Summary of 2019 Q2 results compared to 2018 Q2:
- On May 28, 2019 ("Acquisition
Date") NFI Group Inc. acquired 100% of the voting interest of
Alexander Dennis Limited ("ADL"). ADL's financial results have been
included in NFI's consolidated 2019 Q2 results from May 28th onward.
- Revenue of $683 million
increased by 1%.
- Adjusted EBITDA of $81.1
million decreased by 11%.
- Net earnings of $8.5 million
and Earnings per Share of $0.14 both
decreased by 82% having been significantly impacted by one-time
costs including $13.3 million of
transaction costs related to the acquisition of ADL. Adjusted Net
Earnings of $25.8 million, or
$0.42 per share, decreased by 50%.
Both Net earnings and Adjusted Net Earnings were impacted by a
non-cash $12 million mark-to-market
loss on interest rate swaps.
- Free Cash Flow of $41.4
million, decreased by 13%, but still resulted in a positive
Free Cash Flow margin of 6%.
- Dividends declared of C$26.5
million increased by 12%, representing a second quarter
payout ratio of 49% and a current implied dividend yield of over
6%.
- Overall North American Public Bid Universe increased by 12%
from 2018 Q2 to 24,846 EUs, with active bids up by 22% from 2019
Q1.
WINNIPEG, Aug. 13, 2019 /CNW/ - (TSX: NFI) NFI
Group Inc., ("NFI" or the "Company"), one of the world's
leading independent bus manufacturers, today announced its
financial results for 2019 Q2(1). Readers are
advised to view the unaudited interim consolidated financial
statements (the "Financial Statements") and the Management's
Discussion and Analysis (the "MD&A") that are available at the
Company's website at:
https://www.nfigroup.com/investor-relations/performance-reports/
and under the Company's profile on www.sedar.com
"The second quarter represents a significant milestone for NFI
as it is the first time we have recorded international revenue
following our transformative acquisition of Alexander Dennis
Limited. We expect ADL to assist with future growth and
diversification as we expand globally and develop opportunities to
leverage our combined product portfolio, engineering and design
capabilities," said Paul Soubry,
President and Chief Executive Officer of NFI. "As we previously
advised, during the first half of 2019 our legacy bus and coach
manufacturing business experienced production challenges that
increased our work in process inventory and impacted our financial
results. We know the issues that need to be addressed and are
focused on recovering to improve deliveries in the second half of
2019. Fundamentally the core strengths of NFI have not changed and
as we move forward we are a more diverse business, with a material
backlog, a growing North American public Bid Universe, a peer
leading Adjusted EBITDA margin, strong free cash flow generation,
leadership positions in all of our core markets, and a focus on
continuing to return capital to shareholders."
(1)
|
Results noted herein
are for the 13-week period ("2019 Q2") and the 52-week period ("LTM
2019 Q2") ended June 30, 2019. Year-over-year
comparisons reported in this press release compare 2019 Q2 to the
13-week period ("2018 Q2") and the 52-week period ended July 1,
2018
("LTM 2018 Q2"). Comparisons are also made to the 13-week period
("2018 Q4") ended December 30, 2018. Unless otherwise indicated,
all
monetary amounts in this press release are expressed in U.S.
dollars.
|
Acquisition of Alexander Dennis
Limited (ADL)
On May 28, 2019, the Company,
through its wholly owned subsidiary NFI International Limited,
acquired 100% of the voting equity interest in ADL for £295.1
million, based on an initial enterprise value of £320 million. This
was a significant milestone as it transitioned NFI from being a
purely North American company to a leading independent global bus
manufacturer. The transaction was funded through NFI's existing
credit facility, a new $300 million
credit facility and the issuance from treasury of 1.47 million
common shares of NFI, in lieu of cash to ADL's primary
shareholders. NFI incurred costs of $13.3
million associated with the acquisition that are expected to
be one-time in nature.
ADL has completed its conversion from UK GAAP to IFRS and as
such, its results from the Acquisition Date onward are included in
NFI's financial results for 2019 Q2. In order to provide context on
ADL's operations, management has provided proforma Fiscal 2018,
2019 Q1 and 2019 Q2 (pre-and post-acquisition) within its MD&A.
While ADL did not positively contribute to NFI's results for the
one-month period ended June 30,
results were within management's expectations as there were some
adjustments required from the conversion to IFRS that impacted
revenue recognition. ADL's first half 2019 results were very
similar to the first half of Fiscal 2018 with first and second
quarter results varying due to the timing and location of vehicle
deliveries.
