NFI Group Inc.

Q3 2021 Earnings Conference Call

11/3/2021

spk_0: good day as thank you for standing by welcome sales vienna fly twenty twenty one que three financial results call at this time all participants are really listen only mode after the speaker presentation there will be a question and answer session the ask a question during the session you will need to press for one on your telephone please be advised that the days conference is being recorded if you require assistance during the conference police brass five zero our know like to have the conference over to your first speaker today mr stephen king gullit director corporate development and investor relations surf the floor is yours
spk_1: thank you naval good morning everyone and welcome to in if i groups third quarter twenty twenty one result conference call this is stephen king's be joining me today or pulse you read president and chief executive officer and prefer to sony chief financial officer on this morning's call we will be walking through a result presentation the can be down in the investor section of our website while we will be moving the slides the the webcast will also called the slide numbers as we go through the deck for participants on the fall starting the fly to like to remind all participants and others that certain information provided on today's call may be forward looking and based on assumptions and anticipated results that are subject to uncertainties should any one or more of these uncertainties materialize what should the underlying assumptions prove incorrect actual results may vary significantly affected your advised review the risk factors band and enterprise press releases and other public filings on cedar for more details we also want to remind listeners the and abide financial statements are presented in us dollars the company functional currency and all amounts referred to or in us dollars unless otherwise noted on slide three we've included some terms and definitions referred to and this presentation of nose gear or mission buses or that consist of battery electric hydrogen fuel cell lectured and trolley electric cars equivalent units or use the term we use for production levels and delivery statistic the majority of our vehicles represent one equivalent unit one articulated sixty foot trained to put take to production slot and therefore is equal to two equivalent units on flight for for those of you new to the and by story we are leading independent global provider of the stain of a bus and motor coach solutions we operate with a for pillar approach folks some vehicles infrastructure aftermarket support and workforce development turning to slide five our purpose and mission is simple we exist to move people in other words are products move precious cargo we're focused on designing building and delivering exceptional turnkey mobility solutions on this ride with also included or stakeholder matrix the drives our strategic decisions and the core operate in principle that govern our behavior on now pads over to paul to be kept the quarter
spk_2: thanks steven and good morning everyone i'll begin on slide number six that titled executive summary similar to other local manufacturers and five third quarter results and operations were impacted by supply chain disruptions that caused a rapid deterioration and availability of critical parts and components and se and negatively impacted our production we responded quickly to these issues through the prudent i'll be a difficult to say asian to temple reduce new vehicle input rates and by idling some of our facilities and by adjusting production levels in others we anticipate that these actions will assistance and controlling costs lowering are working capital investments and preserving cash until supply availability and the reliability of delivery proof our customers been very accommodating and working with us as we adjust production and delivery schedules in response to these near term disruptions in addition or banking partners or credit syndicate have been very supportive and assisting us and focusing on our long term business objectives while managing near term challenges we're currently an ongoing discussions regarding a day original financial covenant flexibility for twenty twenty two as we work through these most recent supply chain disruptions and the impacts of the other realities of the coven eighteen pandemic there were numerous positives in the corner while the with the end up by forward optimization efforts realizing several key milestones that a permanently reduced are fixed cost base
spk_1: with the it's expectations of a sixty seven million dollar savings in twenty twenty three and a fight for will drive margin improvement and increase returns on invested capital as or volumes recovered
spk_2: even in the face of the pandemic in the supply chain related charges are after market segments saw significant year over year growth with a record adjusted ebitda for the second consecutive quarter there are a number of key forward looking that tricks that we track that have also increase in the quarter first are active bids are up eleven percent from the same time last year right now is the highest number of units that with submitted forbid since two thousand and seventeen quarter to at six thousand three hundred and seven submitted a equivalent units under bit at our five year total big universe is up seven percent with over thirty eight percent of that universe being zero emission buses
spk_1: we anticipate that the strong demand and growth and become as will continue driven by robust levels of government support in all of our core markets
spk_2: this bit activity is anticipated to generate revenue and backlog growth we've also seen increases in public transit ridership data as sooner than expected return in the private market market for leisure travel and if i have playing a leadership role in the evolution of zero mission transportation and we saw several major milestone this quarter the zero omission buses are now twenty one percent of our total backlog up from sixty percent just last quarter or battery and feel selected vehicles have traveled now over fifty million electric the open mic
spk_3: and miles
spk_2: we were also ordered some very large ie be awards in california virginia new york nevada or england and ireland and when else entry into the australian market by a strategic partnership with a local player and apply zero omission buses are operating or on order in fifteen of the top twenty five transit agencies in north america and are used by kind of the top fifteen transit operators in the united kingdom
