NFI Group Inc.

2021 financial results call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during this session, you'll need to press star 1 on your telephone. As a reminder, today's program may be recorded. And now I'd like to introduce your host for today's program, Stephen King, Group Director, Corporate Development and Investor Relations. Please go ahead, sir.

Thank you, Jonathan. Good morning, everyone, and welcome to NFI Group's fourth quarter and full year 2021 results conference call. Joining me today are Paul Subri, President and Chief Executive Officer, Papasu Soni, Chief Financial Officer, and David White, Executive Vice President, Supply Management. Today's call will be longer than our usual quarterly calls. We had originally planned on holding an investor day in January 2022, but with the onset of the COVID-19 Omicron variant, escalating supply chain challenges facing the manufacturing and transportation industries, we felt it was best to delay that event until a later date. We do think it is important to provide a detailed update to our investors and stakeholders. So today we will discuss how we finished 2021, provide information on the current record vehicle bid and funding environment, the ongoing supply chain challenges that are impacting operations, and an update on our longer-term outlook. Since we completed our last Investor Day in January 2021, a significant number of milestones have been achieved both internally and externally that position NFI extremely well for the future. I'll remind listeners that today's call is being recorded and a replay will be made available shortly. We will be using a presentation that can be found in the Investor section of our website. While we will be moving the slides via the webcast link, we will also call out the slide number as we go through the deck for participants on the phone. Webcast participants can submit a question on the portal under the Ask a Question button. Starting with slide two, I will remind everyone 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 or should the underlying assumptions prove incorrect, actual results may vary significantly from those expected. You are advised to review the risk factors found in NFI's press releases and other public filings on CDAR for more details. We also want to remind listeners that NFI's financial statements are presented in U.S. dollars, the company's functional currency, and all amounts referred to are in U.S. dollars unless otherwise noted. On slide three, we have included some key terms and definitions referred to in this presentation. Of note, zero-emission buses, or ZEBs, consist of battery electric, hydrogen, fuel cell electric, and trolley electric buses. Equivalent units, or EUs, is a term we use for both production slots and delivery statistics. The majority of our vehicles represent one equivalent unit, while an articulated 60-foot transit bus takes two production slots and is therefore equal to two equivalent units. On slide four, for those of you new to the NFI story, we are a leading independent global provider of sustainable bus and motor coach solutions. We are leaders in our core markets, which include North American heavy-duty transit, coach, and aftermarket, the UK heavy-duty transit and aftermarket, and a world leader in double-deck transit buses. Turning to slide five, our purpose and mission is simple. We exist to move people. In other words, our products move precious cargo. We are focused on designing, building, and delivering exceptional, safe, and turnkey mobility solutions. We have made a sustainability pledge, originally in 2006, that still holds today, and that is a better product, a better workplace, a better world. On the ESG front, one of our key actions in 2021 was to engage an independent third party to conduct a diversity, equity, and inclusion survey of our organization. We continue to weave the findings of that survey and other ESG metrics into the fabric of our day-to-day operations and our long-term planning. Slide six is critically important as it shows the breadth of our full offering. Our solutions include vehicles, infrastructure, connected data and telematics, aftermarket parts and service, and financing solutions. We are truly a partner of choice for bus and coach customers offering turnkey solutions. On slide 7, we've included our stakeholder model that drives our strategic decisions and our company values used in our daily operations. Achieving balance for all our stakeholders is critical to the long-term success, and especially true as we've managed through COVID-19 pandemic and the ongoing global supply challenges. Moving to slide 8, we are often asked about our total addressable market, or TAM, As you can see, we have leadership positions in our core markets, which represent a TAM of nearly $9 billion, of which we are currently capturing approximately 33%. We expect that our share of this market will grow over time as we lead the transition to zero-emission transportation. In addition, we have an additional TAM opportunity of at least $10 billion coming from potential new market opportunities in the North American and U.K. bus and coach space, combined with geographic markets where we already have a presence and other new potential geographic regions. Our international expansion is made possible through Alexander Dennis Limited, or ADL, which was acquired in 2019. And while it has been significantly impacted by the pandemic and associated supply chain challenges, it continues to expand its reach. On slide nine, we walked through this growth. ADL has secured EV awards in New Zealand, grown in Hong Kong, continued to establish its presence in Singapore, and has also seen significant European expansion with contract wins in Ireland and Germany. For example, ADL will deliver almost 200 double-deck buses into Berlin this year. Finally, in 2021, ADL entered into a strategic partnership with a local builder in Australia to grow its presence in that attractive market. NFI has been on a growth and diversification journey since 2010, with slide 10 showcasing this transition. In 2010, we were solely operating in the North American heavy-duty transit market, with 99% of our volumes coming from buses powered by internal combustion engines. By 2019, we had changed our business with over 13% of our revenue coming from outside of North America offered through three different vehicle segments and 6% of volumes coming from electric buses. By 2025, we expect that 25% of revenues will come from international markets and that we will see stronger contributions from heavy-duty transit vehicles driven by expectations that more than 40% of our deliveries will be zero-emission buses. Government support, the key driver for transit procurements, is at an all-time high, with billions of dollars committed for long-term, multi-year fleet investments and the transition to zero emission, where NFI has a very successful win rate. Putting all of this together on slide 11 is NFI's investment rationale. As discussed, we have leadership positions in markets that are transitioning to electrification with record demand and funding tailwinds. This will grow both top-line revenue and bottom-line earnings. We have decades of combined bus experience and track record, which is critical to our customers and a key differentiator when compared to new entrants. While we are leaders in zero emission battery and fuel cell electric propulsion, we are also propulsion agnostic, offering legacy diesel, CNG, and diesel hybrid electric options. We can support our customers at whichever stage they are in their transition to zero emission. This is another key differentiator for many of our competitors. Finally, while there have been challenges in the recent term, NFI has historically delivered above industry performance, outperforming our peers, and we anticipate significant margin growth to 2025. I'll now pass it over to Paul to recap the quarter and fiscal 2021.

