Q4 2025 NFI Group Inc Earnings Call
Operator: Good day, and thank you for standing by. Welcome to the NFI Q4 2025 financial results conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star one one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star one one again. You may also submit questions via the webcast. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Stephen King, Vice President of Strategy and Investor Relations. Please go ahead.
Speaker #1: After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star 11 on your telephone.
Speaker #1: You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. You may also submit questions via the webcast.
Speaker #1: Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Stephen King, Vice President, Strategy and Investor Relations.
Speaker #1: Please go ahead.
Speaker #2: Thank you, Shannon. Good morning, everyone, and welcome to our conference call. Joining me today are John Sapp, President and Chief Executive Officer; and Brian Duznap, Chief Financial Officer.
Stephen King: Thank you, Shannon. Good morning, everyone, and welcome to our conference call. Joining me today are John Sapp, President and Chief Executive Officer, and Brian Dewsnup, Chief Financial Officer. On today's call, we will give you an update on our annual and quarterly results, highlighting a record year in 2025 for NFI. You'll also hear from John on his first few months as CEO and his top priorities coming into the year. This call is being recorded and a replay will be made available shortly. We will be referring to a presentation that could be found in the Financials and Filings section of the NFI Group website. As we move through the slides via the webcast link, we will call out the slide number.
Speaker #2: On today's call, we will give you an update on our annual and quarterly results, highlighting a record year in 2025 for NFI. You'll also hear from John on his first few months as CEO and his top priorities coming into the year.
Speaker #2: This call is being recorded, and a replay will be made available shortly. We will be referring to a presentation that could be found in the financials and filings section of the NFI Group website.
Speaker #2: As we move through the slides via the webcast link, we will call out the slide number. On slide 2, we provide our cautionary or forward-looking statements, 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.
Stephen King: On slide 2, we provide our cautionary or forward-looking statements 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's statements are presented in US dollars, the company's reporting currency, and all amounts referred to are in US dollars unless otherwise noted. Slides 3 and 4 provide a brief overview of our company.
Speaker #2: 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.
Speaker #2: A reminder that NFI statements are presented in US dollars, the company's reporting currency, and all amounts referred to are in US dollars unless otherwise noted.
Speaker #2: Slides 3 and 4 provide a brief overview of our company. NFI is a global independent bus and motor coach manufacturer and total mobility solutions provider.
Stephen King: NFI is a global independent bus and motor coach manufacturer and total mobility solutions provider. We offer a wide range of buses and coaches on proven platforms, and we hold leading positions in transit and coach markets with the strongest aftermarket network in North America and the UK. More detailed event information is available on the NFI Group website. Slide 5 provides some brief insight into NFI's product and geographic mix and other milestones. I'll now pass the call over to John.
Speaker #2: We offer a wide range of buses and coaches on proven platforms, and we hold leading positions in transit and coach markets with the strongest aftermarket network in North America and the UK.
Speaker #2: More detailed information is available on the NFI Group website. Slide 5 provides some brief insight into NFI's product and geographic mix, and other milestones, and I'll now pass the call over to John.
Speaker #3: Thanks, Stephen. And good morning, everyone, and thank you for joining us today. I'm going to pick up on slide 7. It's been just over two months since I started with NFI, and in that time, I've had the opportunity to see firsthand what makes this organization a leader in the markets we serve.
John Sapp: Thanks, Stephen, and good morning, everyone, and thank you for joining us today. I'm gonna pick up on slide seven. It's been just over two months since I started with NFI, and in that time, I've had the opportunity to see firsthand what makes this organization a leader in the markets we serve. I visited numerous facilities across our network in the US, Canada, and the UK, and I've had the opportunity to work closely with the leadership team to get alignment on our priorities for the year. What drew me to NFI was the critical role that the company plays in driving cities, economic activity, environmental progress, and enabling connections. NFI's purpose is to move people, and I've seen our team's commitment to that mission every single day since I've arrived.
Speaker #3: I visited numerous facilities across our network in the US, Canada, and the UK. And I've had the opportunity to work closely with the leadership team to get alignment on our priorities for the year.
Speaker #3: What drew me to NFI was the critical role that the company plays in driving cities, economic activity, environmental progress, and enabling connections. NFI's purpose is to move people, and I've seen our team's commitment to that mission every single day since I've arrived.
Speaker #3: Whether it's mobilizing actions to support customer deliveries, executing field service activities, providing aftermarket parts, completing complex engineering, or fabricating components for buses, the team at NFI remains focused on the end goal of supporting customers to ensure they can keep their passengers and riders moving safely.
John Sapp: Whether it's mobilizing actions to support customer deliveries, executing field service activities, providing aftermarket parts, completing complex engineering, or fabricating components for buses, the team at NFI remain focused on the end goal of supporting customers to ensure they can keep their passengers and riders moving safely. I'm honored to be following Paul Soubry in this role. The legacy of his outstanding 17-year tenure will forever be a part of the NFI Group. While we wish him all the best in his retirement, I'm also pleased that he will remain available to us and myself as an advisor going forward. As incoming President and CEO, my focus has not changed for the sake of change, while I also wanna make it clear that status quo is not the plan.
Speaker #3: I'm honored to be following Paul Suberi in this role. The legacy of his outstanding 17-year tenure will forever be a part of the NFI Group.
Speaker #3: While we wish him all the best in his retirement, I'm also pleased that he will remain available to us and myself as an advisor going forward.
Speaker #3: As incoming president and CEO, my focus has not changed for the sake of change. However, I also want to make it clear that status quo is not the plan.
Speaker #3: While we are well positioned for success with a strong $13 billion backlog, a very positive demand outlook, and a foundational aftermarket business, I also want to bring new perspectives and fresh ideas to the business and our longer-term plan.
John Sapp: While we are well-positioned for success with a strong $13 billion backlog, a very positive demand outlook, and foundational aftermarket business, I also wanna bring new perspectives and fresh ideas to the business and our longer-term plan. The leadership team and the board have developed a multiyear financial plan that will see NFI continue to grow, and I'm committed to making sure that we deliver and execute to our expectations. I'll now pass it over to Brian to go through the Q4 results before we get into a detailed look at our outlook.
Speaker #3: The leadership team and the board have developed a multi-year financial plan that will see NFI continue to grow, and I'm committed to making sure that we deliver and execute to our expectations.
Speaker #3: I'll now pass it over to Brian to go through the fourth quarter results. Before we get into the detailed look at our outlook.
Speaker #2: Thanks, John. Turning to slide 8, Q4 was a record quarter for NFI, with the largest revenue and adjusted EBITDA in our history. We saw a 22.5% year-over-year increase in revenue and an almost 79% year-over-year increase in adjusted EBITDA.
Brian Dewsnup: Thanks, John. Turning to slide 8, Q4 was a record quarter for NFI with the largest revenue and Adjusted EBITDA in our history. We saw a 22.5% year-over-year increase in revenue and it's almost 79% year-over-year increase in Adjusted EBITDA. We achieved adjusted net earnings of $59.6 million for the quarter and a 45.7% increase from Q4 2024. Our liquidity increased by $319 million year-over-year, reaching almost $446 million. This reflects a temporary positive increase in the battery settlement. Total leverage inclusive of all debt improved to 3.49x, an improvement of 5.3x from Q4 2024. We continue to make meaningful progress towards our leverage target of 1.5 to 2.5.
Speaker #2: We achieved adjusted net earnings of $59.6 million for the quarter and a 45.7% increase from Q4 2024. Our liquidity increased by $319 million year-over-year, reaching almost $446 million.
Speaker #2: This reflects a temporary positive increase in the battery settlement. Total leverage inclusive of all debt improved to 3.49 times, an improvement of 5.3 times from 2024 Q4.
Speaker #2: We continue to make meaningful progress towards our leverage target of 1.5 to 2.5. The overall improvements were largely driven by the continued strength in manufacturing sales mix as we convert our backlog into results with increased unit economics.
Brian Dewsnup: The overall improvements were largely driven by the continued strength in manufacturing sales mix as we convert our backlog into results with increased unit economics. The quarter was also positively impacted by the battery settlement agreement reached in mid-December, which is detailed on Slide 9. For reference, in Q3 2025, NFI recorded a $229.9 million provision as part of the originally announced battery recall. The majority of this provision relates to the expected cost of the recall campaign, while a smaller portion is for potential additional warranty and support costs for other non-recall related battery electric buses in service from the same battery manufacturer.
Speaker #2: The quarter was also positively impacted by the battery settlement agreement reached in mid-December, which is detailed on slide 9. For reference, in the third quarter of 2025, NFI recorded a $229.9 million provision as part of the originally announced battery recall.
Speaker #2: The majority of this provision relates to the expected costs of the recall campaign, while a smaller portion is for potential additional warranty and support costs for other non-recall-related battery electric buses in service from the same battery manufacturer.
Speaker #2: NFI worked throughout the fourth quarter with the impacted supplier and came to the final settlement agreement in December that included the following items: immediate cash payment received in December, an inventory of battery cells from a leading global provider—which NFI plans to use with a new battery manufacturer starting late 2027—hiring of certain engineering and service employees who will support the recall and provide oversight on NFI's other electric buses, assumption of software and intellectual property, plus facilities for office and engineering labs, and the storage of battery cells.
Brian Dewsnup: NFI worked throughout Q4 with the impacted supplier and came to the final settlement agreement in December that included the following items. Immediate cash payment received in December, an inventory of battery cells from a leading global provider, which NFI plans to use with a new battery manufacturer starting late 2027. Hiring of certain engineering and service employees who will support the recall and provide oversight on NFI's other electric buses, assumption of software and intellectual property, plus facilities for office and engineering labs and the storage of battery cells. Finally, cash payment in escrow to support transferred employees and the facilities mentioned above. The table on the left showcases the financial statement impacts.
Speaker #2: And finally, cash payment and escrow to support transferred employees and the facilities mentioned above. The table on the left showcases the financial statement impacts.
Speaker #2: On a net basis, we recorded a 63.9 million loss which is generally viewed as a conservative approach considering the likelihood that certain warranty claims may or may not come to fruition.
Brian Dewsnup: On a net basis, we recorded a $63.9 million loss, which is generally viewed as a conservative approach, considering the likelihood that certain warranty claims may or may not come to fruition. We're also focused on managing the cost of the battery recall campaign to lower cash outflows. Recognition of the battery recall and settlement impacted numerous financial metrics in 2025. Given the non-recurring nature of this event, we have normalized adjusted EBITDA and adjusted net earnings. To see a full breakdown of the impacts, please see our MD&A and financial statements. Moving to slide 10, we highlight the quarterly and full year deliveries by product lines. Transit bus deliveries were down 6% in the quarter and 7% for the year, primarily due to lower UK deliveries, partially offset by higher North American deliveries.
Speaker #2: We're also focused on managing the costs of the battery recall campaign to lower cash outflows. Recognition of the battery recall and settlement impacted numerous financial metrics in 2025.
Speaker #2: Given the non-recurring nature of this event, we've normalized adjusted EBITDA and adjusted net earnings. To see a full breakdown of the impacts, please see our MD&A and financial statements.
Speaker #2: Moving to slide 10, we highlight the quarterly and full-year deliveries by product lines. Transit bus deliveries were down 6% in the quarter and 7% for the year, primarily due to lower UK deliveries partially offset by higher North American deliveries.
