NFI Group Inc.

Good day and thank you for standing by. Welcome to the NFI 2022 fourth quarter and full year 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 this session, you will need to press star 1-1 on your telephone. Then you will hear an automated message advising your hand is raised. To withdraw your question, please press star 1-1 again. Please be advised today's conference is being recorded. I would now like to hand the conference over to today's speaker, Stephen King, Vice President, Strategy and Investor Relations. Please go ahead.

Thank you, Michelle. Good morning, everyone, and welcome to NFI Group's fourth quarter and full year 2022 results conference call. This is Stephen King speaking. Joining me today are Paul Subri, President and Chief Executive Officer, and Papasu Soni, Chief Financial Officer. We will start today's meeting by delivering a land acknowledgement, also known as a territorial acknowledgement. I acknowledge that I reside and that NFI is headquartered in Treaty 1 territory, the original lands of the Anishinaabe, Cree, Oji-Cree, Dakota, Lakota, Dene peoples, and the birthplace and homeland of the Métis Nation. We respect and give honor to the Indigenous peoples' history on this land and recognize First Nations, Métis, and Inuit peoples' ongoing contribution in our neighborhoods and communities. We acknowledge our relationship with Indigenous people in Canada and throughout the world, a unique relationship that is committed to truth and reconciliation. Today's call will be a little longer than our usual quarterly calls, with approximately 40 to 45 minutes of presentation, followed by question and answer. We want to provide a detailed update to our investors and stakeholders, so we will discuss how we finished 2022, provide information on the record bid and funding environment, an update on supply chain, and on our longer-term outlook and anticipated financial recovery. This 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'll 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. Starting with slide two, I would 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 uncertainty. 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. One item to note is that in order to allow our external auditors to complete their final normal course audit procedures, the audited financial statements are expected to be filed on CDAR and the company's website by the end of this week. We do not anticipate any changes between the information provided today and the final audited statements. 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 that 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. For those of you new to the NFI story, we'd like to provide background over the next few slides. With over 450 years of combined experience, we are a leading independent global provider of sustainable bus and coach solutions. We are leaders in our core markets, which includes North American heavy-duty transit, coach and aftermarket, UK heavy-duty transit and aftermarket, and the world leader in double-deck transit buses. On slide five, we outline the evolution of our offering and the ecosystem we offer our customers and partners. At our core are our vehicles, complex and customized for mass transportation. They are supported by industry-leading aftermarket parts and service. We pride ourselves on being thought leaders in our space and drivers of workforce development and training. with special focus on creating opportunities for a diverse, equitable, and inclusive workforce. With the evolution of new technology, including battery and fuel cell electric propulsion, we've seen increased demand for our connected vehicle technology, including telematics and diagnostics, autonomous or advanced driver assistance systems, as well as vehicle financing and infrastructure support. Our infrastructure solutions business works directly with customers to assist them in determining needs and commissioning electric vehicle infrastructure. a business that has installed over 340 chargers with more than 58 megawatts of capacity. Turning to slide six, our stakeholders, presented in the wheel on the left, drive our strategic and organizational decisions, and our values are at the core of our operations. We concentrate on achieving a balance and delivering for all our stakeholders, and this wheel was especially helpful as we made difficult decisions during the COVID-19 pandemic and associated supply disruption. On slide seven, we provide a brief snapshot of our history, including the numerous acquisitions that have built NFI Group. As you can see, on a pro forma basis, we were nearly a $3.2 billion revenue business in 2019. The past few years have been challenged due to the first to the COVID-19 pandemic, followed by a global supply chain disruption impacting our delivery volumes, but we envision that we will exceed our pre-pandemic levels with a target to deliver approximately $4 billion of revenue by 2025. This view is supported by the expected benefits of increased demand, higher ZEV sales, and international expansion, items we will discuss in detail this morning. Slide 8 provides information on the diversification of our business. North America remains our largest market, but we've seen significant expansion of our international business in both the U.K. and Europe, plus contribution from Asia-Pacific regions, all driven by our 2019 acquisition of Alexander Dennis. Heavy-duty transit in both North America and the U.K. remain our largest product segments, with the majority of those sales going to public entities or entities that receive funding from public government. Aftermarket businesses, both in North America and internationally, are also critically important as drivers of revenue, significant margin performance over the past three years. Finally, as you'll hear numerous times throughout this morning's call, we're seeing continued and rapid growth in the demand for ZEBs, with a higher portion of revenue coming from these electric vehicles, which is expected to grow significantly in the near and long term. This transition to electric vehicles, what we call the ZEVolution, is exciting for NFI as we are leaders in this space. Slide 9 provides statistics on our capabilities and performance of DEVs. The more than 2,725 electric vehicles we've delivered since 2015 have completed over 100 million electric service miles in 120 cities across six countries. Finally, as I previously mentioned, demand for electric vehicles is accelerating. In our North American bid universe, 51% of anticipated customer purchases over the next five years are for electric vehicles. When I started with NFI in 2018, this was just 18%. Putting all this together on slide 10 is NFI's investment rationale. As discussed, we have leadership positions in attractive markets that are transitioning to electrification with record bid demand and government funding tailwinds. We expect that this will grow both top-line revenue and bottom-line earnings as our business drives significant earnings volume leverage. We have decades of experience and track record, which is critical to our customers and a key differentiator when compared to new market entrants. While we are leaders in zero emission battery and fuel cell electric propulsion, we are propulsion agnostic and also offer legacy diesel CNG and diesel hybrid electric options. We can support our customers throughout the transition to zero emission as our facilities have propulsion agnostic product lines. This is another key differentiator for many of our competitors. Finally, while there have been challenges over the past few years, we anticipate significant financial recovery with growth, potential outperformance relative to our peers and industry standards as we move through 2023 and into 2024 and 2025. I'll now pass it over to Paul and Papasu, who will discuss all of these factors in detail and recap the fourth quarter and fiscal 2022.

