Q2 2025 NFI Group Inc Earnings Call

Ladies and gentlemen, thank you for standing by and welcome to NFI second quarter, 2025 Financial results. Call

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Please be advised that today's conference is being recorded and I would now like to turn the conference over to Stephen King, sir. Please go ahead.

Stephen King: Thank you, Michelle. Good morning, everyone, and welcome to NFI Group's 2025 second quarter conference call. Joining me today are Paul Soubry, President and Chief Executive Officer, and Brian Dewsnup, Chief Financial Officer. On today's call, we will give an update on our quarterly results, highlighting year-over-year improvement across numerous financial metrics, the strong demand environment for our products and services, and another increase to our backlog. We will also provide an update on the various non-recurring and unusual items that impacted the quarter and recap our outlook. This call is being recorded, and a replay will be made available shortly. We will be referring to a presentation that can be found in the Financials and Filings section of our website. As we move through the slides via the webcast link, we will call out the slide number for those on the phone.

Thank you, Michelle. Good morning, everyone, and welcome to NFI Group Inc.'s 2025 second quarter conference call. Joining me today are Paul Soubry, President and Chief Executive Officer, and Brian Dewsnup, Chief Financial Officer.

On today's call, we will give an update on our quarterly results, highlighting year-over-year Improvement across numerous Financial metrics the strong demand environment for our products and services and another increase to our backlog.

We'll also provide an update on the various non-recurring and unusual items that impacted the quarter and recap our outlook.

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

We will be referring to a presentation that can be found in the financials and filing section of our website.

Stephen King: On slide two, we provide our cautionary or forward-looking statement and note that certain financial measures referenced today are not recognized earnings measures and do not have standardized meanings prescribed by International Financial Reporting Standards, or IFRS. We advise listeners to view our press releases and other public filings on SEDAR for more details. In the appendix of this presentation, we have provided a list of key terms and definitions that will be used on today's call. A reminder that NFI statements are presented in U.S. dollars, our reporting currency, and all amounts referred to are in U.S. dollars unless otherwise noted. Slides three and four provide a brief overview of our company. NFI is a global, independent bus and motorcoach mobility solutions provider. We offer a wide range of propulsion-agnostic buses and coaches on proven platforms, and we hold leading market share positions in transit and coach markets.

As we move through the slides via the webcast link, we will call out the slide number for those on the phone.

On slide 2, we provide our cautionary or forward-looking statements and note. That certain Financial measures reference today are not recognized earnings measures and do not have standardized meanings prescribed by International financial reporting standards or IFRS.

We advise listeners to view our press releases and other public filings on cedar for more details in the appendix of this presentation. We have provided a list of key terms and definitions that will be used on today's call.

A reminder that NFI statements are presented in US, Dollars our reporting currency and all amounts referred to are in US Dollars. Unless otherwise noted

Stephen King: More detailed information is available on our website. Slide five provides some brief insights into enterprise products, a geographic mix, and other milestones. I will now pass the call over to Paul to provide an overview of enterprise results for the second quarter.

Slide 3 and 4 provide, a brief overview of our company. NFI is a global independent bus and motor coach Mobility Solutions provider. We offer a wide range of propulsion, agnostic buses, and coaches on proven platforms and we hold leading market share positions in transit and Coach markets.

More detailed information is available on our website.

Slide 5 provides some brief insights into Enterprise products and Geographic, mix and other milestones.

Paul Soubry: Thanks, Stephen. Good morning, everybody. Thank you for joining us today. The second quarter was another strong continuation of our recovery, and we are very excited to continue to see this momentum as we move through the remainder of this year. It was a busy quarter across our business as we successfully completed the refinancing of our first and second lien debt. We announced the consultation process for our Scottish manufacturing operations. We worked with our customers in supplying our navigating the constant changing U.S. tariff dynamics. We lowered our inventory of incomplete buses missing seats that were as a result of improved seat supply. Today's call will discuss these events and highlight a number of non-recurring impacts we experienced in the quarter. Brian will give you quite a bit of detail. I am on slide seven now, and it is a summary of our Q2 results.

I will now pass the call over to Paul to provide an overview of nfi's results for the second quarter.

Thanks Stephen. Good morning everybody. Thank you for joining us today. Second quarter was another strong continuation of our recovery and we expected or very excited to continue to see some momentum as we move through the remainder of this year.

It was a busy quarter across our business as we successfully completed the refinancing of our first and second lien debt. We announced the consultation process for our Scottish manufacturing operations, and we worked with our customers in navigating the constantly changing U.S. tariff dynamics. We lowered our inventory of incomplete buses missing seats that were a result of improved seat supply.

So today's call will discuss these events and highlight a number of non-recurring impacts. We experienced in the quarter, Brian will give you quite a bit of detail.

Paul Soubry: Starting with demand, in the first quarter, we recorded new orders of 822 EUs, with 95% of them being firm orders. This highlights the continued strength in the demand, driven by supportive government funding both in Canada and the United States. Our total backlog, comprised of firm orders and options, now totals 16,198 equivalent units, worth $13.5 billion U.S. dollars. Our Q2 LTM book-to-bill ratio was 119.9%, and our option backlog conversion rate remains steady at 74.9% on an LTM basis. The strength in our demand metrics is primarily driven by North American public transit and public motorcoach operators. Our Q2 2025 results also demonstrate a positive trajectory with a 19% year-over-year increase in quarterly adjusted EBITDA, a $7.6 million improvement in adjusted net earnings, and a 7.9% increase in return on invested capital.

Our total backlog comprised of firm orders and options. Now, total 16,198 equivalent units worth 13.5 billion US dollars.

Our Q2 LTM book to Bill ratio was 119.9% and our option backlog conversion rate remains steady at 74.9% on an LTM basis. The strengthen our demand metrics is primarily driven by North American public transit and public motor coach operators.

Paul Soubry: On the bottom of the slide, you can see our total liquidity is now at $326.7 million, with a significant increase driven by our recent refinancing, which Brian will recap again later on this call. One other significant item during the quarter was our announcement that Alexander Dennis had launched the required government formal consultation process with the government partners, the union partners, and our other stakeholders focused on consolidating production facilities in the U.K. to lower our overall manufacturing costs of Alexander Dennis. The driver for this activity is the rising number of U.K. and Scottish bus procurements being awarded to non-U.K.-based bus OEMs, and primarily from China. These importers have a significant cost advantage relative to domestic U.K. manufacturers as there was no requirement to support the local economy nor create or retain local jobs.

Our Q2, 25 results, also demonstrate a positive trajectory with a 19% year-over-year increase in quarterly. Adjusted Eva a 7.6 million Improvement. In adjusted net earnings and a 7.9% increase in return on invested capital.

On the bottom of the slide, you can see our total liquidity is now at $326.72 million.

1 other significant item during the quarter was our announced our announcement that Alex Senator. Dennis had launched the required government formal consultation process with the government Partners, the union partners and our other stakeholders focused on consolidating production facilities in the UK to lower our overall manufacturing costs of Alexander. Dennis

The driver for this activity is the rising number of UK and Scottish bus procurements. Being awarded to non-uk based bus oems and primarily from China.

Paul Soubry: We are working closely with the government partners in both Scotland and England to address this uneven playing field and remain optimistic that there will be increased focus on domestic manufacturing in upcoming competitions, and specifically where taxpayer funds are involved in those procurements. While those government discussions continue, we are focusing on Alexander Dennis's cost to improve our competitiveness. We feel that actions that we have taken and that are continued to work on through this consultation will leave us in a much better position for 2026 and beyond. Slide eight shows our supply chain health from the end of 2020 until now, highlighting our high impact, high, and moderate risk suppliers. We currently have just one company, it is the same seat company we have had for a while, that we consider high risk, high impact.

These importers have a significant cost advantage relative to domestic UK manufacturers, as there was no requirement to support the local economy nor create or retain local jobs.

We are working closely with the government Partners in both Scotland and England to address this uneven playing field and remain optimistic. That there will be increased focus on domestic Manufacturing in that in upcoming competitions and specifically where taxpayer funds are involved in those procurements.

While those government discussions continue, we are focusing on Alexander Dennis's cost to improve our competitiveness. We feel that the actions we have taken, and that we are continuing to work on through this consultation, will leave us in a much better position for 2026 and beyond.

Paul Soubry: This is down from the peak of 50 concerned suppliers, high-risk suppliers in 2022. This supply performance reflects the fantastic and ongoing work of our sourcing, procurement, and supplier development teams, who are actively working directly with suppliers to improve delivery performance to our facilities. Slide nine provides an update specifically on this seat disruption supplier, or this disrupted supplier. We have seen progress over the past few months with a number of New Flyer buses built yet missing seats now down to 56 as of July 18th. This is a sharp decrease from the peak in November and a decrease from when we started reporting this issue last May. The supplier is still working on their recovery plan, and we will continue to maintain active and deep engagement until the situation is fully resolved.

Flight 8 shows our supply chain Health from the end of 2020 until now highlighting our high impact and high and moderate risk suppliers. We currently have just 1 company. It's the same seat company. We've had for a while that we consider high-risk high impact. This is down from the peak of 50 concerned suppliers high-risk suppliers in 2022.

This Supply performance, reflects the fantastic and ongoing work of our sourcing procurement and supplier. Development teams were actively working directly with suppliers to improve delivery performance to our facilities.

Slide 9 provides updates on this specifically, on this seat disruption supplier or this disrupted supplier.

We've seen progress over the past few months with a number of new flyer. Buses built yet, missing seats now down to 56 as of July 18th,

Paul Soubry: As we reported before, a new Buy America compliant seat supplier began delivering seats to our production lines during this quarter. We expect them to ramp up their deliveries through the second half of the year, which now gives the market three seat suppliers helping to diversify risk going forward for this critical safety component on a bus. It also lowers our reliance on the challenge supplier as we increase our production rates. I will turn it now over to Brian Dewsnup to discuss our results in more detail. Over to you, Brian.

This is a sharp decrease in the peak in November and a decrease from when we started reporting this issue, last May the supplier is still working on the recovery plan and we will continue to maintain active and deep engagement until the situation is fully resolved.

As we reported before a new buy America, compliance seat supplier began, delivering seats to our production lines during this quarter. We expect them to ramp up their deliveries, through the second half of the year, which now gives the market 3 seat, suppliers, helping to diversify risk going forward for this critical safety component on a bus. It also lowers our Reliance on the challenge supplier, as we increase our production rates,

Brian Dewsnup: Thanks, Paul. I'm now on slide 10. We will quickly recap the recent refinancing transactions that we completed in the second quarter. We now have a new four-year first lien facility with $700 million in total borrowing capacity. This secured facility replaced and consolidated our previous North American and U.K. facilities into one and was completed with a syndicate of 10 supportive banks. In June, we announced the completion of our new five-year $600 million second lien notes. This was our first ever issuance of high-yield debt in the U.S. market, and we were pleased to see strong demand for the notes from American, Canadian, and U.K. debt holders. Through this process, we received our first ever credit rating, obtained a double B minus rating from S&P Global and a B1 from Moody's. Both agencies commented on our stable outlook and potential upside from backlog execution and deleveraging.

