(TSX: NFI, OTC: NFYEF, TSX: NFI.DB) NFI
Group Inc. ("NFI" or the "Company"), a leader in zero-emission
electric mobility solutions, today announced its condensed
consolidated financial results for Fiscal 2022.
Key financial metrics of the quarter and full
year are highlighted below:
| $ in millions except
deliveries and per Share amounts |
2022 Q4 |
Change1 |
Fiscal 2022 |
Change1 |
| |
|
|
|
|
| Deliveries (EUs) |
|
1,034 |
|
(5)% |
|
3,039 |
|
(20)% |
| |
|
|
|
|
|
IFRS Measures |
|
|
|
|
|
Revenue |
|
683 |
|
(2)% |
|
2,054 |
|
(12)% |
| Net loss |
|
(150 |
) |
(1,629)% |
|
(278 |
) |
(1,816)% |
| Net loss per Share |
|
(1.94 |
) |
(1,517)% |
|
(3.60 |
) |
(1,614)% |
| |
|
|
|
|
|
Non-IFRS Measures2 |
|
|
|
|
|
Adjusted EBITDA |
|
(5 |
) |
(119)% |
|
(59 |
) |
(136)% |
| Adjusted Net Loss |
|
(24 |
) |
(51.3)% |
|
(162 |
) |
(1,235.5)% |
| Adjusted Loss per Share |
|
(0.31 |
) |
(47.6)% |
|
(2.09 |
) |
(1,129.4)% |
| Free Cash Flow |
|
(22 |
) |
(15)% |
|
(170 |
) |
(840)% |
| Liquidity (minimum liquidity
requirement of $25 million) |
|
173 |
|
(63)% |
|
173 |
|
(63)% |
Footnotes:
- Results noted herein are for the
13-week period ("2022 Q4”) and the 52-week period ("Fiscal 2022”)
ended January 1, 2023. The comparisons reported in this press
release compare 2022 Q4 to the 14-week period ("2021 Q4") and
Fiscal 2022 to the 53-week period ("Fiscal 2021") ended January 2,
2022. Comparisons and comments are also made to the 13-week period
(“2022 Q3”) ended October 2, 2022. The term LTM is an abbreviation
for Last Twelve Month Period.
- Adjusted EBITDA, Adjusted Net
Earnings (loss), and Free Cash Flow represent non-IFRS measures,
Adjusted Net Earnings (loss) per Share and Return on Invested
Capital (ROIC) are non-IFRS ratios, and Liquidity and Backlog are
supplementary financial measures. Such measures and ratios are not
defined terms under IFRS and do not have standard meanings, so they
may not be a reliable way to compare NFI to other companies.
Adjusted Net Earnings (loss) per Share is based on the non-IFRS
measure Adjusted Net Earnings (Loss). ROIC is based on net
operating profit after tax and average invested capital, both of
which are non-IFRS measures. See “Non-IFRS Measures” and detailed
reconciliations of IFRS Measures to Non-IFRS Measures in the
Non-IFRS and other financial measures section of this press
release. Readers are advised to review the condensed consolidated
financial statements (including notes) (the “Financial Statements”)
and the related Management's Discussion and Analysis (the
"MD&A").
"In Fiscal 2022, we saw record demand for our
products and services, juxtaposed with continued supply chain
disruption, associated production inefficiencies, and the impacts
of heightened inflation and rapid foreign exchange movements. Our
financial results reflect those realities, with declines in certain
performance metrics, paired with significant growth in backlog and
contract pricing. The aftermarket segment was also a significant
bright spot in 2022, delivering profitability while the navigating
through supply challenges," said Paul Soubry, President and Chief
Executive Officer, NFI.
"We continued to see the benefits of
unprecedented government investments in public transportation,
which drove record bid activity, and our highest new order
performance since 2017 (a 23% increase year-over-year). We secured
significant new orders from customers in North America, the United
Kingdom and Hong Kong, many for ZEBs, which represented 23% of our
total deliveries (up from 17% in 2021), and were a record 29% of
our backlog. We also achieved a multi-year milestone of over 100
million zero-emission miles driven by NFI vehicles, and the
installation of more than 340 EV chargers.
"Capital allocation remains a critical priority
as we focus on lowering leverage and strengthening our balance
sheet. Discussions with our banking syndicate partners are ongoing
to develop a new long-term credit agreement by the end of June, and
we are continuing to pursue opportunities to generate cash flows.
These include the unwinding of heightened inventory, pursuing
advance payments and deposits from customers, potential sale and
leaseback of select manufacturing facilities and other capital
market activities.
"Fiscal 2023 is expected to be a transition
period with significant improvement from 2022 results, but still
challenged by certain contracts being at inflation-impacted
margins, a result of those contracts originally being bid in 2020
and 2021. We will also operate at lower production rates until
supply chain challenges begin to ease, which we anticipate for the
second half of the year. Going forward, our updated pricing,
inflation-adjusted option backlog, higher ZEB deliveries, and
increased production rates are expected to drive stronger margins
and financial performance in 2024, 2025, and beyond,” Soubry
concluded.
Liquidity and Covenant
Relief
The Company's liquidity2 position, which
combines cash on-hand plus available capacity under its credit
facilities, without consideration given to the minimum liquidity
requirement of $25 million under the amended facilities, was $173
million as at the end of 2022 Q4. This was an improvement against
the Company's anticipated ending liquidity2 of $100 million
reported in December - driven by inventory reduction and the timing
of customer payments. Liquidity2 was down $298 million from the end
of 2022 Q3 with the change primarily driven by amendments to the
Company's existing senior revolving credit facility (the "Credit
Facility") and its revolving UK credit facility (the "UK Facility",
collectively the "amended facilities"). Under the amendments NFI
lowered the Credit Facility capacity from $1.25 billion to $1.0
billion, and the UK Facility from £50 million to £40 million, a
$262 million reduction to the Company's overall credit
availability. Prior to the amendments, NFI had a $250 million
minimum liquidity requirement so the change to total capacity did
not have a significant impact on NFI's actual available
liquidity.
NFI worked with customers in the third and
fourth quarters to seek vehicle price increases and/or milestone
payments in response to rising input costs. As of January 1, 2023,
the Company had received $36 million in prepayments and is
continuing to work with other customers on plans that would help
alleviate some of NFI's working capital investments while it
navigates through the supply chain challenges.
Subsequent to quarter end, the Company announced
that it had finalized agreements for the previously announced
financial support package of approximately $187 million with the
Manitoba Development Corporation, an entity that provides financial
services and financial instruments on behalf of the Province of
Manitoba, and Export Development Canada (“EDC”), a Canadian
government Crown corporation. This combined program will provide
$87 million of additional liquidity in the first quarter.
NFI and its banking syndicate partners are now
focused on developing new long-term credit arrangements, and NFI
will be seeking agreements that provide appropriate capacity and
covenants matched to the Company’s anticipated financial
performance and recovery. The Company is targeting completion of
these changes prior to June 30, 2023.
Segment Results
Manufacturing segment revenue
for 2022 Q4 decreased by $15 million, or 3%, compared to 2021 Q4.
The decrease was primarily due to lower deliveries within
heavy-duty transit and motor coach, somewhat offset by higher
average sales prices of heavy-duty transit vehicles and increased
deliveries of medium-duty and low-floor cutaway vehicles. Overall
deliveries are down significantly relative to pre-COVID-19 levels
due to global supply chain logistics challenges and related
production inefficiencies. These challenges are largely the result
of suppliers recovering from impacts of the COVID-19 pandemic,
which has created numerous bottlenecks in the supply chain and
disruptions to certain parts availability.
Work-in-progress ("WIP") inventory decreased by
$126 million from 2022 Q3 as many buses awaiting parts were
completed and delivered in the fourth quarter. The previously
disrupted control module supply, originally announced in 2022 Q2,
that impacted the completion of a significant number of North
American transit buses, has recovered according to plan. During
2022 Q4, the Company completed and delivered the remaining buses
that were missing these specific module components, generating a
positive impact, lowering WIP by $39 million, or 68 EUs.
Manufacturing Adjusted EBITDA2 decreased by $23
million, or 296%, compared to 2021 Q4, driven by a decrease in
deliveries, unfavorable sales mix, and heightened inflation and
surcharges. Also contributing were operational and production
inefficiencies caused by continuing supply problems. In addition,
the Company did not receive any government wage subsidy grants in
2022 Q4, as compared to the $2 million received in 2021 Q4, as the
programs were either discontinued or NFI was no longer
eligible.