Brian Dewsnup: Despite these lower deliveries, the average selling price, or ASP, of a heavy-duty transit bus increased by 33% year-over-year, reflecting the conversion of stronger backlog to results. Motor Coach saw a significant increase in the quarter, with deliveries up 48% from 2024. This was driven by customer demand, acceptance, and seasonal timing. The ASP for this segment saw a 3% growth year-over-year. The low-floor cutaway and medium-duty segment saw a record full-year delivery of 761 units, an increase of 22% year-over-year and a 12% increase in the quarter. The segment also saw a 15% increase in ASPs. Turning to slide 11. Aftermarket gross margin percentage was up significantly from Q3 and up from 2024. This reflects sales mix benefits and updated pricing reflecting the impact of tariffs.
Speaker #2: Despite these lower deliveries, the average selling price, or ASP, of a heavy-duty electric transit bus increased by 33% year-over-year, reflecting the conversion of stronger backlog to results.
Speaker #2: Motor coach saw a significant increase in the quarter with deliveries up 48% from 2024. This was driven by customer demand, acceptance, and seasonal timing.
Speaker #2: The ASP for this segment saw a 3% growth year-over-year. The low-floor cutaway and medium-duty segment saw record full-year delivery of 761 units. An increase of 22% year-over-year and a 12% increase in the quarter.
Speaker #2: The segment also saw a 15% increase in ASPs. Turning to slide 11, aftermarket gross margin percentage was up significantly from Q3 and up from 2024.
Speaker #2: This reflects sales mix, benefits, and updated pricing reflecting the impact of tariffs. In the manufacturing segment, gross margin was up to 14.8% and an increase of 780 basis points from Q4 2024 and 460 basis points from the previous quarter.
Brian Dewsnup: In the manufacturing segment, gross margin was up to 14.8%, an increase of 780 basis points from Q4 2024 and 460 basis points from the previous quarter after adjusting for the impacts of the battery recall. This increase was also driven by conversion of backlog and the positive benefits of geographic mix. Slides 12 and 13 walk through the year-over-year changes in Adjusted EBITDA within our reporting segments. I'll just highlight that manufacturing Adjusted EBITDA increased by $59 million or 167% in the quarter and increased by almost $150 million on a full year basis. On slide 14, free cash flow for 2025 was positive at $67.8 million with a year-over-year increase of $86 million, driven by operational performance improvements and lower cash interest costs.
Speaker #2: After adjusting for the impacts of the battery recall, this increase was also driven by a conversion of backlog and the positive benefits of geographic mix.
Speaker #2: Slides 12 and 13 walk through the year-over-year changes in adjusted EBITDA within our reporting segments. I'll just highlight that manufacturing adjusted EBITDA increased by $59 million, or 167%, in the quarter and increased by almost $150 million on a full-year basis.
Speaker #2: On slide 14, free cash flow for 2025 was positive at $67.8 million, with a year-over-year increase of $86 million, driven by operational performance improvements and lower cash interest costs.
Speaker #2: When we factor in changes in working capital, there was a significant positive impact on cash flows in 2025. This was primarily driven by the battery recall provision, somewhat offset by the increase in inventory from the cells received in the battery settlement, and higher AR balances reflecting a busy delivery period in December.
Brian Dewsnup: When we factor in changes in working capital, there was a significant positive impact on cash flows in 2025. This was primarily driven by the battery recall provision, somewhat offset by the increase in inventory from the sales received in the battery settlement and higher AR balances reflecting a busy delivery period in December. Slide 15 showcases a bridge from net loss to adjusted net earnings with all amounts shown net of taxes. There were some large non-recurring and unusual items driving the adjustments in 2025. These included $25.9 million related to our June 2025 refinancing, $137 million of costs at Alexander Dennis related to impairment and restructuring, and $19 million seat supply adjustment reflecting labor inefficiencies and unproductive overhead. Finally, the net impact of the battery recall and settlement of $39.6 million.
Speaker #2: Slide 15 showcases a bridge from net loss to adjusted net earnings. With all amounts shown net of taxes, there were some large non-recurring and unusual items driving the adjustments in 2025.
Speaker #2: These included 25.9 million related to our June 2025 refinancing, 137 million of costs at Alexander Dennis related to impairment and restructuring, and 19 million seat supply adjustment reflecting labor inefficiencies and unprotected overhead.
Speaker #2: And finally, the net impact of the battery recall and settlement of 39.6 million. Adjusted net earnings for 2025 of 85.4 million is an increase of 88.8 million from 2024.
Brian Dewsnup: Adjusted net earnings for 2025 of $85.4 million is an increase of $88.8 million from 2024. Looking at slide 16, we summarize total leverage, liquidity, and ROIC. Total leverage, which includes all debt instruments, continues its downward trend now under 3.5 times. Liquidity was up approximately $333 million year-over-year, and ROIC reached double digits. This reflects our positive cash generation, the impacts from the battery settlement and debt refinancing. I'll now turn the call back to John to discuss our outlook.
Speaker #2: Looking at slide 16, we summarize total leverage, liquidity, and ROIC. Total leverage, which includes all debt instruments, continues its downward trend, now under 3.5 times.
Speaker #2: Liquidity was up approximately $333 million year-over-year, and ROIC reached double digits. This reflects our positive cash generation, the impacts from the battery settlement, and debt refinancing.
Speaker #2: I'll now turn the call back to John to discuss our outlook.
Speaker #3: Thanks, Brian. We're incredibly excited for the path ahead at NFI. Coming off record results, 2026 is shaping up to be another strong year as we execute on our backlog, increase production, and drive operational initiatives.
John Sapp: Thanks, Brian. We're incredibly excited for the path ahead at NFI. Coming off record results, 2026 is shaping up to be another strong year as we execute on our backlog, increase production, and drive operational initiatives. We'll also need to navigate through some broader macroeconomic conditions that may create headwinds. On slide 18, I want to walk through my key strategic priorities that fall under four pillars. These are the drivers of our performance in 2026. First on this list is operational excellence. As a manufacturer of complex, highly customized vehicles, it is critical that we maintain our focus on performance. To many who have followed NFI, you'll know that recovering supply chains have impacted our operations, so it should be no surprise that supply chain performance is a key priority for our team in 2026 and beyond.
Speaker #3: We'll also need to navigate through some broader macroeconomic conditions that may create headwinds. On slide 18, I want to walk through my key strategic priorities that fall under four pillars.
Speaker #3: These are the drivers of our performance in 2026. First on this list is operational excellence. As a manufacturer of complex, highly customized vehicles, it is critical that we maintain our focus on performance.
Speaker #3: To many who have followed NFI, you'll know that recovering supply chains have impacted our operations. So it should be no surprise that supply chain performance is a key priority for our team in 2026 and beyond.
John Sapp: In tandem with that, we'll be focusing on our cost management to ensure we create efficiencies. We want to make sure that we invest in the right areas and resources to enable our continued innovation, but need to drive production leverage to increase EBITDA and earnings growth. Market leadership is another focal point for the year. This is where we want to enhance our customers' experience by continuing to meet their customized needs and providing the broadest and highest quality products on the market. We also want to maintain our position as being our industry's employer of choice, where people can successfully expand their careers as this will further drive overall performance for us as a business. These operational and market activities will underpin our profitable growth. A key factor here is ensuring we continue to capitalize on our impressive backlog and convert high-margin units into deliveries.
Speaker #3: In tandem with that, we'll be focusing on our cost management to ensure we create efficiencies. We want to make sure that we invest in the right areas and resources to enable our continued innovation, but need to drive production leverage to increase EBITDA and earnings growth.
Speaker #3: Market leadership is another focal point for the year. This is where we want to enhance our customers' experience by continuing to meet their customized needs and providing the broadest and highest quality products on the market.
Speaker #3: We also want to maintain our position as being our industry's employer of choice. We're a place where people can successfully expand their careers, as this will further drive overall performance for us as a business.
Speaker #3: These operational and market activities will underpin our profitable growth. A key factor here is ensuring we continue to capitalize on our impressive backlog and convert high-margin units into deliveries.
Speaker #3: In the markets, in the aftermarket segment, we want to continue expanding on growth strategies that provide further penetration into bus and coach parts and service.
John Sapp: In the aftermarket segment, we want to continue expanding on growth strategies that provide further penetration into bus and coach parts and service. This includes more targeted focus on specific components and increased use of e-commerce and web store platforms. The UK order book is a high priority in 2026 as we seek to expand our deliveries and revenue in that region. We are laser-focused on our competitive positioning in the UK, and while we've been happy to see the continued rollout of our new EV products, overall demand is behind our expectations. We are continuing our work with government partners to highlight the importance of domestic manufacturing for the UK, and we are hopeful that the output of ongoing discussions will deliver a positive outcome. We've had great support in Scotland, but need to see broader focus on domestic production to drive increased order improvements.
Speaker #3: This includes more targeted focus on specific components and increased use of e-commerce and web store platforms. The UK order book is a high priority in 2026 as we seek to expand our deliveries and revenue in that region.
Speaker #3: We are laser-focused on our competitive positioning in the UK, and while we've been happy to see the continued rollout of our new EV products, overall demand is behind our expectations.
Speaker #3: We are continuing our work with government partners to highlight the importance of domestic manufacturing for the UK, and we are hopeful that the output of ongoing discussions will deliver a positive outcome.
Speaker #3: We've had great support in Scotland, but need to see broader focus on domestic production to drive increased order improvements. Lastly, NFI is driven to be a long-term business generating value for all our stakeholders.
John Sapp: Lastly, NFI is driven to be a long-term business generating value for all our stakeholders. In 2025, we strengthened our balance sheet through our inaugural US bond issuance, and we continued progression towards our target leverage range. It is a critical point for us to continue our de-leveraging journey while completing the execution of the battery recall campaign and focusing on continued development and succession of our leadership team. With those priorities forming the background and foundation for 2026, we also wanted to provide forward-looking guidance for the year. We anticipate a revenue range of $3.9 to 4.2 billion with Adjusted EBITDA between $370 and 410 million and cash CapEx between $50 and 60 million.
Speaker #3: In 2025, we strengthened our balance sheet through our inaugural US bond issuance, and we continued progression towards our target leverage range. It is a critical point for us to continue our deleveraging journey while completing the execution of the battery recall campaign and focusing on continued development and succession of our leadership team.
Speaker #3: With those priorities forming the background and foundation for 2026, we also wanted to provide forward-looking guidance for the year. We anticipate a revenue range of 3.9 to 4.2 billion dollars, with adjusted EBITDA between 370 and 410 million and cash capex between 50 and 60 million.
Speaker #3: In the box below, you'll see a few of our capital allocation priorities for the year. The top of those being continued progress on our target total leverage.
John Sapp: In the box below, you'll see a few of our capital allocation priorities for the year. The top of those being continued progress on our target total leverage. We expect we'll likely achieve our target in 2027. As we progress towards that goal, we wanna make sure that we continue to invest in the existing business growth and maintenance CapEx. I'll now walk quickly through a few drivers of our guidance expectations. On slide 19, you can see the makeup of our backlog of over 15,300 EVs. 41% are firm orders and 59% are options. Our backlog continues to provide significant visibility for our production schedule and has helped us fill our 2026 North American public market production slots, and we are now selling well into 2027.
Speaker #3: We expect we'll likely achieve our target in 2027. And as we progress towards that goal, we want to make sure that we continue to invest in the existing business growth and maintenance capex.
Speaker #3: I'll now walk quickly through a few drivers of our guidance expectations. On slide 19, you can see the makeup of our backlog of over 15,300 EUs—41% are firm orders and 59% are options.
Speaker #3: Our backlog continues to provide significant visibility for our production schedule and has helped us fill our 2026 North American public market production slots, and we are now selling well into 2027.
Speaker #3: The options offer runway and visibility for our production schedules over the medium and longer term. The black line represents the total value of the backlog, which is now over 13 billion dollars, having grown by 7.3 billion over three years.