I'll turn it now over to Brian. Dip to discuss our results in more detail. Over to you Brian.

Thanks Paul. I'm now on slide 10, we'll quickly recap. The recent refinancing transactions that we completed in the second quarter.

We now have a new 4 year. First lean facility with 700 million, in total borrowing capacity.

This secured facility replaced and consolidated our previous North American and UK facilities into one and was completed with the Syndicate of 10 supported banks.

In June, we announced the completion of our new 5-year, 600 million second lean notes. This was our first ever issuance of high yield debt in the US market and we were pleased to see strong demands through the notes from American Canadian and UK debt holders.

Brian Dewsnup: Net proceeds from the 2025 second lien debt were used to fully repair our existing higher interest second lien facility, a portion of the 2025 first lien facility, and other existing debt fees and issuance expenses. The goal of these new facilities was to provide greater visibility, increase liquidity, improve covenants, and lower our interest expense. We are targeting liquidity north of $50 million, which, as Paul mentioned, is already at $326.7 million and a total leverage ratio, including all debt, 1.5 to 2.5. On slide 11, I want to explain the impact of several non-recurring and unusual expenses that impacted our second quarter earnings. As you can see on the chart, we reported a quarterly net loss of $160.8 million with a loss per share of $1.35, which normalizes to adjusted net earnings of $10.7 million or $0.09 a share.

Through this process. We received our first ever credit rating contained a double B, minus rating from SNP, and a B1 from Moody's. Both agencies commented commented on our stable, Outlook and potential upside from backlog, execution and deleveraging.

Interest second lean facility. A portion of the 2025 first lean facility and other existing debt fees and issuance expenses.

the goal of these new facilities was to provide greater visibility increased liquidity, improved covenants and lower our interest expense,

We're targeting liquidity north of...

15 million which is Paul mentioned, is already at 326.7 million and a total leverage ratio, including all debt, 1.5 to 2.5.

On slide 11. I want to explain the impact of several non-recurring and unusual expenses that impacted our second quarter earnings

Brian Dewsnup: We have categorized the major items, which I will summarize. Starting with the 2025 refinancing, it had the following impacts, all of which are net of tax: a $7.5 million early repayment fee associated with the 2023 second lien facility, a non-cash loss of $29.8 million on debt extinguishment associated with the refinancing activities undertaken in 2023, and a net unrealized gain of $9.9 million related to prepayment options in the second lien debt. The planned restructuring at Alexander Dennis in the U.K. resulted in a $10.2 million restructuring provision for employee reductions, a $10 million non-cash goodwill impairment, an associated $80.9 million non-cash intangible asset impairment, a $4.3 million non-cash impairment of property, plant, and equipment, and a $34.4 million write-down of deferred tax assets for the derecognition of tax assets associated with the Alexander Dennis U.K. operations.

As you can see on the chart, we reported a quarterly, net loss of 160.8 million with a loss for share of a dollar, 35, which normalizes to adjust adjusted net earnings of 10.7 million or 9 cents a share.

We've categorized the major items, which I will summarize.

Starting with the 2025 refinancing.

It had the following impacts of which your net of tax.

A $7.5 million early repayment fee associated with the 2023 second lien facility, a non-cash loss of $29.8 million on debt extinguishment associated with the refinancing activities undertaken in 2023, and a net unrealized gain of $9.9 million related to prepayment options in the second lien debt.

Brian Dewsnup: The impairments and the tax write-down reflect downward revisions to the longer-term financial projections for Alexander Dennis. Separately, we also had a $6.7 million adjustment related to seat supplier disruption, reflecting the impact on manufacturing labor and overhead and the impact of liquidated damages from certain customer contract delays. Our adjusted net earnings of $10.7 million is an improvement of $7.6 million or 245% from our 2024 Q2. On slide 12, we recap quarterly deliveries. Transit deliveries were primarily down due to lower U.K. deliveries, reflecting the competitive market environment. In North America, deliveries were up year over year, but were still negatively impacted by seat supply disruption. Coach deliveries were down due to lower private sector deliveries in the quarter, mostly related to timing, with expectations of a strong second half of the year, which is consistent with the seasonal nature of the business.

The plan of restructuring at Alexander. Dennis in the UK resulted in a 10.2 million restructuring Pro. Provision for employee. Reductions a 10 million non-cash Goodwill impairment, and Associated 80.9 million. Non-cash, intangible asset impairment a 4.3 million non-cash. Impairment of property, plant and equipment and a 34.4 million write down of deferred tax assets for the derecognition attacks. Assets associated with the Alexander Dennis UK operations,

The impairments and the tax. Write down, reflect downward revisions to the longer term, Financial projections, for Alexander. Dennis.

Separately. We also had a 6.7 million dollar adjustment related to seat supplier, disruption reflecting the impact on manufacturing labor and overhead in the impact of liquidated damages from certain customer contract. Delays.

Our adjusted net earnings of 10.7 million is an improvement of 7.6 million or 245% from our 2024 Q2.

Slide 12, we recap quarterly deliveries.

Transit deliveries were primarily down to the lower UK, with deliveries reflecting the competitive market environment.

In North America, deliveries were up year-over-year but we're still negatively impacted by seat Supply disruption.

Coach deliveries were down.

Brian Dewsnup: Reflecting our improved backlog, we experienced a 27% year-over-year increase in the average selling price for heavy-duty transit buses and a 20% increase in average coach selling price. We had another record quarter for low-floor cutaway bus deliveries with 197 equivalent units, which is up 30% year over year. The average selling price was up 10%, with demand for the product continuing to be strong. Turning to slide 13, aftermarket services saw a slight decrease in Q2 with gross margins of 26.4%. This was down year over year, reflecting a unique sales mix and an expected reduction in program-related revenue in North America. A reminder that customer program revenue was elevated in 2024, driven by certain large-scale midlife retrofit projects. In the manufacturing segment, gross margins saw an increase year over year, going from 8% to 10.6%, even with lower total deliveries.

Due to lower private sector deliveries. In the quarter, mostly related to timing with expectations of a strong second, half of the year, which is consistent with the seasonal nature of the business.

Collecting our improved backlog. We experienced a 27% year-over-year increase in the average selling price for heavy duty transit buses and a 20% increase in average coach selling price.

We had another record quarter for low-floor, cutaway bus deliveries with 1977 equivalent units, which is up 30% year-over-year. The average selling price was up 10% with demand for the product continuing to be strong.

Turning the slides 13.

Aftermarket saw a slight decrease in Q2, with gross margins of 26.4%. This was down year-over-year, reflecting a unique sales mix and an expected reduction in program-related revenue in North America. A reminder that customer program revenue was elevated in 2024, driven by certain large-scale midlife retrofit projects.

Any manufacturing segment.

Brian Dewsnup: This reflects an improving backlog profile flowing through quarterly results in a geographical mix with lower U.K. deliveries. Slide 14 walks through year-over-year changes in adjusted EBITDA with our reporting segments. Manufacturing EBITDA was up by $18.6 million, reflecting favorable sales mix and improved pricing. Similar to our previous quarter, an adjustment was made to recognize the adverse impact associated with seat supply disruption in North America. Our aftermarket segment saw a decline in EBITDA, driven by reduced sales volume, primarily from the North American program revenue, as previously discussed. Corporate adjusted EBITDA declined by $2.8 million, primarily due to negative impacts of foreign exchange, including a lower U.S. dollar and higher SG&A expenses. Turning to slide 15, you can see LTM adjusted EBITDA for both manufacturing and aftermarket segments from 2021 to 2025. Both segments have seen strong improvements.

Of course, margins increased year-over-year, going from 8% to 10.6%, even with lower total deliveries.

This reflects an improving backlog profile flowing through quarterly results in a geographical mix with lower UK. Deliveries.

Slide 14 walks through year-over-year changes and adjusted ibida.

With our reporting segments, the manufacturing unit was up by $18.6 million, reflecting favorable sales, mix, and improved pricing, similar to our previous quarter. An adjustment was made to recognize the adverse impact associated with seat supply disruption in North America.

our aftermarket segments are a decline in ibida driven by reduced sales volume primarily from the North American program Revenue as previously discussed,

Higher sgna expenses.

Turning the slide 15.

Brian Dewsnup: Our manufacturing segment recovery has been especially notable with a $109 million improvement year over year on an LTM basis. On slide 16, free cash flow was positive with a strong increase driven by many of the same items that impacted adjusted EBITDA. We invested $44.2 million in working capital in the quarter, driven by higher accounts receivable and finished bus inventory. This was offset by increases in deferred revenue associated with milestone payment structures now in place in North America Transit and Public Coach. I'll now turn the call back to Paul to discuss our outlook.

You can see LPM-adjusted IBA for both manufacturing and aftermarket segments from 2021 to 2025. Both segments have seen strong improvements; our manufacturing segment recovery has been especially notable, with a $109 million improvement year-over-year on an LTM basis.

On slide 16.

Free cash flow was positive with a strong increase during by many of the same items that impacted adjusted Ava.

We invested 44.2 million in working capital in the quarter driven by higher accounts receivable and finish less inventory. This was all set by increase increases in deferred revenue, associated with Milestone payment structures. Now in place in North America Transit and public coach.

Paul Soubry: Thanks, Brian. I am now on slide 18. As we look at the rest of 2025 and beyond, we project that NFI will continue to grow revenue, gross profit, adjusted EBITDA, free cash flow, return on invested capital, and net earnings. I will walk you through some key factors underpinning this continued momentum and our expected growth and comment on the key risk factors in our operating environment. On slide 18, we had 822 EUs in the quarter, helping drive 6,299 EUs in LTM orders. Our North American production slots remain in high demand, with slots sold well now into 2026 and options going all the way out to 2030. On slide 19, you can see the makeup of our backlog of over 16,100 equivalent units, of which 38% are firm and 62% are options.

I'll now turn the call back to fall to discuss our Outlook. Thanks. Brian. Uh I'm now on slide uh 18th.

As we look at the rest of 2025 and Beyond to project, an NFI will continue to grow Revenue, gross profit, adjusted ebit, free cash flow return on invested capital and net earnings.

And I'll walk you through some key factors underpinning. This continued momentum, and our expected growth, and comment on the key risk factors in our operating environment.

Flight 18. We had 822 EU in, uh, in the quarter, uh, helping Drive 6,299 EU in LTM orders, our North American production slots remain in high demand with slots sold. Well, now, into 2026 and options are going all the way out to 2030.

Paul Soubry: The firm orders provide significant visibility into our H2 and first quarter 2026 deliveries, while the options offer runway over the long term. The black line represents the total dollar value of our backlog. Over the past three years, NFI's backlog has grown by $8 billion, showcasing the significant and continuing demand for our products. Similar to the first quarter, we saw higher new orders for internal combustion engine buses, which has led to a slight decline in zero-emission percentage of our total backlog, which now we think reflects the new U.S. administration's platform and customer procurement activity. Our total backlog and firm option profile is displayed on slide 20. The chart shows the increase in average sales price, or ASP, per equivalent unit in our total backlog, including both firm and total options.