Aftermarket segment revenue for
2022 Q4 of $120 million increased by $3 million, or 2% compared to
2021 Q4, due to increased volume in North America. The Company also
continues to benefit from a multi-year retrofit program in the
Asia-Pacific region, which continued throughout 2022, but at a
lower run rate; this retrofit program is expected to unwind in 2023
Q1. 2022 Q4 Aftermarket Adjusted EBITDA2 was $23 million, a $2
million, or 9%, year-over-year decrease, stemming from product mix
and inflationary impacts to both freight and part costs that NFI
was not fully able to pass along to its customers.
In the quarter, NFI continued to realize savings
from “NFI Forward”, the Company’s transformational cost reduction
and sourcing initiative, which is expected to lower NFI’s overhead
and selling general and administrative (“SG&A”) expenses by 8%
to 10%, respectively, based on 2019 revenue levels, and to provide
direct material savings from input cost reductions and an estimated
$10 million in annualized Free Cash Flow generation. The Company
has now achieved its NFI Forward target for Adjusted EBITDA2
savings of $67 million (from 2019 levels), and the Free Cash Flow
target, both one year earlier than the original target for the end
of 2023. Total one-time investments incurred to achieve the NFI
Forward program were $14 million, a $103,000 increase from 2022
Q3.
Net Earnings, Adjusted Net Earnings and
Return on Invested Capital
2022 Q4 net loss of $150 million increased by
$142 million from 2021 Q4, primarily due to a $104 million non-cash
goodwill impairment charge in ARBOC ($23.2 million) and the ADL
Manufacturing ($80.7 million) cash generating units ("CGUs"). The
goodwill impairment reflects significant increases in market rates
(or discount rates), as well as timing of the market recovery from
the COVID-19 pandemic and the related supply chain
disruptions. Also contributing to the net loss are the same
items that impacted Manufacturing and Aftermarket Adjusted EBITDA2.
The loss was somewhat offset by favourable mark-to-market
adjustments to the Company's interest rate swaps and favourable
fair value adjustment to the Company's convertible debenture cash
conversion option.
2022 Q4 Adjusted Net Loss2 of $24 million
compared to 2021 Q4 Adjusted Net Loss of $16 million. The increase
in Adjusted Net Loss2 was driven by the same items that impacted
Adjusted EBITDA2. Adjusted Net Loss2 was normalized for the
non-cash goodwill impairment and mark-to-market and fair value
adjustments mentioned above.
Fiscal 2022 ROIC2 decreased by 1% from LTM 2022
Q3, due to the decrease in Adjusted EBITDA2 offset by a lower
invested capital base. The decrease in invested capital is
primarily due to a decrease in shareholders' equity, partially
offset by the increase in average long-term debt.
Outlook
NFI continues to face challenges to its business
from macro trends, including ongoing supply constraints, inflation
in parts, raw materials and labour, and higher interest rates.
While supply chain shortages have caused significant dislocation
and disruption to NFI's operating and financial performance in
recent years, these pressures are starting to alleviate and there
are signs of improvement. Despite these broader market challenges,
NFI's business outlook remains strong based on its record backlog,
historic performance, track record, market leading positions,
growing demand for its products and government funding reaching
historically high levels in its core markets. NFI has received
significant new orders in 2022 that support the Company's
anticipated financial recovery, including new firm and option
orders for 5,786 EUs, an increase of 60% from 2021. NFI's closing
backlog2 (firm and options) was 9,186 EUs, valued at $5.6 billion,
up 16% from 2022 Q3.
NFI was also encouraged by the high volume of
active procurements taking place in both North American and
international markets during 2022. The Company's North American
active bids of 10,507 EUs at year end were at a record level,
increasing by 54% year-over-year, which is expected to drive
additional backlog growth in 2023, and revenue growth in the
medium- and longer-term. NFI is also seeing increasing numbers of
bids for zero-emission buses and coaches, with individual order
sizes for those vehicle types increasing in size. In 2022 Q4, NFI
received orders for 1,118 EUs of battery-electric, ZEBs, a 780%
increase from the 127 EUs from 2022 Q3. NFI expects active bids
will continue to remain high throughout 2023 as markets recover
from the COVID-19 pandemic, supply shortages, and new government
funding is used by North American transit agencies.
While the Company had anticipated it would begin
to ramp-up its production in earnest during the second half of 2022
and the first half of 2023, ongoing supply chain disruption plus
longer supplier lead times have pushed out the expected ramp up of
production to the second half of 2023; ramp up remains subject to
supply chain health showing sustained improvement. NFI anticipates
its supply chains and parts availability will continue to improve,
and the Company will be able to source additional labour required
to drive higher production and volume deliveries in 2023, with the
majority of the improvements coming in the second half of the
year.
NFI experienced significant inflation with
respect to supplier pricing and employee wages, and through raw
material prices purchased directly by NFI in 2022. NFI has
completed many of the legacy contracts bid in 2020 and 2021 that
were impacted by heightened inflation, but, due to supply chain
impacts on delivery schedules, certain depressed margin contracts
will be included in NFI's 2023 results and are reflected in NFI's
financial guidance. Newer contracts are being priced to reflect
current input costs and future options contracts generally have
clauses where a government purchase price index ("PPI") is applied
and helps pass through manufacturing cost inflation. Generally,
when an option contract is exercised from NFI's North American
backlog, a PPI adjustment is recorded to reflect the higher input
costs of a new vehicle.
Financial Guidance and 2025
Targets
NFI presents the following guidance for Fiscal
2023 and Fiscal 2024, and updated targets for Fiscal 2025:
|
|
2019 Pro-forma Results |
2023 Guidance |
2024 Guidance |
2025 Targets |
|
Revenue |
$3.2 billion |
$2.5 to $2.8 billion |
$3.2 to $3.6 billion |
~$4 billion |
|
ZEB (electric) as a percentage of manufacturing sales |
6-% |
25% - 30% |
30% - 35% |
~40% |
|
Adjusted EBITDA2 |
$331 million |
$30 to $60 million |
$250 to $300 million |
~$400 million |
|
Cash Capital Expenditures – including NFI Forward 2.0 |
$38 million |
$35 to $40 million |
$50 to $60 million |
~$50 million |
|
Return on Invested Capital - provided for 2025 targets |
9.8% |
|
|
>12% |
The above table outlines guidance ranges for
selected Fiscal 2023 and Fiscal 2024 financial metrics and 2025
financial targets. These ranges take into consideration
management's current outlook combined with 2022 and 2023
year-to-date results and are based on the assumptions set out
below. The purpose of the financial guidance is to assist
investors, shareholders, and others in understanding management's
expectations for the Company's financial performance in Fiscal
2023. The information may not be appropriate for other purposes.
Information about guidance, including the various assumptions
underlying it, is forward-looking and should be read in conjunction
with the section “Forward-Looking Statements” and the related
disclosure and information about various assumptions, factors, and
risks that may cause actual future financial and operating results
to differ from management’s current expectations.
NFI has adjusted its Fiscal 2025 longer-term
targets, originally announced in January 2021, with expectations to
now deliver approximately $4 billion in revenue, and Adjusted
EBITDA2 of approximately $400 million, with ~40% of vehicle sales
coming from ZEBs and a ROIC2 of greater than 12% (unchanged). The
original targets were for $3.9 to $4.1 billion of revenue, $400 to
$450 million of Adjusted EBITDA2 and a ROIC2 of greater than 12%.
In developing its 2025 targets, NFI considered its pre-pandemic,
pro-forma 2019 financial performance when the Company delivered
$3.2 billion of revenue, $331 million of Adjusted EBITDA2 and ROIC2
of 9.8%, including a full-year of Alexander Dennis' results, which
was acquired in May 2019.
The 2025 targets have been lowered slightly to
reflect the anticipated timing of market recoveries based on the
challenges experienced in 2022 and the expectation that the first
half of 2023 will continue to be challenged by supply disruption
and that new vehicle production rates will not increase until later
in 2023. In addition, the expected timing of significant UK
government funding for fleet replacements has been moved from 2023
and 2024 into 2024 and 2025, impacting the anticipated timing of
vehicle delivery volumes in that market.
The 2023 and 2024 guidance ranges provided above
and the 2025 targets are driven by numerous expectations and
assumptions including, but not limited to, the following:
- Revenue:
Anticipated revenue growth in 2023, 2024 and 2025 is based on NFI's
firm order backlog, current 2023 and 2024 production schedules,
expected backlog option order conversion, and anticipated 2023,
2024 and 2025 new vehicle orders and aftermarket parts sales.