John Sapp: The options offer runway and visibility for our production schedules over the medium and longer term. The black line represents the total value of the backlog, which is now over $13 billion, having grown by $7.3 billion over three years. Slide 20 demonstrates the improvement in ASP per unit for firm and option orders. Heavy-duty transit ASPs in dark blue have decreased slightly with changes in propulsion mix. Motor coaches in light blue have seen a significant increase in ASP, driven primarily by public market demand. The ASP for heavy-duty buses is up by almost 55% since Q4 2021, and motor coaches are up 55% over that same time period. Incoming demand for our buses remains strong in North America, and this is shown in our bid universe on slide 21.
Speaker #3: Slide 20 demonstrates the improvement in ASP per EU for firm and option orders. Heavy-duty transit ASPs, shown in dark blue, have decreased slightly with changes in propulsion mix.
Speaker #3: Motor coaches and light blue have seen a significant increase in ASP driven primarily by public market demand. The ASP for heavy-duty buses is up by almost 55% since Q4 2021, and motor coaches are up 55% over that same time period.
Speaker #3: Incoming demand for our buses remains strong in North America, and this is shown in our bid universe on slide 21. We ended the quarter with active bids of 7,120 EUs.
John Sapp: We ended the quarter with active bids of 7,120 EVs. This includes roughly 4,200 EVs, or 4,100 EVs in bids submitted, which is up 12.6% year-over-year. We believe this increasing demand is driven by the funding environment, fleet age, and replacement activities happening in several major cities. The black line on the chart shows new awards, firm and options. The chart illustrates the typical correlation between bids submitted in light blue and contract awards in black with a lag of a few quarters from submission to award. The gray section of the chart shows our five-year expected public bid universe, which is compiled from customer fleet replacement plans and currently sits at roughly 25,000 EVs.
Speaker #3: This includes roughly 4,200 EUs or 4,100 EUs in bids submitted, which is up 12.6% year over year, we believe this increasing demand is driven by the funding environment, fleet age, and replacement activities happening in several major cities.
Speaker #3: The black line on the chart shows new awards, firm and options. The chart illustrates the typical correlation between bids submitted in light blue and contract awards in black, with a lag of a few quarters from submission to award.
Speaker #3: The gray section of the chart shows our five-year expected public bid universe, which is compiled from customer fleet replacement plans and currently sits at roughly 25,000 EUs.
Speaker #3: This is an 8.9% increase from the third quarter and a 14.7% increase year over year. We feel this sustained demand is reflective of a longer-term replacement cycle happening in North America as older buses are taken out of service and replaced by newer units.
John Sapp: This is an 8.9% increase from the third quarter and a 14.7% increase year over year. We feel this sustained demand is reflective of a longer-term replacement cycle happening in North America as older buses are taken out of service and replaced by newer units. Slide 22 shows our book-to-bill and option conversion ratios, another important metric for incoming orders. Our option conversion ratio reached 83.4% in 2025, an improvement from 76.3% in 2024. This reflects increased order activity, a higher number of exercised options, and the improved competitive landscape. Slide 23 highlights our quarterly production rates and deliveries from 2022 to 2025. We continued to experience sustained production rate increases through 2025 in North America, but these were offset by lower UK production, matching lower incoming order demand.
Speaker #3: Slide 22 shows our book-to-bill and option conversion ratios. Another important metric for incoming orders. Our option conversion ratio reached 83.4% in 2025 and improvement from 76.3%.
Speaker #3: In '24, this reflects increased order activity, a higher number of exercised options, and the improved competitive
Speaker #1: Landscape. Slide 23 highlights our quarterly production rates and deliveries from '22 to '25. We continue to experience sustained production rate increases through 2025 in North America, but these were offset by lower UK production matching lower incoming order demand. Production was also impacted by certain supply chain disruption.
John Sapp: Production was also impacted by certain supply chain disruption, and we expect to see line entries continue to increase in 2026, driven by our All-Canadian Build facility, North American double deck ramp-up, and medium-duty and public coach contributions. Slide 24 shows our aftermarket segment's overall performance and important contribution to the NFI Group economic engine. From 2019 to 2025, the business saw a 6.8% CAGR in revenue and an 8.9% CAGR in adjusted EBITDA. While there was some decline in 2025, this is primarily due to a lower large-scale program revenue, somewhat offset by core parts sale growth. We continue to prioritize growth initiatives within the aftermarket and feel that while 2026 will likely be in the low single-digit growth range, longer term, that business has the potential for stronger growth.
Speaker #1: We expect to see line entries continue to increase in 26 , driven by our all build facility . North American double deck ramp up and medium duty and public coach contributions Slide 24 shows our aftermarket segment's overall performance .
Speaker #1: And important contribution to the NFI Group economic engine . From 2019 to 2025 , the business saw a 6.8% kegger in revenue and an 8.9% in adjusted EBITDA .
Speaker #1: While there were some, there was some decline in 2025. This was primarily due to lower large scale program revenue, somewhat offset by core part sales growth.
Speaker #1: We continue to prioritize growth initiatives within the aftermarket and feel that while 2026 will likely be in the low single digit growth range , longer term , that business has the potential for stronger growth On slide 25 , we recap the guidance ranges for key metrics in 2026 .
John Sapp: On slide 25, we recap the guidance ranges for key metrics in 2026. The factors underpinning this guidance are higher production and delivery expectations, continued conversion of our strong backlog into results, improving supply chain performance and readiness, helping to drive improved labor efficiency, all supported by contributions from the aftermarket segment. In terms of seasonality, typically, Q1 is our slowest period, while Q4 is our busiest period. We expect 2026 will follow that same pattern and anticipate year-over-year quarterly growth as reflected in our guidance ranges. There are various headwinds impacting the business, including propulsion sales mix, the speed of supply chain improvements, Alexander Dennis UK market demand, and delays in the timing of UK procurements with increased domestic focus.
Speaker #1: The factors underpinning this guidance are higher production and delivery expectations , continued conversion of our strong backlog into results , improving supply chain performance and readiness , helping to drive improved labor efficiency All supported by contributions from the aftermarket segment In terms of seasonality , typically the first quarter is our slowest period , while the fourth quarter is our busiest period .
Speaker #1: We expect 2026 will follow that same pattern and anticipate year over year quarterly growth as reflected in our guidance ranges . There are various headwinds impacting the business , including propulsion sales mix , the speed of supply chain improvements .
Speaker #1: Alexander Dennis , UK market demand and delays in the timing of UK procurements with increased domestic focus . Finally , we also have to work through macroeconomic factors such as tariffs and trade relationships that we expect will have some impact on results and potential demand within private coach For clarity , our guidance includes the current known impacts of tariffs as of March 11th , 2026 .
John Sapp: Finally, we also have to work through macroeconomic factors such as tariffs and trade relationships that we expect will have some impact on results and potential demand within private coach. For clarity, our guidance includes the current known impacts of tariffs as of 11 March 2026. It does not reflect any material changes that the tariff environment could have on demand, pricing, or cost in the future. On slide 26, we provide our latest views on the macro tariff environment and how they impact NFI today. In each of the boxes, we have identified the major tariffs that are present and applicable to our industry. You'll notice specific color-coded bars that imply the impact to NFI for those tariffs, with red being the most significant impact and green being the lowest.
Speaker #1: It does not reflect any material changes that the tariff environment could have on demand pricing or costs in the future . On slide 26 , we provide our latest views on the macro tariff environment and how they impact NFI today .
Speaker #1: In each of the boxes , we have identified the major tariffs that are present and applicable to our industry . You'll notice specific color coded bars that imply the impact to NFP .
Speaker #1: For those tariffs , with red being the most significant impact and green being the lowest . The two highest impact areas are . Section 232 truck and bus .
John Sapp: The two highest impact areas are Section 232 Truck and Bus, originally launched in November 2025, and the steel and aluminum tariffs. We are continuing to work with our partners to ensure we mitigate these costs wherever possible. As of now, we see tariffs having more of an overall impact on private coach market demand as opposed to the public market. This is largely due to the established manufacturing facilities within the US for public market demand. We continue to view tariffs as largely a pass-through cost to customers through contractual obligations and through general price increases. This does require discussions with customers, and we may not be able to cover all costs, but we've generally had success in being able to find solutions. Longer term, we will continue to assess our geographic production schedules while considering tariff exposure.
Speaker #1: Originally launched in November of '25, and the steel and derivative tariffs, we are continuing to work with our partners to ensure we mitigate these costs wherever possible.
Speaker #1: As of now, we see tariffs having more of an overall impact on private coach market demand as opposed to the public market.
Speaker #1: This is largely due to the established manufacturing facilities . When the US within the US for public market demand . We continue to view tariffs as largely a pass through cost to customers through contractual obligations and through general price increases .
Speaker #1: This does require discussions with customers, and we may not be able to cover all costs, but we've generally had success in being able to find solutions.
Speaker #1: Longer term , we will continue to assess our geographic production schedules while considering tariff exposure in 2025 . We made significant investments in our US operations , increasing staffing in the country by 7% , opened our new Las Vegas production facility , opened a new service center in California , and acquired a Michigan , Michigan based supplier .
John Sapp: In 2025, we made significant investments in our US operations, increasing staffing in the country by 7%, opened our new Las Vegas pre-production facility, opened a new service center in California, and acquired a Michigan-based supplier. We also invested in the Canadian capabilities, culminating with the recent ribbon cutting of our All-Canadian Build facility. We continue to monitor the trade landscape and adjust where necessary to ensure we are as competitive as possible. Wrapping up on slide 27, just a few final comments. Q4 2025 was a record period that helped contribute to NFI's strong fiscal year. We saw increased revenue, converted backlog into results, and had solid cash generation supporting debt repayment and deleveraging. Our total backlog of $13 billion, combined with option conversion rate and book-to-bill ratios, reinforces our confidence in our near and long-term outlook.
Speaker #1: We also invested in the Canadian capabilities , culminating with the recent ribbon cutting of our all Canadian build facility . We continue to monitor the trade landscape and adjust where necessary to ensure we are as competitive as possible Wrapping up on slide 27 , just a few final comments .
Speaker #1: The fourth quarter of 2025 was a record period that helped contribute to Nfis strong fiscal year . We saw increased revenue , converted backlog into results , and had solid cash generation repayment and deleveraging .
Speaker #1: Our total backlog of 13 billion , combined with option conversion rate and book to bill ratio , reinforces our confidence in our near and long term outlook Our guidance numbers are rooted in our manufacturing operational increases alongside the stable contributions from our aftermarket segment .
John Sapp: Our guidance numbers are rooted on our manufacturing operational increases alongside the stable contributions from our aftermarket segment. Despite various headwinds in 2026, we have not changed our overall view that NFI is on a strong trajectory that should see improvements across operating and financial metrics. We are confident in the strength in our markets and our product offerings and in our team's ability to deliver excellence in 2026. I'm excited for what's ahead. This is a great team, anxious to continue and build on NFI's strong forward trajectory, poised for great growth and success in 2026 and beyond. With that, I will now open the line for questions. Shannon, please provide instructions to our callers.
Speaker #1: Despite various headwinds in 2026 . We have not changed our overall view that NFI is on a strong trajectory that should see improvements across operating and financial metrics .
Speaker #1: We are confident in the strength in our markets and our product offerings and in our team's ability to deliver excellence . In 2026 .
Speaker #1: I'm excited for what's ahead . This is a great team . Anxious to continue and build on Nfis strong forward trajectory . Poised for great growth and success in 2026 and beyond .