As the NFI Group now delivers an even broader range of vehicles,
including: single deck, double deck and articulated transit buses,
motor coaches and motor coach bodies, low-floor cutaways and medium
duty shuttle buses, across various geographic jurisdictions,
management believes certain historic performance metrics (including
average selling price per EU and Adjusted EBITDA per EU) are no
longer appropriate to measure the Company's comparable performance.
As a result, management has revised the MD&A to reflect these
changes and added additional focus on gross margins, earnings
before interest and income taxes ("EBIT") and separated unallocated
costs and corporate SG&A from the existing Manufacturing and
Aftermarket reporting segments.
To provide a more comprehensive disclosure of financial
performance, management will no longer issue a separate quarterly,
deliveries, orders and backlog press release and will now
consolidate the deliveries, orders and backlog information into its
normal quarterly reporting. This reporting change will take effect
starting with NFI's 2019 Q3 results.
2019 Q2 Impact of the Transition to IFRS 16
Effective December 31, 2018, the
Company adopted IFRS 16, the accounting standard which specifies
how to recognize, present and disclose leases. This standard
provides a single lessee accounting model, requiring lessees to
recognize assets and liabilities for all major leases. On
transition, the Company has elected to use the following
practical expedients and policies:
- To utilize the modified retrospective approach to adopting the
standard, accordingly comparative information for 2018 has not been
restated
- To utilize the definition of a lease under International
Accounting Standard 17 to identify contracts that are, or contain,
leases
- To exclude the recognition of the right-of-use asset and lease
liability for leases with a term of twelve months or less
- To exclude the recognition of the right-of-use asset and lease
liability for leases and of low-value assets
- To value the right-of-use asset as equal to the lease
liability, adjusting for related amounts prepaid or accrued
The impact of the adoption of IFRS 16 primarily impacts NFI's
Gross Margin, Adjusted EBITDA, Net earnings and Adjusted Net
Earnings, and the associated per common share ("Share") amounts,
Return on Invested Capital ("ROIC") and several balance sheet
accounts as reported in the Financial Statements and MD&A. The
primary impacts of the transition on several of NFI's key financial
metrics are summarized in the table below.
|
|
|
|
|
|
Impact of IFRS 16
Transition on Consolidated
Results
|
|
2019
Q2
|
2019 Q2
|
|
2018
Q2
|
(Unaudited, U.S.
dollars in millions)
|
|
|
(excluding
IFRS 16)
|
|
|
|
|
|
|
|
|
Gross
Margin
|
|
|
|
|
|
Manufacturing
|
|
$
|
70.2
|
$
|
70.3
|
|
$
|
97.2
|
Aftermarket
|
|
28.6
|
29.2
|
|
27.6
|
Total Gross
Margins
|
|
$
|
98.8
|
$
|
99.5
|
|
124.8
|
|
|
|
|
|
|
Adjusted
EBITDA
|
|
|
|
|
|
Manufacturing
|
|
$
|
61.9
|
$
|
59.3
|
|
$
|
80.0
|
Aftermarket
|
|
21.9
|
20.9
|
|
19.2
|
Corporate
|
|
(2.7)
|
(2.7)
|
|
(7.8)
|
Total Adjusted
EBITDA
|
|
$
|
81.1
|
$
|
77.5
|
|
$
|
91.4
|
|
|
|
|
|
|
Net
Earnings
|
|
|
|
|
|
Manufacturing
|
|
$
|
32.2
|
$
|
33.4
|
|
$
|
43.1
|
Aftermarket
|
|
15.7
|
15.7
|
|
19.2
|
Corporate
|
|
(39.4)
|
(39.4)
|
|
(14.3)
|
Total Net
Earnings
|
|
$
|
8.5
|
$
|
9.7
|
|
$
|
48.0
|
|
|
|
|
|
|
Adjusted Net
Earnings
|
|
$
|
25.8
|
$
|
26.9
|
|
$
|
51.2
|
|
|
|
|
|
|
Adjusted EBITDA % of
revenue
|
|
|
|
|
|
Manufacturing
|
|
10.6%
|
10.2%
|
|
13.9%
|
Aftermarket
|
|
21.8%
|
20.8%
|
|
19.5%
|
Total Adjusted
EBITDA as % of revenue
|
|
11.9%
|
11.3%
|
|
13.6%
|
|
|
|
|
|
|
Net earnings per
Share (basic)
|
|
$
|
0.14
|
$
|
0.16
|
|
$
|
0.81
|
Adjusted earnings
per Share (basic)
|
|
$
|
0.42
|
$
|
0.44
|
|
$
|
0.83
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
2,909.2
|
$
|
2,710.0
|
|
$
|
2,037.7
|
Total long-term
liabilities
|
|
$
|
1,442.2
|
1,321.0
|
|
805.1
|
ROIC (Last Twelve
Months ("LTM"))
|
|
11.2%
|
11.5%
|
|
15.5%
|
Management recommends readers review the Company's Financial
statements and MD&A for 2019 Q2 that provides further details
on the impact of adoption of IFRS 16. All other financial
information provided for 2019 Q2 within this release is presented
with adoption for IFRS 16.