On slide, 19. You can see the makeup of our back of of our 16100 equivalent units of which 38% are firmed and 62% are options. The Firm orders provide significant visibility into our H2 and first quarter 2026 deliveries while the options offer a Runway over the long term.

Represents the total dollar value of our backlog over the past 3 years, nfi's background has grown by 8 billion dollars, showcasing the significant, and continuing demand for our products.

Similar to the first quarter. We saw higher new orders for internal combustion engines. Uh, in internal combustion engine buses which has led to a slight decline in zero emission percentage of our total backlog, which now we think reflects the new US administration's platform and customer procurement activity.

Our total backlog and firm option profile is displayed on. Slide 20.

Paul Soubry: The ASP has increased for both heavy-duty transit buses, which is the dark blue line, sorry, in dark blue, and the motorcoaches, which is in light blue. Year over year, average selling price for heavy-duty buses was up 2.7% and up 68% since 2021. ASP for motorcoaches was up 25.2% and 54.5% over the same time periods. We saw a slight increase in both transit and coach backlog average selling price this quarter, with a strong sales mix of new contracts that were awarded to NFI. Overall, these higher selling prices will continue to translate into our income statement over time. We saw this in the first half of 2025 and expect more improvement with approximately 60% of our annual adjusted EBITDA coming in the second half of this year. The bidding environment remains strong in North America, which is reflected in our bid universe on slide 21.

The chart shows, the increase in average sales price or ASP per equivalent unit in our total backlog, including both firm and total options. The ASP has increased for both heavy duty transit buses, which is the dark blue line. Oh, sorry, and dark blue. And the motor coaches which is in light blue year-over-year average selling price for heavy devices was up 2.7% and up 68%. Since 2021. ASP for motor. Coaches was up 25.2% and 54.5% over the same time periods.

We saw a slight increase in both Transit and Coach backlog as average selling place this quarter with a strong sales, mix of new contracts that were awarded to NFI.

Overall, these higher selling prices will continue to translate into our income statement. Over time, we saw this in the first half of 2025 and expect more improvement with approximately 60% of our annual adjusted e coming in the second half of this year.

Paul Soubry: We ended the quarter with a total active bids of 5,855 equivalent units. This includes 4,144 in the bids submitted and another 1,711 bids in process. The black line in the chart shows new awards to NFI. We saw some decrease from the previous quarter, which primarily is a result of timing of new proposals and the U.S. funding being released in May of 2025. I will point out that the correlation between bids submitted in the light blue and contract awards typically has a lag of a few quarters from the submission of the award. Our five-year expected public bid forecast, which is compiled from the customer fleet replacement plans, remains very strong at 22,769 equivalent units. This demand is driven by both available funding and the increasing fleet age, which nearly half of the North American bus fleet in service is now beyond 12 years of age.

The bidding environment remains strong in North America, which is reflected in our bid Universe on slide 21.

At the end of the quarter, we had a total of 5,855 active bids, which includes 4,144 bids submitted and another 1,711 bids in process.

The black line in the chart shows, new Awards, to NFI, we saw some decrease from the previous quarter, which primarily as a result of timing of new proposals and the and the US funding being released in May of 2025.

I'll point out that the correlation between bid submitted in the light blue and contract Awards. Typically have a lag of a few quarters from the submission of the award.

The 5-year expected public bid forecast, which is compiled from the customer fleet replacement plans, remains very strong at 22,769 equivalent units. This demand is driven by both available funding and the increasing fleet age, with nearly half of the North American bus fleet in service now exceeding 12 years of age.

Paul Soubry: On slide 22, I want to highlight the positive funding announcements from the U.S. administration for the fiscal year of 2025. The FTA released a portion mix for $20.6 billion in total funding, with dedicated bus programs remaining at the same levels as we saw in 2024. This strong funding support should make for another positive year in the low or no emission grant program, where NFI was the named partner on nearly $340 million awards in 2024. Slide 23 shows our book-to-bill and option conversion ratios. NFI's overall option conversion ratio has improved significantly since a low in 2022, coming in again at 74.9% on an LTM basis. This is driven by increasing new order volume, exercised options, and our improved competitive positioning in the overall environment. Slide 24 reflects our guidance ranges for key metrics for 2025, which we have once again reaffirmed.

Slide 22. I want to highlight the positive funding announcements from the US Administration for the fiscal year of 2025.

as we saw in 2024,

this strong funding support should make for another positive year in the lower. No emission grant program, where NFI was the named partner on nearly 340 million uh Awards in 2024.

Slide 23, shows our book to Bill and option conversion, ratios nfi's, overall option. Conversion ratio has improved significantly since a low in 2022. Coming in again at 74.9% on an LTM basis.

This is driven by increasing New Order, volume exercised options, and our improved competitive positioning in the overall environment.

Paul Soubry: We continue to project revenues of $3.8 billion to $4.2 billion to drive adjusted EBITDA ranging from $320 million to $360 million for this year. The 2025 guidance ranges for the selected financial metrics provide taking into consideration our year-to-date performance and our current outlook, and specifically our well-defined master production schedule. NFI's 2025 guidance range does not include any material impact from tariffs or any further changes resulting from U.S. policy developments. On slide 25, we provide our latest views on the macro tariff environment, which, as we saw yesterday evening, continues to be very fluid. During the quarter, we were directly impacted by tariffs on the imports of steel and aluminum to the U.S. and Canada, and tariffs associated with the imports of certain goods from outside of North America that are used in our Canadian and U.S. manufacturing and aftermarket businesses.

Slide 24, our guidance ranges for key metrics for 2025, which we have once again, reaffirmed, we continue to project revenues of 3.8 to 4.2 billion to drive adjusted. Ebita ranging from 320 to 36060 million for this year.

The 25 guidelines ranges for the selected Financial excess provide taken to consideration our year-to-date performance and our current Outlook and specifically our well defined Master production schedule, nfi's 2025 guidance range does not include any material impact from tariffs or any further changes. Resulting from US policy developments on slide 25. We provide our latest views on the macro tariff environment, which as we saw yesterday, evening continues to be very fluid.

Paul Soubry: in May, we saw an increase in the number of our suppliers issuing letters and invoices to NFI with updated prices reflecting tariffs as we begin to build this into our pricing for our new contracts and aftermarket sales. We expect the most significant tariff impact on NFI will be the indirect tariffs applied to component parts and raw materials imported in the U.S. by our suppliers, which are then used to build products and components that we buy and install in our vehicles. A reminder that buses and coaches and shells continue to move across the Canadian-U.S. border, continue to be tariff-free as they comply with the USMCA agreement. For existing contracts, we are working closely with our customers to make them aware, show them our details, negotiate, and record current and as amended by the U.S.

During the quarter. We were directly impacted by tariffs on the Imports of Steel and aluminum to the US and Canada and tariffs associated with the Imports of certain goods from outside of North America, that is used in our Canadian and US manufacturing and aftermarket businesses. In may, we saw an increase in the number of our suppliers, issuing letters and invoices to edify with updated prices reflecting tariffs, as we begin to build this into our pricing for our new contracts and aftermarket sales.

We expect the most specific tariff impact on NFI, will be the indirect tariffs, applied to component parts, and raw materials imported into the US, by our suppliers, which are then used to build products and components that we buy and install in our vehicles.

Alright, a reminder that buses, coaches, and shells continue to move across the Canada-U.S. border and continue to be tariff-free as they comply with the USMCA agreement.

Paul Soubry: tariff price changes as we expect to pass on our contractual regulatory change clauses. There is some risk that we may not be able to recoup all tariff costs, and there could also be cash flow timing impacts as we await customer reimbursements for tariffs that we have paid. On an overall basis, though, we remain highly confident that tariffs will mostly be a pass-through item for NFI. We are actively watching the U.S. and Canadian trade discussions, and we will evaluate any changes of any legislation that comes from this, and we will continue to forecast that going forward. Closing on slide 26, a few comments to recap, and then we will open the line today for questions. The first half of this year provided significant momentum. Our refinancing effort provided us with the right capital structure as we execute on our record multi-year backlog.

For existing contracts, we are working closely with our customers to make them aware. Show them our details, negotiate and record current. And as amended, by the US, tariff, price changes, as we expect to pass on our contractual regulatory change clauses.

there is some risk that we may not be able to pay recoup, all tariff costs, and there could also be cash flow timing impacts as we await customer reimbursements for tariffs that we have paid

On an overall basis though. We remain highly confident that tariffs will mostly be a pass through item for NFI.

For actively watching the US and Canadian trade discussions and will evaluate any changes of any legislation that comes from this and will continue to forecast that going forward.

Closing on slide 26, a few comments to recap, and then we'll open the line today for questions.

Paul Soubry: Our seat supply, while still painful, is improving. Margin profile increased year over year, and we saw significant improvements in adjusted EBITDA and our return on invested capital. NFI's total backlog of $13.5 billion provides significant opportunity, and our high option conversion rate and strong book-to-bill ratios remain supportive of both our near-term forecast and our longer-term outlook. This quarter, NFI delivered our second highest zero-emission bus deliveries in our company history, which reflects the strength of our product offerings and our operational performance. NFI's aftermarket business, while slightly down in the first half of 2025, continues to be a very strong contributor, providing steady recurring revenue streams and a solid margin foundation and solid free cash flow generation. As you've heard on this call and previous calls, the U.K. market demand for Alexander Dennis continues to be behind our expectations.

The first half of this year provided significant momentum are refinancing effort. Provided us with the right capital structure as we execute on our record, multi-year backlog.

Our seat supply, while still painful, is improving.

Margin profile increased year-over-year and we saw significant improvements in adjusted Eva and our return on invested capital.

Nfi's, total backlog of 13.5 billion provides significant opportunity and our high option conversion rate, and strong book to Bill. Ratios remain supportive of both. Our near-term forecasts and our longer term Outlook.

This quarter NFI delivered, our second highest zero emission bus deliveries, in our company history, which reflects the strength of our product offerings and our operational performance.

NFI's aftermarket business, while slightly down in the first half of 2025, continues to be a very strong contributor, providing steady recurring revenue streams and a solid margin foundation, as well as solid free cash flow generation.

Paul Soubry: We're taking actions there that will lower our costs and improve our competitiveness. Full year, we expect declines in the overall U.K. market deliveries, but we have several active procurements underway that should support our 2026 performance. The Scottish government has recently committed to exploring all viable options to support Alexander Dennis's Scottish manufacturing operations. We will continue to engage with our government partners in both Scotland and England, with the focus on our people and cost management as we complete the required consultation process and as we continue to support our customers. While the U.K. poses an overall challenge, that market represents approximately 15% of our total quarterly revenue and generates lower margins than our North American business. The aftermarket business in the U.K., however, which is reflected with NFI's aftermarket segment totals, continues to perform well based on our installed base.

As you've heard on this call and in previous calls, the UK market demand for Alexander Dennis continues to be behind our expectations. We're taking actions there that will lower our costs and improve our competitiveness.