Excuse me. Thank you, Stephen. Good morning, everyone. I'll begin on slide nine with a summary of fiscal 2022. We saw record demand for our products and services, juxtaposed with continued supply chain disruption, associated production and deficiencies, and the impacts of inflation and rapid foreign exchange movements. Our financial results reflect those realities, with declines in certain performance metrics paired with outperformance in growth metrics. The aftermarket segment was a significant bright spot for us in 2022, delivering profitability while navigating through its own level of supply challenges. A few highlights for the quarter. Strong growth in after-year procurements, up 54% year-over-year. Our highest new order performance since 2017, with over 5,700 equivalent units, a 23% increase year-over-year. This was the second highest level of annual orders in the past 16 years. We grew our backlog by 9% year-over-year, finishing at $5.6 billion, with a booked bill ratio of 134% for fiscal 2022. Zero-emission buses made up 23% of our full-year deliveries, up from 18% in 2021, and a record 29% of our backlog. We achieved milestones of more than 100 million zero-emission miles driven on NFI buses and coaches, a 100% increase from 2021. 51% of our total North American bid universe is now zero-emission buses, and this represents over 3,100 units a year over the five-year outlook. supporting our view of significant increase in demand for electric buses going forward. We achieved our target of 67 million of NFI forward savings and 75 million when combined with cash flow savings, hitting our target in 2022, one year earlier than we originally projected. We completed two amendments to our credit agreements and subsequent to a year end entered in new loan agreements with the Governor of Manitoba and Export Development Canada, which Mufasa will discuss later in this meeting. Finally, Even in the face of pandemic and supply chain-related challenges, we saw quarterly aftermarket revenue increase 2% and generate a solid 17.9% adjusted EBITDA margin, even with one less week of operations during a 52-week financial year versus 53 weeks in 2021. On slide 13 and 14, we provide graphs that tell the story of our supply disruption and the inefficiencies they created. First on slide 13 are supplier risk ratings. This data is compiled from a detailed risk assessment process that monitors and evaluates the risk and potential impact of supplier disruption. To do this, we review a supplier's financial strength, we monitor their past delivery performance, work proactively to understand their tiered supply and other risk factors. We categorize all suppliers based on these risk factors and consider severe impact suppliers as those who can result in line shutdowns, lower production rates, or significantly impact bus completion online. We navigated through 2020 and started 2021 without major disruption from any severe impact suppliers, basically a similar performance to what our supply chain had delivered for years. In late 2021, this turned with 50 high-risk suppliers across NFI. This impacted key components such as windows, air conditioning units, emission systems, plastics, hoses, and many key electrical components which contained microprocessors. While we saw improvement during the second quarter of 2022 and were encouraged, critical electrical components remained a significant challenge, with some additional challenges arising in the third and the fourth quarters of 2022 from things such as wiring harnesses, electrical hybrid drive systems, and inverters for electrical buses. These disruptions inform the graph on slide 14. There are quarterly vehicle entry rates, line entry rates or otherwise stated the number of new vehicle builds that we start in our production facilities each week and quarterly WIP dollar investments. Line entries should be in the approximately the 1500 units of quarter range similar to 2019. Reductions in 2020 and 2021 were driven by the pandemic and then supply disruption. This was even worse in 2022 with line entries hitting a low of 714 units in the fourth quarter of last year. This data shows that our facilities were inefficient and our teams were frustrated as they could only build partially completed vehicles, growing work in process of buses and coaches and missing several components. The good news is that as we exited the fourth quarter, while we light entered fewer vehicles, we completed and delivered many vehicles that were missing components previously, lowering our overall WIP by $127 million. We have not sat idly as we have dealt with these supply challenges. Slide 15, we outline our proactive responses. First, to help offset the impacts of inflation and working capital investments, we sought out pricing adjustments and customer deposits or prepayments where possible. We've had significant success in both areas. Two, we lowered our production line entry rates and our staff levels to better match production with demand and to focus on WIP reduction. Three, we found certain alternate suppliers where possible, and in some cases going down four levels in our supply chain to find alternate parts from our suppliers. Five, we increased our inventory of raw material components to improve parts availability on the production line where possible. For certain components moving from six days of just-in-time or point-of-use inventories to somewhere between 50 and 20 days where applicable. We increased our lead times to suppliers. What was typically a six to eight week lead time has now been increased to 10 to 12 weeks for many components and even longer for others, which is a huge lift for our engineering supply teams. who work on highly customized vehicles. And finally, we continue to drive our cost reduction efforts, and since 2020, NFI Forward has achieved $67 million of annualized cost savings compared to 2019 baseline levels. This required that we reduce over 2,000 positions across our company and close nearly 25 individual sites. There were extremely difficult people decisions that impacted our teams. We defend our position not to cut deeper, as if we were to shutter additional facilities or even do more significant layoffs, there is a high likelihood that we would not be able to recruit the staffing that was required to facilitate our recovery. We would also not be able to deliver significant new order wins and to grow the backlog. With those details in mind, I'll now ask Papastu to dive into the details on the financial results before I provide you with an update on our outlook and guidance.