NFI Group Inc.

Good day, and thank you for standing by. Welcome to the NFI second 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 the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. You may also submit questions via the webcast. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Stephen King, Vice President, Strategy and Investor Relations. Please go ahead.

Thank you, Shannon. Good morning, everyone, and welcome to NFI Group's second quarter 2023 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. On today's call, we will provide an update on our comprehensive refinancing plan, second quarter 2023 results, discuss the bid and order environment, and our 2023 and longer-term outlook. 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're 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. On slide four, 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. Most 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. Slides 5, 6, and 7 provide a brief overview of NFI. For those interested in a more in-depth introduction to our business, please visit our investor website and listen to our 2022 Q4 results call. NFI continues to lead the transition to zero-emission buses and coaches, or what we call the Zevolutions. Throughout this presentation, we will refer to ZEBs and be trial electric, battery electric, or fuel cell. Slide 8 provides updated statistics on our capability and performance in ZEB. In total, NFI has delivered 3,123 ZEBs in 2015 that have completed over 120 million electric service miles in over 140 cities across six countries. Demand for ZEBs continues to accelerate quickly. In our North American public bid universe, over 50% of anticipated customer purchases over the next five years are for our electric vehicles, and 36% of our total backlog are now ZEVs. We'll now pass it over to Paul and Papas, who will provide an update on our nearly finalized comprehensive refinancing plan to recap the financial results for the second quarter.

Thank you, Stephen, and good morning, everyone. I'll begin on slide 10. In the first quarter of 2023, we embarked on a comprehensive refinancing plan that included multi-year amendments to our senior credit facilities, seeking a covenant profile that matched our anticipated financial performance and recovery trajectory. Since that time, we have made significant progress on all components of that refinancing plan, including $133 million private placement equity financing from Coliseum Capital, a $92 million bought deal subscription receipt financing, and a new 50.5 million Canadian equity private placement with a leading global asset manager that was announced today. The new private placement is for the purchase of 5 million shares of NFI and will have a statutory four-month hold period. It, like all the other equity financing, is contingent on the completion of the full refinancing plan. The addition of this new equity financing has allowed us to lower our proposed second lien debt financing from $200 million to approximately $180 million. providing interest savings and lowering our total overall leverage. This change is also expected to be accretive to our per metrics. Through the various transactions, we will generate approximately $443 million in total gross proceeds. $250 million will be used for the permanent pay down to our senior credit facilities, and the remaining funds after payment of fees will be used to strengthen NFI's liquidity by approximately $135 to $140 million. Our focus now is to finalize the remaining legal documentation to close all of the mutually conditional components of the refinancing plan. We expect that this comprehensive refinance will complete prior to August 31st, 2023, and we anticipate closing it sooner. Please stay tuned for announcements in the very short term. In addition to significant effort expended on the refinancing plan, we've maintained our laser focus on cash management across NFI. Operational performance is improving, but WIP and total working capital levels remain temporarily elevated. We anticipate significant cash inflows from working capital with the potential to reach up to $100 million in the second half of 2023. As we move into 2024 and 2025, we will be investing in working capital as we increase production rates and increase the amount of zero-emission buses built. Our goal is to ensure our working capital levels achieve a more typical pre-pandemic profile, on a terms basis or as a percentage of LTM revenue. Turning now to our Q2 2023 results, I will begin on slide 12. We continue to see very high level demands for our products and services. Year over year, our North American public bid universe is up 120% and active bids are up 33%. We ended the second quarter with 1,682 equivalent units of bids in process, and another 8,372 equivalent units of bids that were already submitted, resulting in a new record for the highest number of bids submitted by NFI within one quarter. We expect this heightened level of bids to translate into steady orders and to support our backlog throughout the remainder of 23 and into 24 and 25. We also saw significant improvement in supply performance and associated production efficiencies. There's no question it will take time for operations and production efficiency to get back to pre-pandemic levels, but Q22-2023 showed promising signs of significant recovery, supporting our line entry ramp-up and hiring efforts that we've embarked on. In the quarter, manufacturing segments for bus and coach deliveries were up 66%, revenue increased by 66%, and adjusted even improved by 159% from the same quarter in 2022. The significant improvement was driven by higher volumes, improved sales mix, and record quarterly performance from the aftermarket segment of NF5 that actually exceeded our expectations. The manufacturing segment did see lower than expected zero emission deliveries. This was due to the requirement to install new drain technology into the energy storage systems on select battery electric buses in North America. The drains were primarily installed in June and July, and the majority of the impacted vehicles have now been delivered to customers. We expect that nearly all of these vehicles will be out of inventory in the third quarter. The strength of our market leading aftermarket parts business has continued through the first half of 2023. Going forward as a private markets continue to recover and through the execution of several midlife vehicle programs, we anticipate the aftermarket segment will continue to generate revenue growth and strong market contribution. However, Adjusted EBITDA margin percentage may be slightly lower than those seen in the first half of the year, given the strong outperformance seen so far this year. NFI's total backlog remains at $6.7 billion, up $1.2 billion from the same time last year. New orders were down slightly quarter over quarter, but mostly due to the timing of certain new awards from customers. In addition to the formal awards received in the quarter, we had another 719 equivalent units that were in pending awards. These are situations where we have been named as a provincial partner by the customer, but formal purchase documentation has not yet been received. We expect these pending awards, combined with the over 8,000 equivalent units of bids submitted, will drive significant order activity before the end of the year. Of note, the average sale price per unit in our total backlog is up 20% from the same period in 2022. Now turning to slide 13 is a highlight of our overall NFI supplier performance. We've been showing you this for quite some time. Overall supplier risk rating, which compiles the detailed risk assessment process data from our top 750 suppliers, continues to show signs of health and improvement. We've seen a solid trend of improving supplier delivery performance, and this has happened even as we've started to ramp up the levels of production. Speaking of which, We have continued with our plan to increase new vehicle production rates in the second half of this year, subject to continued and sustained supply performance. And we're in the process of hiring an estimated additional 100 direct team members before the end of this year. This brings you to slide 14. These are our quarterly vehicle line entry rates, or otherwise stated, the number of new buses and coaches built that we start in our production facilities and the quarterly WIP dollar investments. Line entries of the first half of 2023 have showed material improvement from 21 and 22. By the time we get to 2025, we expect line entries to be back around 1,500 units per quarter, similar to the 2019 levels we experienced pre-COVID. I'll now ask Papastu to walk you through the highlights of our financial results, after which we'll provide you with our outlook on the business and the market.