Full year, we expect the clients in the overall UK market deliveries, but we have several active procurements underway that should support our 2026 performance.

The Scottish government has recently committed to exploring all viable options to support Alexander. Dennis Scottish manufacturing operations.

consultation process, and as we continue to support our customers.

Paul Soubry: The overall political environment in North America remains fluid with changing dynamics related to trade, tariffs, and funding. As I've mentioned before, we were very pleased to see the U.S. administration's focus on advancing numerous funded projects through its America is Building Against campaign and through the release of the 2025 FTA apportionments. We continue to track trade developments and will continue to take all actions possible to ensure an appropriate response to tariffs. While there will be some headwinds, our domestic production, nimble aftermarket position and pricing, strong backlog, and the new contractual provisions that we have in our manufacturing contracts leave us feeling very well positioned for a solid second half in 2025. With that, I'll now open the line to questions. Michelle, please provide instructions to our callers. Thank you.

While the UK poses, an overall challenge that market represents approximately. 15% of our total quarterly revenue and generates lower margins that are North American Business. The aftermarket business in the UK, however, which is reflected with nfi's, aftermarket segment, totals continues to perform well based on our installed base.

The overall political environment in North America remains fluid, with changing dynamics related to trade, tariffs, and funding.

As I've mentioned before, we were very pleased to see the US administration's focus on advancing numerous funded projects through its America is building against campaign and through the release of the 2025 FTA portion, we continue to track trade developments and will take continue to take all actions possible to ensure an appropriate response to tariffs.

While there will be some head rooms headwinds or are domestic production Nimble aftermarket, uh, position and pricing strong backlog, and the new contractual Provisions that we have in our manufacturing contracts. Leave us feeling very well positioned for a solid second half in 2025,

Michelle: 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. The first question will come from Chris Murray with ATB Capital Markets. Your line is open.

With that, I'll now open the line to questions. Michelle, please provide instructions to our callers. Thank you.

Thank you. As a reminder, please ask a question.

Please.

Turn 1 on your telephone and wait for your name to be announced to withdraw your question. Please press star 1 1 again.

Paul Soubry: Yeah, good morning, folks. The first question, maybe just thinking about the ramp in the second half. Thanks for the update on the seat supplier. But I guess what I'm trying to maybe understand is twofold. One, can you maybe walk us through, and you know, maybe even in some granularity, how the plan looks for the next, you know, call it, couple quarters? And if you can talk a little bit about the rest of the supply chain outside of seats, and if there's any additional updates you can give us on seats other than where you are, right, as of today, you know, even beyond July, that would be helpful. And then, Brian, if you can just maybe remind us what the expectations are for leverage by year-end, that would be great. Thanks, Chris. That's a bunch of questions, but first, let's start with overall supply chain health.

And the first question will come from Chris Murray with ATV Capital Markets. Your line is open.

Okay, good morning, folks. Um, the first question, maybe just thinking about the rant in the second half. Um, thanks for the update on the seat supplier. Um, but I guess what I'm trying to, um, maybe understand, um, is sort of twofold. 1. Um, can you maybe walk us through and, you know, maybe even lose the granularity, um, you know, how the plan looks, uh, for the next, you know, call it, uh, couple quarters. Um, and, you know, if you can talk a little bit about, you know, the rest of the supply chain outside of seats, um, you know, and if there's any, you know, additional updates you can give us on C, other than like, like wherever you are, right? Like as of today, you know, even beyond July, that would be helpful. And then, Brian, if you can just maybe remind us, uh, what the expectations are for leveraged by year-end, that would be great. Bye.

Paul Soubry: The chart that we showed today, we're kind of down to one high-risk supplier that continues to be that seat supplier that has been recovering and we continue to work with. I will tell you that, let's call it a year ago, that supplier provided almost 60% of our seats. We're now, through customer choices and through managing as best we can, in the back half of the year, that supplier is down to maybe 30% or 35% of our seats. So our total reliance is less, and their performance continues to get better. In terms of the other suppliers across our overall business, if you walked into our production facilities and you looked at the metrics boards and so forth, or you look at the roll-ups we see, across the company, we're now somewhere in the 99.5% to 99.6% range of parts available in station on time.

Thanks, Chris, that's a bunch of questions. But first, let's start with overall supply chain Health. Um,

You know, the chart that we showed today we're kind of down to 1 app, you know, high-risk supplier that continues to be that seat supplier that has been recovering. We continue to work with, I will tell you that let's call it a year ago that supplier provided almost 60% of our seats. We're now through customer choices and through managing the, you know, as best we can in the back half of the year that suppliers down to maybe 30 or 35% of our seats. So our total Reliance is less and their performance continues to get better.

In terms of the other suppliers,

Across our overall business.

Paul Soubry: And now that's kind of where we were pre-COVID. Of course, COVID, then supply chain hell, and all the dynamics caused tremendous disruption to that, where that number dropped into the early 90s. And of course, missing one part is one thing, but missing key parts that have cascading issues, you know, if you don't have the seats, you can't install the stanchions, and so on and so forth, have massive production impacts. So our labor efficiency is up as a result of really strong performance. We've talked a little bit today and in previous calls, beefing up our sourcing teams, our procurement teams added some really solid team members. Adding a significant resource to our vendor development or supplier support teams has really helped that performance level. We are back to pre-COVID in terms of the health of the supply chain.

If you walked into our production facilities and you looked at the metrics boards and so forth, you look at the Roll-Ups, we see the company we're now somewhere in the 99.5 to 999.6 range of parts available in station on time.

And now that's what kind of where we were preco. Of course, coid and supply chain hell and all the Dynamics cause tremendous disruption to that, where that number dropped into the early 90s. And of course, missing 1 part is 1 thing, but missing key parts that have cascading in issues. You know, if you don't have the seats, you can install the sanctions and so on and so forth has massive production impacts. So our labor efficiency is up as a result of really strong performance. We've talked a little bit today and then previous calls.

Paul Soubry: I will just always caution, highly customized, small batch, variable products will always, by definition, have complexity, to get to 100% supply chain. In terms of the production, you noted kind of the second half lift over the first half, with the exception of, say, the private market in North America and maybe a little bit of the retail, private motorcoaches in North America, a little bit of retail in the U.K., all of our slots are effectively sold through the rest of the year, and now we are booking well into 2026. I have used the expression before, but it is not to some extent, we have to sell retail units, but this is very much around execution of what is already under contract, what we have already done the engineering on, and so forth, and working on supply as opposed to worrying what we are going to sell.

Beefing up our sourcing teams, our procurement teams added some really solid team members. And then of course, adding a significant resource to our vendor development or C supplier support teams has really helped that performance level. So we're in a we're back to pre-cooking and I'll just always caution highly customized. Small batch variable products Will Always by definition have complexity uh to get to 100% supply chain.

Um, in terms of the production, you know, we noted kind of the second half lift over the first half.

Paul Soubry: There is some retail dynamics in the motorcoach business and a little bit of the Alexander Dennis business, but the rest of the businesses we are feeling very comfortable on. I will hand it over to Brian Dewsnup now to the questions you had for him.

Ression before, but it's not to some extent. We have to sell retail units, but this is very much around execution of what's already under contract. We've already done the engineering on and so forth, and we're working on supply as opposed to worrying about what we're going to sell.

So there is some retail, you know, Dynamics in in the, in the motor coach business and a little bit of the, uh, Alexander. Dennis, but is the rest of the businesses were feeling very comfortable on.

Brian Dewsnup: Yeah, thanks, Paul. With regards to leverage, we're, I think, at the end of Q2, we were 4.9 if you include the converts. So 4.9 total leverage. As we've said a number of times, we're targeting 1.5 to 2.5, and we're working toward that. We don't expect to get there by the end of the year. We expect it'll be sometime in, likely in 2026 that we'll get into that range.

I'll hand it over to Brian. Now, to the questions you had for him.

Yeah, thanks Paul. Yeah, with regards to leverage, we're I think at the end of Q2, we were 4.9, if you include the converts, so 4.9 total leverage, and then as we've said, you know, a number of times we're targeting 1.5 to to 2.5 and we're working toward that we don't expect to get there. By the end of the year we expect it'll be sometime in likely in 2026 that we'll get into the into that range.

Paul Soubry: Okay. That's helpful. Then just a couple of quick ones on top of that. When corporate EBITDA was a lot higher than I think we've seen it in some time, normally this is kind of like a plus or minus de minimis number. So I guess two things. One, was that tied to a lot of the refinancing and restructuring issues and just the magnitude of that, and should that settle down? And how should we think about that on a go-forward basis?

Brian Dewsnup: Yeah, so a couple of things in this quarter. We did have some FX that got to us there. The other piece is we do have some exposure through some of our comp programs to our own stock price, actually. So with the appreciation in Q2, we had some added expense there just from our internal comp programs.

Okay, um, that's helpful. Um, then just a couple quick ones. Um, on top of that, you know, 1 Corporate to your dog was a lot higher than I think. We've seen it in some time. Um, you know, normally this is kind of like a plus or minus number. So I guess, 2 things 1. Um, you know, was that tied to a lot of the refinancing and restructuring issues um and just a magnitude of that issue that settled down and how should we think about that on a go forward basis?

Paul Soubry: Okay.

Brian Dewsnup: We would expect in the second quarter that we had a little bit more expense than we would normally expect.

Yeah. So a couple things in this quarter. We did have some FX that got to us there and the and the other pieces we do have some exposure through some of our comp programs, to our own stock price, actually. And so, with the appreciation, Q2, we had some added expense there. Um, just from our internal comp programs.

Okay, so, you know, we would expect second.

Paul Soubry: Okay. Just what was the amount of the stock-based comp, roughly?

just expecting the second quarter that we had a little bit more expensive than we would normally expect.

Okay, um just what was the amount of the stock based off roughly?

Brian Dewsnup: I don't have that figure in front of me now, but it was a chunk of the year-over-year increase that we saw, which I think was around $3 million. I think most of that was related to the comp program.

Paul Soubry: Okay, cool. The last question is just really quick. There was a note in the press release about the fact you have taken over the operation of the, I guess, the Alexander Dennis product at NFI Group Inc. I guess two questions on that. Can you just maybe give us more color on what that is or why that is happening? What does that kind of say about what you are seeing in terms of demand on that double-decker product in North America?

Uh, I don't have that figure in front of me now but it was, uh, it was a, a chunk of the year-over-year, um, increase of that that we saw, which I think was around 3 million dollars. I think most that was related to the comp program

Brian Dewsnup: It's a great question, Chris. Chris, it's a fairly small part of the business, so we didn't spend a lot of time in the notes or communicate talking about it. Just a little context. There's about 1,000 double-deckers that have been sold and operating in North America from Alexander Dennis over the years. The first couple of approaches to that when ADL showed up in North America, 15-20 years ago, was to use build partners, as they do in the U.K. and as they do for certain things in the Asia-Pacific region. Of course, that facility, that strategy then translated to when we acquired Alexander Dennis in 2019, they were operating their own facilities in the Elkhart, Indiana area.