Speaker #1: With that , I will now open the line for questions . Shannon , please provide instructions to our callers
Operator: Thank you. As a reminder, to ask a question, please press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. You may also submit questions via the webcast. Please stand by while we compile the Q&A roster. Our first question comes from the line of Chris Murray with ATB Capital Markets. Your line is now open.
Speaker #2: Thank you . As a reminder to ask a question , please press star one one on your telephone and wait for your name to be announced .
Speaker #2: To withdraw your question, please press star one one again. You may also submit questions via the webcast. Please stand by while we compile the Q&A roster.
Speaker #2: Our first question comes from the line of Chris Murray with ATB Capital Markets . Your line is now open
Chris Murray: Yeah. Thanks, folks, and good morning. I guess the first question is maybe turning to the guidance a little bit and trying to understand, you know, maybe unpacking this a little bit. I think you made the comment that you have expectations that for the most part, most of the slot is sold out for 2026. Just looking at kind of where the numbers end up, let's assume, as you said, aftermarket's relatively flat year-over-year. Can you just kind of walk us through your thoughts around how many shipments you think you're gonna see in the year?
Speaker #3: Yeah . Thanks and good morning . I guess the first question is maybe turning to the guidance a little bit and trying to understand , you know , maybe unpacking this a little bit .
Speaker #3: So I think you made the comment that you have expectations that for the most part , most of the slots are sold out for 26 , just looking at kind of where the numbers end up , with , assume , as I said , after markets relatively flat year over year , can you just kind of walk us through your thoughts around how many shipments you think you're going to see in the year and just going back to kind of the embedded margin , it just feels like , you know , maybe we're missing something in terms of , of what's there .
Chris Murray: Just going back to kind of the embedded margin, it just feels like, you know, maybe we're missing something in terms of of what's there, if there's any particular issues, or if there's any buses that are still kind of impaired or anything like that.
Speaker #3: If there's any particular issues or if there's any , any buses that are still kind of impaired or anything like that
John Sapp: Yeah. Thanks, Chris. I appreciate the question, and we'll look forward to connecting with you here further certainly. Overall for us, certainly we feel really good about what it is that we have in front of us here in terms of 2026. We've got a significant amount of growth that we need to certainly go deliver on. I think we don't share the specifics in terms of EU, you know, numbers that we anticipate, but certainly the growth that we're showing here will have a strong and demonstrated improvement or increase relative to the number of EUs that we expect to see.
Speaker #1: Yeah . Thanks , Chris . I appreciate the , the question . And we'll look forward to to connecting with you here further .
Speaker #1: Certainly . But but overall , for us , certainly we feel really good about what it is that we have in front of us here in terms of 2026 .
Speaker #1: We've got a significant amount of growth that we need to certainly go deliver on. I think we don't share the specifics in terms of EU numbers that we anticipate, but certainly the growth that we're showing here will have a strong and demonstrated improvement in our increase, relative to the number of views that we expect to see.
John Sapp: When you factor in certainly the growth trajectory that we've been on over the past few years, you know, I think what we're demonstrating here in terms of our growth and based on the guidance, you know, certainly is one that we feel good about. At the same time, we recognize that there are some potentials of headwinds that could emerge here over the course of the year. There's gonna be key factors that we expect, you know, over this next year that are gonna drive the improvements that we need to go deliver on, right? We've got the necessary pieces in place from an operational growth standpoint that include, you know, the All-Canadian Build project.
Speaker #1: And when you factor in , certainly the growth trajectory that we've been on over the past few years , you know , we I think what we're demonstrating here in terms of our growth and based on the guidance , certainly is one that we feel good about .
Speaker #1: And at the same time , we recognize that there are some potentials of headwinds that could emerge here over the over the course of the year .
Speaker #1: There's going to be key factors that we expect , you know , for over this next year that are going to drive the improvements that we that we need to go deliver on .
Speaker #1: Right . We've got the the necessary pieces in place from an operational growth standpoint that include , you know , the all Canadian build project .
John Sapp: We need to see a larger contribution in terms of some of our Alexander Dennis UK business, as well as the work out of our North American double deck. Those are gonna be key enablers for us in terms of delivering on the guidance numbers that we've shared. But we do expect continued growth as well within our low-floor cutaway business. The pieces are all in place for us to be able to go deliver on what we've shared. Again, we don't share the number of EUs that are gonna be a part of it, but we have high confidence, certainly in terms of what we see. We need to be careful in terms of some of the headwinds that could emerge.
Speaker #1: We need to see a larger contribution in terms of some of our . Alexander Dennis UK business as well as the , the , the work out of our North American double deck .
Speaker #1: Those are going to be key enablers for us in terms of delivering on the guidance numbers that we've shared . But we do expect continued growth as well within our low floor cutaway business .
Speaker #1: So the pieces are all in place for us to be able to go deliver on what we've shared . Again , we don't share the the number of views that are going to be a part of it , but we have high confidence , certainly in terms of what we see , we need to be careful in terms of some of the headwinds that could emerge I'm going to also ask Brian to share a few thoughts on this as well Yeah , just like to add that .
John Sapp: I'm gonna also ask Brian to share a few thoughts on this as well.
Brian Dewsnup: Yeah, I'd just like to add. Thanks, John. Good response there. I'd just like to add there, you know, you did mention that we have a lot of slots sold for 2026. While that's true in some of our businesses, we still have some, you know, a fair amount of volume to win, particularly in the private coach business, and in the UK. You know, we take that as a balance when we've developed our models and our guidance.
Speaker #1: Thanks , John . Good . Good response there . I'd just like to add there , you know , you you did mention that we have a lot of slots sold for 2026 .
Speaker #1: Well , that's true . And some of our businesses , we still have some , you know , a fair amount of volume to win in , particularly in the private coach business and in the UK .
Speaker #1: So , you know , we take that as a balance when we've developed our models and our guidance .
Chris Murray: Okay, fair. Then maybe for John, you know, you've had just a few days on the ground and getting a chance to see the organization. You know, is there anything that you're thinking about in terms of what you've seen so far, and kind of initial thoughts? You also made the comment about, you know, investing some growth CapEx, just trying to, you know, maybe understand what that might look like. Any initial thoughts on sort of where you're at as you take over the CEO role? You know, any thoughts around the strategic direction of the company over the next little while?
Speaker #3: Okay , sir . And then maybe for John , you know , you've had , you know , just a few a few days on the ground and getting a chance to , to see the organization , you know , is there anything that you're thinking about in terms of what you've seen so far And kind of initial thoughts ?
Speaker #3: You also made the comment about , you know , investing some growth CapEx , just trying to , you know , maybe understand what that might look like .
Speaker #3: Is there any initial thoughts on sort of where you're at as you , as you take over the CEO role ? You know , any thoughts around , around the strategic direction of the company while
John Sapp: Yeah. Thanks, Chris. Again, a great question, and I appreciate the chance to share some thoughts on it. You know, first off, it's been two months since I've been in seat. I have been incredibly impressed with this company and what we have and really excited about what we have in front of us. You know, that's based on a number of factors that I would expect that many of you all see as well. First off, an incredible backlog. We've got to go deliver on that. I'll talk more on that here in a moment. We've got a very experienced and motivated team.
Speaker #4: Yeah , thanks , Chris . Again , a great question and I appreciate the chance to share some thoughts on it . You know , first off , it's it's been two months since I've been in seat .
Speaker #4: I and I have been incredibly impressed with with this company and , and what we have and really excited about what we have in front of us .
Speaker #4: You know , that's based on , on a number of factors that I would expect that many of you all see as well .
Speaker #4: First off , an incredible backlog . We've got to go deliver on that . I'll talk more on that here in a moment .
Speaker #4: We've got a very experienced and motivated team . You know , this is a team that is really geared around the mission that we have of connecting people and doing it and ensuring we connect folks safely .
John Sapp: You know, this is a team that is really geared around the mission that we have of connecting people and doing it and ensuring we connect folks safely. That's an incredible mission that inspires this team and certainly inspires myself. We've got an established brand and reputation that's built on decades in every one of our business units and how they've touched the market. We really have, I think, an excellent multiyear plan in terms of how we're gonna be able to drive growth in manufacturing, which speaks a bit to your CapEx question there. You know, I shared a little bit in terms of what my priorities are going to be. The operational excellence piece, I can't emphasize that one enough.
Speaker #4: And that's an incredible mission that inspires this team . And so certainly inspires myself . We've got an established brand and reputation that's built on decades , and every one of our business units and how they've how they've touched the market .
Speaker #4: And we really have a , I think , an excellent multi-year plan in terms of how we're going to be able to grow , drive growth and manufacturing , which speaks a bit to your to your CapEx question .
Speaker #4: There . You know , I shared a little bit in terms of what my priorities are going to be . The operational excellence piece .
Speaker #4: I can't emphasize that one enough . And , and the first question that you shared right around us delivering on this growth , you know , we got a high confidence in terms of what we're going to be able to go do .
John Sapp: The first question that you shared, right, around us delivering on this growth, you know, we got a high confidence in terms of what we're gonna be able to go do and deliver here, certainly within 2026 and beyond. Our customers need that from us. That operational excellence, or excellence piece isn't just around our own internal manufacturing, but also ensuring the supply chain readiness, and that we bring our suppliers along the way. We'll be very focused on that as a key priority for myself. That is an area that I've emphasized in the first two months to answer your question. We also need to ensure that we're driving profitable growth. As we see our volumes increase, ensuring that we're being very effective in terms of our cost management.
Speaker #4: And deliver here . Certainly within 26 and beyond . And our customers need that of us . And that operational excellence or excellence piece isn't just around our own internal manufacturing , but also ensuring the supply chain readiness and that we bring our suppliers along along the way .
Speaker #4: So we'll be very focused on that as a key priority for myself , that is an area that I've emphasized in the first two months to answer , answer your question .
Speaker #4: We also need to ensure that we're driving profitable growth . And so as we see our volumes increase , ensuring that we're being very effective in terms of our cost management , we also need to ensure that from a growth standpoint , that where we see these very strong areas of high growth , that the other that we see that we're able to drive the necessary growth across all of our business units as well , to be able to support the , the long term growth expectations for us as a business .
John Sapp: We also need to ensure that from a growth standpoint, where we see these very strong areas of high growth, that we're able to drive the necessary growth across all of our business units as well to be able to support the long-term growth expectations for us as a business. Then the final point is just around driving, you know, continuing to drive the focus on customer centricity. That certainly has jumped out to me as being so critically important for the people that are part of this business. It's one that we're gonna continue to double down on. As you know, our customers, our end-use customers, and their customers rely on our services every single day and the products that we provide.
Speaker #4: And then the final point is just around driving , you know , continuing to drive the focus on customer centricity . That's certainly has jumped out to me as being so critically important for the people that are part of this business , but it's one that we're going to continue to double down on .
Speaker #4: As you know , our customers , our end use customers and their customers rely on the on our services . Every single day .
John Sapp: We're gonna continue to ensure that's key for us. You know, on the CapEx front, we've made a number of investments to include the, what we shared recently around the All-Canadian Build. We're gonna continue to make the right CapEx decisions that ensure we've got the footprint in place to be able to, you know, deliver on the long-term projections. For 2026, we feel good about everything that we've done relative to CapEx that enables us in terms of this year. But we're gonna continue to make the right decisions around, where that CapEx investments goes and how we're building for the future. Thanks for the question there, Chris. All right. Thanks. I'll pass along.
Speaker #4: And the products that we provide . So we're going to continue to ensure that's key for us . You know , on the CapEx front , we've made a number of investments to include what we shared recently around the all Canadian build .
Speaker #4: We're going to continue to make the right CapEx decisions that ensure we've got the footprint in place to be able to deliver on the long term projections for 26 .