Revenue guidance and targets reflect higher volume of ZEB sales and
anticipated product mix benefits plus expected international sales
expansion. The guidance ranges also reflect potential variances in
delivery volumes from supply disruption, product mix and expected
timing of production recovery driving improved efficiency in H2
2023 and Fiscal 2024 and Fiscal 2025.
- ZEB Sales:
Expected growth in the percentage of ZEB sales is based on NFI's
firm order backlog, the Company’s existing vehicle inventory, 2023
and 2024 production schedules, anticipated 2023 and 2024 new
vehicle orders, anticipated backlog option order conversion and
from review of customers capital and fleet renewal plans that
suggest there will continue to be increases in their demand for
electric vehicles.
- Adjusted
EBITDA2: Adjusted EBITDA2 is expected to
increase in both 2023, 2024 and 2025 as the Company anticipates
recoveries in new vehicle deliveries, changes to product mix, a
higher percentage of ZEB deliveries and improved operating margins,
especially from the second half of 2023 onwards, due to anticipated
recovery in supply chain health. In addition, while there will be
some impact to margins from legacy inflation adjusted contracts in
2023, the majority of NFI's contracts going forward reflect updated
pricing with higher input costs and inflation adjustments. In
addition, the Company has now achieved its targeted cost savings of
$67 million from the NFI Forward initiative and anticipates an
additional $5 million to $8 million of additional savings from
projects entitled NFI Forward 2.0. The total cost savings achieved
under NFI Forward are expected to be somewhat offset by the impacts
of inflation on wage and other input costs.
-
ROIC2: 2025
Targets are driven by the factors noted above combined with the
expectation that there will not be significant changes in tax rates
from current levels.
Guidance and targets above are conditional on
several factors and expectations, including the recovery of supply
chains and other COVID-19-related impacts, a higher percentage of
ZEB sales (which provide a higher revenue and dollar margin
benefit), the mitigation of inflationary pressures, end markets
recovering inline with management expectations, international
expansion, aftermarket parts sales, continuous improvement
initiatives as well as obtaining a new multi-year credit agreement
and availability of adequate liquidity.
NFI's guidance and targets are subject to the
risk of extended duration of the current supply disruptions and the
risk of additional supply disruptions affecting particular key
components. In addition, the guidance and targets do not reflect
potential escalated impact on supply chains or other factors
arising directly or indirectly as a result of the ongoing Russian
invasion of Ukraine. Although NFI does not have direct suppliers
based in Russia or Ukraine, additional supply delays and possible
shortages of critical components may arise as the conflict
progresses and if certain suppliers’ operations and/or subcomponent
supply from affected countries are disrupted further. In addition,
there may also be further general industry-wide price increases for
components and raw materials used in vehicle production as well as
further increases in the cost of labour and potential difficulties
in sourcing an increase in the supply of labour. See Appendix C
Forward Looking Statements for risks and other factors and the
Company's filings on SEDAR.
Environmental, Social &
Governance
As one of the world's leading independent global
bus and coach manufacturers, a robust environmental, social and
governance ("ESG") strategy is integral to how the Company conducts
business, and is crucial in the creation of long-term and
sustainable value for all NFI stakeholders. We are committed to
continuing to innovate in order to deliver smarter, safer, more
sustainable, and more connected public transportation. NFI's end
products are a key driver to enable cities to lower emissions,
decrease congestion and enable economic opportunity. NFI is
committed to employees, customers and shareholders, while also
being responsible to the environment and the communities in which
we live and work.
"In 2022, NFI completed its first environmental,
social and governance ("ESG") materiality assessment to inform the
ESG issues most relevant to NFI and all our stakeholders, and has
initiated a sustainability roadmap to action the results of our
materiality assessment and overall sustainability strategy," said
Janice Harper, Executive Vice President, People & Culture. "In
2022, we also implemented a diversity, equity and inclusion ("DEI")
action plan; continued to prioritize the health, safety and
well-being of our employees; and completed our first annual
disclosure to the S&P Global Corporate Sustainability
Assessment and our second annual disclosure to the CDP Climate
Change questionnaire. Our Board of Directors is now 40% female, and
we have increased our Board diversity targets. Our teams also came
together to raise over $381,000 through our annual United Way
campaign, supporting 18 communities across North America. We are
focused on meeting the needs of tomorrow and continue to weave ESG
into the fabric of our day-to-day operations and our long-term
planning."
NFI's 4th annual Environmental, Social &
Governance Report can be accessed on NFI's website at
www.nfigroup.com. NFI's Environmental Social Governance Report for
2022 will be released in May 2022.
Fourth Quarter and Fiscal 2022 Results
Conference Call
A conference call for analysts and interested
listeners will be held on March 1, 2023, from 8:30 a.m. Eastern
Time (ET) until approximately 10:00 a.m. ET. Management will
discuss the fourth quarter and full year 2022 financial results and
provide an update on market conditions and the Company’s outlook.
An accompanying results presentation will be available prior to
market open on March 1, 2023 at www.nfigroup.com.
For attendees who wish to join by webcast,
registration is not required; the event can be accessed at
https://edge.media-server.com/mmc/p/3kxmrn3q. NFI encourages
attendees to join via webcast as the results presentation will be
presented and users can also submit questions to management through
the platform.
Attendees who wish to join by phone must visit
the following link and pre-register:
https://register.vevent.com/register/BI6b29fa81ce4047579b17b7ae1337bb81.
An email will be sent to the user’s registered email address, which
will provide the call-in details. Due to the possibility of emails
being held up in spam filters, we highly recommend that attendees
wishing to join via phone register ahead of time to ensure receipt
of their access details.
A replay of the call will be accessible from
about 12:00 p.m. ET on March 1, 2023, until 11:59 p.m. ET on
February 29, 2024, at https://edge.media-server.com/mmc/p/3kxmrn3q.
The replay will also be available on NFI's website at:
www.nfigroup.com.
About NFI Group
Leveraging 450 years of combined experience, NFI
is leading the electrification of mass mobility around the world.
With zero-emission buses and coaches, infrastructure, and
technology, NFI meets today’s urban demands for scalable smart
mobility solutions. Together, NFI is enabling more livable cities
through connected, clean, and sustainable transportation.
With 7,500 team members in nine countries, NFI
is a leading global bus manufacturer of mass mobility solutions
under the brands New Flyer® (heavy-duty transit
buses), MCI® (motor coaches), Alexander
Dennis Limited (single and double-deck buses),
Plaxton (motor coaches), ARBOC®
(low-floor cutaway and medium-duty buses), and NFI
Parts™. NFI currently offers the widest range of
sustainable drive systems available, including zero-emission
electric (trolley, battery, and fuel cell), natural gas, electric
hybrid, and clean diesel. In total, NFI supports its installed base
of over 105,000 buses and coaches around the world. NFI’s common
shares ("Shares") trade on the Toronto Stock Exchange (“TSX”) under
the symbol NFI and its Debentures trade on the TSX under the symbol
NFI.DB. News and information is available at www.nfigroup.com,
www.newflyer.com, www.mcicoach.com, www.nfi.parts,
www.alexander-dennis.com, www.arbocsv.com, and
www.carfaircomposites.com.
For investor inquiries, please contact:
Stephen KingP: 204.224.6382Stephen.King@nfigroup.com
Appendix A - NFI Management's Discussion
and Analysis of Financial Condition and Results of Operations for
the 13-Weeks and 52-Weeks Ended January 1, 2023
NOTES TO READERS
Information in this Management’s Discussion and
Analysis (“MD&A”) relating to the financial condition and
results of operations of NFI Group Inc. (“NFI” or the "Company") is
supplemental to, and should be read in conjunction with, NFI’s
audited consolidated financial statements (including notes) (the
“Financial Statements”) for the 52-week period ended January 1,
2023. This MD&A has been prepared as of February 28, 2023.
This MD&A contains forward‑looking
statements, which are subject to a variety of factors that could
cause actual results to differ materially from those contemplated
by such forward-looking statements, including, but not limited to,
the factors described in the Company's public filings available on
SEDAR at www.sedar.com. See “Forward‑Looking Statements” in
Appendix C. The Financial Statements have been prepared in
accordance with International Financial Reporting Standards
(“IFRS”) and, except where otherwise indicated, are presented in
U.S. dollars, which is the functional currency of NFI. Unless
otherwise indicated, the financial information contained in this
MD&A has been prepared in accordance with IFRS and references
to “$” or “dollars” mean U.S. dollars, "C$" means Canadian dollars,
and "GBP" and "£" mean British Pounds Sterling.