spk_1: so far this year with completed zero mission charging infrastructure solutions projects in nine cities with project in progress in a further nineteen cities currently and we remain on track for approximately twenty percent of our annual deliveries the sheer to be from zero emission buses very exciting for us this week as with alexander dennis double deck bucket buses and uk best selling electric bus are on display at the united nations twenty six climate change conference of the parties or cop twenty six in glasgow scotland or vehicles are also providing zero missing transportation to world leaders during this of that
spk_2: and we're really proud to have worked with our customer partners book national stagecoach at the event highlighting our product and they're committed to a zero mission future next we'll have a hundred percent zero mission bus offering on display next week with all of our company showcasing their vehicles at the american public transit association export or the industry association called after which is north america's largest public transit of that more than eight thousand in person attendees have signed up which is a massive amount given what we've gone through our two years and all will be able to see our lineup of electrical fuel cell lectured buses and coaches all equipped with and if i parts proactive air and service purification systems to continue the battle the covert pandemic
spk_1: recognizing the need to deal with global warming which demands significant reduction in greenhouse gas emissions over the next decade countries around the world have made the landmark commitments to teach ghg reduction there's never been more urgency on the design and delivery of mobility solutions that are clean safe accessible efficient and most
spk_2: importantly reliable this is enough ice core business and we look forward to assisting governments and our customers achieved their operating targets on they'll turn it over dorsey about the passive sony to review and a fight third quarter financial results and i'll be back shortly to give you an update on our outlook aren't thanks paul turning to slide seven we have our backlog and new vehicle deliveries throughout the year we continue to be at or above our historical win rate and are seeing a significant pick up and bit activity our biggest revenue business new flyer due to delay the new awards and both north america in uk transit operations you will see that are backlog was plat
spk_4: in the current quarter during our cue for two thousand and twenty one update we expect to provide an update on the results of the reserve pick up a bit activity currently all signs point to positive momentum are backlog remained at a robust eight thousand one hundred and three use with twenty one percent being the bees as we flagged in our september eighteenth
spk_2: press release the supply challenges that we have a been successfully manuring have finally caught up with us we are seeing even more of our supplier delaying reducing shipments of parts and components this impacted our delivery the the quarter as we consciously reduce production rates to minimize whip build up and cash consumption
spk_4: turning the slide eight as expected with the supply challenges our total revenue decreased by twenty six percent we did have some bright spots in the quarter with a greater number as the be deliveries and a greater number of higher priced motor coach sold in the period addition quarterly aftermarket revenue was up twenty one percent year over year despite being impacted by supply chain disruptions and the covered nineteen pandemic they improve it was driven by increase volumes and all geographic regions quarterly infrastructure solutions revenue also grew by ten percent on a year over year basis for adjusted ebitda with the lower production rates resulting from the supply challenges we had a year over year decline of thirty million also with constantly changing production schedules resulting from navigating part shortages weeks periods variable production cost increases from labour to freight we also had left governments for this quarter vs que three two thousand and twenty as mentioned earlier the bright spot to this quarter with aftermarket bit segment where we had record a bit off for the sec decade quarter in addition we also saw increase sales from the complete infrastructure solutions division and sixty billion it's a big generated by enough i forward going forward we expect value recovery a larger to prove it will replace the impact of wage subsidies received during two thousand and twenty eight two thousand and twenty one free cash flow into the other twenty one two three decreased by thirteen point nine million or fifty four percent compared to two thousand and twenty q three mainly due to lower adjusted ebitda in combination with higher lease obligated payments as a company made payments related to leases deferred by less hours it two thousand twenty two three the decline it free cash flow was partially offset my lower cash interest expenses lower income taxes paid and edify power savings liquidity at the end of the quarter was three hundred twenty billion a decrease of sixty nine billion from the previous quarter the decrease was due to higher period and inventory balances resulting for supply chain challenges with expectations for fraud cashflow generate fourth quarter of we expected ed fiscal two thousand twenty one with more than four hundred million liquidity throughout two thousand twenty one a key priority across the company has been working capital management the teams have done a phenomenal job navigating a very difficult environment while focusing on the controllable levers of working capital as you may expect that glacier other supply chain challenges had a material impact a working capital date it created to sixty eight days compared to sixty today that the end of two thousand twenty what you to at sixty during the same period last year going forward we had to spank your t to prove to working capital metrics although those supply chain challenges product makes and see that l e bay cause importantly quarterly variants turning a slight nine our tax structure includes fixed it variable capote it's based on profitability add impact of nonrecurring disagree items for which we normalize as you know we have a complex tax structure that we intend to unwind at some point in the future this complex structure combined with her low level of earnings before tax results it challenges predicted tax rate we do however anticipate that are minimum fixed fact it's base will be between eight to fourteen million while or variable it's a taxes will be based on a range of twenty one to twenty three percent of adjusted pretax arctic for the year during the third quarter fix taxes combined with negative attack their backs of currency fluctuations to generate a total i just attacked expensive what point three billion or at adjusted lost before taxes
