Q3 2024 NFI Group Inc Earnings Call

<unk> aftermarket segment delivered yet another exceptional quarter with $153 million in revenue and $34 million of adjusted EBITDA up, 7% and 8% year over year, respectively.

Now as a result of the U S task force from Apter.

Supported by the F T in the White house unhealthy contracting we continue to have success, securing prepayments and embedding milestone payments and proper contracting terms in our bus contracts with customers. This is having a positive impact on our liquidity and cash flows. However, working capital remains elevated due to an increase in zero emission bus production, reflecting higher.

Input costs and the adverse impact disruption of a significant north American heat supplier that has nonperforming to our schedule, which will discuss a little bit detail more detail later in this call.

which we'll discuss in a little bit more detail later in this call.

Slide nine walks you through our third quarter deliveries.

Slide 9 walks you through our third quarter deliveries.

We had our highest quarter ever of low floor cutaway bus deliveries in Q3 coach their lease were also up and transit delays reflect the impact of the seat supply disruption operational and operational efficiencies as we ramp up production and the impact of higher <unk> production.

We had our highest quarter ever of low-floor cutaway bus deliveries in Q3, coach deliveries were also up, and transit deliveries reflect the impact of the seat supply disruption and operational efficiencies as we ramp up production and the impact of higher ZOB production.

In total the seat supply disruption led to a loss of approximately 79 ease of planned third quarter deliveries. We also had lower production rates as we've managed offline buses trying to bust, finishing and the working capital.

In total, the seat supply disruption led to a loss of approximately 79 EUs of planned third quarter deliveries. We also had lower production rates as we managed offline bus finishing and the working capital.

We are focused on improving fourth quarter was all transit deliveries as we complete and ship contractually sold buses that were missing seeds from inventory.

We are focused on improving fourth-quarter resolved transit deliveries as we complete and ship contractually sold buses that were missing seats from inventory. Offsetting the decline in deliveries was an 11% increase in the average selling price of the heavy-duty transit bus, along with improved manufacturing gross margins.

Offsetting the decline in deliveries was 11% increase in the average selling price of the heavy duty transit bus along with improved manufacturing gross margins.

Now on slide 10, I'll walk you through the impacts of the seat supply disruption I'll start with the overall supply chain health. The charter the screen goes back to 2020 and reflects the deterioration of NFA supplier.

OK.

Now, on slide 10, I'll walk you through the impacts of the seat supply disruption. I'll start with the overall supply chain health. The chart on the screen goes back to 2020 and reflects the deterioration of NFI supplier delivery performance starting in the second quarter of 2021.

And if I supplier delivery performance starting in the second quarter of 2021.

Through the remainder of 'twenty, one and 2020 to numerous high and medium risk suppliers had a dramatic impact on <unk> performance in 2023, and 24, we made tremendous progress as we expanded our active supplier development and monitoring program we.

Through the remainder of 2021 and 2022, numerous high and medium risk suppliers had a dramatic impact on NFI's performance. In 2023 and 2024, we made tremendous progress as we expanded our active supplier development and monitoring program.

We only have two suppliers currently rated as high risk high impact one in the United States. One is the United States based seat supplier, who is now not meeting their delivery timelines, which has impacted <unk> and our competitors and some of the broader rail and transit industries. This has caused disruption to our master production schedule.

We only have two suppliers currently rated as high-risk, high-impact. One in the United States, one is the United States-based seat supplier, who is now not meeting their delivery timelines, which has impacted NFI.

and our competitors and some of the broader rail and transit industries. This has caused disruption to our master production schedule and obviously impacted our planned deliveries.

And obviously impacted our planned deliveries.

On slide 11, I'll provide a quick overview of the steps involved in North American public transit procurements in the manufacturing process to give you some context on the impact of this issue.

On slide 11, I'll provide a quick overview of the steps involved in North American public transit procurements and the manufacturing process to give you some context on the impact of this issue.

On a typical procurement the customer issues or request for proposal with unique customized specification. We then work with the specific supply and others to develop costing and pricing and estimate estimated delivery timelines.