Speaker #4: We feel good about everything that we've done relative to CapEx that enables us in terms of this year . But we're going to continue to make the right decisions around where that CapEx investments goes and how we're building for the future .
Speaker #4: So, thanks for the question there, Chris.
Speaker #3: All right. Thanks for that. Pass.
Operator 1: Thank you. Our next question comes from the line of Ty Collin with CIBC. Your line is now open.
Speaker #2: Thank you . Our next question comes from the line of Kai Cullen with CIBC . Your line is now open .
Ty Collin: Hey, good morning, everyone. Thanks for taking my question, and John, great to hear from you on the call this morning. Maybe just for my first one on the seating supply situation, maybe I missed it in the published materials, but have you made progress clearing out that backlog of complete buses waiting for seating? Is the expectation still that the overall seating issue is gonna largely be normalized, you know, sometime after Q1?
Speaker #5: Hey , good morning everyone . Thanks for taking my question . And John , great to hear from you on the call this morning Maybe just for my first one on the on the seating supply situation , maybe I missed it in the published materials , but have you made progress clearing out that backlog of complete buses waiting for seating ?
Speaker #5: And is the expectation still that the overall seating issue is going to largely be normalized ? You know , sometime after Q1
John Sapp: Yeah. Thanks. Thanks, Ty. It's a great question. Let me share a little bit around seating and certainly what we're doing in terms of our overall supply chain here as we drive growth. We're very pleased with where we're at relative to the progress that the team has made since the end of last year around, you know, seating. Obviously, it's well known in terms of what we've done to really secure that. I think the JV partnership that we've established, one, is one that we feel or not just feel, but we've been really pleased with the results that our collective team has been able to generate.
Speaker #4: Yeah . Thanks . Thanks , Ty . It's a great question . And and let me share a little bit around seating and certainly what we're doing in terms of our overall supply chain here as we drive growth , we're very pleased with where we're at relative to the the progress that the team has made since the end of last year around , you know , seating , obviously , it's well known in terms of what we've done to really secure that .
Speaker #4: I think the JV partnership that we've established , one is one that we feel we're not just feel , but we've been really pleased with the results that that our collective team has been able to generate , that has been focused on driving the necessary governance within the supplier , establishing the processes around , you know , material planning , bringing the facilities where they need to be to ensure that they can meet our and prepare for our long term growth .
John Sapp: That has been focused on, you know, driving the necessary governance within the supplier, establishing the processes around, you know, material planning, bringing the facilities where they need to be to ensure that they can meet our and prepare for our long-term growth. Our partners have been with us certainly along the way. We have seen the needed changes, and been next to the team there within that the JV supplier to ensure that it's progressing in the way that we would expect. What we've seen in terms of the improvements, we haven't published those for just because we are seeing the progress, frankly, that we need to.
Speaker #4: And our partners have been with us , certainly along the way , we have seen the needed changes and , and been next to the the team there within that , the JV supplier to ensure that it's it's progressing in the way that we would expect .
Speaker #4: What we've seen in terms of the improvements we haven't published those for just because we are seeing the progress . Frankly , that we need to .
John Sapp: We're gonna see it continue to linger a little bit into Q2, but what I would say is overall, the improvement has been remarkable in terms of the number of, you know, buses awaiting seats, et cetera. We do anticipate that in the early Q2 timeframe that we will see this fully resolved and that we will be positioned relative to the JV for long-term success in terms of the seating.
Speaker #4: We're going to see it continue to linger a little bit into Q2 . But what I would say is overall , the improvement has been remarkable in terms of the the number of buses awaiting seats , etc.
Speaker #4: . So we do anticipate that in the early Q2 timeframe that we will see this fully resolved and that we will be positioned relative to the to the JV for long term success in terms of the the seating
Ty Collin: Okay. That's great color. Thanks. I'm wondering if I could just get your thoughts on potential impacts of the current and unfolding Middle East conflict here. You know, are there any sort of red lights blinking within your supply chain? Which aspects of the supply chain would you consider to be most vulnerable? Are you taking any sort of proactive action at this point in response to rapidly unfolding events?
Speaker #5: Okay . That's great color . Thanks . And then I'm wondering if I could just get your thoughts on a potential impacts of the current and unfolding Middle East conflict here .
Speaker #5: You know , are there any sort of red lights blinking within your supply chain , which aspects of the supply chain would you consider to be most vulnerable ?
Speaker #5: And are you taking any sort of proactive action at this point in response to rapidly unfolding events ?
John Sapp: Yeah. Thanks, Ty. Of course, we're watching these events very closely. What I would say for us is that generally, you know, our supply chain is not affected by the region. We have a couple of suppliers that we watch, but a very minimal in terms of the amount of material that we see come, you know, in and through that region. We are watching it closely. We are ensuring that, one, obviously, our first and foremost is concern for anyone that may be affected. Second is ensuring that where necessary, if we need to have alternative plans, that we very quickly work through. You know, the good news for us is we've got a very broad supply chain. We can draw on our supply base from all over the globe.
Speaker #4: Yeah , thanks . Ty . Of course , we're watching these events very closely . What I would say for us is that generally , you know , our supply chain is not affected by the region .
Speaker #4: We have a couple of suppliers that we that we watch , but but a very minimal in terms of the of the amount of material that we see come , in .
Speaker #4: And through that region , we are watching it closely . We are assuring , ensuring that one , our obviously our first and foremost is concern for anyone that may be affected .
Speaker #4: But second is ensuring that where necessary , if we need to have alternative plans that we very quickly work through , you know , the good news for us is we've got a very broad supply chain .
Speaker #4: We can draw on our supply base from all over the globe , and we have , you know , certainly many redundancies that exist out there for us to be able to or suppliers , right , that can create that resiliency and redundancy where we need it .
John Sapp: We have, you know, certainly so many redundancies that exist out there for us to be able to our suppliers, right? That can create that resiliency and redundancy where we need it. Overall, we generally, from a supply standpoint, feel good about where we're at to be able to navigate the, you know, the current geopolitical environment there in the Middle East.
Speaker #4: So overall , we generally from a supply standpoint , feel good about where we're at to be able to navigate the , the current geopolitical environment there in the , in the Middle East
Ty Collin: Okay, thanks. I'll pass the line.
Speaker #5: Okay . Thanks . I'll pass the line .
Operator 1: Thank you. Our next question comes from the line of Cameron Doerksen with National Bank Financial. Your line is now open.
Speaker #2: Thank you . Our next question comes from the line of Kamran Dawson with National Bank . Your line is now open .
Cameron Doerksen: Yeah, thanks very much. Good morning. Wanted to ask about average selling price. The way obviously you reported it's heavily impacted by, I guess, the mix of bus types. I'm just wondering if we could sort of look at the like-for-like pricing, you know, like a diesel versus a diesel last year. Are you still, I guess, seeing your selling price increases as you're coming in with new orders? Just trying to understand, I guess, the margin impact of still positive pricing.
Speaker #6: Yeah . Thanks very much . Good morning . I wanted to ask about average selling price the way obviously you reported , it's heavily impacted by , I guess , the mix of bus types .
Speaker #6: I'm just wondering if we could sort of look at the like for like pricing , you know , like a diesel versus a diesel last year .
Speaker #6: You are you still , I guess seeing , you selling price increases as you're coming in with new orders , just kind of , I guess the margin impact of , of still positive pricing .
John Sapp: Yeah. Thanks, Cameron. A great question. Yeah, well, I'll say at a very high level is that we continue to see the benefit of pricing that has played through. Obviously, there's been some impact in terms of, you know, over the, you know, several years going back, right? That has taken time for some of the pricing benefits to play through, and we have been, you know, certainly seeing that here over the past 12 to 24 months. So generally speaking, yes, we see that positivity relative to the pricing piece, but I'm gonna ask Brian to expand on that a little bit.
Speaker #4: Yeah , thanks . Thanks , Kamran . A great question . I'll say at a very high level is that we continue to see the benefit of , of pricing that has played through .
Speaker #4: Obviously , there's been some impact in terms of , you know , over the , you know , several years going back , right , that has seen this , that has taken time for some of the pricing benefits to play through .
Speaker #4: And you're starting to and we have been , you know , certainly seeing that here over the past 12 to 24 months . So generally speaking , yes , we're going to see that positivity relative to the pricing piece .
Speaker #4: But I'm going to ask Brian to expand on that a little bit .
Brian Dewsnup: Yeah. Thanks, John. Yeah, this, you know, we've seen and we've talked about this over the past couple of years where we've, you know, won, you know, a lot of backlog and you're seeing that backlog migrate from backlog into the actuals, so you know, pushing up our ASPs. Additionally, in 2025, we've had some tariff impact come into that as well as we sought to, you know, pass those through on kind of like a cost neutral basis. It has improved or driven up the ASPs. Then, of course, the geographical mix has also had an effect where buses, generally speaking, in North America are a little bit more expensive than in the UK, so that mix effect is in there as well.
Speaker #1: Yeah . Thanks , John . So yeah , there's , you know , we've seen and we've talked about this over the past couple of years where we've , you know , one , you know , a lot of backlog and you're seeing that backlog migrate from backlog into the actuals .
Speaker #1: And so , you know , pushing up our ASPs . But additionally , in 2025 , we've had some tariff impact come into that as well as we've sought to , you know , pass those through on kind of like a cost neutral basis .
Speaker #1: But it has , it has improved or driven up the ASPs . And then of course , the geographical mix has also had an effect where buses , generally speaking , in North America are a little bit more expensive than the UK .
Speaker #1: So that that mix effect is in there as well .
Cameron Doerksen: Okay. That's helpful. Just on the motor coach market, obviously very strong number of deliveries in Q4. You sound pretty positive, I guess, on the public market demand for motor coaches, but a little bit of uncertainty perhaps given the tariff impact here on the private market. I'm just wondering, you know, what you're seeing maybe so far in the private motor coach market. Are you seeing an impact on demand? Just trying to sort of gauge, you know, overall in motor coaches, if we should expect that, you know, continue to have a strong delivery number in 2026 like we saw in 2025.
Speaker #6: Okay . That's helpful . And just on the motor coach market , obviously very strong number of deliveries in the fourth quarter . You sound pretty positive .
Speaker #6: I guess on the the public market demand for motor coaches , but a little bit of uncertainty perhaps given the tariff impact here on the private market .
Speaker #6: I'm just wondering what you're seeing . Maybe so far in the private motorcoach market . Are you seeing an impact on demand ? Just trying to sort of gauge the overall motor coaches , if we should expect that , you know , continue to have a strong delivery number in 2026 .
Speaker #6: Like we saw in 2025 .
Brian Dewsnup: Yeah. I think the underlying demand for motor coaches is still there in the kind of fundamental aspects of kind of North American travel and the economy and whatnot. You know, the demand is still there. The recent kind of November increase in tariff, that's beginning to flow through the cost base of all of the OEMs. There's no, you know, domestic manufacturer of motor coaches today or for the private market. And so what we're really seeing is the beginning of, you know, those tariffs in the private market and how that's gonna play out in terms of, how much of that is shared with the customer base. You know, we're bullish on the market. You know, all the fundamentals, but, you know, from a demand side are still there.
Speaker #1: Yeah , I think the underlying demand for motor coaches is still there . And the kind of fundamental aspects of kind of North American travel and the economy and whatnot , you know , the demand is still there .
Speaker #1: The recent kind of November increase in tariff that's beginning to flow through the cost base of of all of the OEMs . There's no , you know , domestic manufacturer of motor coaches today or for the private market .
Speaker #1: And so what we're really seeing is the beginning of , you know , those tariffs in the in the private market and how that's going to play out in terms of how much of that is shared with the the customer base .
