NFI Group Inc.

Good day and thank you for standing by. Welcome to the NFI Group First Quarter 2023 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. You will then hear an automated message advising you that your hand is raised. To withdraw your question, please press star 1-1 again. 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.

Thank you, Michelle. Good morning, everyone, and welcome to NFI Group's first quarter 2023 results. This is Stephen King speaking. On slide two, you will see that joining me today are Paul Subri, President and Chief Executive Officer, and Papas Usoni, Chief Financial Officer. On today's call, we will provide financial results for the first quarter, provide information on the record bid and order environments, An update on supply chain and our capital allocation priorities will also cover 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 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. Starting with slide three, 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 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 reporting currency, and all amounts referred to are in U.S. dollars unless otherwise noted. One other item to note, NFI has retrospectively adopted IFRS 17 for insurance contracts on January 2nd, 2023. Please refer to our MD&A for details of the impact of this adoption. On slide four, we've 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 you'll hear throughout our presentation, and they represent both production slots and delivery statistics. Most of our vehicles represent one equivalent unit, while an articulated 60-foot transit bus takes two production slots and is therefore equivalent to two EUs. Slides 5, 6, and 7 provide a brief overview of NFI. For those of you new to the story, Interested listeners are encouraged to visit our investor website and listen to our 2022 Q4 results call for a more in-depth introduction to our overall business. NFI continues to lead the evolution to zero emission, or what we call the Zevolution. Slide 8 provides statistics on our capabilities and performance in ZEVs. The 2,891 electric vehicles we've delivered since 2015 have completed over 115 million electric service miles in 130 cities across six countries. Demand for electric vehicles continues to accelerate quickly. In our North American bid universe, over 50% of anticipated customer purchases over the next five years are expected to be for electric vehicles. I'll now pass it over to Paul and Papasu, who will recap the company's financial results for the first quarter.

Thank you, Stephen, and good morning, everyone. I'll begin on slide 10. with a summary of our first quarter 2023. We continued to see record demand for our products and services, paired with the continued supply chain disruption and associated production deficiencies, but we have seen and are experiencing encouraging signs of improvement on both fronts. In the quarter, manufacturing segment of bus and coach deliveries was up 20% and revenue up 18%, with adjusted EBITDA up 42% from 2022. The significant improvement in adjusted EBITDA was driven by improved volumes and enhanced product mix. We also had fewer legacy inflation impacted contracts that were originally bid in 2020 and 2021 in the first quarter. And so while there was an overall improvement, the manufacturing segment continues to be impacted by certain supply disruption, as well as lower than expected ZEB deliveries and legacy inflation impacted contracts. Our work in process increased in the quarter, in part due to typical seasonality, but also as a result of delays related to the installation of new drain technology within the energy enclosure systems for certain nuclear battery electric buses in North America. Initial work on the drains commenced in the second quarter, and we expect to start delivery that impacted those vehicles late in the second quarter, and they will continue through the second half of 2023. Aftermarket continues to provide strong contribution, with increases in revenue, gross margin, and adjusted EBITDA. and with a return on sales now of 21%. This exceeded our expectations, and to us is a sign of the strength of our leading aftermarket parts business in both North America and the UK and Asia-Pac regions. Now, Stephen just talked about ZEB metrics, and so I'll skip over to our demand environment, which after setting numerous records in 2022, achieved even newer and higher heights in 2023. Year over year, our North American public bid universe is up 18%. New orders to NFI are up 33%, and our active bids are up 99%, reaching 11,066 equivalent units, the highest number of quarterly active bids we've ever had. We entered the first quarter of 2023 with 2,833 equivalent units bid in process and another 8,233 equivalent units bid submitted. which we expect to translate into steady orders throughout the rest of this year and growing our backlog going forward. Our backlog has now reached a staggering $6.7 billion, up from $4.9 billion at this time last year. It is our highest dollar value ever, and NFI has a steady demand environment for today, for our short-term order book, and for our future. On the next two slides, we'll provide graphs that provide an update on the supply disruption and some of our associated inefficiencies as a result. First on slide 11 is our supplier risk ratings. This data is compiled from a detailed risk assessment process that we've been doing for many years that monitors and evaluates the risk and potential impact of supplier disruption of NFI's top 750 suppliers. After an incredibly challenging period from late 2021 throughout all of 2022, we have now started to see positive and significant signs of improvement. While there are challenges that continue to persist, and our supply chains on a few fronts are not completely healthy, we continue to take actions to improve parts availability and are experiencing improvements in on-time deliveries from our suppliers. This supports our outlook to start the gradual ramp-up production in the second half of 2023, as we planned. Now, these disruptions inform the graph on slide 12. These are our quarterly vehicle line entry rates, or otherwise stated, the number of new buses and coach builds that we start in our production facilities each week. and our quarterly work-in-process dollar investment. Line entries should be in the 1,500 units a quarter range, similar to 2019. The results of the pandemic and supply disruption are evident. This data shows that our facilities were extremely inefficient, and our teams were frustrated they could not complete vehicles, growing our work-in-process of buses and coaches that were missing certain parts and components and had to be rectified offline. Line entries improved in the first quarter of 2023 to the highest levels we've seen since early 2021. We now expect production to continue to scale slowly as we ramp up in tandem with our supply chain improvements throughout the second half of this year. As you can see on slide 13, we have continued to take actions to improve parts availability that have had a meaningful impact on our production. and position us well for our expected increase in vehicle production in the back half of this year. An amazing effort by our sourcing, supply, engineering operations teams in cooperation with our suppliers. I'll now ask Papasu to walk you through details of our financial results, and after that, I'll come back and provide an update on our outlook. Over to you, Papasu. Thanks, Paul.