On a typical procurement, the customer issues a request for proposal with unique customized specification. We then work with the specific suppliers and others to develop costing and pricing and estimated delivery timelines.

After bidding and securing a contract we determined where it fits into our master production schedule with incomplete final engineering design typically 26 weeks prior to the bus for an order being started at our facility seed engineering is completed at this stage and based on the shop floor plan of the bus.

After bidding and securing a contract, we determine where it fits into our master production schedule. We then complete final engineering design typically 26 weeks prior to the bus for an order being started at our facility.

SEED engineering is completed at this stage and based on the shop floor plan of the bus.

Sorry, the plant layout of the bus we also finalized the seat structural attachment points in the wall and floors that are specific to those seats and unique to every bus built.

sorry, the planned layout of the bus. We also finalized the seat's structural attachment points in the wall and floors that are specific to those seats and unique to every bus built. Suppliers are given a lead time of up to 15 weeks prior to commencement of the first bus build to prepare for their delivery.

Suppliers are given our lead times up to 15 weeks prior to commencement of the first bus build to prepare for their deliveries.

We begin the manufacturing process with the steel frame than the exterior fiberglass. The roof followed by interior installations. This is where the seats are installed based on our pre engineered design. It is nearly impossible to switch an alternative supplier at this stage in the process given the engineering design and limited alternatives plus the fact that there are very few buy American compliant seat.

We begin the manufacturing process with the steel frame, then the exterior fiberglass, the roof, followed by interior installations. This is where the seats are installed based on the pre-engineered design.

It is nearly impossible to switch an alternative supplier at this stage in the process, given the engineering design and limited alternatives, plus the fact that there are very few Buy America compliant seat providers.

Seat providers.

Buses are inspected at our factory before they're shipped to customers where they go through another final inspection and then get put into service.

So moving to slide 12, we highlight our strong response to this seed issue and its current impact. We and our direct competitors have sent dedicated oversight and production resources to the supplier to support their people and their build process.

We were active in an intervention with the supplier where we pushed them to hire external operations consultant.

and to develop and execute on a recovery plan. They have also hired third-party labour to increase their manufacturing output. I will note that we are receiving some seating kits and shipping some affected buses, but we did not see an increase in the number of missing seats in October.

It is difficult to predict the duration of this transformation and impact, although we expect it to continue for at least the remainder of 2024, and there is risk that it may move into 2025.

During this time we are actively working with our customers to expedite advance payments for these essentially complete buses which will support our liquidity as we carry higher working balances in the short term.

Thank you.

We have also actively engaged a successful European seat supplier who currently builds for MCI in Alexander Dennis.

Speaker Change: to set up a Buy America Compliant seating production in the first half of 2025. We expect this will take some of the pressure off this challenge supplier and the overall supply of seats that are Buy America Compliant. I'll now turn it over to Brian Dewsnup to discuss the results in more detail and back to give you an outlook shortly.

Brian Dewsnup: Thanks, Paul. Picking up on slide 13, manufacturing gross margins for 2024 Q3 improved slightly over last year, even with the lower deliveries we experienced.

Brian Dewsnup: This is primarily driven by the fact that we completed our legacy inflation impacted contracts earlier this year.

Speaker Change: We continue to expect manufacturing margins will improve with significantly better pricing in our backlog, the increased contributions from ZEVs, and as we execute on production efficiencies.

Speaker Change: The aftermarket gross margin percentage was up quarter over quarter to twenty nine point six percent but down slightly year over year reflecting unique sales mix in the quarter.

Speaker Change: Slide 14 walks through year-over-year changes and adjusted EBITDA within our reporting segments. Manufacturing EBITDA was up by $31 million even with the lower deliveries reflecting the significant improvement in gross margins.

Speaker Change: Our aftermarket segment continues to deliver healthy EBITDA growth driven by sales volume and improved gross margins.

Speaker Change: Corporate adjusted EBITDA improved due to the positive impacts of FX. Contributions from our captive insurance business and lower incentive compensation improves.