2019 Q2 Financial Results
As the Company diversifies and grows internationally, management
believes that in addition to Adjusted EBITDA, readers should also
focus on EBIT, Net earnings, Adjusted Net Earnings and Free Cash
Flow measures with less focus on average selling price per EU and
Adjusted EBITDA per EU.
|
|
|
|
|
|
|
Consolidated
Results
|
|
2019
|
2018
|
|
LTM
|
LTM
|
(Unaudited, U.S.
dollars in millions)
|
|
Q2
|
Q2
|
|
2019
Q2(1)
|
2018
Q2(1)
|
Revenue
|
|
|
|
|
|
|
Transit bus
|
|
$
|
440.5
|
$
|
397.1
|
|
$
|
1,570.7
|
$
|
1,439.0
|
Motor coach
|
|
119.4
|
150.7
|
|
482.4
|
546.6
|
Medium-duty and
cutaway buses
|
|
10.6
|
10.2
|
|
38.4
|
23.6
|
New transit bus,
coach and cutaway revenue
|
|
$
|
570.5
|
$
|
558.0
|
|
$
|
2,091.3
|
$
|
2,009.2
|
Pre-owned coach
revenue
|
|
10.9
|
11.7
|
|
47.3
|
49.8
|
Fiberglass reinforced
polymer components revenue
|
|
1.6
|
4.9
|
|
9.4
|
11.4
|
Manufacturing
revenue
|
|
$
|
583.0
|
$
|
574.6
|
|
$
|
2,148.1
|
$
|
2,070.4
|
Aftermarket
revenue
|
|
100.3
|
98.4
|
|
369.5
|
377.6
|
Total
Revenue
|
|
$
|
683.4
|
$
|
673.0
|
|
$
|
2,517.7
|
$
|
2,448.0
|
|
|
|
|
|
|
|
Adjusted
EBITDA
|
|
|
|
|
|
|
Manufacturing
|
|
$
|
61.9
|
$
|
80.0
|
|
$
|
242.7
|
$
|
280.8
|
Aftermarket
|
|
21.9
|
19.2
|
|
74.3
|
75.4
|
Corporate
|
|
(2.7)
|
(7.8)
|
|
(25.6)
|
(29.4)
|
Total Adjusted
EBITDA
|
|
$
|
81.1
|
$
|
91.4
|
|
$
|
291.5
|
$
|
326.7
|
|
|
|
|
|
|
|
EBIT
|
|
|
|
|
|
|
Manufacturing
|
|
$
|
34.5
|
$
|
63.0
|
|
$
|
167.4
|
$
|
223.2
|
Aftermarket
|
|
19.3
|
17.4
|
|
66.4
|
63.8
|
Corporate
|
|
(14.5)
|
(8.0)
|
|
(35.6)
|
(38.6)
|
Total
EBIT
|
|
$
|
39.3
|
$
|
72.4
|
|
$
|
198.5
|
$
|
248.4
|
|
|
|
|
|
|
|
Earnings from
operations
|
|
$
|
37.0
|
$
|
72.1
|
|
$
|
227.0
|
$
|
248.8
|
Non-cash gain
(loss)
|
|
2.3
|
0.3
|
|
4.5
|
(1.0)
|
Interest
expense
|
|
(25.0)
|
(6.4)
|
|
(42.0)
|
(17.8)
|
Income tax
expense
|
|
(5.8)
|
(16.3)
|
|
(43.9)
|
(46.1)
|
Net
earnings
|
|
$
|
8.5
|
$
|
49.7
|
|
$
|
104.5
|
$
|
190.8
|
Adjusted Net
Earnings
|
|
$
|
25.8
|
$
|
51.2
|
|
$
|
120.5
|
$
|
201.5
|
|
|
|
|
|
|
|
Free cash flow (U.S.