Speaker #1: But , you know , we're , we're , you bullish on the market , you know , all the fundamentals , you know , from a demand side are still there .
Brian Dewsnup: It's really just a matter of, you know, how do we manage through the tariffs and how much we perhaps absorb there versus how much we share with our customers.
Speaker #1: So it's really just a matter of , you know , how do we manage through the tariffs and how much we , we perhaps absorb there versus how much we share with our customers .
John Sapp: Yeah. Cameron, the only thing I'd add, you know, we continue to be the only Buy America compliant manufacturer of coaches for the public market. So that continues to be kind of, you know, a good positive for us as we look at that market going forward.
Speaker #7: Yeah . And Cameron , the only thing I'd add , you know , we continue to be the only buy America compliant manufacturer of coaches for the public markets .
Speaker #7: So that continues to be kind of , you know , a good positive for us as we look at that market going forward .
Cameron Doerksen: Right. Okay, that's helpful. Thanks very much.
Speaker #6: Right . Okay . That's helpful . Thanks very much .
Operator 1: Thank you. Our next question comes from the line of Daryl Young with Stifel. Your line is now open.
Speaker #2: Thank you . Our next question comes from the line of Darryl Young with Stifel . Your line is now open .
Daryl Young: Hey, good morning, everyone. Wanted to just get some thoughts around preliminary budgets or expectations for transit funding come the expiration of the IIJA. Is there any details or any kind of inner workings that you can share with us around maybe what the magnitude of the next funding cycle might look like?
Speaker #8: Hey , good morning everyone . I wanted to just get some thoughts around preliminary budgets or expectations for transit funding come the expiration of the Iija .
Speaker #8: Is there . Is there any details or any any kind of inner workings that you can share with us around maybe what the magnitude of the next funding cycle might look like
John Sapp: Yeah. Thanks very much, Darryl. Great question. We're obviously watching this close. We're very engaged where we can be in terms of ensuring that you know, our voice is you know, certainly being heard, and at the same time, you know, making sure that we're you know, really getting a good feel in terms of where the sentiments are. I would say generally speaking, we've been encouraged by some of the commentary that's out there in terms of where the funding bill looks to be. We've had a lot of discussion on this. I think there's you know, good reason for continued optimism on it. You know, to be honest, right, the fleets are, it's clear, right?
Speaker #4: Yeah , yeah , thanks very much , Darryl . Great question . We're obviously watching this close . We're very engaged . Where we can be in terms of ensuring that , you know , our voices , you know , certainly is being heard .
Speaker #4: And at the same time , you know , making sure that we're , you know , really getting a good feel in terms of where the sentiments are , I would say , generally speaking , we've been encouraged by some of the commentary that's out there in terms of where the the funding bill looks to , to be .
Speaker #4: We've had a lot of discussion on this . I think there's good reason for continued optimism on it , you know , to be honest , the fleets are it's clear , right ?
John Sapp: There's a lot of recapitalization effort that the you know bus operators are needing. Their voice is certainly being heard. As a result, I would expect that will continue to play through.
Speaker #4: There's a lot of recapitalization effort that the that the bus operators are needing their voice is certainly being heard . And , and so as a result , I would expect that that will continue to play through .
Speaker #4: And as the as these this next funding cycle and the and the authorization cycle gets set up . So we're . I would say that the other note that I would make is that , you know , those decisions that are being .
Brian Dewsnup: As this next funding cycle and the authorization cycle gets set up. I would say that the other note I would make is that, you know, those decisions that are being, now, of course, are going to continue to build off the current year appropriation. You know, we are in good shape in terms of the amount of backlog, right? That will continue to carry forward, you know, this year into 2027 and, you know, and beyond as different transit authorities take advantage of the current funding sources that are there.
Speaker #4: Now , of course , are going to continue to build off the current year appropriations . So , you know , we are in good shape in terms of the amount of backlog , right ?
Speaker #4: That will continue to carry forward , you know , this year into 27 . And , you know , and beyond as as different transit authorities take advantage of the current funding sources that are there .
Stephen King: Yeah. The only thing I'll add, Darryl, is, yeah, I think, you know, we saw a strong option conversion in 2025. To John's point, I think that's folks trying to get the last of the IIJA in 2026. To John's comment, you know, that spending, while it, you know, matures in 2026, the act, it can be spent in 2027, 2028, 2029. That'll, you know, drive deliveries during that period as well.
Speaker #7: Yeah . The only thing I'll add , Darryl , is , yeah , I think , you know , we saw strong option conversion in 2025 .
Speaker #7: So to John's point , I think that folks trying to get the the last of the Iija in 2026 and to John's comment , you know , that spending while matures in 2026 , the , the act , it can be spent in 27 , 28 , 29 .
Speaker #7: So that'll drive deliveries during that period as well .
Daryl Young: Got it. Okay. Just to go back to the supply chain, you spoke to obviously steel and aluminum and price pass through, and that's great. I'm just curious if you're seeing any availability issues of steel in the US and maybe how many weeks of production you might have in terms of your steel inventory today. Well, we haven't. Overall from a steel standpoint, we feel good about where we're at from a supply chain standpoint. We haven't focused on the weeks in production for that reason. We're generally good.
Speaker #8: Got it . Okay . And then just to go back to the supply chain , you spoke to , obviously steel and aluminum and price passed through .
Speaker #8: And that's that's great . But I'm just curious if you're seeing any availability issues of steel in the US and maybe how many weeks of production you might have in terms of your steel inventory today
Speaker #4: Well , we haven't overall from a steel standpoint , we feel good about where we're at from a supply chain standpoint . So we haven't focused on the weeks in production for that reason .
Brian Dewsnup: What I will say is that from a supply chain readiness standpoint, we're very focused from a growth standpoint on ensuring that whether or not it's steel or anything else, that's a part of our growth story from a supply chain, that we really are ensuring that we are looking far enough ahead, right? To ensure that we've got the readiness to be able to support that growth. There's been a significant amount of effort here in the first two months of the year to really ensure from a readiness standpoint, that all of our suppliers are coming along to be able to meet that growth with us. The team's made an incredible amount of progress in that regard. I've been very pleased with what I've seen here to date on it.
Speaker #4: We're generally good . What I will say is that over from a supply chain rate readiness standpoint is that we're very focused on from a growth standpoint of ensuring that whether or not it's steel or anything else that's a part of our growth story from a supply chain that we really are ensuring that we are looking far enough ahead to ensure that we've got the readiness to be able to support that growth .
Speaker #4: So there's been a significant amount of effort here in the first two months of the year to really ensure , from a readiness standpoint , that all of our suppliers are coming along to be able to meet that growth with us .
Speaker #4: The team has made an incredible amount of progress in that regard. I've been very pleased with what I've seen here to date on it.
Brian Dewsnup: We've got some continued work certainly to do, but what that helps us to do is identify where there are potentials for us to be able to go in and support those suppliers, much earlier than it being in any reactive mode, right? We're being extremely proactive around ensuring our supply base. Specific to the steel piece, we generally feel good about that. We don't have any emerging issues. Okay, great. I'll jump back in the queue. Congrats on the quarter, guys.
Speaker #4: We've got some continued work , certainly to do , but what that helps us to do is identify where there are potentials for us to be able to go in and support those suppliers .
Speaker #4: Much earlier than it being in a reactive mode , right ? So we're being extremely proactive around ensuring our supply base specific to the steel piece .
Speaker #4: We generally feel good about that . We don't have any emerging issues .
Speaker #8: Okay , great . I'll , I'll jump back in the queue . Congrats on the quarter guys .
Stephen King: Thank you.
Brian Dewsnup: Yeah.
Operator 1: Our next question comes from the line of Abe Landa with Bank of America. Your line is now open.
Speaker #4: Thank you .
Speaker #2: Our next question comes from the line of Abe Landa with Bank of America . Your line is now open .
Sean Maher: Hi, good morning. It's Sean Maher for Abe Landa. Thank you for taking my question. The first one I wanted to ask was, can you outline the 2026 free cash flow bridge, including cash interest, cash taxes, working capital, and clarify which items sit below EBITDA versus within EBITDA cash costs or add backs?
Speaker #9: Hi . Good morning . It's Sean on for Abe . Thank you for taking my question . The first one I wanted to ask was , can you outline the 2026 free cash Flow bridge , including cash interest , cash taxes , working capital and clarify which items sit below EBITDA versus within EBITDA ?
Speaker #9: Cash costs or add backs
Brian Dewsnup: Yeah, that you know, we've obviously put our guidance out for the first time. We've not gotten to that level of guidance. I would say, just generally speaking, that we would expect kind of cash interest to be more in line in 2026 you know than in 2025. Cash interest and cash you know and interest expense to be more in line there. We had some timing differences because of the new high yield in 2025. Regarding working capital and some of the other aspects there, we would you know we came into the year a little heavy from a working capital standpoint with some of the seating affected buses. We would expect that to normalize in 2026 and to be mostly offset with additional volume growth.
Speaker #1: Yeah , that we've obviously put our guidance out for the first time . We've not gotten to that level of of guidance . I would say , just generally speaking , that we would expect kind of cash interest to be more in line in 2026 .
Speaker #1: You know , than in 2025 . So cash interest and cash , you know , and interest expense to be more aligned there .
Speaker #1: So we had some timing differences because of the new high yield in 2025 . Regarding working capital and some of the other aspects there , we would , you know , we came into the year a little heavy from a working capital standpoint with some of the seating affected buses .
Speaker #1: So we would expect that to normalize in 2026 and to be mostly offset with additional volume growth . So we wouldn't expect to see a significant , you know , up or down number from a working capital standpoint .
Brian Dewsnup: We wouldn't expect to see a significant, you know, up or down number from a working capital standpoint. We'll get more efficient, and we'll burn through some of those vehicles and some of that work in process, but we also have volume increases to offset that. I think those are kind of the primary comments. We did give guidance on CapEx. We expect most of that to be cash-based CapEx, and the leases year-over-year we would expect to be relatively flat. You know, I hope that helps in terms of putting together the model, but we really haven't given any more kind of guidance around that for 2026.
Speaker #1: We'll get more efficient and we'll burn through some of those those vehicles and some of that work in process . But we also have volume increases to offset that .
Speaker #1: So I think those are kind of the primary comments . And we did give guidance on CapEx . We expect most of that to be cash based CapEx and the leases year over year .
Speaker #1: We would expect to be relatively flat . So , you know , I hope that helps in terms of putting together the model .
Speaker #1: But we really haven't given any more kind of guidance around that for 2026 .
Sean Maher: Thank you. I appreciate that. Can you outline the expected uses of the free cash flow?
Speaker #9: Thank you . I appreciate that . Can you outline the expected uses of the free cash flow
Brian Dewsnup: Yeah. I think we've talked earlier that we're pretty singularly focused on reducing our leverage ratio. We do expect to get down into that 1.5 to 2.5 range, you know, near the end of the year. Probably be even more closer to the upper end of that range. We'll begin to have productive conversations internally about, you know, capital allocation and things like that. We're really focused on debt pay down at this point, and I think you'll see that as a recurring theme throughout 2026. As we turn towards 2027 and beyond, you know, we'll start opening up the aperture on other uses there.
Speaker #1: Yeah , I think we've talked earlier that we're pretty singularly focused on reducing our leverage ratio . We do expect to get , you know , near the end of the year .
Speaker #1: We expect to get down into that one and a half to two and a half range . So probably be more closer to the upper end of that range .
Speaker #1: And then , you know , we'll begin to have productive conversations internally about , you know , capital allocation and things like that .