QUARTERLY AND ANNUAL REPORTING
PERIODS
The quarterly and annual reporting periods for
the current and prior year are as follows:
|
|
|
Period from January 3,
2022to January 1, 2023 |
|
Period from December 28,
2020to January 2, 2022 |
| |
|
(“Fiscal 2022”) |
|
(“Fiscal 2021”) |
|
|
|
Period End Date |
|
# of Calendar Weeks |
|
Period End Date |
# of Calendar Weeks |
| Quarter 1 |
|
April 3, 2022 |
("2022 Q1") |
13 |
|
March 28, 2021 |
("2021 Q1") |
13 |
| Quarter 2 |
|
July 3, 2022 |
("2022 Q2") |
13 |
|
June 27, 2021 |
("2021 Q2") |
13 |
| Quarter 3 |
|
October 2, 2022 |
("2022 Q3") |
13 |
|
September 26, 2021 |
("2021 Q3") |
13 |
| Quarter 4 |
|
January 1, 2023 |
("2022 Q4") |
13 |
|
January 2, 2022 |
("2021 Q4") |
14 |
| Fiscal
year |
|
January 1, 2023 |
|
52 |
|
January 2, 2022 |
|
53 |
Specific references and definitions are used
throughout this MD&A, please see the Non-IFRS and Other
Financial Measures section. References to LTM mean last-twelve
months ("LTM"). Adjusted earnings before interest, taxes,
depreciation and amortization (Adjusted EBITDA), Invested Capital,
net operating profit after taxes ("NOPAT"), return on invested
capital ("ROIC"), Free Cash Flow, Free Cash Flow per Share,
Adjusted Net Loss, Adjusted Net Loss per Share, Liquidity, Working
Capital Days, Payout Ratio, Book-to-Bill and Backlog are non-IFRS
measures and should not be considered substitutes or alternatives
for IFRS measures. These are not defined terms under IFRS and do
not have standard meanings, so may not be a reliable way to compare
NFI to other companies.
The Company has two reportable segments which
are the Company’s strategic business units: Manufacturing
Operations and Aftermarket Operations. The strategic business units
offer different products and services, and are managed separately
because they require different technology and marketing
strategies.
The Manufacturing Operations segment derives its
revenue from the manufacture, service and support of new transit
buses, coaches, medium-duty and cutaway buses. Based on
management’s judgment and applying the aggregation criteria in IFRS
8.12, the Company’s bus/coach manufacturing operations and
medium-duty/cutaway manufacturing operations fall under a single
reportable segment. Aggregation of these operating segments is
based on the segments having similar economic characteristics with
similar long-term average returns, products and services,
production methods, distribution and regulatory environment.
The Aftermarket Operations segment derives its
revenue from the sale of aftermarket parts for transit buses,
coaches and medium-duty/cutaway buses, both for the Company's and
third-party products.
Single and double deck buses manufactured by New
Flyer and Alexander Dennis Limited ("Alexander Dennis" or "ADL")
are classified as "transit buses". ARBOC manufactures body
on-chassis or “cutaway” and "medium-duty" buses that service
transit, paratransit, and shuttle applications. Collectively,
transit buses, medium-duty buses and cutaways, are referred to as
"buses". A “motor coach” or “coach” is a 35-foot to 45-foot
over-the-highway bus typically used for intercity transportation
and travel over longer distances than heavy-duty transit buses, and
is typically characterized by (i) high deck floor, (ii) baggage
compartment under the floor, (iii) high-backed seats with a
coach-style interior (often including a lavatory), and (iv) no room
for standing passengers. “Product lines” include heavy-duty transit
buses, motor coaches, pre-owned coaches, cutaway and medium-duty
buses.
Zero-emission buses ("ZEBs") consist of
trolley-electric, hydrogen fuel cell-electric, and battery-electric
buses and motor coaches. All of the data presented in this MD&A
with respect to the number of transit buses, medium-duty buses,
cutaways and motor coaches in service and delivered, is measured
in, or based on, “equivalent units” (or "EUs"). One EU represents
one production “slot”, being one 30-foot, 35-foot, 40-foot, 45-foot
heavy-duty transit bus, one double deck bus, one medium-duty bus,
one cutaway bus or one motor coach, whereas one articulated transit
bus represents two EUs. An articulated transit bus is an extra-long
transit bus (approximately 60-feet in length), composed of two
passenger compartments connected by a joint mechanism. The joint
mechanism allows the vehicle to bend when the bus turns a corner,
yet have a continuous interior.
A summary of the Company’s order, delivery and
backlog information can be found in Appendix B.
FINANCIAL RESULTS
NFI’s 2022 Q4 financial results were
significantly impacted by continued global supply chain challenges,
and the impact of heightened inflation and surcharges and rapid
foreign exchange movements on legacy contracts. In 2022 Q4, the
Company took the prudent approach to reduce production rates to
align with supply chain lead times and allow for teams to complete
offline work-in-progress ("WIP") inventory. This resulted in lower
than planned new vehicle deliveries and negative impacts to
financial performance metrics within the Company's Manufacturing
business segment ("Manufacturing"). The Company's end markets are
recovering from the pandemic, which is demonstrated by recent order
activity, a record North American bid environment and unprecedented
government funding for public transit. The Aftermarket business
segment ("Aftermarket") experienced a small decrease in
year-over-year margin results in North America, United Kingdom, and
Europe, despite consistent revenues.
Full details of the Company’s orders, deliveries and backlog
information can be found in Appendix B.
|
Deliveries (EUs) |
2022 Q4 |
2021 Q4 |
% Change |
|
Fiscal 2022 |
Fiscal 2021 |
% Change |
|
Transit buses |
764 |
|
855 |
|
(10.6)% |
|
2,253 |
|
2,765 |
|
(18.5)% |
|
Motor coaches |
169 |
|
192 |
|
(12.0)% |
|
524 |
|
678 |
|
(22.7)% |
|
Medium-duty and cutaway |
101 |
|
40 |
|
152.5% |
|
262 |
|
340 |
|
(22.9)% |
| New vehicle
deliveries |
1,034 |
|
1,087 |
|
(4.9)% |
|
3,039 |
|
3,783 |
|
(19.7)% |
|
Pre-owned coach |
68 |
|
38 |
|
78.9% |
|
190 |
|
389 |
|
(51.2)% |
| |
|
|
|
|
|
|
|
|
Zero-emission deliveries(included in the
above totals) |
328 |
|
331 |
|
(0.9)% |
|
693 |
|
661 |
|
4.8% |
|
Zero-emission deliveries as a percentage of total new
vehicle deliveries |
31.7 |
% |
30.5 |
% |
3.9% |
|
22.8 |
% |
17.5 |
% |
30.3% |
| |
|
|
|
|
|
|
|
|
Revenue(dollars in millions) |
2022 Q4 |
2021 Q4 |
% Change |
|
Fiscal 2022 |
Fiscal 2021 |
% Change |
|
Transit buses |
441.8 |
441.8 |
—% |
|
1,212.5 |
1,429.5 |
(15.2)% |
| Motor
coaches |
97.7 |
122.5 |
(20.2)% |
|
296.2 |
361.6 |
(18.1)% |
| Medium-duty and
cutaway |
12.8 |
5.4 |
137.0% |
|
31.7 |
35.3 |
(10.2)% |
| Total New Vehicle
Revenue |
552.3 |
569.7 |
(3.1)% |
|
1,540.4 |
1,826.4 |
(15.7)% |
| Pre-owned coach
revenue |
5.2 |
2.3 |
126.1% |
|
12.8 |
20.7 |
(38.2)% |
| Infrastructure
SolutionsTM |
2.7 |
4.0 |
(32.5)% |
|
8.5 |
17.6 |
(51.7)% |
| Fiberglass reinforced
polymer components |
2.2 |
1.3 |
69.2% |
|
7.0 |
5.1 |
37.3% |
| Manufacturing
Revenue |
562.4 |
577.3 |
(2.6)% |
|
1,568.7 |
1,869.8 |
(16.1)% |
|
Aftermarket |
120.2 |
117.5 |
2.3% |
|
485.2 |
474.0 |
2.4% |
| Total
Revenue |
682.6 |
694.8 |
(1.8)% |
|
2,053.9 |
2,343.8 |
(12.4)% |
| |
|
|
|
|
|
|
|
|
North America |
503.3 |
465.7 |
8.1% |
|
1,555.0 |
1,776.3 |
(12.5)% |
|
United Kingdom and Europe |
165.2 |
181.2 |
(8.8)% |
|
440.8 |
440.5 |
0.1% |
|
Asia Pacific |
14.1 |
47.9 |
(70.6)% |
|
58.1 |
127.0 |
(54.3)% |
Manufacturing revenue for 2022 Q4 decreased by
$15.0 million, or 2.6%, compared to 2021 Q4. The decrease was
driven by lower deliveries within heavy-duty transit and motor
coach, somewhat offset by higher average sale prices of heavy-duty
transit vehicles and increased deliveries of medium-duty and low
floor cutaway vehicles. Overall deliveries are down significantly
relative to pre-COVID-19 levels due to global supply chain
logistics challenges and related production inefficiencies. These
challenges are largely the result of suppliers recovering from
impacts of the COVID-19 pandemic, which has created numerous
bottlenecks in the supply chain and disruptions to certain parts
availability. WIP inventory decreased by $125.7 million from Q3
2022, as many buses awaiting parts have been completed and
delivered. The previously disrupted control module supply,
originally announced in 2022 Q2, that impacted the completion of a
significant number of North American transit buses, has recovered
according to plan, however the alternate modules developed, has
introduced certain other delays. During 2022 Q4, the Company
completed and delivered the remaining buses that were missing these
specific module components generating a positive impact, lowering
WIP by $38.6 million, or 68 EUs.