dollars)
|
|
$
|
41.4
|
$
|
47.8
|
|
$
|
145.0
|
$
|
168.6
|
Free cash flow (CAD
dollars)
|
|
$
|
54.2
|
$
|
63.0
|
|
$
|
192.6
|
$
|
215.8
|
Declared dividends
(CAD dollars)
|
|
$
|
26.5
|
$
|
23.6
|
|
$
|
98.7
|
$
|
85.0
|
|
|
|
|
|
|
|
Adjusted EBITDA % of
revenue
|
|
|
|
|
|
|
Manufacturing
|
|
10.6%
|
13.9%
|
|
11.3%
|
13.6%
|
Aftermarket
|
|
21.8%
|
19.5%
|
|
20.1%
|
20.0%
|
Total Adjusted
EBITDA as % of revenue
|
|
11.9%
|
13.6%
|
|
11.6%
|
13.3%
|
|
|
|
|
|
|
|
Net earnings per
Share (basic)
|
|
$
|
0.14
|
$
|
0.81
|
|
$
|
1.66
|
$
|
3.05
|
Adjusted Earnings
per Share (basic)
|
|
$
|
0.42
|
$
|
0.83
|
|
$
|
1.92
|
$
|
3.22
|
|
|
|
|
|
|
|
(1)
|
Within the LTM 2019
Q2 results, 2019 Q1 and 2019 Q2 numbers include IFRS 16. LTM 2018
Q2 results do not include IFRS 16. Totals may
not add due to rounding.
|
Manufacturing revenue increased by $8.4
million, or 1.5%, in comparison to 2018 Q2 with the
acquisition of ADL contributing $41.0
million during 2019 Q2. Partially offsetting this increase
were lower volumes of 12.1% in the Company's manufacturing
businesses prior to the acquisition of ADL ("legacy manufacturing
business") resulting from delayed deliveries in heavy-duty transit
bus, motor coach, and low-floor cutaway products. As
reported, the Company experienced production and delivery
challenges as a result of new product launches, supply disruption
of certain ARBOC chassis, extended start-up of KMG Fabrication Inc.
("KMG") (the Company's new parts fabrication facility), external
supply issues and lost production days due to weather. The
result of these factors also lead to a temporary growth in
work-in-progress inventory ("WIP). As WIP is reduced, sales are
expected to be realized in future periods.
Aftermarket revenue increased by $1.9
million, or 1.9%, compared to 2018 Q2 with the acquisition
of ADL contributing $8.8 million
during 2019 Q2. Offsetting this addition was lower sales volumes
within the NFI Parts business primarily driven by the $2 million impact from Daimler's 2018 termination
of MCI's Distribution Rights Agreement to sell and support German
made Setra motor coaches and parts in the U.S. and Canada, and fewer fleet renewal programs.
Manufacturing gross margins for 2019 Q2 decreased by
$26.9 million, or 27.7%, compared to
2018 Q2. The decrease was primarily caused by production
inefficiencies within the legacy heavy-duty transit and coach
businesses, startup costs at KMG and higher remediation costs. ADL
experienced a $9.7 million loss on
manufacturing gross margins for just one month of operations,
$7.9 million of which was due to
unwinding fair value adjustments related to the valuation of
acquired assets. Aftermarket gross margins increased by
$1.0 million, or 3.6%, compared to
2018 Q2 primarily due to favourable sales mix.
Manufacturing Adjusted EBITDA decreased by $18.1 million, or 22.6%, due to the previously
mentioned impacts on gross margins. ADL did not positively
contribute to Manufacturing Adjusted EBITDA in the quarter
primarily due to timing of vehicle deliveries being deferred into
the third quarter. Aftermarket Adjusted EBITDA increased by
$1.7 million compared to 2018 Q2 due
to higher gross margins from a favourable sales mix and the
addition of ADL's parts business.