Speaker #1: But we're really focused on debt paydown at this point . And I think you'll see that as a recurring theme throughout 2026 . And then as we turn towards 27 and beyond , you know , we'll start opening up the aperture on other uses there .
Sean Maher: I mean, given the $267 million drawn in the revolver and the $338 million of convertible debentures due January 2027 and bonds callable in 2027 and 2028, are there debt instruments that you're prioritizing for repayment, and how do you plan to address the remainder over the near to medium term?
Speaker #9: I mean, given the $267 million run in the revolver and $338 million of convertible debentures, due January 2027, and bonds callable in 2027 and 2028.
Speaker #9: Are their debt , debt instruments that you're prioritizing for repayment . And how do you plan to address the remainder over the near to medium term ?
Brian Dewsnup: Yeah. Yeah. You outlined the debt stack fairly well there. I think as we look at that, we do have the convertible debentures that come due in January 2027, so that's kind of top of mind in terms of, you know, how do we deal with that. That's something that we'll look at, you know, we're looking at now and we'll come up with a plan in the next few months on that. You know, beyond that, in terms of debt pay down, the revolver would be our first priority. That's the easiest one to do. There are some prepayment penalties, if you will, with the high yield, so we're not really looking at that one at, you know, at that point in time, or at least right now.
Speaker #1: Yeah , yeah . So you outline the the debt stack fairly well there . I think as we look at that , we do have the convertible debentures that come due in January of 2027 .
Speaker #1: So that’s kind of top of mind in terms of, you know, how do we deal with that? And that’s something that we’ll look at.
Speaker #1: You know , we're looking at now and we'll come up with a plan in the next few months on that , you know , beyond that , in terms of debt , pay down the revolver would be our first priority .
Speaker #1: That's the easiest one to do . There is some there are some prepayment penalties , if you will , with the high yield .
Speaker #1: And so we're not really looking at that one . You know , at that point in time or at least right now we've got the revolver to be able to pay down .
Brian Dewsnup: We've got the revolver to be able to pay down, and of course, we've got the convertible debentures to deal with as well. Those are the two components we'll probably focus on more.
Speaker #1: And of course, we've got the convertible debentures to deal with as well. So those are the two components we'll probably focus on more.
Sean Maher: Can you update us on tariffs and aluminum inflation exposure, including passive pricing, mechanics, customer discussions, aluminum as a percentage of sales, direct, indirect, and any potential margin impact?
Speaker #9: And then can you update us on tariff and aluminum inflation exposure , including passive pricing mechanics , customer discussions , aluminum as a percentage of sales , direct indirect and any potential margin impact
John Sapp: Yeah, I think the question, like, I didn't get the whole thing. I think it was around tariffs and could you just repeat that, please?
Speaker #1: Yeah , I think the question like I didn't get the whole thing . I think it was around tariffs . And could you just repeat that , please ?
Sean Maher: Yeah, we're just curious about tariff and aluminum inflation exposure, like whether or not that's pricing that's passed through customer discussions, aluminum as a percentage of sales, like margin impact.
Speaker #9: Yeah . We're just curious about tariff and aluminum inflation exposure . Like whether or not that's pricing that's passed through customer discussions . Aluminum as a percentage of sales , like margin impact .
John Sapp: Yeah. Okay. yeah, thanks, Sean. Overall for us in terms of tariff, we have a really good execution plan that we continue to leverage from 2025. We'll continue carrying that forward in terms of 2026. You know, it's a very holistic approach in terms of how we manage and execute through tariffs. All of that of course is factored into the guidance that we've shared and that we're gonna be able to continue to execute on that. You know, what's out there and available, certainly we have contractual protections from a tariff standpoint that ensure our ability to collect.
Speaker #1: Yeah .
Speaker #4: Okay . Yeah . Thanks , Sean . Overall for us , in terms of tariff , we have a really good execution plan that we continue to leverage from 25 will continue carrying that forward in terms of 26 .
Speaker #4: You know , it's a very holistic approach in terms of how we manage and execute through tariffs . All of that , of course , is factored into the guidance that we've that we've shared and that we're going to be able to continue to execute on that .
Speaker #4: And what's out there and available . Certainly , we have contractual protections from a tariff standpoint that ensure our ability to to collect and then also we have additional things we can do from a pricing standpoint and others that ensure that where we see those cost increases that we're able to manage through it and , and obviously commit to the guidance that we've provided based on the , the tariffs that we know of here as of March 11th .
John Sapp: We have additional things we can do from a pricing standpoint and others that ensure that where we see those cost increases that we're able to manage through it, and obviously commit to the guidance that we've provided based on the tariffs that we know will appear as of 11 March.
Sean Maher: Last one. Sorry.
John Sapp: Yeah.
Sean Maher: Uh-
John Sapp: Sean, I think we're just gonna have to go to the next.
Speaker #9: Last one . Sorry . Yeah ,
Speaker #7: Sean, I think we're just going to have to go to the next caller, if we can. Yeah, we've just got a bunch of others.
Sean Maher: Thank you.
John Sapp: Caller, if we can. Yeah.
Sean Maher: Okay.
John Sapp: Just got a bunch of others. Thanks.
Operator 1: Our next question comes from the line of Tim James with TD Cowen. Your line is now open.
Speaker #7: Thanks .
Speaker #2: Our next question comes from the line of Tim James with TD Cowan . Your line is now open
Tim James: Great. Thanks very much for the time this morning. My first question is looking at the UK market and Alexander Dennis. I'm just wondering if you could talk a little bit about, I know it's been a challenging market there, a lot of competition. You've had some new product launches. How do you see the products that you've got in that market now aligned with what customers are actually ordering? I'm wondering maybe about some of the orders that have gone away from you. Any sense you can provide for, you know, what is maybe the key point there, why those orders are going away?
Speaker #10: Great . Thanks very much for the for the time this morning . My first question , just looking at the UK market and Alexander Dennis , I'm just wondering if you could talk a little bit about .
Speaker #10: I know it's been a challenging market there a lot of competition . You've . You've had some new product launches . How do you see the products that you've got in that market now aligned with what customers are actually ordering ?
Speaker #10: And I'm wondering maybe about some of the orders that have gone away from you Any sense you can provide for , you know , what is maybe the the key point there ?
Speaker #10: Why those orders are going away .
John Sapp: Yeah. Thanks, Tim. It's a great question. Let me talk first about our products. I had the chance to go visit the team over there, see the products firsthand, and have been extremely impressed with what it is our Alexander Dennis team does every single day to deliver a great product to the customer. That includes some of these new releases that you've seen. I've been really, you know, certainly impressed with also, you know, how those releases are continuing to be recognized by the customer, in terms of what they've done. It certainly is a competitive environment, as you know, and that's something that we've highlighted here, previously.
Speaker #4: Yeah . Thanks , Tim . It's a it's a great question . Let me talk first about our products . I had the chance to go visit the team over there , see the products firsthand , and have been extremely impressed with what it is .
Speaker #4: Our Alexander team , Alexander Dennis team does every single day to deliver great product to the customer . That includes some of these new releases that you've seen , have been really , you know , certainly impressed with also , you know , how those releases are continuing to be accepted or recognized by the customer .
Speaker #4: In terms of what they've what they've done , the it certainly is a competitive environment , as you know , and that's something that we've , we've , we've highlighted here previous different than what we experienced in terms of , of , of North America , which has certainly requirements around localization , etc.
John Sapp: Different than what we experience in terms of North America, which has certain requirements around localization, et cetera. The UK is still evolving in that sense or involving or developing potential new pathways for that. You know, we're very engaged with the appropriate folks in the UK. We've had great support in terms of that engagement, certainly from, you know, Scottish authorities to be able to support the conversations there. We'll continue to ensure that we stay, you know, very focused with it. It is, as noted, a competitive environment.
Speaker #4: the UK is still evolving in that sense or evolving or developing potential new pathways for that . And so , you know , we're going to , we're very engaged from a with the , with the appropriate folks in the UK , we've had great support in terms of that engagement , certainly from , you know , from , from Scottish authorities to , to be able to support the conversations there .
Speaker #4: But so we're we'll continue to ensure that we stay , you very focused with it , but it is as noted , a competitive environment .
John Sapp: What I would also say is that team is doing a terrific job in terms of really ensuring that it you know manages the situation you know appropriately and watches very closely. We are seeing you know the wins. We see ourselves being able to compete from an AD standpoint, but it is more competitive, and that forces the business to really you know push hard to ensure that we're getting the EU volumes that we would expect. As noted, competitive environment, a lot of tailwinds certainly that we have from a product standpoint, but a high area of focus for us here in 2026.
Speaker #4: What I would also say is that team is doing a terrific job in terms of really ensuring that it , manages the situation .
Speaker #4: You appropriately and watches very closely . But we are seeing , you know , the wins we see ourselves being able to compete from an ad standpoint , but it is more competitive and that forces us to or sorry , forces , you know , the business to really , you know , push hard to ensure that we're getting the volumes that we would expect .
Speaker #4: But as noted , competitive environment , a lot of tailwinds , certainly that we have from a product standpoint , but a high area of focus for us here in 26 .
Tim James: Okay, great. Thank you. My second question, just looking at the receivables increase in Q4. You noted it was quite significant. I believe there was a reference to sort of volume that you know went out in December. Was this a particularly sort of December-heavy delivery Q4? Is that why it increased so significantly? Is there any other kind of color you can provide around the receivables and the increase in Q4?
Speaker #10: Okay , great . Thank you . My second question , just looking at the the the receivables increase in the fourth quarter , you noted it was quite significant .
Speaker #10: I believe there was a reference to sort of volume that , you know , went out in December . Was this a particularly sort of December heavy delivery , fourth quarter ?
Speaker #10: Is that why it increased so significantly ? Is there any other kind of color you can provide around the the receivables and the increase in the fourth quarter ?
John Sapp: Yeah, I highlighted the note earlier that we shared around, you know, some of the seasonality, if you will, around how our deliveries occur. Certainly Q4, I think historically has been that way, certainly was in 2025, and so that did create that receivable impact. I'll ask Brian to expand a little further on that.
Speaker #4: Yeah . And I highlight the note earlier that we shared around , you know , some of the seasonality , if you will , around how our , how our deliveries occur .
Speaker #4: Certainly Q4 , I think historically has been that way certainly was in 25 . And so that did create that receivable impact . The last , Brian .
Brian Dewsnup: Yeah. Good question. Certainly something that we noted as well. We did have a little bit heavier kind of December in 2025 than we would have in 2024. Of course, the increase in ASP also drove higher receivables as well. Both of those things contributed. We are pleased with the collection of that, as we've started through Q1 as well. We think that'll normalize as we get into Q1 and we're happy with how that's gone.
Speaker #4: To expand a little further on that .
Speaker #1: Yeah , so , so good question . Certainly something that we're , you know , that we noted as well , we did have a little bit heavier kind of December in 25 than we would have in 24 .
Speaker #1: And then of course , the increase in ASP also drove higher receivables as well . So both of those things contributed . We we have we are pleased with the collection of that .
Speaker #1: You know , as we've started , you know , through Q1 as well . So , you know , we think that'll normalize , you know , as we get into to the first quarter and we're happy with how that's gone .
Tim James: Okay, that's great. Thank you very much.
Speaker #1: So .
Operator 1: Thank you.
Brian Dewsnup: Thanks, Tim.
Operator 1: Our next question comes from the line of Jonathan Goldman with Scotiabank. Your line is now open.
Speaker #10: Okay , that's great . Thank you very much .
Speaker #2: Thank you .
Speaker #4: Thanks , Tim .
Speaker #2: Our next question comes from the line of Jonathan Goldman with Scotiabank . Your line is now open .