Okay cool. Um the last question is just really quick. Um there was a note in the press release about the fact you've taken over um operation of the uh I guess the Alexander Dennis uh product at Big Rig. Um I guess 2 questions on that. Can you just maybe give us more color on what that is or or or why that's happening. Um and you know, what does that kind of say about? You know what you're seeing in terms of Demand on but uh, double-decker product in North America.

Great question. Kristen and you know Chris it's a fairly small part of the business so we didn't settle a lot of time results or communicate talking about it just a little context there's about a thousand double-deckers that have been sold and operating in North America from Alexander Dennis over the years.

The first couple of approaches to that when ADL showed up in North America, 1520 years ago was to use build partners.

as they do in the UK and as they do uh, for certain things in in the Asia, Pacific region,

Brian Dewsnup: When COVID kicked in, the demand dropped dramatically for high-capacity vehicles, so we made the decisions to rationalize the facility in Middlebury, Indiana, as well as there was a chassis facility in Toronto. Demand has recovered, and we originally weren't sure the pace at which it recovered. Now, that's two issues. Certain new customers wanting double decks in their fleets, as well as the aging of the installed fleet and customers wanting to replace them. We made the decision to set up BRM to do this in Las Vegas. It was adjacent to or down the street from a facility they already had. BRM's parent company, BigRig Collision, is a repair-oriented facility, and they wanted to get it to manufacturing. We worked on as a partnership for about a year. That supplier couldn't deliver at the pace performance level that we wanted.

Of course, that facility, that that strategy then translated to when we acquired Alexander, Dennis in 2019, they were operating their own facilities in the Elkhart, Indiana area.

With Co kicked in the demand dropped dramatically for high capacity vehicles and so we've made the decisions to rationalize the facility in Middlebury, Indiana as well as there was a a chassis facility in Toronto.

Demand has recovered.

And we originally weren't sure the pace at which it recovered now, that's 2 issues.

Certain new customers, wanting double decks in their fleets as well as the agent with the installed fee to and customers wanting to replace them.

So we made the decision to set up brm to do this in Las Vegas, it was adjacent to or down the street from facility. They already had brm's parent company. Big red Collision is a repair oriented facility and they wanted to get into Manufacturing.

Brian Dewsnup: We made a deal to just absorb their people. We bought their working process associated with it and put in some kind of a transition contract with them. As of about a month ago, we now are operating that facility. Demand and order book continues to grow both for double-deck diesel buses, which we're building today, and we're starting to build an order book for double-deck electric buses in North America. It's not massive. There's, I don't know, 120, 130 people there. It's a brand new facility. Our supplier partner never really set it up and operated the way we wanted. It's now ours, and it's becoming and looking like, you know, very much like an NFI facility. Quite frankly, the outlook there is quite positive.

So we worked on as a partnership for about a year that supplier couldn't deliver at the pace performance level that we wanted. We made a deal to just absorb their people. We bought the they're working process associated with it and put in some kind of a transition contract with them. As of, about a month ago, we now are operating that facility, demand, an order book continues to grow both for double deck, diesel buses, which were building today. And we're starting to build a, uh, an order board for double duck. Electric buses in North America.

Paul Soubry: Okay. That's interesting. All right. I'll leave it there. Thanks, folks.

it's now ours and it's becoming and looking like, uh, you know, a very much like an NFI facility and quite frankly, they all look there is quite positive

Brian Dewsnup: Thanks, Chris.

Stephen King: Thanks, Chris.

Okay, that's interesting. All right, I'll leave it there. Thanks folks.

Michelle: The next question will come from Daryl Young with Stifel. Your line is open.

Brian Dewsnup: Hey, good morning, guys. Just wanted to touch on the working capital in the quarter and maybe a little bit more color on that $40 million investment. I was under the impression you would be a little bit more neutral or maybe even positive working capital this year, but just curious what the outlook is for the remainder. Yeah, Daryl. Working capital will continue to fluctuate. It is a normal course. We would look to build a little bit of working capital over the course of the year. Then, with the private market and a little bit in the U.K., private, sorry, private North American coach market and a little bit in the U.K. have some seasonality where the inventory build in the middle of the year would then be relieved at Q4. We have had some additional noisiness there with some of the seating issues we have had.

Thanks Chris. Thanks Chris. And the next question will come from Daryl young with stifel your line is open

Hey, good morning guys. Um just wanted to touch on the working capital in the quarter and maybe a little bit more color on the on that investment. Um, I was under this under the impression you feel a little bit more neutral or maybe even positive working capital this year, but just curious what the Outlook is for the remainder.

Brian Dewsnup: So, we did relieve some in Q1, and we built a little bit back in Q2. That would be the normal pattern, would be kind of Q1, Q2, Q3, a little bit of growth, and then relieve that in Q4, and we do expect that we will see a reduction in the fourth quarter this year.

Yeah darl. So you know we you're working capital will continue to to fluctuate in the business. The normal course we would you know look to build a little bit of working capital over the course of the year and then you know with the private market and a little bit in the UK private sorry private North American coach market and a little bit in the UK. Have some seasonality where you know, the inventory build in the middle of the year. Would then be relieved. At at Q4, we have had some, uh, you know, additional noisiness there with some of the seat, uh, seating issues we've had. So we did relieve some in q1 and we built a little bit back in in Q2, but that would be the normal pattern would be kind of q1 Q2, Q3 a little bit of growth and then relieved that in Q4 which and and we do expect that we will see

Reduction in the fourth quarter this year.

Paul Soubry: Okay. For the full year, are you anticipating being relatively neutral, or will there be working capital investment?

Brian Dewsnup: Yeah, I think as you would remember, we, you know, we've talked about how we entered 2025 a little bit heavy. So despite the higher volume we expect in 2025, we do expect to be about neutral from a working capital standpoint, even with that volume increase between 2024 and 2025.

Okay, and for for the full year, are you anticipating being relatively neutral? Or will there be working capital investment?

Paul Soubry: Got it. Okay. Around the tariff commentary, you gave a lot of great details. Just trying to flush out how real the risk is in the short term that some of your, maybe your margins are impacted or your cash flow is impacted such that this is a real meaningful issue versus a be aware, knowing unknown type of thing.

Yeah. I think as you would remember, we uh, you know, we've talked about how we we entered 2025 a little bit heavy. So despite the higher volume, we expect in 2025, we do expect to be about neutral, uh, from a working capital standpoint, even with that volume, increase between 24 and 25,

Brian Dewsnup: It is a good question. Of course, it is changing every bloody day depending on the impact of what we buy and where it comes from, and the tariffs the U.S. applies to these different jurisdictions. As we said in the script, we have been dealing with the direct steel and aluminum tariffs. It is not massive, but we have been managing that and embedding in our price, and there is no issue there, or we do not foresee an issue. The indirect taxes, as I alluded to, are really the biggest area of concern because we see that through a supplier invoice. Here is $8 for the windshield wiper, but then here is an extra portion of invoice that relates to the tariff. Of course, when the customer or the supplier provides that to us, we are paying them on certain terms.

Okay, and then around the Tariff commentary, you get a lot of great details, just trying to flush out how real the risk is in the short term. That some of you, maybe your margins are impacted or your cash flow is impacted. Such that, um, you know, this is a real meaningful issue versus uh, a be aware, you know. No 1 on, No 1 type of thing.

Yeah, it's it's it's a good question and of course, it's changing every bloody day, depending on, you know, the impact of what we buy and where it comes from and the terrorists, the US applies to these different jurisdictions.

So as we said in the script that, you know, we we've we've been dealing with the direct steel and aluminum tariffs, it's not massive. But we've been managing that and embedding in our price and then there's no issue there but we don't foresee an issue. The indirect taxes, as I alluded to are, are really the biggest area of concern because we see that through a supplier invoice, you know, here's 8 dollars for the windshield wiper but then here's an extra portion of invoice that

Relates to the Tariff.

Brian Dewsnup: We are current with all of our suppliers, but there could be a lag between when we are paying that and when our customer finally pays us for the tariff that we invoice it. We are invoicing our customers separately. So it is, here is the price for the bus, and there is a secondary invoice for the calculated tariffs. We have hired one of the big accounting firms to help us audit our methodologies and our calculations and so forth that we can present that to the customers. We have had numerous communications with the customers. There is no question some of the customers have agreed with the methodology and are starting to pay the tariffs as required.

And of course, when when, when the customer or the supplier provides that to us, we're paying them on certain terms, you know, we, we are currently with all of our suppliers, but there, there could be a lag between when we're paying that. And when our customer, finally pays us for the Tariff that we invoice it. We are invoicing our customers separately. So it's, you know, here's the price for the bus and there's a secondary invoice for the calculated tariffs. We've hired a 1 of the big accounting firms to help us audit our methodologies and our calculations and so forth that we can present that to the customers. We've had numerous Communications with the customers.

Brian Dewsnup: Some of them are asking for more detail. It is very difficult to be able to say to customer X or Y, "This specific dollars for that specific part on your bus on this specific day." So there is quite a thorough process of calculation and so forth. We have had a customer blatantly say, "I am not paying your tariffs," but there was a negotiation and a dance, and I can communicate that goes with that. As I kind of alluded, there could be a month or two of working capital of the tariff portion that gets delayed from when we pay it to when we actually get paid. At this point, we have no indication that we are not going to get paid the tariffs, and that is why we referred to it in our script here as kind of a flow-through type dynamic.

Uh there is no question. Some of the customers have agreed with the methodology, in our starting to pay the tariffs as as required. Some of them are asking for more details. It's very difficult to, to be able to say to customer X or why this specific dollars for that specific part on your bus on this specific day. So there's there's quite a, a thorough process of of calculation and so forth.

We have had a customer blatantly say, "I'm not paying your tariffs," but there was a negotiation, a dance, and communication that goes on for that.

Brian Dewsnup: We are cautious, and we are, in our own minds, managing our way through the whole tariff dynamic as it relates. Of course, as it changes. A tariff yesterday was X on one country, and now it is Y. So the parts that we have have a certain tariff. The parts.

As I kind of alluded, there could be, you know, a month or 2 of working capital of the Tariff portion that gets delayed from when we pay it to when we actually get paid at this point, we have no indication that we're not going to get paid the tariffs and that's why we referred to it in our script here is kind of a flow through type dynamic.

Michelle: that we bring in next week, will have a different tariff for the same bloody part. You can just imagine how fluid the thing is. We are feeling very comfortable that it will, as I said before, be a flow-through.

But we are, we are cautious and we are in our own minds managing our way through, uh, you know, the whole tariff dynamic as a as it relates. And of course as it changes, a tariff yesterday was X on 1 country and now it's why. So the parts that we have have a certain tariff, the parts that we bring in next week we'll have a different tear for the same bloody part.

Stephen King: Got it. And presumably, with $340 million of liquidity, you are feeling very good about no real cash flow.

Flow through.

Michelle: Yeah, yeah. There's no question about that. The sheer size of the tariff, I will just give you a macro context. If we annualize the tariff as of before yesterday, before last night, for all of that we buy that comes through indirect, there's somewhere in the neighborhood of a $40 to $60 million tariff run rate exposure or value. So you know the impact in the next little while could be $10 or $15 million in terms of total tariffs. It is not going to be, you know, we need $200 million to fund the tariff dynamic for a period of time.