Quarterly revenue of the Company's
Infrastructure SolutionsTM division declined by $1.3 million. The
decrease is primarily due to the timing of revenue recognition on
open contracts. Global supply chain challenges have had a residual
effect on infrastructure and charger commissions resulting in
delays to Infrastructure SolutionsTM revenue recognition. Since its
inception, Infrastructure SolutionsTM has been responsible for the
delivery of 311 plug-in and 33 on-route charger projects for 51
different customers.
Aftermarket revenue for 2022 Q4 increased by
$2.7 million, or 2.3% compared to 2021 Q4. The increase is mainly
related to increased volume in the North America region, this
increased volume is despite of a one-week decrease in the period
compared to 2021 Q4. The Company continues to benefit from a
multi-year retrofit program in the Asia-Pacific region, which
continued throughout 2022, but at a lower run rate. Fiscal 2022
sales under the program were $58.1 million, a decrease of $68.9
million compared to Fiscal 2021 sales of $127.0 million; this
multi-year retrofit program is expected to unwind in 2023 Q1.
|
Net Earnings (Loss)(dollars in millions,
except per share amounts) |
2022 Q4 |
2021 Q4 |
% Change |
|
Fiscal 2022 |
Fiscal 2021 |
% Change |
|
Manufacturing |
(147.1 |
) |
(34.3 |
) |
(328.9)% |
|
(309.5 |
) |
(55.7 |
) |
(455.7)% |
|
Aftermarket |
18.6 |
|
21.2 |
|
(12.3)% |
|
67.0 |
|
83.3 |
|
(19.6)% |
|
Corporate |
(21.9 |
) |
4.4 |
|
(597.7)% |
|
(35.2 |
) |
(42.2 |
) |
16.6% |
| Net Loss |
(150.4 |
) |
(8.7 |
) |
(1,628.7)% |
|
(277.8 |
) |
(14.5 |
) |
(1,815.9)% |
| |
|
|
|
|
|
|
|
| Adjusted Net
Loss1 |
(23.6 |
) |
(15.6 |
) |
(51.3)% |
|
(161.6 |
) |
(12.1 |
) |
(1,235.5)% |
| |
|
|
|
|
|
|
|
| Net Loss per
Share |
(1.94 |
) |
(0.12 |
) |
(1,516.7)% |
|
(3.60 |
) |
(0.21 |
) |
(1,614.3)% |
| Adjusted Net Loss per
Share1 |
(0.31 |
) |
(0.21 |
) |
(47.6)% |
|
(2.09 |
) |
(0.17 |
) |
(1,129.4)% |
| |
|
|
|
|
|
|
|
|
Adjusted EBITDA1(dollars
in millions) |
2022 Q4 |
2021 Q4 |
% Change |
|
Fiscal 2022 |
Fiscal 2021 |
% Change |
|
Manufacturing |
(30.5 |
) |
(7.7 |
) |
(296.1)% |
|
(149.2 |
) |
51.7 |
|
(388.6)% |
|
Aftermarket |
22.9 |
|
25.1 |
|
(8.8)% |
|
86.2 |
|
98.7 |
|
(12.7)% |
|
Corporate |
2.5 |
|
8.8 |
|
(71.6)% |
|
3.9 |
|
13.8 |
|
(71.7)% |
| Total Adjusted
EBITDA1 |
(5.1 |
) |
26.2 |
|
(119.5)% |
|
(59.1 |
) |
164.2 |
|
(136.0)% |
| |
|
|
|
|
|
|
|
| Adjusted EBITDA as a
percentage of revenue |
|
|
|
|
|
|
|
|
Manufacturing |
(5.4) |
% |
(1.3) |
% |
(315.4)% |
|
(9.6) |
% |
2.8 |
% |
(442.9)% |
|
Aftermarket |
19.0 |
% |
21.3 |
% |
(10.8)% |
|
17.9 |
% |
20.8 |
% |
(13.9)% |
| Total |
(0.7) |
% |
3.8 |
% |
(118.4)% |
|
(2.9) |
% |
7.0 |
% |
(141.4)% |
| |
|
|
|
|
|
|
|
1. Non-IFRS Measure - See Non-IFRS and Other Financial Measures
section.
2022 Q4 Manufacturing Adjusted EBITDA decreased
by $22.8 million, or 296.1%, compared to 2021 Q4. The decrease was
driven by a decrease in deliveries, unfavorable sales mix, and
heightened inflation and surcharges. Decreased margins were the
result of operational and production inefficiencies caused by
continuing supply disruptions. In addition, the Company did not
receive any government wage subsidy grants in 2022 Q4, as compared
to $2.3 million received in 2021 Q4, as the programs were either
discontinued or NFI was no longer eligible. Manufacturing
experienced a 2022 Q4 net loss of $147.1 million compared to a net
loss of $34.3 million in 2021 Q4. The increase in Manufacturing net
loss was mainly attributable to a $103.9 million non-cash goodwill
impairment charge in ARBOC ($23.2 million) and the ADL
Manufacturing ($80.7 million) cash generating units ("CGUs"). The
goodwill impairment reflects increases in market rates, as well as
timing of the market recovery from the COVID-19 pandemic and the
related supply chain disruptions. Also contributing to the net loss
are the same items that impacted Manufacturing Adjusted EBITDA.
2022 Q4 Aftermarket realized Adjusted EBITDA
results of $22.9 million, a $2.2 million, or 8.8%, year-over-year
decrease. The decrease in Adjusted EBITDA was primarily due to
product mix and inflationary impacts to both freight and part costs
and freight surcharges, where the Company was not fully able to
pass along these impacts to its customers. 2021 Q4 saw the Company
achieve heightened Aftermarket Adjusted EBITDA results, partially
related to a multi-year retrofit program in the Asia-Pacific
region, which will continue into 2023 Q1, but at a lower run rate
as the program unwinds. 2022 Q4 Aftermarket net earnings decreased
by $2.6 million, or 12.3%, primarily due to the same items that
impacted Aftermarket Adjusted EBITDA.
2022 Q4 Corporate Adjusted EBITDA decreased by
$6.2 million, or 71.6%, compared to 2021 Q4, primarily as a result
of foreign exchange revaluation adjustments to monetary balances.