Consolidated EBIT decreased by $33.1
million, or 45.7%, driven by the previously mentioned
impacts on deliveries plus from one-time costs of $13.3 million related to the acquisition of ADL
and the addition of $4.7 million of
SG&A related to ADL's operations. Partially offsetting these
amounts were lower compensation expense as a result of reduced
incentive compensation accruals.
Net earnings decreased by $39.5
million, or 82.2%, compared to 2018 Q2, and Net Earnings per
Share decreased by $0.67. In addition
to the items that impacted EBIT, interest expense increased by
$18.6 million, primarily from losses
on the Company's interest rate derivatives and higher average draw
under the Company's credit facility, driven by the acquisition of
ADL and higher working capital balances.
Adjusted Net Earnings during 2019 Q2 decreased by $25.5 million compared to 2018 Q2, primarily due
to the previously mentioned impacts on Net Earnings.
Liquidity
Free cash flow in 2019 Q2 decreased by $6.4 million, or 13.4%, when compared to 2018 Q2.
The decrease was primarily due to lower net earnings, partially
offset by lower capital expenditures. Dividends declared increased
by 12.3% in 2019 Q2 as a result of the increase in the annual
dividend rate, partially offset by the impact of repurchases under
the Company's Normal Course Issuer Bid ("NCIB"), which lowered the
number of shares outstanding.
NFI's liquidity position as at June 30,
2019 was $202.2 million a
decrease from the position of $301.5
million at March 31, 2019. The
decrease in liquidity primarily relates to the acquisition of ADL,
the amount of capital returned to shareholders through dividends
and repurchase of shares under the NCIB, and changes in non-cash
working capital, which are primarily a result of
seasonality and delivery disruption previously discussed and
are expected to be temporary in nature. Management believes these
funds, together with share and debt issuances, other borrowings
capacity and the cash generated from NFI's operating activities,
will provide the Company with sufficient liquidity and capital
resources to meet its current financial obligations as they come
due, as well as provide funds for its financing requirements,
capital expenditures, the increased dividend payments and other
operational needs for the foreseeable future.
Outlook
The North American heavy-duty transit market's active Bid
Universe continued to grow in 2019 Q2, up by 22.7% from 2019 Q1 and
12.1% from 2018 Q2. Award activity for active competitions is
expected to increase in the second half of 2019. The private motor
coach market in North America
continued to decline, but management expects stronger second half
private MCI motor coach deliveries in 2019 when compared to the
first half. Overall, demand for low-floor cutaway and medium-duty
buses remains encouraging.
The Company's transformative acquisition of ADL provides NFI
with a platform for growth. ADL is the largest bus and coach
provider in the UK and the global market leader in double deck
buses with an established presence in numerous geographic
jurisdictions. In addition, ADL is currently pursuing a number of
international growth opportunities and management anticipates ADL
will provide NFI with North American growth from the addition of
its complementary double deck transit bus offering.
Zero Emission Buses ("ZEBs") continue to be an area of growing
focus for NFI with the Company strengthening its leadership
position. ZEBs are now being built in all New Flyer
factories, consisting of 4% of New Flyer's heavy-duty transit
backlog and representing a growing portion of the active bids in
North America. ADL's ZEB
offering includes the UK's leading double deck battery-electric
vehicle and single-deck electric variants sold to the UK and
New Zealand markets. In addition,
ADL has two contracts in place for battery electric double deck
buses in North America. MCI continues the development and
testing of its battery electric motor coach, and ARBOC has recently
launched an electrification project for the Equess medium duty
bus.
Management believes its turn-key solution of high-quality
vehicles; infrastructure advisory services and unmatched
aftermarket support makes NFI the partner of choice for customers
who are exploring the addition of ZEBs to their fleet. In addition,
the combination of NFI's EV expertise with ADL's global reach and
existing customer partnerships is anticipated to generate long-term
benefits.
Management's Fiscal 2019 delivery guidance has been updated to
5,660 EUs to reflect the addition of ADL's anticipated 2019
deliveries for the period of May 28,
2019 to December 29, 2019.