spk_2: we may continue to see these impacts during the remainder of the year
spk_4: also i can the of that are that loss for the quarter decrease compared to the same period in two thousand twenty as we incurred lower restructuring a covered by to related cost adjusted that loss which normalizes for dodd recurring what type items increase year over year primarily driven by the same backers that impacted deliveries at
spk_5: revenue
spk_4: on slide eleven we are real reaffirming are adjusted two thousand twenty one got for revenue adjusted the with the are a cash capital expenditures as updated in september two thousand twenty one for the fourth quarter of two thousand twenty what we expect lower adjusted ebitda or a year over year basis finally a reminder that for two thousand and twenty what elevates first second or third quarter two or thirty two periods while the fourth quarter is a forty with period making the fifty three week fiscal year i'm elected outer things back over to paul to discuss our longer term outlook
spk_1: thank you passive so on now on slide twelve
spk_2: as i discussed earlier we continue to see historic and transformational government support for zero mission public transit vehicles that have either been approved or proposed at all for markets we also expect more government focus across the globe and financial commitment following the the outcome of cop twenty six in glasgow these announcements are very encouraging but they are complex in some cases they're still going through the approvals and negotiations process as such we do not yet have all the details on when all proposals and funds with your aws into actual bus but generally north american take up bit and in between twelve to eighteen months from that time a bit is released before we actually see an impact on delivery buses and our financial results we are very encouraged by the government support on now turn the slide thirteen which is very telling for our business it provides the latest update on what we call our north american public customer total bid you know something new florida created back in two thousand and eight and as i mentioned earlier acting did or where we have submit are are where we have submitted or in process of spinning a proposal meaning they had the most significant know trump near term impact on our business art levels not seen since the second quarter of twenty seventeen we have over six thousand three hundred units in bids were we'd already submitted a proposal and nearly six hundred units were bids we have just received it back justice population of customers for us are over a hundred and eighty acted competitions in prague in process in the north the north american public transit market along the forecasted five year north american industry procurement bid universe which is developed through detailed discussions with individual transit agencies and from their published fleet replacement plans and indicator of for demand has started to rebound and was up almost ten percent quarter over quarter the increase in long turn forecast is parmelee result of transit agencies recovery they're forecast and formalizing their short and long term for current plans as they recover from the coven eighteen pandemic and as they learn more about the accessed a multi billion dollar funding programs that have announced or launched by the government of canada and the united states as of twenty twenty one two three ten thousand and twenty two hundred and twenty three units or thirty eight percent of the total bit universe is zero emission buses highlighting the ongoing evolution zero mission transit as with always said it's not if it's a matter of when and clearly it is an evolution we've also continue to see increased uses of purchasing schedules which include state and national contracts and cooperative purchasing agreements since two thousand and eighteen and if i received more than six hundred individual vehicle awards from the schedules which i like they're growing popularity with the north america transit agencies at the cost effective in patient bus procurement tool and our boxer it's dealer was recently named on one such large contract with the california so she's and core data transportation or cal act which is one of the largest take transit associations in the united states a reminder that the schedules are not reported in and a fight back home and as such they do not have defined quantities allocated to and a fire any other oh yeah once a customer purchase of the boss using one of these agreements the purchase orders recorded immediately other for a mortar and we will press release it turning it slide fourteen the shows hannah five targets through twenty twenty five while they're have no question be near term challenges from the endemic and the resulting stop supply chain and logistical issues we remain well positioned for previous announced long term targets with reasonable assumptions around market recovery to pre covered nineteen levels and increase and zero mission bus sales and the cost reduction through penn if i forward we maintain our expectations to grow revenues the three point nine to four point one billion and adjusted ebitda of four hundred to four fifty million by twenty twenty five nothing has changed in our longer term outlook path to recovery is like be muted given today's realities
spk_1: that it by we believe in delivery of long term sustainable transportation solutions and is drives our decisions that are operations the current operating environment has been challenging to say the least but we made tremendous light in optimizing our footprint and adapting are structure through a lower cost these and have focus on working capital management we will drive significant repugnance in iraq return on invested capital as we see or markets recover through twenty twenty five all of our key forward looking metric suggest his recovery has started and will continue to gain steam especially as we move into the second half of twenty twenty two
spk_2: i'd be remiss if i didn't comment or shows tremendous support from our workforce our employees or team members from our customers in their patients from our board and from a credit partners and most importantly our shareholders in this case in all the support we've received our navigating through today's realities that the law the term continues to be very bright and exciting for our company while now turn it back to stephen to summarize today's discussion followed by opening the called for analysts questions or reason even thanks paul turning have a slide fifteen for a quick recap