Got it and and presumably with 340 million of liquidity. Um you're feeling very good about no real cash. Yeah yeah there's no question about that. The sheer size of the Tariff.

They'll just give you a macro context if we annualize the Tariff as of before yesterday before last night. Um, for all of that we buy that comes through indirect, there's somewhere in the neighborhood of a 40 to 60 million dollar tariff, run rate, exposure or value.

Stephen King: Got it. That's super helpful. Thanks, Paul.

So, you know, the impact in the next little while could be 10 or 15 million dollars in terms of total tariff. So it's not going to be, you know, we need million dollars to fund the Tariff Dynamic for a period of time.

Michelle: I'll get back in the queue.

Got it. That's super helpful. Thanks Paul. I'll get back in the queue.

Paul Soubry: The next question will come from Jonathan Messagen with CIBC. Your line is open.

Brian Dewsnup: Hey, good morning. If I am not mistaken, this is the first time since early 2021 that you have had only one or fewer high-risk, severe impact suppliers. I know you talked a little bit about this, but looking long-term, how do you see supply risk evolving from here?

Some messaging with CIBC your line is open.

Hey, good morning. Uh, if I'm not mistaken, uh, this is the first time since early 2021, that you've had only 1 or fewer high risks, severe impact suppliers and I know you talked a little bit about this, but looking long term, how do you see sabir risk evolving from here?

Michelle: Well, thanks, first of all, for recognizing that because most of my hair has fallen out and I know it won't grow back. Our supply base, and David White, who is the head of our supplies, has done a phenomenal job with his team. Some of it is just the uncertainty of our suppliers, the changes in the impact, the components, whether they are globally sourced, microprocessors, blah, blah, blah. We spent a lot of time going further to the supply chain now than we did before. We are working two or three levels down where before we just ordered an end item. We have built up our team to be able to look for alternates where they are available to re-engineer parts where we might be able to. We are carrying more safety stock.

Well thanks. First of all, for recognizing that because most of my hair is falling out and I know it won't grow back but our supply base and and David White who's ahead of our supplies done. A phenomenal job with his team.

And so some of it is just the uncertainty of our suppliers, the changes and the impact, the, the components, whether the globally, sourced, you know, microprocessors blah, blah, blah. We spent a lot of time going further to the supply chain. Now, than we did before we're working 2 or 3 levels down, or before we just ordered an end item.

Michelle: We used to brag that we were kind of 78 days of inventory on, pre-work in process. We got up to call it 25 or 30. We are now down in the early 20s. We are laying in more inventory on the shelf, end line side, than we did before, just to make sure that because the cost of nonproductive labor and then offline and ripple effect of not built-in station and so forth is massive. Never say never about supply dynamics for us, just given the nature of high variability and high customization. Our team, our methodologies, our audit methodologies of our suppliers. Another example, we used to spend a lot of time focused on delivery performance and quality. We have added company viability. We have added a whole bunch of other elements in our monthly assessments of all these suppliers.

We have built up our team, uh, to be able to look for alternates where they're available to, uh, re-engineer Parts where we might be able to, uh, we're carrying more safety stock, you know. We, we used to brag that we were kind of 78 days of inventory, uh, you know, pre-work and process. You know, we got up to call it 25 or 30. We're now down in the early 20s, but we are laying in more inventory, on the Shelf endline side, uh, that we did before, just to make sure that because the cost of of, uh, non-productive labor and then offline and ripple effect of not built in station. And so forth is massive.

Michelle: We focused on the top 750 suppliers for the group. It is always going to be an issue. We feel way better about the position we are in and all the things we have done associated with it. We are actually feeling really good about the impact that will have on the second half productivity.

Brian Dewsnup: Thank you. That was very helpful. One more question. What's your long-term vision for the U.K. market? Given the tough competitive landscape, do you think the consultation will be enough to maintain competitiveness?

So Never Say Never about Supply Dynamics for us. Just given the nature of high variability and high customization. But our team, our methodologies, our uh, audit methodologies of our suppliers. Another example, we, we used to spend a lot of time focused on delivery performance and quality. We've added company viability. We've added, uh, a whole bunch of other elements in our monthly assessments of all these suppliers and we focus on the top, 750 suppliers for the group. So, it's, it's always going to be issued. We feel way better about the position, we're in and all the things we've done associated with it. We're actually feeling really good about the impact that will have on the second half productivity.

Michelle: It's a really good question. The game is still, you know, I don't mean that disrespectfully. The process and analysis with the customers, with the governments, is still happening. The root of the issue is historically, ADL had a very significant number one market share position. The customers were mostly PLC or public companies that were buying with long histories, long visions, and so forth. Four of the top five customers in the U.K. are now private equity owned, which may have a different focus or time horizon on their businesses. The second issue, there hasn't historically been government funding to support purchasing because that market is private operators bidding on routes and then outperforming a public service and trying to make money off that operation.

Thank you. That was very helpful and 1 more question. Uh, what's your long-term vision for the UK Market? Given the tough competitive landscape? Do you think the consultation will be enough to maintain competitiveness?

It's a really good question. The game is still, you know, I don't mean that disrespectfully, the the process of analysis with the customers with the governments is still happening. The root of the issue is historically. ADL had a very significant number 1 market share position.

Michelle: When the world started to move to shift to zero emissions, the Scottish and the English governments decided to help fund the transition to assist with their decarbonization plans. So they've been, you know, helping with X percentage of dollars to pay the delta between an ICE bus and a zero emission bus. What they didn't do, in our frustration, is say if you're going to use taxpayer money to assist the operators, they really didn't put any requirement to have local capability, local jobs, local sourcing, nothing. So a privately held business that can buy a cheaper bus from China did just that. The consultation, you know, is a very formal expression of we must go through, you know, negotiations with, as I said before, government, unions, our employees, and so forth.

The customers were mostly PLC or public companies that were buying with long histories, long visions and so forth. For the top 5, customers in the UK are now private equity-owned, which may have a different Focus or time Horizon on their businesses. The second issue there's hasn't historically been Government funding to support purchasing because that market is private operators, bidding on roots, and then outperforming a public service and and uh trying to make money off that operation.

When the, when the world started to move to shift to zero missions, the Scottish and the English governments decided to help fund the transition to to assist with their decarbonization plans. So, they've been, you know, helping with X percentage of dollars to pay the Delta between an iced bus and a zero emission bus but they didn't do. And and and our frustration is say, if you're going to use taxpayer money to assist the operators, they really didn't put any requirement to have local capability, local jobs, local sourcing, no nothing. So a privately held business that can buy a cheaper bus from China did just that.

Michelle: We've announced that what we want to try and do is rationalize the facilities in Scotland into less facilities inside the English facilities and so forth. I must tell you, the Scottish government has really stepped up to try and work with us on ways of retaining the jobs. I think, my personal opinion, is we're going to see any taxpayer-supported activities going forward will have way more job creation, economic benefits, supplier requirements in their selection criteria. So our whole dynamic around the consultation was to go after our competitors and our cost structure. The fleet needs to be replenished, and there still are very focused positions for both the Scottish and English governments on decarbonization. In the U.K., you have more franchising moving from the central purchasing to purchasing within the individual mayors. That will provide, in our opinion, more focus on that local or that domestic requirement.

we've announced that what we want to try and do is rationalize the facilities, um, in in Scotland into less facilities inside the English facilities, and so forth,

I must tell you the Scottish government has really stepped up to try and work with us on ways of retaining the jobs. I think my personal opinion is we're going to see any taxpayer supported activities going forward. We'll have way more job creation. Economic benefits supplier requirements in their selection criteria.

Michelle: We are not abandoning that market. It is an important market. We have a strong market position. We have spent lots of money to rejuvenate our platforms. We are now building all of our ICE as well as zero emission on all of our platforms ourselves, our own chassis. Quite frankly, we just have to adjust our cost base to improve our competitiveness. Anyway, we still think it is a very important market, although, as I said in my script, it is really 15% of our revenue opportunity. So it is not massive. It is just an important element. The other dynamic is, as we deliver those new products, gain experience and performance, there are still international opportunities we want to go after.

So, our whole dynamic around, the consultation was to go after our competitors and our cost structure, the fleet needs to be replenished. And there still is very focused, uh, positions for both the Scottish and the English governments on decarbonization, in the UK, you have more franchising moving from the central purchasing to purchasing, within the individual Mayors and that will provide in our opinion more focused on that local, or that domestic requirement.

So, we're not abandoning that market, it's an important Market. We're a strong Market position. We have spent lots of money to rejuvenate our platforms. We're now building all of our ice as well as zero mission. On all of our platforms ourselves, our own chassis. And quite frankly, we just have to adjust our cost base to improve our competitiveness. Um, so anyway, we still think it's a very important Market. Although, as I said in my script, you know it's really 15% of our our Revenue opportunity so it's not massive. It's just an important element. The other Dynamic is as we

Brian Dewsnup: Okay, thank you.

Deliver those new products gain experience and performance. There is still International opportunities. We want to go after

Okay, thank you.

Paul Soubry: The next question will come from Cameron Doerksen with National Bank Financial. Your line is open.

Cameron Doerksen: Yeah, thanks. Good morning. I want to ask about the, I guess, the guidance range for this year, $320 million to $360 million. Still, still pretty wide range. You know, obviously, we are halfway through the year here. So I am wondering if you can maybe describe what has to happen to get to, I guess, the low end of the range and what has to happen to get to the high end of the range. I mean, it seems like a lot of variability given that you have, I guess, better visibility on your delivery slots, at least for the second half of the year.

And the next question will come from Cameron doerksen with National Bank. Your line is open.

Yeah, thanks. Uh, good morning. Um, want to ask about the, I guess, the guidance range for this year 320 to 360 million, still still pretty wide range. Um, you know obviously we're halfway through the year here so I'm wondering if you can maybe describe uh you know what has to happen to get to I guess the low end of the range and what has to happen to get to the high end of the range. And it seems like a lot of variability given that you've got, I guess better visibility on your your delivery slots at least for the second half of the year.

Chris Murray: Yeah. So, good question. You know, I think you would have noted that while we have made improvement in seating, we have not, that number is not zero right now. We have talked earlier in the year about kind of a Q2 getting to zero there. Obviously, we did not make that. That is some of the reason why you are seeing a bit of a wider range is that we just have some uncertainty there with what our pace of deliveries will be, particularly in the New Flyer transit business in the second half of the year. I think you are going to see that just kind of continue to be some variability and the range will stay where it is. With respect to the lower end and the higher end, really, our business is mainly about deliveries.

Yeah, so so a good question. So

You know, I think you would have noted that while we've made Improvement in seating. We've not, you know, that number is not zero right now, and so, you know, we've talked, you know, early in the year about kind of a, Q2, getting the zero there, um, and obviously we didn't, we didn't make that. And so, that's some of the reason why you're seeing a bit of a wider range, is that we just have some uncertainty there with, you know what, our pace of deliveries will be particularly in the new flyer Transit business in the second half of the year. So I I think you're going to see, um, you know, that just kind of continued to be some variability and and some and the range will stay where it is.

