NFI NFI Group Inc

WINNIPEG, July 16, 2019 /CNW/ - (TSX: NFI) NFI Group Inc. ("NFI" or "the Company"), one of the world's leading independent global bus manufacturers, today announced its deliveries, order activity and backlog update for the 13-week period ended June 30, 2019 ("Q2 2019"). Year-over-year comparisons reported in this release compare Q2 2019 to the 13-week period ended July 1, 2018 ("Q2 2018") and previous quarter comparisons compare Q2 2019 to the 13-week period ended March 31, 2019 ("Q1 2019").

Note that order and delivery activity and backlog for Q2 2019 reported herein does not yet include any activity of Alexander Dennis Limited, ("ADL"), a global leader of single and double deck buses and motor coaches, which was acquired by NFI on May 28, 2019.

"The second quarter of 2019 was a significant milestone for NFI Group as we transitioned from being a purely North American company to a leading independent global bus manufacturer with the acquisition of Alexander Dennis. The response from legacy NFI customers, ADL customers and employees has been very positive," said Paul Soubry, President and Chief Executive Officer of NFI.  "We are well into our 100-day plan and have hosted our first summit to explore cooperation in North America." 

"Overall, customer demand for NFI products is meeting our expectations with bid activity developing as anticipated.  Unfortunately, we continued to experience delivery challenges in the second quarter related to the same issues we saw in the first quarter of 2019," Soubry explained. "New product launches, catch-up from ARBOC's chassis supply disruption, some internal and external supply delays, missed production days and postponed customer acceptance inspections all impacted deliveries in the first half of 2019 and grew our work in process inventory. We are confident in our business and expect to recover with higher deliveries in the second half of 2019, when compared to similar periods in 2017 and 2018, but we have adjusted our full year guidance."

Deliveries, Order Activity, and Option Expiry

NFI delivered 1,029 equivalent units ("EUs") in Q2 2019, a decrease of 130 EUs compared to Q2 2018. For the 52-week period from July 2, 2018 to June 30, 2019 ("LTM Q2 2019") NFI delivered 4,093 EUs, a decrease of 4 EUs from the 52-week period July 3, 2017 to July 1, 2018 ("LTM Q2 2018"). Total inventory at June 30, 2019 increased by 107 EUs from the previous quarter to 795 EUs. 

NFI's new orders in Q2 2019 totaled 474 EUs, which included firm orders of 410 EUs (valued at $154.6 million) and option orders of 64 EUs (valued at $37.9 million). In addition, 350 option EUs were converted to firm orders (valued at $184.0 million).

Total reported orders do not include 89 EUs of new firm and option orders that were pending at the end of Q2 2019, where approval of the award to NFI had been made by the customer's board, council, or commission, as applicable, but purchase documentation had not yet been received by NFI and are therefore not yet included in the backlog.

Based on discussions with certain public transit agencies and the Company's Bid Universe metrics (see table under Market Demand and Outlook section) management anticipates that there will be an increase in the number of public tenders issued in Fiscal 2019 and 2020, when compared to 2018.

Management continues to expect increased bid activity yet cautions that the individual awards are expected to be smaller in size with fewer options or shorter contract terms as transit agencies develop plans for future battery-electric vehicle adoption. Given this change, management has modified its Book-to-Bill ratio calculation to better match production to new order intake and will now be calculated as firm orders plus options converted, divided by deliveries made. Using this methodology, the LTM Q2 2019 Book-to-Bill ratio was 89%, compared to an LTM Q2 2018 Book-to-Bill ratio of 98% and LTM Q1 2019 ratio of 91%. Previously the calculation was based on new firm and option orders received, divided by deliveries.

The majority of public transit contracts bid by New Flyer and MCI, have a multi-year term and include both firm orders and options. The following table shows the number of option EUs that have been exercised or expired annually over the past four years, as well as the current backlog of options that will expire each year, if not exercised. 

NFI's option conversion rate can vary significantly from quarter-to-quarter and should be looked at on an annual or LTM basis. For LTM Q2 2019 the conversion rate was 70%.

Backlog and Production

At the end of Q2 2019, NFI's total backlog was 9,997 EUs (valued at $4.82 billion) compared to 10,587 EUs (valued at $5.16 billion) at the end of Q1 2019.

The majority of NFI's backlog relates to New Flyer buses for public transit agencies with some of the backlog consisting of units from MCI and ARBOC. As contracts with options for ARBOC buses are held by independent dealers, they are not included in the NFI backlog, but are added to firm backlog when vehicles are ordered by the dealer.  ARBOC's firm order backlog increased by 48% during Q2 2019 compared to Q1 2019.

NFI vehicles incorporating clean propulsion systems, including compressed natural gas, diesel-electric hybrid, and zero-emission buses and motor coaches ("ZEBs", which consist of trolley-electric, fuel cell-electric and battery-electric buses), represent approximately 38% of the total backlog. ZEBs alone represent approximately 4% of total backlog.