Speaker Change: Turning to slide 15, you can see the LTM adjusted EBITDA for manufacturing and aftermarket from 2020 to 2024. Both segments have seen strong improvements even with the impacts of seat supply disruption.

Speaker Change: Aftermarket adjusted even achieved a record 136 million on an LPM basis and manufacturing has seen strong recovery from the lows of 2022 and 180 million year-over-year improvement with further growth projected in 2025.

Speaker Change: On slide 16, the company experienced a net loss for the period of $15 million, which was still a 62% improvement year over year. On an LTM basis, we saw an improvement of 91%.

Speaker Change: We've also provided a chart on this page that reconciles net loss to adjusted net loss, including normalization items that are detailed in our MD&A and press release.

Speaker Change: On slide 17, pre-cash flow was positive for the quarter versus a negative $43 million in the third quarter of 2023.

Speaker Change: We did have another quarter of working capital investment, reflecting the impacts of inventory growth. This was somewhat offset by increases in deferred revenues of $47 million, showing continued progress on our new customer payment structures.

Slide 18 is Inventory and Production Rates.

Speaker Change: In the quarter, seed disruption was the primary driver of inventory growth and lower line entries.

Speaker Change: We experienced a number of weeks of lower production as we managed working capital and focused on completing buses missing seats. In addition, we also had some production inefficiencies as we increased production of more complex ZEBs.

[inaudible]

Speaker Change: On slide 19, we recap our total leverage ratio and covenants which resume in the third quarter.

Speaker Change: You can see the significant decline in our leverage ratio on the chart from over 14.1 times in 2023 to 5.19 times in 2024 and we expect to get back to our targeted target level Target leverage ratio range of 2 to 2.5 times by the end of 2025 Well within our bank covenants which are shown on the chart

Speaker Change: During the quarter, we also advanced discussions with our banking partners and evaluating options for shifting debt balances into different instruments that may provide opportunities to both lower our total interest costs and increase overall liquidity. We will provide a further update on that front with our fourth quarter results.

Speaker Change: Liquidity and cash management remain a key focus as we navigate through the seeding headwinds and continue our production ramp-up. As Paul mentioned, we're actively securing additional customer prepayments and deposits. We've also secured improved payment terms from certain suppliers.

Speaker Change: Finally, in October we obtained a proactive temporary waiver from our banking partners that allows us to access the additional $50 million under our secured facilities.

Speaker Change: should we need it. We did this out of an abundance of caution as we do expect that our current liquidity combined with the additional customer payments will be sufficient to fund operations.

I'll now turn the call back to Paul.

Paul: Thanks Brian. At NFI we're absolutely frustrated with the seat situation.

Paul: but extremely proud of the year-over-year improvement, growth, and performance of our business. We are poised for a strong, continued recovery and growth in revenue, adjusted EBITDA, free cash flow, and net earnings.

Paul: Over the next few slides, I'll walk through a couple of key factors underpinning these observations and growth. On slide 22, we provide a summary of some of the key public demand metrics for North America.

Paul: We ended the quarter with total active bids for public customers at 8,759 equivalent units including 3,226 in bids that we've already submitted and another 5,500 of EU's that are bids that are actually in process.

Paul: which has increased from the second quarter of 2024. The black line on the chart overlays our awards versus the active bids. You can see the correlation between the bids in the light blue and the contract awards. We anticipate current bidding activity will help further grow our already record backlog.

Paul: Our five-year expected public bid forecast, which is compiled from published customers' fleet replacement plans, is up now to 20,690 EUs. This highlights a longer-term outlook driven by robust funding that we recap on slide 22.

Paul: Multi-billion dollar investments have been made in the U.S., Canada, and the U.K. to support transition to low- and zero-emission fleets and to address congestion in urban centers.

Paul: The U.S. is working through the Transformational Infrastructure Investment and Jobs Act, or IIJA, that is in place until 2026, with spending that will go beyond 2026 as vehicles are manufactured and delivered.