Management notes that ADL vehicle revenue and gross margins vary
significantly by geographic region and product type and recommends
that readers review the adjusted ADL historical Fiscal 2018 and Q1
and Q2 2019 financial information provided within the MD&A for
further context on ADL's potential impact on NFI's Fiscal 2019
results.
The Company's annual delivery schedule has an element of
seasonality due to the nature of each unique market segment and the
varied annual production and vacation schedule of each production
facility. With the addition of ADL, management now expects
seasonality to become even more pronounced in the second half of
2019. Management has initiated a WIP reduction plan and
management expects to see a reduction in WIP during the second half
of 2019, with the majority of the recovery expected for the fourth
quarter.
NFI Parts continues to focus on numerous strategic initiatives
to counter market pressures and competitive intensity. These
initiatives include 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 which management believes will provide
an additional revenue stream. ADL's parts business has begun
collaboration with NFI Parts and is focused on enhancing its online
parts and services platform (AD 24) which provides industry leading
aftermarket support to customers in the UK. ADL Parts revenue
is also expected to grow as ADL expands its installed base within
the UK, North America, APAC and
other new markets.
Management believes ADL's operations have less exposure to the
potential implications of the UK withdrawing from the European
Union ("EU") (commonly referred to as "Brexit") than many of its
peers within the automobile or specialty vehicle industries given
it currently has minimal sales to other member states of the
EU. While the outcome of Brexit remains unclear, with several
possible scenarios, management is taking steps to mitigate
potential risks including: diversifying its supplier base, using
global assembly partners, identifying components that may be
impacted by tariffs or may be delayed entry into the UK and
building appropriate inventories, and continuing to use its hedging
strategy.
Following the increase in total leverage required to complete
the acquisition of ADL, management remains focused on deleveraging
and anticipates combined financial results will enable it to return
to its target of 2.0x to 2.5x net debt to EBITDA within 18 to 24
months without impacting the Company's dividend policy. Management
is focused on decreasing WIP, improving deliveries and moving past
production challenges while continuing to generate significant
positive free cash flow, return cash to shareholders and realize
meaningful value from investments made.
Conference Call
A conference call for analysts and interested listeners will be
held on August 14, 2019 at
8 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's web site
at www.nfigroup.com.
About NFI Group
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.carfair.com
Non-IFRS Measures
References to "Adjusted EBITDA" are to earnings before interest,
income taxes, depreciation and amortization after adjusting for the
effects of certain non-recurring and/or non-operations related
items that do not reflect the current ongoing cash operations of
the Company including: gains or losses on disposal of property,
plant and equipment, unrealized foreign exchange losses or gains on
non-current monetary items, fair value adjustment for total return
swap, non-recurring transitional costs or recoveries relating to
business acquisitions, equity settled stock-based compensation,
gain on bargain purchase of subsidiary company, fair value
adjustment to acquired subsidiary company's inventory and deferred
revenue, past service costs, costs associated with assessing
strategic and corporate initiatives and proportion of the total
return swap realized. "Free Cash Flow" means net cash generated by
operating activities adjusted for changes in non-cash working
capital items, interest paid, interest expense, income taxes paid,
current income tax expense, effect of foreign currency rate on
cash, defined benefit funding, non-recurring transitional costs
relating to business acquisitions, past service costs, costs
associated with assessing strategic and corporate initiatives,
defined benefit expense, cash capital expenditures, proportion of
the total return swap realized, proceeds on disposition of
property, plant and equipment, gain received on total return swap
settlement, fair value adjustment to acquired subsidiary company's
inventory and deferred revenue and principal payments on capital
leases. "Free Cash Flow Margin" is calculated as Free Cash Flow
divided by Revenue. References to "ROIC" are to net operating
profit after taxes (calculated as Adjusted EBITDA less depreciation
of plant and equipment and income taxes at the expected effective
tax rate) divided by average invested capital for the last twelve
month period (calculated as to shareholders' equity plus long-term
debt, obligations under finance leases, other long-term
liabilities, convertible debentures and derivative financial
instrument liabilities less cash). References to "Adjusted Net
Earnings" are to net earnings after adjusting for the after tax
effects of certain non-recurring and/or non-operational related
items that do not reflect the current ongoing cash operations of
the Company including: gains or losses on disposal of property,
plant and equipment, unrealized foreign exchange losses or gains on
non-current monetary items, fair value adjustment for total return
swap, non-recurring transitional costs or recoveries relating to
business acquisitions, equity settled stock-based compensation,
gain on bargain purchase of subsidiary company, fair value
adjustment to acquired subsidiary company's inventory and deferred
revenue, past service costs, costs associated with assessing
strategic and corporate initiatives and proportion of the total
return swap realized. References to "Adjusted Net Earnings per
Share" are to Adjusted Net Earnings divided by the average number
of Shares outstanding.