Parts Activity

Total shipments by NFI Parts for Q2 2019 increased by 0.3% compared to Q1 2019 yet decreased by 6.7% compared to Q2 2018 largely due to lower mid-life program activity in the period and the impact of the termination of MCI's Setra distribution agreement, which took effect on July 1, 2018.  Additionally, there was continued softness in the motor coach market, partially off-set by growth in the transit market. The win rate for NFI Parts during Q2 2019 was within historical ranges. ARBOC aftermarket parts orders and shipments are not included in these figures as they are not yet material.

Market Demand and Outlook

NFI's Bid Universe metric attempts to reflect active public-sector competitions in Canada and the United States and to provide an overall indicator of active bid activity and anticipated heavy-duty transit bus and motor coach market demand. It is a point-in-time snapshot of: (i) EUs in active competitions, defined as all requests for proposals received and in process of review plus bids submitted and awaiting customer action, and (ii) management's forecast based on public customer projections of expected EUs to be placed out for competition over the next five years.

At the end of Q2 2019, the active Bid Universe increased by 22.7% from Q1 2019 and by 12.1% over Q2 2018. The total Bid Universe was 24,846 EUs, an increase of 1.3% from Q1 2019 and 12.2% from Q2 2018. The Bid Universe EUs fluctuate significantly from quarter-to-quarter based on public tender activity procurement and award processes.

The increase in active bids during Q2 2019 and ongoing discussions with public transit agencies throughout the U.S. and Canada continues to support management's belief that there will be an increase in the number of requests for proposals and public tenders issued in Fiscal 2019 and 2020, when compared to 2018 activity.  As recent procurements have been smaller in size, driven by agencies plans to introduce electric buses into their fleets, the Company may continue to see its LTM Book-to-Bill ratio below 100%, but management expects it to recover as active bids increase and procurements are awarded.   

Management had previously expected that the majority of missed or delayed deliveries experienced in Q1 2019 would be caught-up throughout the remainder of 2019, but as some production challenges are still being addressed management is now updating its Fiscal 2019 delivery guidance to reflect lower than originally planned MCI motor coach and ARBOC low-floor cutaway deliveries.

NFI remains focused on improving deliveries during the second half of the year by completing vehicles in inventory and mobilizing additional resources to resolve operational challenges from missed production days, supply delays and overcoming the learning curve of putting new vehicle models into production, so they do not repeat in Fiscal 2020.

With the exception of some softness in certain motor coach sub-segments, NFI's end markets continue to be in line with management's expectations. Motor Coach deliveries have been reduced with no change made to heavy-duty transit deliver guidance.  While ARBOC's overall deliveries are now expected to be lower, the decrease is driven entirely by its low-floor cutaway vehicles. ARBOC's medium-duty bus offering has been well received and deliveries of those vehicles will help offset some of the impact felt from decreased low-floor cutaway deliveries.

Management's Fiscal 2019 guidance has been revised to 4,260 EUs, a decrease of 150 EUs, or 3.4%, from previously reported expected deliveries, and is expected to comprise the following vehicle types:  

The Company's annual delivery schedule has an element of seasonality due to the nature of each market segment and the annual production and vacation schedules of each manufacturing facility.  While deliveries are typically expected to trend higher in the second and fourth quarters of the year as compared to the first and third quarters, due to production and delivery delays management expects the third and fourth quarters of 2019 will be busier periods than recent historic comparable periods. In NFI's Q2 2019 financial results the Company plans to provide updated Fiscal 2019 guidance to include ADL's actual and expected deliveries, which may cause the seasonality of deliveries to become even more noticeable.

NFI Parts continues to focus on strategic initiatives to counter competitive intensity including: additional focus on vendor managed inventory ("VMI") programs, an enhanced product offering, and capitalizing on the implementation of a common IT platform. In addition, NFI Parts is exploring absorbing the management and distribution of ARBOC and cutaway bus parts. Due to the nature of the aftermarket parts business, parts sales are difficult to forecast resulting in quarter-to-quarter volatility. 

NFI's subsidiary, KMG Fabrication, Inc. (the Company's Shepherdsville, KY parts fabrication facility) is now delivering production parts to New Flyer, ARBOC and NFI Parts, but has experienced a longer than anticipated ramp up.  Management has made changes to KMG's leadership and deployed additional resources to improve operational execution and efficiencies. KMG continues to incur start-up losses which are now expected to continue for the remainder of Fiscal 2019. Management now anticipates KMG will generate positive returns in 2020 and can then explore opportunities to supply parts to MCI and ADL in North America.  

Q2 2019 Financial Results

The Company will release its Q2 2019 consolidated financial results on August 13, 2019 which will include activity from ADL for the period of May 28, 2019 to June 30, 2019 prepared on the basis of International Financial Reporting Standards. With the addition of ADL, management expects there will be changes to the information presented in the Company's Management Discussion and Analysis and associated performance metrics.

Management expects NFI's Q2 2019 earnings to be impacted by several factors, including: the first half 2019 production and delivery issues, margin pressure in the private motor coach segment and decreased administrative overhead absorption from lower deliveries. In addition, transaction costs related to the acquisition of ADL will also impact results.