Thank you, Stephen, and good morning, everyone. I'm well aware that our results will create a very difficult day in the market for our shareholders. These results reflect today's reality, and I'm sure many will show frustration with our outlook in 2022. The last two years have been like no other. From 2012 to 2019, we assembled a group of world-class busted coach companies, with the most recent being Alexander & Dennis in 2019, which we acquired effectively with debt. We were excited about our next chapter, but the reality is the world for us changed and for many in Q1 of 2020. The pandemic has gone deeper and longer than we ever could have imagined, and the resulting impact on the global supply chain is unprecedented and continues with no obvious or quick relief in sight. Our reality is today we have 2,000 less people than we started 2020. The people that have been here and stuck with us, we've asked them to idle, to stop, to start, to slow down, speed up, and then slow down again. Our business is not a simple one, but we're darn good at it, and we have a bright future. We've proven we'll be transparent with our employees, with our customers, and with the street, and we will make difficult and, in some cases, unpopular decisions. But we have and will do the right thing for our future. Let me be clear, we don't have a demand issue. We don't have a product or a service gap. We have a backlog and we have track record. But today's reality is we have an unreliable and unpredictable supply chain. It's not pretty right now, but we will manage through it. We lead this market. We led it before the pandemic. We're leading it in the middle of the pandemic, and we will lead it after the pandemic when supply chain gets healthy. So for today's discussion, I'll start on slide 13. Like the other global manufacturers, NFI's fourth quarter and full year 21 results and operations were again impacted by the supply chain challenges that caused unpredictable and sudden deterioration in the availability of critical parts, components, and chassis. We responded quickly to these issues. We're assisting our suppliers with input constraints and approving or securing alternate sources of supply where possible. We've lowered our production rates at idle facilities at times, which assisted in minimizing reprocessing of buses and avoided buildup of excess work in process. Our orders are highly customized vehicles, engineered to each customer's unique specifications and their selected suppliers. The individual order sizes are smaller and have long lead times. In addition, we often had to adhere to local content rules, such as Buy America. These factors make our business very different from automotive or trucking industries where customers often buy more standardized or pre-configured products. It also limits our ability for quick substitution or alternate suppliers on individual orders. Our supply chain is built for this world and has delivered years of exceptional performance, but they are experiencing unprecedented constraints. We're not highlighting this as an excuse, but simply the reality of our business and our industry is is the way it is. With those details in mind, we review our fourth quarter and fiscal 2021 results summarized on slide 14. While the quarter continued to be impacted by supply chain and pandemic-related absenteeism, we had numerous positives that positioned NFI well for the future. We have strong growth in active procurements. They're up 70% year over year. We added more than 1,600 EUs to our backlog, resulting in a book-to-bill ratio for the first time in a long time, of 115%. Our zero-emission buses made up 31% of our quarterly deliveries, and we achieved milestones of more than 50 million zero-emission miles driven and over 275 EV chargers installed by our infrastructure team. 39% of our total North American bid universe is now zero-emission buses. This represents over 10,000 units of opportunity, supporting our view of significant increase in demand for electric buses going forward. We delivered an additional $18 million of NFI forward savings in the quarter, and now $65 million for the year when combined with cash flow savings. We strengthened our balance sheet through equity raises and convertible debt issuance. And finally, even in the face of the pandemic and supply chain-related challenges, we saw quarterly aftermarket EBITDA increase 13%, up 47% year over year. We've asked David White, our EVP of supply chain, to join us today, and David will walk you through some of the details of our supply chain and specific challenges that impact 2021. David will also talk you through some of the things he's working on to improve our outlook going forward. After that, Papasa will take you through our financial outlook for 2022. Over to you, David. Thanks, Paul.