Management believes Adjusted EBITDA, Free Cash Flow, Free Cash
Flow Margin, ROIC, Adjusted Net Earnings and Adjusted Earnings per
Share are useful measures in evaluating the performance of the
Company. However, Adjusted EBITDA, Free Cash Flow, Free Cash Flow
Margin, ROIC, Adjusted Net Earnings and Adjusted Earnings per Share
are not recognized earnings measures under IFRS and do not have
standardized meanings prescribed by IFRS. Readers of this press
release are cautioned that ROIC, Adjusted Net Earnings and Adjusted
EBITDA should not be construed as an alternative to net earnings or
loss or cash flows from operating activities determined in
accordance with IFRS as an indicator of NFI's performance, and Free
Cash Flow should not be construed as an alternative to cash flows
from operating, investing and financing activities determined in
accordance with IFRS as a measure of liquidity and cash flows. A
reconciliation of net earnings and cash flows to Adjusted EBITDA,
based on the Financial Statements, has been provided in the
MD&A under the headings "Reconciliation of Net Earnings to
Adjusted EBITDA" and "Reconciliation of Cash Flow to Adjusted
EBITDA", respectively. A reconciliation of Free Cash Flow to cash
flows from operations is provided under the heading "Summary of
Free Cash Flow". A reconciliation of net earnings to Adjusted
Net Earnings is provided under the heading "Reconciliation of Net
Earnings to Adjusted Net Earnings".
NFI's method of calculating Adjusted EBITDA, ROIC, Free Cash
Flow, Free Cash Flow Margin, Adjusted Net Earnings and Adjusted
Earnings per Share may differ materially from the methods used by
other issuers and, accordingly, may not be comparable to similarly
titled measures used by other issuers. Dividends paid from Free
Cash Flow are not assured, and the actual amount of dividends
received by holders of Shares will depend on, among other things,
the Company's financial performance, debt covenants and
obligations, working capital requirements and future capital
requirements, all of which are susceptible to a number of risks, as
described in NFI's public filings available on SEDAR at
www.sedar.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. 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 press release. Forward-looking statements involve
significant risks and uncertainties, should not be read as
guarantees of future performance or results, and will not
necessarily be accurate indications of whether or not or the times
at or by which such performance or results will be achieved. A
number of factors could cause actual results to differ materially
from the results discussed in the forward-looking statements. Such
differences may be caused by factors which include, but are not
limited to, funding may not continue to be available to the
Company's customers at current levels or at all, the Company's
business is affected by economic factors and adverse developments
in economic conditions which could have an adverse effect on the
demand for the Company's products and the results of its
operations, currency fluctuations could adversely affect the
Company's financial results or competitive position, interest rates
could change substantially, materially impacting the Company's
revenue and profitability, an active, liquid trading market for the
Shares may cease to exist, which may limit the ability of
shareholders to trade Shares, the market price for the Shares may
be volatile, if securities or industry analysts do not publish
research or reports about the Company and its business, if they
adversely change their recommendations regarding the Shares or if
the Company's results of operations do not meet their expectations,
the Share price and trading volume could decline. In
addition, other risk factors may include, if securities or industry
analysts publish inaccurate or unfavorable research about the
Company or its business, the Share price and trading volume of the
Shares could decline, competition in the industry and entrance of
new competitors, failure of the ratification of the United States-Mexico-Canada Agreement
(USMCA) could be materially adverse to NFI, current requirements
under "Buy America" regulations may change and/or become more
onerous or suppliers' "Buy America" content may change, the
implications from Brexit could have a negative impact on the
Company's UK business, operations and sales from the UK into the EU
and the Company may have to modify its UK business practices in
order to attempt to mitigate such impact and such mitigation steps
may not be effective, failure of the Company to comply with the DBE
program requirements or the failure to have its DBE goals approved
by the FTA, absence of fixed term customer contracts, exercise of
options and customer suspension or termination for convenience,
United States content bidding
preference rules may create a competitive disadvantage, local
content bidding preferences in the United
States may create a competitive disadvantage, requirements
under Canadian content policies may change and/or become more