Chris Murray: That is what is going to determine kind of lower to higher end of the range there. Q4 is always a bit disproportionate in terms of the number of deliveries we have with a strong coach delivery quarter. That is why there is kind of more variability than you would normally see in a regular business. We just have a little bit more uncertainty in the fourth quarter given the nature of the private business is you do not have a ton of visibility into those orders. You wind up getting a lot of them in Q4 and consequently delivering a lot in Q4.

Um and so with respect to the lower end and the higher end really you know our businesses you know mainly about deliveries and that's that's what's going to determine kind of lower to higher end of the the range there.

And, you know, Q4 is always a bit disproportionate in terms of the number of deliveries we have with, you know, a strong coach delivery quarter.

Cameron Doerksen: Okay. No, that's helpful. But just think about, I guess, the delivery profile here. I mean, obviously, you're not prepared to talk too much about 2026. But assuming that the seat situation is kind of cleared up by the end of the year, I mean, I know that there's been a target out there to eventually hit 6,000 unit deliveries. I'm just wondering if that's a realistic kind of goal for 2026. How does the, I guess, the situation in the U.K. affect that kind of longer-term target? Just any thoughts around kind of the delivery profile as we look ahead over the next 12 to 18 months?

And um, that's why there's kind of more variability than you would normally see, you know, you know, in a regular business, you know, we just have a little bit more uncertainty in the fourth quarter. Given, you know, the nature of the private businesses. You don't have a ton of visibility into those orders and and you wind up getting a lot of them in Q4 and consequently, delivering a lot in Q4.

Okay, no that that that's helpful. And if I just think about I guess the delivery profile here. I mean you know obviously you're not getting prepared to you know, talk too much about 2026 but assuming that the seat

Michelle: Yeah, thanks, Cam. That's a good question. Yes, we had always kind of said we wanted to get back to that 6,000, which was kind of our pro forma 2019 number when Alexander Dennis got included. So you do have a muted dynamic in the U.K. That's one thing that will affect the 6,000. The other issue is you've heard us over the last quarter is our focus on zero emissions because they've been, you know, first challenge to get up to learning speed of building them, delivering them, commissioning with our customers, charging infrastructure, readiness, and so forth. So we're now way more focused on quality of earnings and quality of deliveries than pure quantum for the sake of it. So I would suggest that 6,000 is still kind of our target.

Situation is kind of cleared up by the end of the year. Um, I mean, I know that there's, you know, a bit of Target out there to eventually hit 6,000 unit deliveries. Um, I'm just wondering, if, if that's a, a realistic kind of goal for 2026. Um, you know, how does the I guess the the, the situation in the UK affect, uh, that that kind of longer term Target, uh, just any thoughts around kind of the delivery profile as we look ahead, you know, over the next 12 to 18 months,

Yeah. Thanks cam. It's a good question and and yes we had always kind of said we wanted to get back to that 6000 which was kind of our ProForm 2019 number.

U.

Michelle: I wouldn't kind of think we're headed there for 2026, but definitely, you know, 2027 is probably more of the time we'll hit that rate.

So so we are now way more focused on quality of earnings and quality of deliveries than pure Quantum for the sake of it. Uh, so I would suggest that 6,000 is still kind of our Target. I wouldn't kind of think we're headed there for 2026 but desperately, you know. 27 is probably more the time we'll hit that rate.

Cameron Doerksen: Okay. That makes sense. And maybe just one quick final one for me, just thinking about the U.S. funding. I mean, you talked a little bit about the, I guess, the low NO program. You know, it does seem as though the current administration is maybe more focused on the low as opposed to the NO emissions. Have you had any customers that have orders in the book now that have changed from a ZEV bus to something else? I mean, I am wondering if they are even allowed to do that. Just any thoughts around what you are seeing from your customers on how they might be shifting their focus as far as the type of propulsion system?

Michelle: is really a good question and worthy for a lot of discussion on it. Imagine you and I walked into a transit agency. They have been working to a five-year or a 10-year fleet replacement plan at some pace to move to battery-electric or fuel cell-electric or in some cases, middle ground with hybrid electrics and so forth. Now you have a new government whose, you know, stated position on meeting zero emission targets is not the same. You have funding dynamics locally and operating cost dynamics and so forth. We also just saw the release of the apportionment, whatever it is, a month or two ago, which reinforced the last year of the IIJ Act.

Okay, that that makes sense and maybe just want a quick final 1 for me, just thinking about the US funding. I mean, you talked a little bit about the I guess the loano program and uh, you know it does seem as though that the current Administration is maybe more focused on the, you know, the the low as opposed to the know uh, emissions. Have you have you had any customers uh, that have orders in the book now that have, you know, changed from the Zeb bus to something else? I mean, I, I'm wondering if they're even allowed to do that. Uh, so just any, any thoughts around, what you're seeing from your, your customers on how they might be shifting, their focus? Uh, as far as the the type of propulsion system,

It's really a good question. And and really for a lot of discussion on it,

But a, but imagine you, and I walked into a Transit Agency. They'd been working to a 5 year, or a 10 year Fleet replacement plan at some Pace to move to battery, electric, or fuel cell elector in some, or some cases, middle ground with with, um, hybrid electrics and so forth. So, now you have a new government who's, you know, stated position on meeting zero. Mission targets is not the same.

You have, um, funding Dynamics locally that an operating cost Dynamics and so forth.

Michelle: I would suggest we are really in the early phase of what you just asked about, Cameron, that customer is saying, "So what are we really going to do here?" With the launch of that program, we still put in, I cannot remember, it was 150 or so proposals to customers to team for the low NO applications. I think we are probably going to see that customer, depending on if they do or do not get awarded that stuff, start to make those decisions on their next procurements as opposed to current procurements. There is no question we still got some customers that today have zero emission buses on order, and they have a program to set up their charging infrastructure. In some cases, holy smokes, our charging infrastructure is delayed, so maybe we do not need the buses as fast. That kind of stuff is just normal noise.

We also just saw the release of the Porsche Mint, whatever it is, a month or two ago, which reinforced the last year of the IIJ Act. So.

I would suggest we're really in the early phase of what you just asked about camera to that customer saying. So, what are we really going to do here?

With the with the, with the launch of that that program we we still put in I can't remember as 150 or so proposals to customers to team for the loan, no applications. I think we're probably going to see that customer depending on if they do, or don't get awarded that stuff. Start to make those decisions on their next procurement. As opposed to current procurement. There is no question, we still got some customers that today.

Michelle: Because we have got such a good backlog, we are able to adjust. There is, though, we think there is going to be less of a pressure and a focus. Right now, our total percentage of deliveries of zero emission is somewhere, Stephen, in the mid-30s, right?

Have uh, zero emission buses on order and and they have a program to set up their charging infrastructure and in some cases. Holy smokes are charging infrastructure is delayed. So maybe we don't need the buses. This fast, that kind of stuff is just normal noise and because we've got such a good backlog, we're able to adjust

um,

Krista Friesen: Yeah, 30.

Michelle: We had expected by 2027 that might get up to 2028, 2029, that might get up to 40%, 50%. We are now wondering whether that is going to be the case. I also believe certain operators that are well into the electrification journey are not going to stop and reverse. They may slow down the pace of adoption. That is a lot of ways to say the game has just really kind of started. The additional money this year or the completion of that last year IJ kind of level sets, and we have got people asking for it. The second issue is there has been a letter this past week or two weeks ago from the FTA to the operators to say, "Hey, we have been getting people asking us about our position as a federal government relative to zero emission.

There, there is, though we think there is going to be less of a pressure and a focus. So, right now, our total percentage of deliveries of zero mission is somewhere, Stephen, in the mid-30s, right? Yeah, 30. And so we had expected by '27 that might get up to 28, and '29 that might get up to 40 to 50%.

We're now wondering whether that's going to be the case. I also believe certain operators that are well into the electrification journey are not going to stop in Reverse. They may slow down the pace of a doctor.

Michelle: You know, how should we think about that?" The FTA issued a letter to all the operators to say, "If you want to change your plans on propulsion, whether you are already in RFP stage or you have options and so forth, tell us what you want to do, and we will evaluate them." That is the first time we have seen that because up to this point in time, there has been, you know, you have a contract for an ICE engine or for a zero emission. You cannot make changes to the cardinal changes to the propulsion dynamic. You have got to issue another new RFP and so forth. That will also, you know, whatever they get back in terms of ask and requests will also signal what that might do to the overall adoption of zero emission.

So that that's a lot of way to say the game is just really kind of started but the additional money this year or the completion of that last year IJ kind of level sets and we've got people asking for the second issue is there's been a letter this past week or 2 weeks ago from the FTA to The Operators. To say hey we've been getting people asking us about our position as a federal government relative to zero emission.

And you know, how should we think about that? So the FTA issued a letter to all the operators to say if you want to change your plans on propulsion, whether you're already in the RFP stage or in the OP, you have options and so forth. Tell us what you want to do, and we'll evaluate them. And that's the first time we've seen that because up to this point in time, there's been, you know, you have a contract for an ICE engine or for a zero-emission vehicle; you can't make changes to the cardinal changes to the propulsion dynamic. You got issues and other new RFPs and so forth.

Michelle: I am not trying to elude the question, but it is kind of a little bit too early to answer. We do know that some of the larger operators, for example, New York and so forth, are really rethinking the pace at which they are going to adopt a zero emission fleet. In New York, for example, there are 5,900 or 6,000 buses. There are massive dollars at play. Hopefully, Cam, that gives you a little bit of color. Maybe next quarter, we will have a better understanding of what the low NOs happened this year, what awards happened, whether it was more low and less NO, or we will see on that.

So that will also, you know, the whatever they get back in terms of ask and request will also signal what that might do to the overall adoption of Zero Mission.

Cameron Doerksen: Okay. No, that's super helpful. Appreciate the time. Thanks very much.

So I'm not trying to elude the question, but it's kind of too a little bit too early to answer. We do know that some of the larger operators, for example, New York and so forth is really rethinking the pace at which they're going to adopt a zero emission Fleet. Uh and you know New York example, there's 5,900 or 6,000 buses and so there's massive dollars at play hope. Hopefully, can that gives you a little bit of color and, you know, maybe next quarter, we'll have better understanding of what the low nose happened this year, what awards happened, whether it was more low, and less know, or, you know, we'll see on that.

Chris Murray: Thanks, guys.

Okay, no, that's that's super helpful. Appreciate the time. Thanks very much.

Paul Soubry: The next question comes from John Gibson with BMO Capital Markets. Your line's open.

John Gibson: Morning. Thanks for taking my questions here. First on manufacturing margins, obviously, a nice jump here in Q2. Do you expect them to hold at these levels in the back half of the year? I guess what drove them higher this quarter? Just improved pricing, manufacturing, or any other factors here?

Morning. Uh, thanks for taking my questions here. Um, just first on manufacturing, margins—obviously a nice jump here in Q2.

