question and it's topical Darryl we spend all of our time right now trying to manage the whole liquidity dynamic as we ramp up the business.

Paul Soubry: We spend all of our time right now trying to manage, you know, the whole liquidity dynamic as we ramp up the business. So, first and foremost, we did an interest rate swap in the first quarter, so that'll hopefully mitigate or manage the interest cost. Zero emission buses, as we wrap up, take our higher, more expensive dollars. So we're replacing, you know, certain units that are moving through the system with more expensive ones. Alexander Dennis is now building electric vehicles, electric buses, with their own chassis and, therefore, their own battery and electric power plant supply. Before, in many cases, we'd have a chassis, an electric chassis, delivered to us by BYD that didn't sit into our working cab.

So first and foremost we did an interest rate swap in the first quarter. So that'll help hopefully mitigator manage the interest costs.

Zero emission buses zoo wrap up take or or hire more expensive dollars. So we're replacing.

Certain units that are moving through the system was more expensive ones.

Alexander Dennis is now building electric vehicles electric buses with their own chassis and therefore their own battery electric power plants supply before in many cases, we'd have a chassis electric chassis delivered to us by B Y D that didn't sit into our working capital. So as we reduce overall work in process.

Paul Soubry: So as we reduce the overall working process and move it through the system faster, we're replacing that with effectively more operating working capital inside the business. We chose our words carefully, but quite frankly, the benefits of reducing offline WIP or the reduction of working capital inside the business are being replaced with working capital as we ramp up the business. So we should have overall free cash flow positive in 2024, but it doesn't significantly reduce our debt. And, of course, it's a back-end loaded business.

And move it through the system faster, we're replacing that with effectively more operating working capital inside the business.

We've kind of chose her words carefully but quite frankly, the benefits of reduction of offline lip or the or the reduction of working capital inside the business is being replaced with working capital as we ramp up the business. So.

Overall free cash flow positive in 2024, but it doesn't significantly reduce our debt.

And of course, it's a back end loaded business. So as we grow our business. This year will deliver more in the back half as well.

Paul Soubry: And so as we grow our business this year, we'll deliver more in the back half as well. But, you know, we're really, really pleased with the pace at which we're getting buses through the system. The number of offline buses is dramatically down. The number of buses that we call out-of-station hours, where we go to build a bus, and it doesn't have the parts in the depot, so we have to catch up either downstream or offline, is noticeably different.

We're really really pleased with the pace at which were getting buses through the system. The number of offline buses is dramatically down the number of buses that we call out of station hours, where we go to build a bus and it doesn't have the parts and station. So we have to catch up either downstream or off line is noticeably different so I think what you're gonna see is you know.

Paul Soubry: So I think what you're going to see is, you know, volatile liquidity through the rest of this year, improving liquidity in the back half of this year, and then substantially improving liquidity as we move through 2025. Okay, great. That's it for me. Thanks very much, guys. Thanks, Daryl. I have no further questions from the phone lines at this time. I will turn it back to Stephen if we have any questions from the webcast. I'm not seeing any questions from the webcast, so I think we will wrap it up, Michelle. Thanks, everyone, for joining us on today's call. As always, please visit our investor section of our website for any additional information, and never hesitate to reach out to us and our team here on the IR side with any questions.

Volatile liquidity through the rest of this year improving liquidity in the back half of this year and that's substantially improving liquidity as we move through 25 and 26.

Okay, great that does it for me thanks, very much guys next.

<unk>.

I show no further questions from the phone lines at this time I will turn it back to Steven if we have any questions from the web cast.

Not seen any questions from the web cast. So I think we will wrap it up Michelle thanks, everyone for joining us on today's call as always please visit our Mister section of our website for any additional information and never hesitate to reach out to us and our team on the outside with any <unk>.

Stephen King: Thanks, and have a great day. This concludes today's conference call. Thank you for your participation. You may now disconnect. The end. The President of the United States of America, and the President of the United Nations.

Thanks, and have a great day.

This concludes today's conference call. Thank you for your participation you may now disconnect.

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