spk_1: enter by forward initiative continue to optimize our with adjusted ebitda savings of sixteen million and a quarter and fifty nine million sense inception the quarter was impacted by global supply chain sounded than the ongoing how would nineteen pandemic screw disrupt is disrupting production deliveries and custom order timing delicious will continue the impact fourth quarter twenty one from first half twenty twenty two results but activity and the overall been universe increased a meaty the highest level of submit bids since the second quarter of twenty seventeen creased order activity combined with additional expected government support for transit supports our view the production volume will start to return to more normal levels in the back half of twenty twenty two we reaffirm our full year twenty twenty one died and can he continued anticipate twenty percent of our twenty twenty one deliveries will come from the be we are focused on achieving our eg goals for initiatives aimed at reducing our internal footprint are creating equitable access to mobility and workforce developed development we are leading the devolution to zero mission future with expectations for top revenue growth and adjusted ebitda performance and twenty twenty five well now in the line for hours questions hazel over to you
spk_0: think the up as a reminder to ask a question you will need to press one on your telephone to withdraw your question fast a panicky the standby while the compiled a queue and they arrested yeah vice president comes from the line as know man city from the or edison vote sir line open
spk_6: hi good morning iran
spk_2: i don't
spk_7: i saw the my first question is like really do it the a few weeks of or fourth quarter how has the supply chain issues as it of frequently worked out has it improved our to continue to deteriorate and and what's really the most challenging in terms of thoughts procurement is is is the just limited to chips or jesse's or or what
spk_2: what's the most troubling here what it's a really good question and of course every day and every product we have every facility is is slightly different the a additional reality is associated with the microchip problem and a courses you can imagine the number of parts on all are different buses we don't buy those microchips or or processors directly we get them from components of the by from suppliers and so that have had been the primary impact and continues to be one of the biggest issues associated with whether it's engine delivery your sub components on the bus or chassis scrap for our our friends over at our buck but we continue to manage we don't expect that the bounce back over now all we gotta do is read the the realities of our automotive thought friends and and the what they're doing to to manage that's a with expected a bit of a muted recovering all the way through into the up to twenty twenty two there's other parts that pop up every day there's this huge issues associated with in some cases aluminum extrusion in some cases that plastics are and in some cases and sizes from sub components like wiring harness as or electrical components that relying on individual pieces that ultimately come from china and other locations has it gotten better in the first couple of weeks the fourth quarter look every day of different one day we solve a problem on one part and another part popped up so it continues to be a day by day cut a dynamic we are making facility decisions on a week by week in terms of run rate and long for work and very cooperatively with art a key members and our union partners to try that just that to accommodate those kind of things and all that to say it's not really any better it's content he was slog at this point in time and it's not it and edify bias you every single one of our competitor of anybody in our space has exactly the same dynamics of issues
spk_7: on and the we don't really expect to see a material change after that this the stability of the overall supply chain until we get into twenty twenty two i get that's a helpful thank you for that and just a world where we think about the replacement cycle of some of these transit buses ah the deer the element or historically or with thought that the battery costs would come down and that would make them more attractive voices of the traditional eyes ones now that with
spk_2: these cost pressures are you know it's unlikely that we'll see the same sort of bakri cost reductions that we saw previously has that something on decline front down or the conversations that you have with clients around back no i don't think so i mean intuitively if the market where the last that corresponding that quickly you could see in a price changes in shorter windows we don't have the market like that our customers are working to fiber in some cases tenure flee replacement plans they are continuing to buy ice conventional war or in a hybrid vehicles to to manage their fleets over the next ten twelve fifteen years at the same time they continue to as we talked that are statistics increase the percentage of zero missions the government's support that we've seen and talked about whether it's canada the us uk it reflects both the increased costs of the have a zero mission but but also the reality and needs for a charging and an electrical infrastructure so i don't think we've seen any change in anybody strategy or plans associate with the ultimate evolution that the or mission there is still a legacy business that is that very strong and continues to operate you seen a couple of announcement recently from us around some significant e l c n g or even hybrid type orders
spk_7: that the price elasticity around battery pricing is gonna continue to come down over the next that one two three five seven years whatever that period as i don't think that influencing buying in the short term at all okay they could just one last one from my and when i look at the beds and process for you for cute to to give it three this that a quite a bit of crops and just i just want to get a sense that we can bet that you've had bitch you got the results far what's the results like our are you still maintaining the market share is there something