Speaker Change: In Canada, we've expanded their federal funding through a new $30 billion Canada public transit fund. Canadian federal level funding has been a significant driver of increased Canadian demand.

Speaker Change: The combination of existing Canadian backlog, alongside active vids and positive outlook from our customers, has helped us now launch our All-Canadian Transit Bus Build project.

Speaker Change: This will increase our Canadian productive capacity and competitive starting late in 2025 before reaching full run rates at the end of 2026. By adding capacity in Canada for Canadian customers, it also frees up capacity for more US customers that require Buy American production.

Speaker Change: The recently elected Labour government in the UK is continuing to fund existing programs that support zero-emission bus purchases.

Speaker Change: which also focusing on placing more investment into the hands of regional decision makers across the UK with a desire to ensure funding dollars provide broader benefits for UK industry and the UK economy.

Turning to slide 23.

Speaker Change: Based on our year-to-date performance, the impacts from the seat supplier disruption, and our anticipated fourth quarter, we have had to slightly adjust our 2024 financial guidance.

Speaker Change: We now expect to generate adjusted EBITDA between 210 million to 240 million from the revenues of 3.1 to 3.3 billion with 20 to 25 percent of those deliveries continuing to be zero emissions.

Speaker Change: While this is a decrease from our earlier guidance, it does represent 141 to 171 million year-over-year improvement in adjusted EBITDA.

Speaker Change: For our 2025 targets, we are actively completing our annual business plan for next year based on our typical process, but continue to see a strong path to delivering our target adjusted EBITDA of greater than $350 million for the year.

Speaker Change: The improvement in 2025 will be driven by significant increase in deliveries, with zero emissions representing approximately 40% of our volumes, improved growth margins, strong continued aftermarket performance, and improved orbit head absorption.

Speaker Change: We are assessing the impacts of seat disruption and the improved competitive environment in North American transit and other factors as we finalize this plan and as Brian mentioned we hope to provide or we will provide a detailed update after we close out 2024

Speaker Change: And we put it on and deliver it right. There's X number of installation hours and then in some cases customers have signed off on the bus quality subject to the seat installation and then they'll inspected onsite in some cases the customers said no I don't want to come see the buses inside your facility before you can ship them. So we've got a various buses at different stages of that there is no.

Speaker Change: <unk> customer inspection and approval by the customer is also one of the pacing factors, it's not like a tail light we put it on the bus and ship. It there is going to be variation in that pace. That's again part of the dynamic of the wide range.

Speaker Change: The fourth quarter guidance.

Speaker Change: Paul I think it's fair to say that complexity of seats relative to some of the stuff. We had yes, because it was a wiring harness yes, yes, much better question for ceded.

Okay.

Speaker Change: Then maybe just looking back at your I'd just like to ask this question.

Speaker Change: Looking back at the challenged suppliers I know, we've talked about wiring harnesses seats I think for a good chunk of the year.

Speaker Change: You did you did mentioned that of the two kind of.

Speaker Change: Majorly impacted suppliers. The ceasefires, one could you just give us a little color on who the other one is and is there anything.

Speaker Change: There are that could create an issue of this magnitude.

Speaker Change: I don't believe so.

Speaker Change: As you May remember, Chris in some of the people the investors have been through a facility we have different types of inventory labeled as different things and so we have discrete part number bus number of parks that are dedicated to that vehicle. We have common parts that are new flyer Mci part numbers that can be potentially universal and then we have can ban or.

Speaker Change: Assembly type parts nuts, bolts, washers and those kind of things.

Speaker Change: We were in the middle of a transfer from a supplier to supplier b to take track of all the kanban systems and that did not go quite as planned some of it are doing some of it the translation and the implementation by our supplier.

Speaker Change: That's pretty well solved and will be solved over the next couple of weeks. It has some impact on a few line entries that we had to delay or change, but it is nowhere near the ramification of building a bus with having those seats are having no wiring harness.

Speaker Change: The irony of the whole thing is that we.