Corporate expenses included in the calculation of net loss
increased by $26.4 million, or 597.7%, primarily due to increased
interest on long-term debt and unfavourable mark-to-market
adjustments to the Company's interest rate swaps. These are
somewhat offset by a favourable fair value adjustment to the
Company's convertible debenture cash conversion option.
|
Free Cash Flow1and net
cash generated by operating activities(dollars in
millions, except per share amounts) |
2022 Q4 |
2021 Q4 |
% Change |
|
Fiscal 2022 |
Fiscal 2021 |
% Change |
| Net cash (used in)
generated by operating activities |
1.5 |
|
150.2 |
|
(99.0)% |
|
(241.9 |
) |
115.2 |
|
(310.0)% |
| Free Cash
Flow |
(21.8 |
) |
(18.9 |
) |
(15.3)% |
|
(170.3 |
) |
23.0 |
|
(840.4)% |
| Free Cash Flow (CAD
dollars) |
(29.5 |
) |
(23.9 |
) |
(23.4)% |
|
(224.9 |
) |
28.5 |
|
(889.1)% |
| Declared Dividends
(CAD dollars) |
— |
|
16.4 |
|
(100.0)% |
|
12.3 |
|
61.6 |
|
(80.0)% |
| |
|
|
|
|
|
|
|
| Free Cash Flow per
Share (CAD dollars)2 |
(0.38 |
) |
(0.33 |
) |
(15.2)% |
|
(2.91 |
) |
0.41 |
|
(809.8)% |
| Dividends per Share
(CAD dollars) |
— |
|
0.21 |
|
(100.0)% |
|
0.16 |
|
0.85 |
|
(81.2)% |
| |
|
|
|
|
|
|
|
| Payout Ratio (Declared
Dividends divided by Free Cash
Flow)2 |
— |
% |
(68.6)% |
(100.0)% |
|
(5.5)% |
216.1 |
% |
(102.5)% |
| |
|
|
|
|
|
|
|
1. Non-IFRS Measure - See Non-IFRS and Other Financial Measures
section.
2. Represents a non-IFRS ratio, meaning it is
derived from a non-IFRS measure, which does not have a standard
meaning, so it may not be a reliable way to compare NFI to other
companies. The ratio is calculated using Free Cash Flow, which is a
non-IFRS measure. See Non-IFRS and Other Financial Measures
section.
Free Cash Flow in 2022 Q4 decreased by $2.9
million, or 15.3%, compared to 2021 Q4, mainly due to a higher
Adjusted EBITDA loss and higher outflows from changes in non-cash
working capital. "NFI Forward", the Company's transformational
restructuring initiative to generate cost savings, generated
Adjusted EBITDA savings of $18.5 million and an additional $3.0
million Free Cash Flow savings in the quarter.
Net cash generated by operating activities in
2022 Q4 was $1.5 million, a decrease of $148.7 million or 99.0%,
compared to cash generated in 2021 Q4, mainly due to the increase
in cash used in working capital. The Fiscal 2022 net cash generated
by operating activities decreased by 310.0%, primarily due to a
increase in net losses and cash used in working capital.
|
|
2022 Q4 |
2022 Q3 |
2022 Q2 |
2022 Q1 |
2021 Q4 |
|
Working Capital Days1 |
|
68 |
|
70 |
|
72 |
|
70 |
|
|
69 |
|
| Liquidity ($
million)1 |
$ |
173.5 |
$ |
471.4 |
$ |
628.5 |
$ |
649.0 |
|
$ |
794.3 |
|
| Backlog
(EUs) |
|
9,186 |
|
8,505 |
|
9,674 |
|
8,908 |
|
|
8,448 |
|
|
ROIC1 |
(4.4)% |
(3.3)% |
(1.5)% |
|
1.1 |
% |
|
3.6 |
% |
| |
|
|
|
|
|
1. Working Capital Days and Liquidity represent
supplementary financial measures. ROIC represents a non-IFRS ratio
for the last 12-month period. See Non-IFRS and Other Financial
Measures section.
As part of the Company's increased focus on cash
conversion and leverage reduction, the Company is actively focused
on reducing Working Capital Days, especially as it navigates
through supply-related disruption to its operations. In 2022 Q4,
Working Capital Days were 68, compared to 70 at the end of 2022 Q3,
and 69 at the end of 2021 Q4. The decrease in Working Capital Days
in 2022 Q4 compared to 2022 Q3 is mostly attributable to the
decrease in average working capital balances, mainly due to
decreases in WIP inventory. WIP inventory decreased by $125.7
million as buses previously awaiting parts have been completed and
delivered.
The Company's liquidity position, which combines
cash on-hand plus available capacity under its credit facilities,
without consideration given to the minimum liquidity requirement
($25 million) under the Amended Facilities1, was $173.5 million as
at the end of 2022 Q4, down $297.9 million from the end of 2022 Q3,
where the minimum liquidity requirement was $250 million. The
decrease in liquidity is primarily due to amendments to both the
Company's credit and UK facilities. Total borrowing under the
amended credit facility has decreased to $1 billion, a $250 million
decrease. Total borrowing under the amended UK facility has
decreased to £40 million, a £10 million decrease. Also contributing
to the decrease in liquidity is increased drawings under the
amended facilities.
At the end of 2022 Q4, the Company's total
backlog (firm and options) was 9,186 EUs, an increase of 7.8%
compared to 8,505 EUs at the end of 2022 Q3. The increase was
driven by high levels of new awards in North American and UK
transit operations in the quarter, offset somewhat by higher
deliveries and option expiries. In addition, 806 EUs of new firm
and option orders were pending from customers at the end of 2022
Q4, where approval of the award to the Company had been made by the
customer’s board, council, or commission, as applicable, but
purchase documentation had not yet been received by the Company and
therefore not yet included in the backlog.
LTM 2022 Q4 ROIC decreased by 1.1% from LTM 2022
Q3, due to the decrease in Adjusted EBITDA offset by a lower
invested capital base. The decrease in invested capital is
primarily due to a decrease in shareholders' equity, partially
offset by the increase in average long-term debt.
Footnotes
1. As defined in the Capital Allocation
section.
2022 Q4 HIGHLIGHTS
Similar to the first three quarters of 2022, the
fourth quarter of 2022 continued to be a representation of the
broader operating and economic environment, with numerous long-term
positive indicators, including increases in new orders, higher
contract pricing, and high backlog and bid activity, offset by
near-term challenges related to supply chain disruptions and
heightened inflation. Manufacturing operations continued to
experience inflation impacts and operational inefficiencies
resulting from global supply chain and logistics challenges which
created bottlenecks and significant disruptions to NFI's
operations. In response to these challenges, NFI continued to
operate at reduced new vehicle input rates, primarily by adjusting
production, and by delaying some new vehicle line entries to match
timing of parts availability. Within the fourth quarter of 2022,
the Company did see success from the various actions taken to lower
vehicle inventory balances by completing buses and coaches with the
required parts as they were received, with WIP inventory decreasing
by $125.7 million during the fourth quarter.
The supply chain disruptions and uncertainty
have been especially challenging to NFI and others in the bus and
motor vehicle industries. The majority of NFI's transit and coach
customer orders are highly customized, with significant
specification requirements by customers. In addition, production is
typically subject to local content rules, such as Buy America
provisions or local manufacturing requirements. These various
factors limit the Company's ability to use alternative sources of
supply and require dedicated manufacturing facilities for different
product types by region.
NFI’s customers continue to be very
accommodating to the supply chain challenges that have continually
adjusted the Company's production and delivery schedules. NFI has
continued to communicate with its customers to provide updates and
coordinate delivery schedules based on supply availability. Similar
to the third quarter of 2022, NFI worked with customers in the
fourth quarter to seek vehicle price increases and/or milestone
payments in response to rising input costs. As of January 1, 2023,
the Company had received $36.1 million in prepayments and is
continuing to work with other customers on plans that would help
alleviate some of NFI's working capital investments while it
navigates through the supply chain challenges. This program is
ongoing and, if successful, may have a positive impact on 2023
working capital investments and operating cash flows.
In the fourth quarter of 2022, the Company
announced amendments to the Company’s Amended Facilities to provide
covenant relief from previous key financial covenants for the
fourth quarter of 2022 and the first two quarters of 2023 to the
period ending June 30, 2023 (the “Waiver Period”). The full details
of these amendments can be found in the Capital Allocation section
of this MD&A.
NFI and its banking syndicate partners are now
focused on developing new long-term credit arrangements, and NFI
will be seeking agreements that provide appropriate capacity and
covenants matched to the Company’s anticipated financial
performance and recovery. The Company is targeting completion of
these changes prior to the end of the Waiver Period.
Subsequent to quarter end, the Company announced
that it had finalized agreements for the previously announced
financial support package of approximately $187 million with the
Manitoba Development Corporation, an entity that provides financial
services and financial instruments on behalf of the Province of
Manitoba, and Export Development Canada (“EDC”), a Canadian
government Crown corporation.
The financial support package includes two debt
facilities, a $37 million facility (C$50 million) from the Manitoba
Development Corporation (the "Manitoba Facility") and a $50 million
facility from EDC (the "EDC Facility"), as well as an up to $100
million surety reinsurance support arrangement with EDC for NFI’s
surety and performance bonding requirements.