spk_2: changing their or it's just damn highway sorry for the it has been that stranding the same way un normally we put that chart on like thirteen to try and help people understand i'm and and in some cases that might be possible to misinterpret the number of active bid has continued to go up remember that we are submit a beard and a customer decides on it the next day they go through your evaluation process in some cases there's face to face meetings in negotiations and on faces there's up a rebate or at best and final offer type process and so forth so the the up and downs of the new be coming in really isn't all that cigna be your really got had both the bids we've received and the bids with submitted that total activist the real metric he should keep your eye on and it's actually up you the literally ten percent or let off eleven percent you over year were really encourage about that because it reflects the the average transit agencies views around okay with we continue to manage our way through colvin ah we've actually seen some positive movement over the last let's call it three months or so around the recovery of ridership and and the impact of a half our our transit agencies planning their roots in their fleet so we're actually seeing that seen that as very positive keep in mind if you add those two numbers together the bidding process the bits of it is it's as high as we've seen in the last five years it's it's very and karadzic from where we sit and now this has a party just maybe maybe just to add to that you know one of the things we may what added you're obviously from you know from our when right perspective we are saying slightly better than historical ah and x particular him as the be ah arena at the mall backs basically in the new five business but
spk_7: again ah yelped from our perspective obviously not losing a market share as we can fat what we've been saying in that in the last stop the last several months
spk_8: i get thank you for the color i get back in the queue thank you
spk_0: thank you
spk_9: yeah next question is from the line of galilee young from cd securities say the line is open morning guys either
spk_10: just a quick one on that on the infrastructure solutions group noticed nearly she eat you mention that you completed nine project so far and then you have and additional nineteen projects and in different cities and
spk_2: seems like a pretty quick ramp up and with with that be a precursor to to order flow obviously the backlog and it it it's growing or surgeon said the diverse is going but just just a little bit more color on sort of where the magic city darren and what's happening now it it's it's a it's a really good question and as you know down you know it will take have good credit on strategy and a half almost been forced into the frustration of trying to deliver zero emission buses and operators maybe not being ready on on the electoral infrastructure the charging infrastructure side so we cobbled together a team and now we've expanded that team and added some really solid resources it to work with our customers not every customer is gonna want the bus provider involved in the infrastructure your big cities tall on new york even ottawa others are are are handing some that charging infrastructure or facility for structure over that to their major utility agencies inside the states of the provinces smaller meat inside operators are no question wanting a a bit of a bundled solution to ensure that the buffs and the electricity and the charger work as a solution or we we call it a bit of us an ecosystem not just the vehicle i it's an area that were studying a deeply it's an area that we're deploying more resources on i've iraq order today every time we have can bid for zero mission in north america you know five and a half or six times that it can we've gotta a charging infrastructure offering to go with it add in a world we're working with all kinds of different sizes of agencies you know everything from your antelope valley a customer in california that by at look and the i liked her coaches office to smaller agencies like culver city or knoxville that a metro we have a project with them on a specific a charger one of the locations i work with minneapolis metro rochester minnesota st louis so it's quite varied i clearly it's a reflection argue that the
spk_4: future for our business is not just about the bus it's about the bus and how it works cited ecosystem and we're going to continue to participate in that so we're really pleased of the progress and performance of that he and i think maybe just a low but the ad their you know again it is a leading indicator of our the be sales right now which which kind of as ah from operas back
spk_9: devon and it it does it's a positive find our customers are starting to get ready yell for those are our cells which which is obviously something we want
spk_10: captain of the great and then when you look at i mean you get said you're holding marketshare ah
spk_2: would you see any shifter changes in in who those customers are for the cb orders say i guess just any if transitory ships it or is it mostly your people that bought up by bosses in the pastor or buying and hi electric buses now why is he the galley talk the path the selection for ever criteria for every customer is different there are many of our current customers that have in their selection criteria past performance the required to submit case studies or reference customers that either the ability to demonstrate performance at all those kinda things you know we're sitting in a really good position that we have a very wide distributed fleet with customers that have a a past and a history in a relationship and of course and electric buses is as much as we'd like to think it's plug and play their it's a very complex vehicle and so the need to have a in a very significant field service team infrastructure as well as partnerships with all the major component suppliers are charging suppliers charging equipment suppliers and so forth it has been really really critical i wouldn't suggest that we've seen it all new types of customers or we've lost customers as we transition it'll be the continued evolution of our our business case studies goal and off along the way you know we've seen some really important of bids were we supposed than one based on our track record and our performance or of delivering your mission buses and supporting we've also seen some of our competitors have some real challenge is whether it's structural issues right change performance issues and so forth which goes back to be the electric propulsion as important part of the bus but the reliability and performance of his but that's gotta laughed you know twelve fifty eighty twenty years has been critical and some of those so selections what we want
spk_1: yeah i think one other thing to add to that as you know some early adoption and in v be it's enabled us to sell to some customers who are typical new black customers so i think you know that's one that in august has a fairly big positive for us and the only thing i that darryl it
spk_11: the north america great success stories experts also been really good in a international markets so ireland in new zealand to markets we weren't him before we made a pretty big entry and three zero emission buses battery electric buses with a deal
spk_0: god
spk_12: they can all go back and
spk_13: next question is from can land like send some national bank financial yeah linus open