Speaker Change: We're way better in terms of points at use of inventory as a percentage rate is up to 96 or 97 or wherever it is percent of parts and station. The downside is something like seats, whether it's a partial seat apart off of a six or a full ships that you cannot ship the bus to the customer and therein lies.

Speaker Change: The long pole in the tent, we're beefing up our supplier vendor and vendor development team yet again, we added a bunch of people, we're adding more to it to make sure. We don't get caught off guard in this situation. We were there. We saw we had people on ground and only after a while we had felt because it wasn't getting any better. We felt we had a forced ourselves and have some kind of a consultant.

Speaker Change: And personal intervention into that business, we cannot afford them to get that much behind behind schedule again.

Okay.

Speaker Change: My other question is just thinking about like the 2025 year longer term guidance irrespective of the seats and it kind of feels like.

Speaker Change: Call it six to eight weeks away from our solution.

Speaker Change: But when you think about the 2025 guide I think you made the comment that even when you set the guide.

Speaker Change: <unk> was a bit of a different place.

Speaker Change: Then it is today and a lot of ways a lot of things have gone maybe more in your favor than not.

Speaker Change: Can you talk about how youre thinking about the 2025 guide maybe.

Speaker Change: Maybe what's a little bit better than you would've originally thought when you shut that first guide.

Speaker Change: What's changed and.

Speaker Change: What kind of what kind of thoughts you are having about.

Speaker Change: Production rates.

Speaker Change: And I mean, you talked about your investment in the <unk> and.

Speaker Change: In the business to give you more capacity in Canada, but is there anything else like that that would likely have maybe grow beyond what you would consider the normal historical rate.

Speaker Change: Sure I'll start it off just by context, and then Brian can give you a little bit more color on the individual elements.

Brian Dewsnup: Conversion to zero emission vehicles, well, we all get intuitively what that means is in order of magnitude more complex on the production lines are Hell every way through the design the sourcing the production the commissioning of electric buses, even the acceptance at the customer location.

Brian Dewsnup: In addition to the line rates that are critical for that the mix of of zero emission versus ice buses is another issue. The third issue that is going to play into US next year and we haven't finalized our schedule is the mix between a 40 foot bus and an articulated bus that has to have someone that has a propulsion system and the other which has basically that.

Speaker Change: Driver's compartment and so all of those things add to the complexity of the schedule and the mixed dynamics. So Bryan maybe some color on Chris's question.

Brian Dewsnup: Yeah. Thanks, Thanks, Chris just you know when you talk about.

Speaker Change: Positive and negatives I would say.

Speaker Change: Where we are now the backlog and the order book has been a very very nice surprise not necessarily surprised but the situation in North America, the competitive environment and the margins in North America, we've seen improvement aftermarket business and the strength there is something that is.

Speaker Change: We really like as a positive.

Speaker Change: We do have more experience now with Cigna.

Speaker Change: Significant volumes that we've put through we've got more experience in the field we've got.

Speaker Change: I'll call it smarter customers, who have them and know how to service them a little bit better now.

Speaker Change: We have the Alexander Dennis vehicle launches EV vehicle launches largely behind US now for a couple of platform. So we've got those vehicles beginning to enter service and then the increased capacity in Canada as well like all of those are positives and point to a pretty good future.

Speaker Change: Couple of lingering concerns.

Speaker Change: One the U K and bid environment, its a pretty competitive environment.

Speaker Change: And we see that continuing maybe a little bit more competitive than we would've thought and then of course the supply environment.

Speaker Change: Five years on from Covid, we would have expected that.

Speaker Change: Suppliers that have been with us for 20, plus years, where we quote unquote and never had a problem, we see a problem, particularly with seats today.

Speaker Change: And so that environment, maybe isn't exactly where we want it to be so that's kind of a balance between the positives and negatives that we see and as Paul mentioned, we're working through what's a prudent line rate and what's the what are the result.

Speaker Change: Kind of financials around that that loan rates.

Speaker Change: Okay I'll leave it there thanks so much.