You know, do you expect them to hold at these levels in the back half of the year? And I guess what? What drove them higher this quarter just improved pricing manufacturing or any other factors here.

Chris Murray: Yeah, great question. Paul Soubry alluded a little bit to better efficiency within our facility. So that certainly played a part where, as we continue to get more continuity of supply and as we continue to heal a little bit from American seating, we're not all the way there, but that's led to better efficiency. So you've seen the labor efficiency contribution there. As we look at the back half of the year, we would expect more of that. Then, of course, volume as well heals a lot of stuff. As we see the second half of the year with our expectation to increase volume, we would expect that those margins would continue to push through and push upward.

John Gibson: Okay, great. Last one from me, just as we think about the guide for the year, maybe asking this in a different way. How much of an improvement with your original seat supplier does meeting your guidance imply as you are kind of back to normalized operations by Q4 or somewhere kind of in the middle from where you are currently at?

Yeah great. Great question. Paul alluded a little bit to better efficiency um, within our facility. So that's certainly played a part where, you know, as we continue to get more continuity of supply and as we continue to heal a little bit from American Seating, we're not all the way there, but that's led to better efficiency. So you've seen a the labor efficiency contribution there. As we look at the back half of the year, um, we would expect more of that and then, of course, volume as well. Heals a lot of stuff and so as we see the second half of the year with, you know, our expectation increase volume. We would expect that those margins would continue to push push through uh, and push upward.

Okay, great. And then lots of them for me just as we think about the guide for the year,

maybe asking this in a different way. Um, how much of an improvement with your original seat supplier does meeting your guidance and apply as a kind of back to normalized operations by Q4, or somewhere, you know, type in the middle from where you're currently at.

Chris Murray: So the guidance that we have given and our expectation would be to get healthy with our seating supply sometime, you know, middle to end of Q3. Depending on how a few other factors go, that is about the timeframe when we would need to see that. Potentially, you know, we might narrow the range of guidance as we get, you know, on our Q3 call. So that is our expectation as we go forward, and we are, you know, working hard toward that.

Krista Friesen: The only thing I would add, John, we have the benefit in the second half of our new seat supplier. A new Buy America compliant seat supplier has come online in Q2. They ramp up more of the volume in the second half. That is also a help to our second half, having that more diversification in the seat supply.

Yeah. So the the guidance that we've given in our expectation would be, um, to get healthy with our seating Supply sometime, you know, middle to end of Q3. Um, and depending on how a few other factors go that's about the time frame when we would need to see that. And, you know, potentially, um, you know, we might narrow the range of guidance as we get, you know, on our Q3 call. Um, and so that that's our expectation as we go forward and we're, you know, working hard for that. And the, the only thing I'd add John, we have the benefit in the second half of our, uh, new seat supplier a new by America compliance. Heat supplier has come online in Q2 and they ramp up more of the volume in the second half. So that's also a help um to kind of our second half per

Having more diversification in the seat supply.

John Gibson: Okay, great. I appreciate the responses. I will turn it back here.

Okay, great, I appreciate the responses. I'll turn it back here.

Paul Soubry: The next question will come from Jonathan Goldman with Scotiabank. Your line is open.

Jonathan Goldman: Hi. Good morning, team, and thanks for taking my questions. I apologize I joined a bit late. Just a housekeeping one to start. On the 2025 guidance, was there any change to the underlying assumptions for EU deliveries this year, the 5,000 plus?

And the next question will come to come from Jonathan Goldman with Scotia Bank, your line is open.

Good morning team and thanks for taking my questions.

I apologize. I joined a bit late. Just a housekeeping question to start on the 2025 guidance. Was there any change to the underlying assumptions for EU deliveries this year, the 5,000 Plus?

Chris Murray: No, we have not. We've not changed any guidance with respect to that.

Jonathan Goldman: Okay, perfect. I guess, dovetailing on the previous question, the unit profitability showed a significant step up, at least on my numbers. Your EBITDA for EU is $50K, the highest since 2019. Throughput should be ramping in the second half. Backlog pricing is even higher than the latest pricing. Maybe there is some mix in there. Is it reasonable to think you are on your way to exceeding your prior peak profitability back in 2017?

No, we have not uh We've not changed any uh any guidance with respect to that.

Okay, perfect. And then I guess dovetailing on the previous question. Like the unit profitability showed a significant step up at least on my numbers, your Eva for eu's 50k. The highest in the 2019, you know, throughput should be ramping the second. Highest backlog pricing is even higher than the latest pricing. Maybe there's a mix in there, but is it reasonable to think you're on your way to exceeding your prior Peak profitability back in 2017?

Michelle: Profitability as a net % of dollars per unit or %? Sorry, just clarify what you exactly mean.

profitability is a as a percentage of

Jonathan Goldman: Yeah, sorry. I guess I am talking about on a per unit basis, EBITDA for EU. I think you were around 64, 65K back in 2017. You ended the quarter at 50, and it just seems like things are working in your favor.

Dollars per unit or percentage? Sorry, just to clarify what you exactly mean. Yeah, sorry, I guess I'm talking about on a per unit basis, EBA for EU. I think you were at around $64,65 in 2017, at the end of the quarter at $50, and it just seems like things are working in your favor.

Michelle: A couple of just some context. When we were just pure New Flyer, a transit bus, only a candidate in the United States, that was a very meaningful measure of the health of what we were building and bidding and building and delivering. As we added ARBOC, much smaller units, very different margin profile because in most cases, the chassis is provided. So the percent dollar unit per unit is low, but the percent per unit is higher. When we added MCI, it was not that materially different than the New Flyer business. When we added Alexander Dennis, the margin profile domestically and internationally are very different, both on a dollar and a percent basis. Now part of the challenge to answer your question is we are dealing with all kinds of like averages and blend of all those kinds of things.

So,

A couple just some context when we were just pure new flyer, a Transit bus. Only a candidate United States that was a, a very meaningful measure of the health of what we were building and bidding, and building, and delivering, and so forth. As we added, um, Arbok much smaller units,

Very different margin profile because in most cases the chassis provided. So the percent dollar unit is per unit is low, but the percent per unit is higher. When we added MCI, it wasn't that materially different than the new flour business. But when we added our Alexander Dennis, the margin profile domestically and internationally are very different, both on a dollar and a percent basis.

Michelle: As volume has recovered, and Brian just alluded to this, yes, we worked on our overhead. We cut our overhead where we could. As volume comes up, the overhead recapture has as significant an impact as the actual pricing per unit. We have not been giving, quote-unquote, EBITDA per unit guidance. We are thrilled to see it recovering and growing. We are very encouraged by the quality of the pricing and the expected margins in our backlog, as well as that volume increase that captures more overhead. We would expect to see continued improvement in that EBITDA per EU at the global calculation perspective. Again, not trying to be too elusive, but there are lots of things that come into that calculation. So it is not as simple as straight math.

So now part of the challenge to answer your question is, we're dealing with all kinds of like averages and blend of all those kind of things.

Jonathan Goldman: No, that's fair. There was some good color on those moving pieces. I guess one more then on cash flows. Again, a lot of moving pieces in there. Can you help us parse out what would be a one-time cash expense or maybe an unusual element in the quarter, whether it's higher bank fees or redeeming debt? You can give us kind of a global number of a drag on free cash flow that's one-time. The second piece of this is on the cash taxes left a bit high in the quarter. Maybe anything there to call out and how we should think about cash taxes for the balance of the year.

We're very encouraged by the quality of the pricing, and the expected margins in our backlog, as well as that volume, increase that captures more overhead. So we would expect to see continued Improvement in that even Docker EU at the global calculation perspective. So, not again, not trying to be too elusive, but there's lots of things that come into that calculation. So it's not as simple as, you know, straight math.

No, that's fair. And there was some good color on those moving pieces. I guess one more thing on cash flow is, again, a lot of moving pieces in there. Can you help us parse out what would be a one-time cash expense or maybe an unusual element in the quarter, whether it's higher bank fees or redeeming debt? If you can give us kind of a global number of a drag on free cash flow that’s one-time. And then the second piece of this is on the cash taxes. It looked a bit high in the quarter. Maybe anything there to call out and how we should think about cash taxes for the balance of the year.

Chris Murray: Yes, I think so. I will take the first question first. In Q2, if you looked at a number of the adjustments, most of that was non-cash, but you would have seen the prepayment or the payment associated with the early extinguishment of the second lien that we had prior to the refinancing. That was, round figures, I think $10.8 million. The labor and overhead and a portion of the liquidated damages, round figures, another $10 million, would be cash affected as well. I believe the balance of what was in the adjustments were non-cash. Those two things together, just round figures, were about $20 million worth of cash drag in Q2. With respect to taxes, we do have some high variability in our taxes in the different jurisdictions.

Yeah, I think so. So we'll take the first question first. So, in quarter, if you looked at a number of the adjustments, you know, most of that was non-cash. But you would have seen the, um, prepayment or the the payment associated with the early, um, extinguishment of the second lean that we had prior to the refinancing. So that was round figures, I think 10.8 million and then the, um, labor and overhead and, um, and a portion of the liquidated damage.

Damages so round figures. Another $10 million would be cash affected as well, and I believe the balance of what was in the adjustments were non-cash. And so those two things together, just round figures, were about $20 million worth of cash dragged in Q2. And then with respect to taxes,

Chris Murray: We will look kind of abnormally higher in taxes than you would normally expect if we were kind of balanced across all of our jurisdictions. There are certain tax attributes and interest expense limitations that are affecting us, which will have us at a bit of a higher tax rate, at least through 2025. As we get into 2026, we should be able to take advantage of some of the positive tax attributes in some of the other jurisdictions. Hopefully, that was helpful.

Jonathan Goldman: No, that's good color. Thanks. It's good for modeling. I'll get back in queue.

Um, we do have some high variability in our taxes in, in the different jurisdictions. And so we we will look kind of abnormally, you know, higher in taxes than you would normally expect. If we were kind of balanced across all of our jurisdictions, there's certain tax attributes and and interest expense limitations that are affecting us which will have us at at a bit of a higher tax rate at least through 202025. And then as we get into 2026, we should be able to take advantage of some of the, the positive tax attributes in some of the other jurisdictions. So um, hopefully that was helpful.

Paul Soubry: I am showing no further questions at this time. I would now like to turn the call back over to Stephen for closing remarks.

No, that's a good color. Thanks, it's good for modeling. I'll get back in queue.

I am showing no further questions at this time. I would now like to turn the call back over to Stephen for closing remarks.

Krista Friesen: Yeah, thanks. Thanks, everybody, for joining. And thanks, as always, for the questions. If you want to follow up, please reach out to us at any time or check the website for the latest information. We look forward to talking to you all soon. Thanks so much and have a great day.

Yeah, thanks uh thanks everybody for joining and thanks as always for the questions. Uh if you you know want to follow up please reach out to us at any time or check the website for the latest information and we look forward to talking to you. Also, thanks so much and have a great day.

Paul Soubry: This does conclude today's conference call, and thank you for participating. You may now disconnect.

This does conclude today's conference call and thank you for participating. You may now disconnect