spk_2: yeah thanks very much a good good morning i'm come back to the supply chain question again and just one if you can comment on how and of eyes doing relative to some of your competitors on supply chain issue i guess you know what i'm trying to get at is whether is your any impact on your your ability to to win contracts year relative to other competitors that or maybe in a better or worse supply chain situation good question can better a l point back to that it's not a short term up by decision those customers take you know eight ten twelve months to make a decision on a vehicle we haven't had a contract that we've beaten and one and been cancelled because we can't get a bus or any faster than our competitors so it's not the elastic like that in terms of a customer pivoting to say hate somebody else and get it to as faster the customers have been tremendously support of working with his to adjust the keynote preproduction meetings or online or inspection of vehicles post build inspection as well the acceptance and delivery and so that's been really really good and that support from the customers our competitors well they will have different supply chain for some parts of the bus that the same issues apply a me that the resin plastics i extrusion all the issue associate with microchips all those things are but the electoral connectors are universal ah challenges in manufacturing level long transit bus manufacturing or motor coach manufacturing we haven't seen any competitor be able to make any delivery promises any different than we've been able to make it if anything just are sheer size of we believe worse in a were slightly ahead in the queue in terms of those customers playing to us
spk_13: i you know game and white and our team who heads up supply he and his team continue to not only go to our suppliers physically now but also moving down to to tear to and tier three to help our suppliers in some cases small you know us businesses to help them navigate and negotiate the supply chain saw and there's been no to change in business demand or change and selection associate with the short term supply a challenges or logistics with charges were all facing
spk_2: oh hang on that that that's good to hear i'd just second question for me to get on the motor coach market and wonder if you could just talk a bit about the trend you're seeing their and maybe more specifically comment on i guess the the change in ownership of a greyhound i know that they have not been a major buyer of motor coaches from you in recent years anyway a tab your that the bar that business flicks bus i believe has been doing a trial of one of your m c i a coaches of is one of you could talk to civically about the potential opportunity there for you rotten egg it's a really good question it as we see the first america now can move up and people moving again and i'll admit caught up a little bit earlier than we expected in terms of the recovery of some of the motor coach now they're still in a world of hurt let's be honest that the private motor coach operator they did receive money in the last call it three or four months associate with the cares at the united states which is very helpful for the ongoing supporter of those businesses we are pleasantly surprised that chris of started as team on the and just that have done a really good job of working down the the excess finished good inventory that we had built up at the start of thought of called it ah chris is actively now working at restarting the private motor coach manufacturing line in the first quarter of next year which is reflected in our view of the market confidence we are really pleased with our decision that you know it's to a high tech twenty twenty but to to eliminate that that significant pre motor coach pool that we had ah
spk_1: pre cold that that at beginning of pulpit we ended up liquidating it it allowed chris and his team to be way more flexible working with customers around the us appropriate trade and and costing of those vehicles than the and the battery that would put him on our balance sheet so we're a bullish by be a little bit too aggressive a word were really comfortable with a pizza recovery of a private
spk_2: motor coach the second issue then you have to but it is the flicks plus acquisition of great out greyhound historically you know gone back ten twenty years what they largely at a motor coach fleet and then over the last five seven ten years we really haven't sold them or other than some spare parts with hadn't sold them new motor coaches the decision for plex pass whose business model is not to only assets but to use private operators to perform those routes it it's interesting now to see them actually moving into acquiring an operator whether that stayed that way or they migrate more back to that that using the private offers we have a number of motor coach
spk_14: operators that a bot coaches for my that operate on behalf of flux bus ah i think it's a positive for the industry that somebody like that that is turn the industry or i've had a little bit with house tickets are sold house seats are reserved at the root structure the pricing and so forth is a positive sentiment that in in america people are we
spk_15: wanting to move and you've got a a a premier player like flexed but wanting to get deeper into the space so while we don't sell buses directly a greyhound or flicks but today we're quite encourage the impact that would have on and on the motor coach operators and in north america
spk_0: like that variable picture her much
spk_16: but again
spk_17: yeah next question is from the line of mass maggie mcdougall some stiff ma'am feel i must help my name
spk_2: are they and so first off can you elaborate a bit on the strength in the aftermarket division during surgery the guy that there was some retrofit program for asia and i'm wondering how much of that i would be attributable to what we saw produced in the quarter and then whether or not that program will be continuing to keep for
spk_1: so for phone had a two corners and aroma caught a record aftermarket numbers which is really positive
spk_2: tough for business i think it reflects a couple things the fact that we have scale and size and the supply chain has ground to the ground down everybody's inventories we are in kind of the upper an enviable position of having the most him a tory the wider distribution network and were becoming in some cases clearly the the place go from a delivery and performance perspective i think i heard the other day there's something like eighty coaches down in north america rated buses and coaches down where we don't have a or the customer can't get a part to get that but back in the road to the is a reality of the operators now being impacted not just on on the delivery of new vehicles on spare parts and but we're in a really good position to will support that which i think and answers that the growth we've seen that business the other reality is that they mentioned before as public transit agencies i work their way back to normal operating size route structures and deployments that will help that has helped and then the second issue is now this recovery of the private motor coach operator both in the uk but also in north america as provided some mob some mud a growth in demand