Speaker Change: Thank you Chris.

Speaker Change: Your next question comes from the line of Christof risen with CIBC. Please go ahead.

Speaker Change: Hi, Thanks for taking my question.

Speaker Change: Maybe we can just speak on.

Okay.

You practically.

In that way.

Speaker Change: The scenario analysis that you ran where you need that waiver on the $50 million is that.

Speaker Change: Is that if this seating supplier essentially declares bankruptcy or how bad would it have to get for you to netease flavor.

Speaker Change: Yes, I think early on as we went into assess the seating supplier. The more we got in there the more kind of concern and downside concern that we had now where we are today. We're smarter we have actually our people embedded in so we have more confidence in the recovery than we might have had.

Speaker Change: But when we felt the need to go secure the waiver we didn't have as much information.

Speaker Change: It's prudent to plan for not necessarily the worst case scenario, but as we looked at some of the downside.

Speaker Change: We wanted to be a good partner with our lenders and as we have the discussions with them about some disruption.

Speaker Change: We just kind of collectively thought it was prudent so that we could go out and have access to that in the case that we didn't we weren't able to secure Myles.

Speaker Change: Milestone payments from customers and some of the other things that we've been working on so our expectation is that we won't need to use it but.

Speaker Change: And in an abundance of caution we went out and made sure we communicated with our lending partners. So that they were aware and they've been extremely supportive and cooperative.

Speaker Change: You've seen a couple of things that we've talked about that they were they have been supportive and they continue to believe in the business and in.

Speaker Change: And the bright future we have ahead.

Speaker Change: Chris I'll add another comment that maybe isn't as intuitive to a normal manufacturing business. Because we are highly customized we've let a certain production schedule. We know the parts that we're behind from the seat supplier.

Speaker Change: <unk> seat supplier starts to deteriorate, obviously, we don't want to build more and more product that sits against the fence. So we adjust the production schedule. The downside is if were within about a six to nine week window. Most of the parts are coming to us anyway for the rest of the bus so inevitably any changes to working capital to the line entry rate has not only cost.

Speaker Change: Nonproductive labor, but has effectively parks coming in that we're not going to use for a longer window.

Speaker Change: So to Brian's point, having the liquidity or the interest cover flexibility should we need it just gives us that more security and quite frankly, given some of the challenges over the past couple of years, we'd much rather have that positive mature advanced conversation with the lenders than under duress, saying, Holy smokes and either waiver tomorrow should I D.

Speaker Change: And that was really the intent I think the lesson learned from last time really try and get out in front of these things.

Speaker Change: That makes sense.

Speaker Change: Just if I could ask I know you've been asked this question on previous conference calls, but given the verbiage around the.

Speaker Change: Around the liquidity, where you mentioned.

Speaker Change: You have access to capital markets.

Speaker Change: Is there any intention to issue equity or are you pretty firm in our belief that that youre not going to go that direction.

Speaker Change: So.

Speaker Change: We are we have no intention unequivocally today to want to do that.

Speaker Change: We believe that we will solve this seat issue it may take shorter or longer than we thought we believe that we will be able to relieve the inventory some of which we've got some had been advanced payments for some of which we've asked customers now not to have terms. So that once we delivered they pay us real time some of the agreed to that and some will go to normal terms. We also believe that we have.

Speaker Change: Planned for at a much more stable schedule as we move into 2025, we have no intention of issuing equity. We believe that we can manage our way through that with the existing profile. The change earlier this year that I just can't stress enough. When we got support from App to our trade Association, but also the FTE in the White house around what they called <unk>.

Speaker Change: Contracting terms that allowed for clarity on milestone payments has been an absolute game changer for our business now most of those advanced milestone payments. Unfortunately have helped US finance this crazy situation with seats, but that is a net positive to our business going forward, where the vast majority of contracts we're bidding on right now.

Have milestone payments embedded them and as I said before in my statement, where we find ourselves in a probability of one or maybe no no only two bidders, we're all asking for milestone payments and therefore, they are becoming far more commonplace than they were when we even had before and that has fundamentally changed the current but also the future of work.