onerous, operational risk, dependence on limited sources or unique
sources of supply, dependence on supply of engines that comply with
emission regulations, a disruption, termination or alteration of
the supply of vehicle chassis or other critical components from
third-party suppliers could materially adversely affect the sales
of certain of the Company's products, the Company's profitability
can be adversely affected by increases in raw material and
component costs as well as the imposition of tariffs and surtaxes
on material imports, the Company may incur material losses and
costs as a result of product warranty costs, recalls and
remediation of buses, production delays may result in liquidated
damages under the Company's contracts with its customers,
catastrophic events may lead to production curtailments or
shutdowns, the Company may not be able to successfully renegotiate
collective bargaining agreements when they expire and may be
adversely affected by labour disruptions and shortages of labour,
the Company's operations are subject to risks and hazards that may
result in monetary losses and liabilities not covered by insurance
or which exceed its insurance coverage, the Company may be
adversely affected by rising insurance costs, the Company may not
be able to maintain performance bonds or letters of credit required
by its contracts or obtain performance bonds and letters of credit
required for new contracts, the Company is subject to litigation in
the ordinary course of business and may incur material losses and
costs as a result of product liability claims, the Company may have
difficulty selling pre-owned coaches and realizing expected resale
values, the Company may incur costs in connection with provincial,
state or federal regulations relating to axle weight restrictions
and vehicle lengths, the Company may be subject to claims and
liabilities under environmental, health and safety laws, dependence
on management information systems and cyber security risks, the
Company's ability to execute its strategy and conduct operations is
dependent upon its ability to attract, train and retain qualified
personnel, including its ability to retain and attract executives,
senior management and key employees, the Company may be exposed to
liabilities under applicable anti-corruption laws and any
determination that it violated these laws could have a material
adverse effect on its business, the Company's risk management
policies and procedures may not be fully effective in achieving
their intended purposes, internal controls over financial
reporting, disclosure controls and procedures, ability to
successfully execute strategic plans and maintain profitability,
development of competitive or disruptive products, services or
technology, development and testing of new products, acquisition
risk, third-party distribution/dealer agreements, availability to
the Company of future financing, the Company may not be able to
generate the necessary amount of cash to service its existing debt,
which may require the Company to refinance its debt, the Company's
substantial consolidated indebtedness could negatively impact the
business, the restrictive covenants in the Company's credit
facilities could impact the Company's business and affect its
ability to pursue its business strategies, payment of dividends is
not guaranteed, a significant amount of the Company's cash is
distributed, which may restrict potential growth, NFI is dependent
on its subsidiaries for all cash available for distributions,
future sales or the possibility of future sales of a substantial
number of Shares may impact the price of the Shares and could
result in dilution, if the Company is required to write down
goodwill or other intangible assets, its financial condition and
operating results would be negatively affected, income tax risk,
investment eligibility and Canadian Federal Income Tax risks, the
effect of comprehensive U.S. tax reform legislation on the NF
Group, whether adverse or favorable, is uncertain, certain U.S. tax
rules may limit the ability of NF Holdings and its U.S.
subsidiaries (the "NF Group") to deduct interest expense for U.S.
federal income tax purposes and may increase the NF Group's tax
liability, certain financing transactions could be characterized as
"hybrid transactions" for U.S. tax purposes, which could increase
the NF Group's tax liability. NFI cautions that this list of
factors is not exhaustive. These factors and other risks and
uncertainties are discussed in NFI's MD&A, press releases,
Annual Information Form and materials filed with the Canadian
securities regulatory authorities which are available on SEDAR at
www.sedar.com.
Although the forward-looking statements contained in this
MD&A 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 MD&A and NFI assumes no obligation
to update or revise them to reflect new events or circumstances,
except as required by applicable securities laws.
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SOURCE NFI Group Inc.