spk_18: the asia pacific retrofit is a very specific program for a customer in hong kong it has been going on for probably the better part of three quarters of a year and will blend into the fourth quarter of the beginning of next year
spk_16: having said that that program is discreet we also bid on all kinds of upgrades retrofits midlife programs and we are
spk_17: cautiously optimistic will be of the continue the growth of our parts business into twenty twenty two and beyond
spk_2: i tried great and and then terms of the timing around when the winnipeg and christian facility or i don't be announced that with me temper and
spk_1: keep i believe are at in any event a camera with us facilities idol in september or did that a currency for so it it's a really good question and maybe reflects we've we've got a complete tell that story clear
spk_2: as you know from seeing our facility maggie in the past is it's not a normal production line that is building the same unit very highly customized vehicles with you know different they're designed propulsion systems part that go on those vehicles
spk_4: and varying the rate from you know forty a week to thirty a week is a very difficult dynamic because you have at a significant degree of nonrecurring engineer of for an interior to supply chain machine then you have the direct labour on the shop or and office for structure rather than shutting the volumes from are reducing i'm from thirty or forty to thirty or twenty or whatever the number is what we decided to do with the have windows of idling and still run the plant that exactly the same production rate but have less work weeks so we have been a what chris has been doing both at the motor coach facilities and the transit the facilities in north america is selected
spk_19: lee working with his team's them with the workforce to adjust certain days off or weeks off to still keep the normal production rate operating at the same paintings but less actual work days so all that to say that but actually happening since she's probably march of this year and chris continues to manage that and will do so through the
spk_2: first of the forecourt of this year and maybe of the fourth quarter of next year yeah i think he'll one of things we may want to add to that paul i am you gotta mention this so maggie you know obviously we have a look at of idling in september an additional and queue for but again these are all very short term decisions based on availability apart and the of that the move the lines right so that that was really
spk_17: the majority of the decision points there
spk_16: think of it as bad
spk_20: the dreaded not ridicule national production rate think of it it as using know line and three days are no mine and three weeks the item of the silly to let the supply chain catch up
spk_2: rights makes a lot of fans and so if i'm janna think about margin production repair as he captured he forgets that beginning of next year how did you dream back manufacturing operations compare in terms of working day their percentages as overall days working however you want to free that vs prior quarter than twenty twenty and twenty three and twenty twenty
spk_4: he won
spk_16: who got at a tough
spk_21: and struggling a little bit to be able to i don't have the production schedule in front of me in terms of the sheer number of production dates
spk_22: i do know that in the fall of okay yeah just just in the fourth quarter for example of this year we will have in the new flair factories we will have basically two weeks of non line entry so we'll can last production days but how that compares to each individual quarter a period previously a sorry i don't have the detail of top my
spk_17: it yeah it's roughly comparable but let let us get you the detail and will will come back to it okay and then one final question for me i noticed in year and the united states god damn he came cabinet waivers from your lenders i am wondering if you can give us a updated than overview in terms of quite your debt obligations are in the upcoming year and die
spk_2: how did ago see a shame it's going vs half negotiations just given that he other the a bunch of moving parts here we supply chain you obviously got a good knit to long term demand picture but it clearly you need part to be able to
spk_1: to find that meant at church and so said some no color i now upcoming obligations and then and then how how you expect that negotiation to play out
spk_2: sure that it's a it's a great question and answer a really important issue force and as you know contact we immediately pulled it happened last year march of last year we adjusted dad worked to the syndicate and just the covenants we did the same me in december of last year and again none of us knew what it would have wave two three four whatever of cold it
spk_1: and none of us could have predicted the ultimate impact on supply chain because ironically we didn't really have supply chain problems in twenty twenty or even the first quarter twenty twenty one to the magnitude we have today
spk_4: so our issue with not liquidity and borrowing capacity or issue is covenant calculation and of course with a soft que three and four this year and a you know projected relatively soft you want you to of next year or l p m will likely put a soft side on some of those covenant calculations the credits the kid in our case is the eleven eleven are correct eleven eleven banks in in the north american syndicate in there to in the in the uk credit facility that we have sold is a process where working that the banks have been incredibly supportive clearly their view a they're taking a long term view not a short term view
spk_17: and we're very comfortable and confident that will get all that sort of out before the end of the year in terms of how those covenant the to look for the first day you know half or second half of next year but it's not a liquidity dynamic real we expect to be north the four hundred billion dollars of liquidity by the end of the of the year based on the current receive all profile and delivery schedule that
spk_23: we have without having do any been a real a different in terms of managing payables are managing any of our other commitments