Speaker Change: Capital profile of our business the non honor.

Speaker Change: Unearned revenue that we have today and what we expect in the future is a material number.

Speaker Change: And I'll just add to that.

Speaker Change: As we continue to see the leverage ratios come down we're no longer talking about.

Speaker Change: <unk> being five leverage ratio of five and a couple of quarters. We're there right now we continue to project that to come down so as that continues to come down too.

Speaker Change: We would expect it to be we will have access to other kind of debt instruments and things like that so we're definitely moving into the zone, where even if we were to need some additional liquidity we're hearing more.

Speaker Change: In much better shape with the actuals and we're not talking about a <unk>.

Speaker Change: Six months or so we're talking about the here and now with some of the some of the leverage ratio improvement.

Speaker Change: Okay, that's really helpful.

Speaker Change: And then maybe just on the.

Speaker Change: The milestone payments sounds like a lot of progress is being made there I think I read a few weeks ago that.

Speaker Change: La Metro is.

Speaker Change: Is adopting some of these recommendations for less customization on the buses as well are you seeing that from other municipalities.

Speaker Change: So it's a really good question.

Speaker Change: So we got to the task Force mission a number job one was to deal with milestone payments job two is to deal with some clarification and standardization of clauses that we're far more balance like price determination redetermination mechanisms in periods of hyperinflation, so forth the third leg on that whole priority.

Speaker Change: Was this customization.

Speaker Change: And so the first thing that happened is the FTA grants for 2020, 440 emission or for infrastructure charging infrastructure part of their scoring criteria was based on minimized customization. So we've now started to see a lot more customers think that way when they're issuing their rfps were start to see more customers like.

Speaker Change: L. A that are being vocal about trying to get regional operators to have much more common fleets.

Speaker Change: Now that that is not a light switch remember we've got a backlog that is based on a number of years of bidding that had customization. So it's not like it's going to impact.

Speaker Change: 24, or 25 that much but it is no question going to change the game, we think 'twenty six 'twenty, seven where we'll never get to peer standardization, but we might get closer to configuration than pure unadulterated customization. It's all net positive for the health of our business and our industry, but it's not a light switch.

Speaker Change: <unk>.

Speaker Change: Okay. That's great. Thank you I'll jump back in thank you.

Christa: Thank you Christa.

Speaker Change: Your next question comes from the line of <unk> with Stifel. Please go ahead.

Speaker Change: Sorry, just to add a little bit to that as well I think the average backlog is largely just the dynamics of the market is North America phenomena and most of our order book in the transit business is full for 2025 at this point. So a lot of the margin improvement and things may be reflected in 2026.

Christa: More so than 2025, just to keep that in mind.

Speaker Change: Got it and then with respect to this year I mean.

Speaker Change: Obviously, the <unk> is the big issue, but you did mentioned the complexity of the CEB.

Speaker Change: Whats coming through in the next quarter here and into 'twenty five.

Speaker Change: You realizing the same margin that you would've expected on those buses or is that complexity really bringing down the profitability of those buses compared to what you thought.

Speaker Change: How much of that might be impacted in that type.

Speaker Change: That guidance reduction like.

Speaker Change: 85% of its seats. So I don't yes, it's the vast majority is supply disruption as opposed to the time or complexity of US building a zero emission and we've built a bunch of them now right. So we're well up the learning curve.

Speaker Change: We don't have really anything wildly new for example on the Mci or the new Flyer side, we have more zero emission next year, we have more hydrogen fuel cells on the Alexander Dennis side, we still have some learning curve as we've now transitioned basically two of the platforms and the third one is coming online and then the fourth as they go to the zero emission platforms, but I would say.

Speaker Change: The disruption in the guidance adjustment is a direct correlation of <unk>.

Speaker Change: Seat dynamic specifically as it relates to what happened to us in Q3 with a little bit of stunted deliveries and as we now introduced a wider range for the fourth quarter.