As the combined NFI Group now delivers a wide variety of vehicles, including: single deck, double deck and articulated transit buses (in some cases just body-on-chassis), motor coaches, cutaways and medium duty buses, across various geographic jurisdictions, management feels some historic performance metrics (such as average selling price per EU and Adjusted EBITDA per EU) may not be appropriate for the business going forward. NFI's quarterly deliveries, orders and backlog release is also expected to change by primarily focusing on total vehicle deliveries and associated delivery metrics.

NFI's Q2 2019 Financial Results Announcement and Conference Call Details

NFI intends to release its Q2 2019 financial results after market close on August 13, 2019. A conference call for analysts and interested listeners will be held on August 14, 2019 at 8:00 a.m. (ET). The call-in number for listeners is 888-231-8191, 647-427-7450 or 403-451-9838. A live audio feed of the call will also be available at:

https://event.on24.com/wcc/r/2050583/E9E49ED41DBA09AAA47E2B835BF215B0

A replay of the call will be available from 11:00 a.m. (ET) on August 14, 2019 until 11:59 p.m. (ET) on August 21, 2019. To access the replay, call 855-859-2056 or 416-849-0833 and then enter pass code number 6918467. The replay will also be available on NFI Group's web site at www.nfigroup.com.

NOTE: All dollar amounts in this release are stated in U.S. currency. Canadian dollar amounts have been converted based on an exchange rate of U.S. $1.00 = CAD $1.3090 to calculate the value of the Canadian contracts in this release. One EU represents one 30-foot, 35-foot or 40-foot heavy-duty transit bus, one medium-duty bus, one low-floor cutaway bus or one motor coach. An articulated transit bus, which is an extra long transit bus (approximately 60-feet in length), composed of two passenger compartments connected by a joint mechanism represents two EUs.

About NFI Group Inc.

With over 8,900 team members operating from more than 50 facilities across ten countries, NFI is a leading independent global bus manufacturer providing a comprehensive suite of mass transportation solutions under brands: New Flyer^® (heavy-duty transit buses), Alexander Dennis Limited (single and double-deck buses), Plaxton (motor coaches), MCI^® (motor coaches), ARBOC^® (low-floor cutaway and medium-duty buses), and NFI Parts™.  NFI vehicles incorporate the widest range of drive systems available including: clean diesel, natural gas, diesel-electric hybrid, and zero-emission electric (trolley, battery, and fuel cell).  In total, NFI now supports over 105,000 buses and coaches currently in service around the world.

NFI common shares are traded on the Toronto Stock Exchange under the symbol NFI. Further information is available at www.nfigroup.com, www.newflyer.com, www.mcicoach.com, www.arbocsv.com, www.nfi.parts, www.alexander-dennis.com, and www.carfaircomposites.com

Forward-Looking Statements

Certain statements in this press release are "forward looking statements", which reflect the expectations of management regarding the Company's future growth, results of operations, performance and business prospects and opportunities and the market outlook for the Company's products and services.  The words "believes", "anticipates", "plans", "expects", "intends", "projects", "forecasts", "estimates" and similar expressions are intended to identify forward looking statements.  These forward-looking statements reflect management's current expectations regarding future events and operating performance and speak only as of the date of this release.  Such forward-looking statements include statements with respect to customer demand for buses, motor coaches and parts; management's forecasted outlook for the bus, motor coach and parts businesses; management's expectations regarding future heavy-duty bus and motor coach procurement and bid activity and expected deliveries for 2019.

Although the forward-looking statements contained in this press release are based upon what management believes to be reasonable assumptions, investors cannot be assured that actual results will be consistent with these forward-looking statements, and the differences may be material. Actual results may differ materially from management expectations as projected in such forward-looking statements for a variety of reasons, including, but not limited to, customer demand and availability of funding to the Company's customers to purchase transit buses and coaches and to exercise options and to purchase parts or services at current levels or at all; the Company may have difficulty selling preowned coaches and realizing expected resale values; aggressive competition and reduced pricing in the industry; the absence of fixed term customer contracts and the suspension or the termination of contracts by customers for convenience; production delays may result in liquidated damages under the Company's contracts with its customers; inability of the Company to execute its planned production targets as required for current business and operational needs; currency fluctuations could adversely affect the Company's financial results or competitive position in the industry; inability of the Company to successfully execute strategic plans on time and on budget and maintain profitability, development of competitive products or technologies; a disruption, termination or alteration of the supply of vehicle chassis or other critical components from third-party suppliers; risks related to acquisitions and other strategic relationships with third parties; risks related to operations in existing, new and emerging markets; inability to successfully integrate acquired businesses and assets into the Company's existing business and to generate accretive effects to income and cash flow as a result of integrating these acquired businesses and assets and the other risks and uncertainties discussed in the materials filed with the Canadian securities regulatory authorities and available on SEDAR at www.sedar.com. Although the forward-looking statements contained in this press release are based upon what management believes to be reasonable assumptions, investors cannot be assured that actual results will be consistent with these forward-looking statements, and the differences may be material. These forward-looking statements are made as of the date of this press release and NFI assumes no obligation to update or revise them to reflect new events or circumstances, except as required by applicable law.

SOURCE NFI Group Inc.