spk_0: yeah maggie just add to that just real quick i mean you know this but we we we have one point three billion capacity you could do the math with a four hundred million that paul kind of mention a liquidity ah you know our bank groups are very supportive ah you know and we are having some of those discussions so ah really are i'm not seeing any kind of issues with you know getting that town
spk_24: covenant relieve him of her for next year if needed
spk_25: okay thank very much guys
spk_10: thanks bag
spk_26: yeah next question is from china family miles from bmr capital my gets say the linus open good morning
spk_2: i got ya
spk_1: i on the continuing supply chain problems
spk_2: the mention that day to today the team has been able to solve challenges on on some parts i'm curious is there anything you're procurement team can really do given the limited number of suppliers would allow you to stay by america compliant well i it's it's a your that the reality jonathan that i'll give you some examples when common sense we can get in engine because we can't get all the connectors and components and microprocessors there's nothing we can do other than to piggy to work with them with adjusting are scheduled them were to their customers that the other end of the the stuff after is that a plastic that df tank that's got some kind of censor on it i are keep going out working with that supplier figure out how to maybe reverse or or ultra an engineer the the part finding another supplier and within weeks were solved with that problem or within a month with solve that problem the reality is we all we have those issues and we are able to solve them with the the appropriate lead time not to adjust historically just our production issues the reality of the compounding issues today make that much eat harder so we saw the dev tank problem another one deal david teams running around that here for the vast majority of the connectors that are on electrical not harnesses are coming from china course a bunch of them are either en route are sitting in containers or somewhere and ports so the ability to work with different kinds of suppliers weather domestic or international that come up with alternate source to get them to our wiring harness suppliers to get them to get that wiring harness your that's just that the the ugly reality of to the blocking and tackling we don't feel that long term systemic issues idiot a reality in the short term the other biggest issue is christmas decision that govern the inputs because what we don't want is what we hadn't twenty tina nineteen where we had supply from our own tmz facility that create parking lot full of unfinished buses and which sucks up working capital and then the other reality you know and then every hour that we miss on installing a part in the production line though
spk_27: three or four hours of retrofit time in the parking lot or in the field and that's very expensive it's very disruptive and had a direct correlation back on how we can efficiently a run the stuff gone through the product line so as a cop is it was fun at people and productivity yeah cost perspective i think christie the right decision to govern
spk_26: the capacity in the short term while the supply team goes and manages and works with individual suppliers i can't i can't stress how accommodating
spk_27: that the customer base has then they get if they get the reality of both and with the pandemic has had an awesome them but also the supply chain and so will just continue the man through that at as i think he took off from our our numbers and are are speaking out this morning jotted that the number of rfp the number of competition the quantity of unit
spk_2: it's the support of the funding is really really encouraging the issues we just gotta contain a manage you know from here to there and we believe there is is the second half of next year just the what we're seeing in terms of recent awards and are peed on the street thanks and one follow up question if installation on basic components is unusually high over the coming quarters will new flyer be able to pass that on through the normal inflation adjustments built into the orders or will you need to reopen some previous contracts to protect your margins well that you know it's a it's a yeah a really good question that applies differently and in every single case in in that flew flyers case what we're building today was priced you know year ago and what it has his you know how for sixty percent of that but has a specific quote from a supplier the engine
spk_28: cough is the a transmission cost is the window cocked his there's no question then increase or freight surcharges or a price escalation on certain commodities in the vehicle and so we continued to manage that on a day by day basis but it hasn't has and thousand had and that we don't expect a tavern material impact
spk_26: on our gross margin on future business obviously are we are reflecting ah those cost increases in when we're converting option there's pp i indices in the vast majority of our contracts to allow tough to cover any low cost increases or were bidding for new work were reflecting the current caught the those materials
spk_2: was so there is no question and impact our business we don't feel as a material impact or in the short term and if anything you know what are our price will be reflected in the future based on the inflation of that path and the purchase price index is that we have the private markets are a little bit different in in terms of what we do and alexander dennis or in in their the private more coach were word negotiating a price that in those cases the negotiations are far closer to the time at which we build the product as opposed to having a yearlong priced out there with the cost increase in in the in the the time it takes
spk_28: so it issue but i don't see that a major issue he i think job and you also know our pp the pp i index is very high so we we are able to pass that on is our our viewpoint
spk_29: i for the comments that the
spk_0: as of the credit negotiations
spk_1: the update us on how the borders thinking about the dividend in the context of the recent discussions of the linux and the get yeah it's a good question and their the board continues to believe that does us as a management team that a dividend is an important historical part of and part of the core reason why people invest in our business it's not the be at all and all that it is an important part of our story
spk_0: i we've recently as you know continue that dividend and ah that the discussion with the board in the bag now with coveting a disgusting thought was standing at that we continued the board is fully support of the cunning to wanna be a dividend paying business
spk_1: okay thanks for comment
spk_0: based on
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