Strong Market Demand and Increasing
Procurements
The Company continued to see strong metrics that
measure future demand and activity during the fourth quarter of
2022. In 2022 Q4, new orders increased by 60.4% year-over-year,
active bids of 10,507 EUs were at record levels, up 53.5%
year-over-year, with 806 EUs in bid awards pending. This positions
NFI for a strong quarter of backlog growth in the first quarter of
2023. The Company's 2022 Q4 Book-to-Bill1 ratio was 144.0%, an
increase from 131.9% in 2021 Q4; its Fiscal 2022 Book-to-Bill was
133.9%, an increase from 115.1% at the same time last year.
Footnotes
1. Represents a supplementary financial measure.
See Non-IFRS and Other Financial Measures section.
NFI's Total Public Bid Universe for North
America was a record 30,784 EUs, up 17.0% year-over-year. The
Company ended 2022 Q4 with 5,169 EUs of bids in process (the
highest quarter on record), and another 5,338 EUs of bids
submitted, down from the record high of 7,226 in 2022 Q3. See
Appendix B for details.
Given the highly customized nature of NFI's
products, there is significant lead time between when an order is
received to when a vehicle is delivered. Generally, in North
America, NFI will begin production on an order six to twelve months
after it is awarded. In international markets, this lead time can
be anywhere from three to eight months. This pre-production period
is utilized to complete final engineering, coordinate supply
delivery, and align production schedules. Due to this timing
structure, there is a lag between when orders are received and when
they impact NFI's financial results in the form of deliveries.
Zero-Emission Mobility—The
ZEvolutionTM
In 2022 Q4, NFI received orders for 1,118 EUs of
battery-electric, ZEBs, a 780% increase from the 127 EUs in orders
received in 2022 Q3. These 1,118 EUs of ZEBs equate to 43.4% of all
new firm and option orders for the quarter, which increased from
28.0% in 2022 Q3.
At the end of 2022 Q4, NFI had 2,628 ZEBs in the
backlog, representing a record of approximately 28.6% of the total
backlog, and 15,689 EUs, or 51.0%, of the Total Bid Universe was
ZEBs, an increase of 54.6% year-over-year, which supports
management's expectations for a continued increase in the demand
for ZEBs.
NFI sells buses to all of the 25 largest transit
authorities in North America and has electric vehicles in service
with 17 of the top 25 transit agencies in North America. Within the
fourth quarter of 2022, the Company announced new zero-emission and
electric orders for customers in Greater Manchester, UK; Winnipeg,
Canada; Pittsburgh, Pennsylvania; and San Diego, California; and
MCI delivered its first zero-emission J4500 CHARGETM to a customer
in California. Alexander Dennis also announced that it had received
the largest bus order in the UK by number of vehicles since 2019,
for 200 low-emission double deck buses.
Low-No Grants
In 2022, as part of the Federal Transit
Administration’s (“FTA”) 2022 Low or No Emission (“Low-No”) and
Buses and Bus Facilities Grant Programs, New Flyer supported the
successful applications for almost $200 million in grants awarded
to 15 U.S. public transit agencies. NFI was the named partner for
two individual agency awards of over $25 million each, an increase
from the $40 million in Low-No grants awarded to nine U.S. public
transit agencies that NFI subsidiaries supported in 2021.
While New Flyer has been named as a partner, new
awards will not be added to NFI’s backlog until contract
documentation is completed and a formal purchase order is received.
New Flyer’s success with Low-No and Buses and Bus Facilities grants
provide future backlog growth opportunities. In addition,
approximately $800 million in Low-No grants were provided to
transit agencies that had not yet formally named a preferred
partner, which the Company expects will generate future bidding
activities going forward.
NFI Forward Update
In the quarter, NFI continued to realize savings
from “NFI Forward”, the Company’s transformational cost reduction
and sourcing initiative, which is expected to lower NFI’s overhead
and selling general and administrative (“SG&A”) expenses by 8%
to 10%, respectively, based on 2019 revenue levels, and to provide
direct material savings from input cost reductions and an estimated
$10 million in annualized Free Cash Flow generation. The Company
has now achieved its NFI Forward target for Adjusted EBITDA savings
of $67 million (from 2019 levels), one year earlier than its
original target of the end of 2023. Total one-time investments
incurred to achieve the NFI Forward program were $14.1 million, a
$103,000 increase from 2022 Q3.
In July 2022, NFI launched a series of
additional projects called “NFI Forward 2.0”, that are expected to
generate additional annualized Adjusted EBITDA savings in 2023 and
beyond. The initial project was the integration of NFI's Delaware
parts distribution facility (a legacy parts warehouse of NABI that
NFI acquired in 2013) into its existing NFI Parts™ footprint, which
occurred during the third quarter of 2022 and the facility has been
successfully subleased. The Company is also planning to close the
MCI coach manufacturing facility in Pembina, North Dakota, in the
first half of 2023.
NFI Forward 2.0 will be smaller in scale and
financial impact when compared to the original NFI Forward
initiatives. In total, the Company believes NFI Forward 2.0 will
generate $5 million to $8 million in annual savings from one-time
capital investments of $8 million to $10 million. The majority of
these benefits are expected to be recognized in 2023.
OUTLOOK
NFI continues to face challenges to its business
from macro trends, including ongoing supply constraints, inflation
in parts, raw materials and labour, and higher interest rates.
While supply chain shortages have caused significant dislocation
and disruption to NFI's operating and financial performance in
recent years, these pressures are starting to alleviate and there
are signs of improvement. Despite these broader market challenges,
NFI's business outlook remains strong based on its record backlog,
growing demand for its products and government funding reaching
historically high levels in its core markets. NFI has received
significant new orders in 2022 that support the Company's
anticipated financial recovery, including new firm and option
orders for 5,786 EUs, an increase of 60% from 2021. NFI's closing
backlog (firm and options) was 9,186 EUs (valued at $5.6
billion).
NFI was also encouraged by the high volume of
active bus and motor coach procurements taking place in both North
American and international markets during 2022. The Company's North
American active bids of 10,507 EUs at year end were at a record
level, increasing by 53.5% year-over-year, which is expected to
drive additional backlog growth in 2023, and revenue growth in the
medium- and longer-term. NFI is also seeing increasing numbers of
bids for zero-emission buses and coaches, with individual order
sizes for those vehicle types increasing in size. In 2022 Q4, NFI
received orders for 1,118 EUs of battery-electric, ZEBs, a 780%
increase from the 127 EUs from 2022 Q3. NFI expects active bids
will continue to remain high throughout 2023 as markets recover
from the COVID-19 pandemic, supply shortages, and government
funding is used by transit agencies and operators.
While the Company had anticipated it would begin
to ramp-up its production in earnest during the second half of 2022
and the first half of 2023, ongoing supply chain disruption and
longer supplier lead times have pushed out the expected ramp up of
production to the second half of 2023; ramp up remains subject to
supply chain health showing sustained improvement. NFI anticipates
its supply chains and parts availability will slowly improve, and
the Company will be able to source additional labour required to
drive higher production and volume deliveries in 2023, with the
majority of the improvements coming in the second half of the
year.
Longer than anticipated supplier lead times and
disrupted parts availability resulted in an increase of vehicles in
inventory missing certain parts throughout 2022. NFI believes that
the third quarter of 2022 was the peak of this inventory build-up;
as WIP inventories decreased in the fourth quarter of 2022 once
required parts were received and vehicles were completed and
delivered. This included the successful delivery of all vehicles
that were missing the previously disrupted control module
supply.
Similar to the entire global manufacturing
industry, NFI has and continues to experience significant inflation
with respect to supplier pricing and employee wages, and through
raw materials purchased directly by NFI. The Company embedded an
anticipated level of inflation assumptions into its 2022 budget
projections; however, inflation for certain components exceeded
those projections. NFI has worked with customers to reprice certain
contracts and a number of other contracts have clauses where a
government purchase price index ("PPI") is applied which assists in
passing through manufacturing cost inflation. Generally, when an
option contract is exercised from NFI's North American backlog, a
PPI adjustment is recorded to reflect the higher input costs of a
new vehicle. For those contracts where these clauses are not
applicable, NFI is seeking price increases and surcharges through
negotiations with customers and surcharge letters. The Company has
experienced some success with these efforts and expects they will
help offset some of the inflation related margin pressure on select
2023 vehicle builds.
NFI has completed the majority of its legacy
contracts bid in 2020 and 2021 that are impacted by heightened
inflation, but, due to supply chain constraints on delivery
schedules, some depressed margin contracts will be realized in
NFI's expected 2023 results.