Speaker Change: Got it and then just one last one on the balance sheet.

Speaker Change: The last couple of quarters, you've talked about the potential to maybe term out some of your higher cost debt.

Speaker Change: Does that effectively off the table given.

Speaker Change: Alright, yes off the table until you kind of get through the seating issues are or is there still an option to continue advancing that that restructuring of the some of the notes.

Speaker Change: We continue to have some really good discussions with our banking syndicate and other lending partners right now we're really evaluating.

Speaker Change: Our current year financials as it was pointed out earlier, we have a fairly wide range.

Speaker Change: In Q4, and so as we look to narrow that range and get closer to the end of the quarter, It's really more about timing and when is the optimal timing to go have to go to.

Speaker Change: To market, so that we can realize the material savings and interest and whether thats.

Speaker Change: Q1, or Q2 of next year.

Speaker Change: Unsure at this point and I think we committed to give you an update with Q Q4 earnings release in a few months.

Speaker Change: Okay, great. Thanks sure.

Joe: Okay. Thanks, Joe.

Speaker Change: Your next question comes from the line of Cameron Jackson with National Bank Financial. Please go ahead.

Cameron Jackson: Number three the infrastructure investment and jobs Act is currently in place until 2026 and funding from that Act.

Speaker Change: He is currently and will be continued to use to purchase a 27% 28 builds.

Cameron Jackson: It's hard to stay at this stage, what the new administration's post Iga a funding might look like.

Cameron Jackson: Although our industry generally believes there is an expectation there will be continued bipartisan support for transit.

Cameron Jackson: Now as we are in a situation of a very strong funding we've seen a lot of agencies pushing to get their rfps out on the street and get contracts in place prior to 2026 and so.

Cameron Jackson: I think we rattled off and here the number of active bids we have the number of bids already submitted and the number of units in our bid universe, which again reflects fleet replacement plans are.

Cameron Jackson: Are reflective of what Theyre currently thinking.

Cameron Jackson: I talked a little bit I think in Chris's question about the healthy contracting rules, which have made a better.

Cameron Jackson: Mr. Trump is pro business it provide a better environment for our industry in terms of pricing pricing mechanism has been adjustments and inappropriate things. The other thing that I'll comment is.

Cameron Jackson: If somebody hypothesis that Mr. Trump will not be as green in his outlook does that may be the case, but thats part of the reason we chose to be propulsion agnostic. We've seen a number of competitors recently go out of business or changed.

Cameron Jackson: Changed dramatically, where they only have a zero emission offering we've chosen to be agnostic and continued ice electric sorry diesel clean diesel natural gas, we have seen an uptake in the last little while of hybrids people getting closer to zero emission and then of course, we're seeing strong zero emission and fuel cell. So.

Cameron Jackson: Our ability to kind of continue to provide whatever they need depending on their funding or their political environment. We think helps safeguards a little bit as opposed to people that are only zero emission but.

Cameron Jackson: Who knows what Mr. Trump administration might do right now Theres a lot of funding in place that will help only build our order book for the next couple of years.

Speaker Change: Okay. That's good color and just on the mechanics, I guess of how the bus orders are funded.

Speaker Change: That in your backlog both firm and options.

Speaker Change: That already appropriated money I E. It could not be clawed back in this area because it's already been appropriated by Congress.

Cameron Jackson: That is my understanding kamran.

Cameron Jackson: <unk>.

Speaker Change: With the New administration I guess the uncertainty is never we really don't know what he could or might want to do but our understanding is to put out an RFP that customer has to have secured appropriate funding and so therefore, they're not just fishing for pricing when we see it that theyre actually.

Speaker Change: Planning to buy those buses and have the ability through those contracts new mechanisms to exercise the options.

Speaker Change: Okay. That's good and just maybe final one on I guess this issue just a just around potential tariffs that might come up.

Speaker Change: How would that potentially affect your business.

Speaker Change: So we've been doing a little bit of work on trying to understand the impacts of tariffs.

Speaker Change: Yes.