Jonathan Goldman: Hey, good morning, team, and thanks for taking my questions. Maybe we can just circle back on the pricing conversation. A lot of puts and takes there. You talked about mix and tariffs potentially being headwinds, but do you expect net pricing to be accretive to EBITDA margin in 2026?
Speaker #7: Hey , good morning , and thanks .
Speaker #11: For taking my questions . Maybe we can just circle back on the pricing conversation . A lot of puts and takes there . You talked about mix and tariffs potentially being headwinds , but do you expect net pricing to be accretive to EBITDA margin in 2026 ?
John Sapp: Yeah. Great question, and if you've followed the discussion from the hyperinflation days of 2023, 2024, you'd know, you know, we've been talking a lot about the pricing and margins in the backlog, and, you know, we've seen that come in 2024 and in 2025. We would expect that we will see some continued improvement in 2026. However, I would say the volume story is becoming a bigger story relative to our guidance than pricing is at this point.
Speaker #1: Yeah . So , so great question . And if you've kind of followed the discussion from kind of the hyperinflation days of kind of 2324 , you know , we , you know , we've been talking a lot about the pricing and margins in the backlog .
Speaker #1: And , you know , we've seen that come in 24 . And in 25 , we would expect that we will see some continued improvement in 2026 .
Speaker #1: However , I would say the volume story is becoming a bigger story relative to our guidance than pricing is at this point .
Jonathan Goldman: Okay. Fair enough. That's good color. You know, I know it's early days, John, but have you seen any opportunities to maybe rationalize the number of SKUs and more broadly to optimize the portfolio of the entire business?
Speaker #11: Okay , fair enough . That's a good color . And then , you know , I know it's early days John , but have you seen any opportunities to maybe rationalize the number of SKUs and more broadly , to optimize the portfolio of the entire business ?
John Sapp: Yeah. Thanks, Jonathan, and it's a great question. It's certainly our focus right now and mine in the first couple months has been really around, you know, delivering on what's in front of us here in terms of 2026 and certainly with the, you know, what we have in terms of this excellent portfolio of products. You know, your question, I think, really goes towards some of the strategic conversations that my focus will shift towards here in the coming months. I don't have a view in terms of your question yet, but certainly we'll always be thinking as a leadership team around, you know, what do we do in terms of managing and ensuring that we've...
Speaker #4: Yes . Thanks . Jonathan . And it's a great question . It's certainly our focus right now in mind in the first couple of months has been really around , you know , delivering on on what's in front of us here in terms of 26 and certainly with the , you know , what we have in terms of this , you know , this , you know , excellent portfolio of , of products , you know , your question , I think really goes towards some of the strategic conversations that we will that my focus will shift towards here in the coming months .
Speaker #4: And so I don't have a view in terms of your question yet , but certainly we'll always be thinking as a leadership team around , you know , what do we do in terms of managing and ensuring that we have a portfolio for the long term ?
John Sapp: The portfolio for the long term that's really built for, you know, long-term, you know, success. That's just a normal course of, you know, us as a leadership team and the responsibilities we got there. You know, Jonathan, not a great answer yet to your question then, Jonathan, but, you know, certainly what I will just share is overall that I will always, as I sit in this seat, be thinking about how we ensure, for the long term that we're adjusting and managing our portfolio appropriately.
Speaker #4: That's really built for , you know , long term , you know , success . And so that's just a normal course of us as a , as a , as a leadership team and the responsibilities we got there .
Speaker #4: So , you know , not a great answer to your question then , Jonathan , but you know , certainly what I will just share is overall that I will always , as I sit in this seat , be thinking about how we ensure for the long term that we've that we're adjusting and managing our portfolio appropriately .
Jonathan Goldman: No, fair enough, and I appreciate it's still early days. Maybe just one more housekeeping one for me. The timeline for deleveraging to get back to the 1.5x or 2x or 2.5x range, did you say that was a 2027 event or an exit rate for 2026?
Speaker #11: No . Fair enough . And I appreciate it . It's still early days and maybe just one more housekeeping one for me . The timeline for deleveraging to get back to the one and a half to two times or two and a half times range .
Speaker #11: Did you say that was a 2027 event or an exit rate for 2026 ?
John Sapp: Yeah. We think it has end of 2026, early 2027 timeframe. We're not nailing down exactly when that will occur, but certainly, we expect that here in the next 12 to 24 months.
Speaker #4: Yeah , we think it's it . It has end of 26 , early 27 time frame . So we're not nailing down exactly when that will occur .
Speaker #4: But certainly we expect that here in the next 12 to 24 months .
Jonathan Goldman: Okay. Thanks for taking my questions. I'll get back in queue.
Operator 1: Thank you.
John Sapp: Thanks, Jonathan.
Speaker #11: Okay. Thanks for taking my questions. I'll get back in the queue.
Operator 1: Our next question comes from the line of Abe Landa with Bank of America. Your line is now open.
Speaker #4: Thank you . Thanks , Jonathan .
Speaker #2: Our next question comes from the line of Abe Landa with Bank of America . Your line is now open .
Sean Maher: Hi, it's Sean Maher again on for Abe. Thank you for letting me ask an additional question. We had just two more quick ones. Is there any further updates that you can provide on the integration of the American Seating business, like performance-wise?
Speaker #9: Hi , it's Sean Maher again on for Abe . Thank you for letting me ask an additional question . We had just two more quick ones .
Speaker #9: Is there any further updates that you can provide on the integration of the American Seating business? Like, performance-wise?
John Sapp: Sorry, the last part? Just having a little trouble hearing you there, Sean. How the integration's going relative to the American Seating Company business?
Speaker #4: Sorry , the last part , just having a little trouble hearing you there , Sean . So how the integration is going relative to the MCO business ?
Sean Maher: Yeah, we're just curious for the integration into the business.
John Sapp: Yeah. Like, overall, I shared a little bit earlier, right, relative to American Seating Company. I'd say we're very pleased with the progress that the JV has made. It has been an excellent partnership with us and our JV partners. We're very aligned in terms of where it needs to go and very, you know, proactively working through to ensure the process improvements, the, you know, the material execution, all of that, and getting the, you know, the future of that business set up and established. What I would say is, you know, currently we feel really good about it, the trajectory it's on in terms of the very, you know, near-term recovery and frankly, being able to support us in the long term.
Speaker #9: We're . Yeah , we're just curious with the integration into the business .
Speaker #4: Yeah . Overall , I shared a little bit earlier relative to MC , I'd say we're very pleased with with the progress that the JV has made .
Speaker #4: It has been an excellent partnership with us and our JV partners . We're very aligned in terms of where it needs to go and very , you know , proactively working through to ensure the process improvements , the , you know , the material execution , all of that and getting the , you know , the future .
Speaker #4: Of that business set up and established . So what I would say is currently we feel really good about it . The trajectory it's on in terms of the very near recovery .
Speaker #4: And frankly , being able to support us in the long term . So I think that's , you know , where things are at really with the business right now .
John Sapp: I think that's, you know, where things are at really with the American Seating Company business right now.
Jonathan Goldman: Yeah. The only thing I'd add, Sean, is, yeah, we definitely view it as an investment. We're actually not integrating it, you know, into our operations. As John mentioned, you know, we've got this joint venture structure that oversees AMSECO and their production, and our focus is on getting that business stable, getting it healthy. Then, you know, obviously, then we'll look at what the longer term future is for AMSECO. We definitely, you know, look at it as that an investment. That's why we treat it that way on our financials. As John mentioned, very pleased with what we've seen so far and very pleased with how the JV has been working.
Speaker #7: Yeah . And the only thing I'd add , Sean , is , yeah , we definitely view it as an investment . So we're actually not integrating it into our operations .
Speaker #7: As John mentioned, we've got this joint venture structure that oversees MC Co. and their production. And our focus is on getting that business stable, getting it healthy.
Speaker #7: And then , you know , obviously , then we'll look at what the longer term future is for AMC . But we definitely , you know , look at it that as an investment .
Speaker #7: That's why we treat it that way on our financials . But as John mentioned , very pleased with what we've seen so far and very pleased with how the JV has been working .
Sean Maher: Okay. Thank you. The last one, can you give us an update on the expected timing of battery recall cash outlays across 2026, 2027, and beyond?
Speaker #9: Okay . Thank you . And the last one , can you give us an update on the expected timing of battery recall ? Cash outlays across 2026 , 2027 and beyond
John Sapp: Yeah. I think in the Q3, I don't think we included in the deck, but in the Q3 deck we included a timeline of expected cash expenditures, and nothing's materially changed from that. Obviously, we have, you know, as disclosed in the financials, we've received some cash in. We are on the timeline to have the buses repaired in that 18 to 24 month period that we had originally said. Then, of course, the battery cell usage would be a little bit trailing after that. The development that's required in order for us to incorporate those battery cells into future vehicles, that timeline is preserved as well. We don't really have an update to what we disclosed in Q3, but we are on that plan.
Speaker #1: Yeah , I think in the Q3 , I don't think we included it in the deck , but in the Q3 deck , we included a timeline of expected cash expenditures , and nothing's materially changed from Obviously , we have , you know , as disclosed in the financials , we've received some cash in .
Speaker #1: We are we we do we are on the timeline to have the buses repaired in that 18 to 24 month period that we had originally said .
Speaker #1: And then , of course , the battery cell usage would be a little bit trailing after that . But the development that's required in order for us to incorporate those battery cells into future vehicles , that timeline is preserved as well .
Speaker #1: So, we don't really have an update to what we disclosed in Q3, but we are on that plan.
John Sapp: Sean, one thing I would add is, we feel really good about where the campaign is set. You know, coming in with fresh eyes myself and evaluating, you know, the program and the plan for execution, this obviously has been several months that the team has been working through to have us, you know, positioned to be able to go execute on this. It's been well communicated with the customers, well understood there. Frankly, I am really pleased with the leadership and the team that we've got in place to go execute the plan overall and within the timeline that Brian just described.
Speaker #4: And Sean , one thing I would add is that we feel really good about where the campaign is set . You know , coming in with fresh eyes , myself and evaluating , you know , the program and the plan for execution .
Speaker #4: This obviously has been several months that the team has been working through to have us , you know , positioned to be able to go execute on this .
Speaker #4: It's been well communicated with the customers , well understood . There . And and frankly , I am really pleased with the leadership and the team that we've got in place to go execute the plan overall .
Speaker #4: And within the timeline that that , Brian , just described .
Sean Maher: Okay. Thank you very much. I appreciate all the questions being answered. Good luck.
Speaker #9: Okay. Thank you very much. I appreciate all the questions being answered. Good luck.
Jonathan Goldman: Thanks, Sean.
Operator 1: Thank you. I'm currently showing no further questions at this time. I'd now like to hand the call back over to Stephen King for closing remarks.
Speaker #7: Thanks , Sean .
Speaker #2: Thank you . And I'm currently showing no further questions at this time . I'd now like to hand the call back over to Stephen King for closing remarks .
Stephen King: Yeah. Thanks, everyone. Thanks, Shannon, and thanks, everybody, for joining this morning. Thanks for all the questions. We really appreciate it. You know, as always, if you need materials, they're all on our investor section of our website, and we'll look forward to talking with everybody again in early May.
Speaker #7: Thanks , everyone . Thanks , Shannon , and thanks , everybody , for joining this morning . Thanks for all the questions . We really appreciate it .
Speaker #7: And , you know , as on our they're investor of our website and we'll look forward to talking with everybody again in early May .
John Sapp: Yeah. Thanks, all.
Operator 1: This concludes today's conference. Thank you for your participation. You may now disconnect.
Speaker #7: Yeah , thanks .