NFI Group Inc.

Thank you for standing by. My name is Kate, and I will be your conference operator today. At this time, I would like to welcome everyone to the NFI 2024 Q3 Financial Results Call. All lines will be placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. Thank you. I would now like to turn the call over to Stephen King. Thank you, and please go ahead.

Thank you, Kate. Good morning, everyone, and welcome to NFI Group's third quarter 2024 results conference call. Joining me today are Paul Soubry, President and Chief Executive Officer, and Brian Dusnip, Executive Vice President and Chief Financial Officer. On today's call, we will give an update on our quarterly results, highlighting year-over-year improvement across numerous financial metrics, the strong demand environment for our products, and our record backlog. We'll also provide an update on the operating environment and our near and long-term outlook. This call is being recorded, and a replay will be made available shortly. We will be referring to a presentation that can be found in the investor section of our website. We will be moving the slides via the webcast link, and we'll also call out the slide number as we go for participants on the phone. Starting with slide two, we provide our cautionary or forward-looking statements We note that certain financial measures referenced today are not recognized earnings measures and do not have standardized meanings prescribed by International Financial Reporting Standards, or IFRS. We advise listeners to our press releases and other public filings on CDAR for more details. A reminder that NFI 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 three, we have included some key terms and definitions referred to in this presentation. Of note, zero-emission buses, or ZEBs, refers to vehicles that do not have internal combustion engines. Equivalent units, or EUs, is a term we use for both production slots and delivery statistics. Slides 4 and 5 provide a brief overview of our company. More detailed information is available on our website. In summary, NFI Group is a global, independent bus and motor coach solution provider that is leading the evolution to zero-emission mobility. We are a purpose-driven organization and exist to build vehicles that move the world's most precious cargo. We move people. We play a critical role in global transportation, and every bus we put into service supports the journey to reduce global emissions. I'm now on slide six, which provides NFI's latest zero-emission statistics. Since 2015, NFI has delivered over 4,300 EUs of VEBs that have completed over 220 million electric service miles across 150 cities. Our infrastructure solutions team has installed over 540 electric bus chargers, totaling more than 87 megawatts of capacity since 2018. I'll now pass it over to Paul to provide an overview of NFI's results for the third quarter.

Thank you, Stephen, and good morning, everyone. Thanks for joining us today. I'm now on slide eight, where we provide a summary of the third quarter. Financial results reflected our continued recovery and growth with significant year-over-year improvement. We had a 375% increase in quarterly adjusted EBITDA, helping contribute to 161 million improvement on an LTM basis. Gross margin improved to 12.2%, representing the highest gross margin we've had since the first quarter of 2021. On the demand front, we had new orders of 1,050 equivalent units in the quarter, up 8.2% from the previous year. With 7,585 equivalent units of new awards so far this year, 2024 is shaping up to be another record year for new orders for NFI. As we expect additional large multi-year orders in the fourth quarter, we anticipate our $12 billion U.S. backlog will continue to grow. This is primarily driven by the North American public transit and coach operations, where the number of active bidders on many new RFPs has reduced substantially. In a number of recent cases, NFI was the sole bidder. Our trailing 12-month book-to-bill ratio remained really strong at 115%, primarily driven by our increased order intake. And our option backlog conversion rate also showed continued recovery, now reaching 70% on an LTM basis. NFI's aftermarket segment delivered yet another exceptional quarter with $153 million in revenue and $34 million of adjusted EBITDA, up 7% and 8% year-over-year, respectively. Now, as a result of the U.S. Task Force from APTA, supported by the FTA and the White House on healthy contracting, we continue to have success securing prepayments and embedding milestone payments and proper contracting terms in our bus contracts with customers. This is having a positive impact on our liquidity and cash flows. However, working capital remains elevated due to an increase in zero-emission bus production reflecting higher input costs and the adverse impact disruption of a significant North American seat supplier. that has non-performed to our schedule, which we'll discuss in a little bit more detail later in this call. Slide 9 walks you through our third quarter deliveries. We had our highest quarter ever of low-floor cutaway bus deliveries in Q3. Coach deliveries were also up, and transit deliveries reflect the impact of the seat supply disruption and operational efficiencies as we ramp up production and the impact of higher ZOB production. In total, the seat supply destruction led to a loss of approximately 79 EUs of planned third quarter deliveries. We also had lower production rates as we managed offline bus finishing and the working capital. We are focused on improving fourth quarter result transit deliveries as we complete and ship contractually sold buses that were missing seats from inventory. Offsetting the decline in deliveries was an 11% increase in the average selling price of the heavy-duty transit bus, along with improved manufacturing gross margins. Now, on slide 10, I'll walk you through the impacts of the seat supply disruption. I'll start with the overall supply chain health. The chart of the screen goes back to 2020 and reflects the deterioration of NFI supplier delivery performance starting in the second quarter of 2021. Through the remainder of 2021 and 2022, numerous high and medium risk suppliers had a dramatic impact on NFI's performance. In 2023 and 2024, we made tremendous progress as we expanded our active supplier development and monitoring program. We only have two suppliers currently rated as high risk, high impact. One is the United States-based seed supplier, who is now not meeting their delivery timelines, which has impacted NFI and our competitors and some of the broader rail and transit industries. This has caused disruption to our master production schedule and obviously impacted our planned deliveries. On slide 11, I'll provide a quick overview of the steps involved in North American public transit procurements and the manufacturing process to give you some context on the impact of this issue. On a typical procurement, the customer issues a request for proposal with unique customized specification. We then work with the specific supplier and others to develop costing and pricing and estimated delivery timelines. After bidding and securing a contract, we determine where it fits into our master production schedule. We then complete final engineering design typically 26 weeks prior to the bus for an order being started at our facility. Seed engineering is completed at this stage and based on the shop floor plan of the bus, sorry, the plan layout of the bus. We also finalize the seat structural attachment points in the wall and floors that are specific to those seats and unique to every bus built. Suppliers are given a lead time of up to 15 weeks prior to commencement of the first bus build to prepare for their delivery. We begin the manufacturing process with the steel frame, then the exterior fiberglass, the roof, followed by interior installations. This is where the seats are installed based on the pre-engineered design. It is nearly impossible to switch an alternative supplier at this stage in the process, given the engineering design and limited alternatives, plus the fact that there are very few Buy America compliant seat providers. Buses are inspected at our factory before they're shipped to customers, where they go through another final inspection and then get put into service. So moving to slide 12, we highlight our strong response to this seat issue and its current impact. We and our direct competitors have sent dedicated oversight and production resources to the supplier to support their people and their build process. We were active in an intervention with the supplier where we pushed them to hire external operations consultant and to develop and execute on a recovery plan. They have also hired third-party labor to increase their manufacturing output. I will note that we are receiving some seating kits and shipping some affected buses, but we did not see an increase in the number of missing seats in October. It is difficult to predict the duration of this transformation and impact, although we expect it to continue for at least the remainder of 2024, and there is risk that it may move into 2025. During this time, we are actively working with our customers to expedite advance payments for these essentially complete buses, which will support our liquidity as we carry higher working balances in the short term. We have also actively engaged a successful European seat supplier, who currently builds for MCI and Alexander Dennis, to set up a Buy America compliant seating production in the first half of 2025. We expect this will take some of the pressure off this challenged supplier and the overall supply of seats that are Buy America compliant. I'll now turn it over to Brian Dusnip to discuss the results in more detail and back to give you an outlook shortly. Thanks, Paul.