Credit Agreement Discussions and
Deleveraging the Balance Sheet
With covenant relief in place under the
Company's amended facilities until June 30, 2023, management is now
focused on working with its banking syndicate partners to develop
new multi-year credit arrangements. NFI will be seeking agreements
that provide appropriate capacity, flexibility, and covenants which
support the Company’s anticipated operational and financial
recovery. The Company is targeting completion of revised credit
arrangements during the first half of 2023.
As the Company works to complete the new credit
agreements, it remains focused on cash management, liquidity and
strengthening its balance sheet. Proceeds from the Manitoba
Facility and the EDC Facility received in January 2023, will
provide additional liquidity as will the continuing unwind of
working capital primarily related to investments in WIP and raw
material inventory. The inventory unwind will be somewhat offset by
the impacts of deferred revenue where NFI received prepayments and
deposits in 2022. In total, NFI anticipates it will see a net
inflow of cash from working capital in 2023. NFI is also continuing
to pursue advance payments and deposits from customers, wherever
possible, and exploring other potential opportunities to generate
cash flows, including capital markets activities and potential sale
and leaseback of select Company manufacturing facilities.
The Company has two interest rate swaps in place
to fix the interest rate which the Company will pay. One swap is in
place on $540.0 million at 2.27% plus an applicable margin until
October 2023 and another on $200 million at 0.24% plus an
applicable margin that matures in 2024. The Company also has a 5%
annual coupon rate on its convertible debentures which mature in
2027. These have assisted in lowering the Company's exposure to
floating interest rate increases, although the Company does expect
it will see an increase in interest costs in 2023 as the $540
million interest rate swap matures and higher base interest rates
apply to debt portions that do not have an interest rate swap in
place.
As the Company expects to be unable to comply
with certain of its financial covenants under the terms of its
credit facilities beginning on July 1, 2023. These events result in
a material uncertainty that may cast significant doubt as to the
ability of the Company to continue as a going concern. The audited
consolidated financial statements do not reflect adjustments that
would be necessary if the Company was not a going concern. The
Company expects operations to continue into the long-term. The
Company is taking a number of operational steps including cost
savings measures to ensure adequate short-term liquidity.
Additionally, the Company is continuing to work directly with
suppliers and sub-suppliers to search for alternate or substitute
parts where possible, increase production line parts inventories
and develop longer lead times to better support new vehicle
production.
In assessing whether the going concern
assumption was appropriate, the Company took into account all
relevant information available about the future including its
backlog, demand for its products, government funding levels in its
core markets and the Company's ability to raise additional capital
from various sources, including capital markets.
Market Recovery Post-COVID-19 Pandemic
and Supply Chain Constraints
The Company’s bus and coach product lines (New
Flyer, ARBOC, MCI and ADL) are primarily used for public transit,
which remains a critical method of transportation and economic
enabler for users in cities around the world. Public transit has
also been a significant area of investment focus for governments as
they seek to improve ridership access, reduce urban congestion, and
achieve emissions targets. These investments increased NFI's new
orders in 2022, that when combined with existing backlog and bid
activity, are expected to drive significant revenue growth for NFI
from 2023 through 2025 and beyond. This anticipated revenue growth
when combined with expected improvements in margins from operating
efficiencies and movement beyond current inflationary pressures,
are also expected to generate Adjusted EBITDA improvements.
The importance of long-term government funding
in key markets cannot be understated, as it allows public transit
agencies to proceed with confidence regarding their multi-year
fleet replacement plans and procurements. In addition to funding,
ridership has started to recover, with American Public
Transportation Association ("APTA") reporting that public transit
ridership in the U.S. for September 2022 surpassed 70% of
pre-pandemic levels.
Late in Fiscal 2021, NFI began to experience
significant supplier disruption across key components such as
windows, air conditioning units, emission systems, plastics, hoses
and key electrical components that contain micro-processors. The
Company saw some improvement in the second quarter of 2022, but
critical electrical components remained a significant challenge. In
the third and fourth quarters of 2022 there was further disruption
driven by wire harnesses, electrical hybrid drive systems and
inverters for electric buses. There was some improvement in supply
of these components, especially wire harnesses, to end 2022 and at
the start of 2023 electrical sub-component supply has improved to
NFI's Tier 1 suppliers. Overall risks remain elevated for certain
suppliers who are reliant on electrical components and
microprocessors. NFI has taken numerous proactive efforts to
improve supply chain health including the use of alternative
suppliers, working several levels down in the supply chain, finding
components for our Tier 1 suppliers, increasing inventories of raw
materials on hand, and increasing our lead times to suppliers, in
some cases moving from 6 weeks of lead time to more than 12 weeks.
Based on discussions with suppliers the Company continues to expect
that suppliers will be able to support NFI's planned production
ramp-up in the second half of 2023.
NFI's overall continued end market recovery will
be dependent upon several factors, including inflation rates,
labour availability, reliability of supply of component parts,
government funding for public transit, other COVID-19-related
impacts, and green fleet investments. These factors will differ by
business, product type and geography. It is also important to note
that there are significant lead times between when NFI receives an
order and when a vehicle enters production.
Strong Government Support for Recovery
and Zero-Emission Transition
In each of NFI’s end markets, government support
for public transit vehicles continues to be at an all-time high.
Not only has government support for transit operations remained
strong during the global pandemic, governments have also committed
billions of dollars for long-term fleet investments in
zero-emission vehicles and infrastructure.
In the U.S., the Infrastructure Investment and
Jobs Act ("IIJA") signed in 2021 includes $86.9 billion over five
years for the FTA; the IIJA also authorized an additional $21.2
billion in supplemental appropriations from general revenues, for a
total of $108 billion in FTA funding, a 63% increase from the
previous government funding act. Generally, U.S. public agencies
can secure up to 80% of the capital costs for a new transit bus
from FTA funds, with the remaining 20% coming from state and local
sources. The Canadian government has committed over C$17 billion to
2027 to support Canadian public transit. The funding includes C$1.5
billion flowing through the Canada Infrastructure Bank ("CIB") to
support the adoption of ZEBs and charging infrastructure.
The UK government also continues to support
purchases of low- and zero-emission buses, and has previously
committed to introducing 4,000 British-built zero-emission buses
through its various funding programs, with several rounds of the
Zero Emission Bus Regional Areas, or ZEBRA, funding scheme having
already been released. Alexander Dennis has received several
customer orders for ZEBs funded by ZEBRA.
As the market leader in North American transit
and coach operations and the UK's leading provider of buses and
coaches, management believes NFI is extremely well-positioned for
both the near- and long-term based on the multi-year commitments
being made by governments in all of the Company's core markets.
The Company also continues to focus on growing
its Infrastructure SolutionsTM business. Since its inception,
Infrastructure SolutionsTM has been responsible for the delivery of
311 plug-in and 33 overhead charger projects, for a total of 58
megawatts ("MW") charging capacity, for 51 different customers.
Currently, Infrastructure SolutionsTM has projects under contract
for 2023/24 with 10 existing and 7 new customers, which will add
140 plug-in and 32 overhead depot chargers, for a total of 41
MW.
Other International Markets
NFI's international expansion through ADL is
expected to continue, with plans for further growth in new and
existing markets including New Zealand, Australia, Hong Kong,
Singapore and Germany where multi-year, multi-million dollar
funding investments are being made by governments with commitments
to deliver zero-emission transportation.
Although the proposed legislation, government
plans and announcements referred to above are encouraging for the
future of public transit, management does not yet know how, when or
if the proposals and funds will materialize, contracts will be
awarded to the Company, or the expected impact on NFI's financial
performance. NFI will continue to monitor and provide updates as
appropriate. Management anticipates that the strong underlying
financial support from governments will provide significant
opportunities for NFI to grow revenue from increased market demand
for its products.
Financial Guidance and
Targets
NFI presents the following guidance for Fiscal
2023 and Fiscal 2024, and targets for Fiscal 2025:
|
|
2019 Pro-forma Results |
2023 Guidance |
2024 Guidance |
2025 Targets |
|
Revenue |
$3.2 billion |
$2.5 to $2.8 billion |
$3.2 to $3.6 billion |
~$4 billion |
|
ZEB (electric) as a percentage of manufacturing sales |
6% |
25% - 30% |
30% - 35% |
~40% |
|
Adjusted EBITDA2 |
$331 million |
$30 to $60 million |
$250 to $300 million |
~$400 million |
|
Cash Capital Expenditures – including NFI Forward 2.0 |
$38 million |
$35 to $40 million |
$50 to $60 million |
~$50 million |
|
Return on Invested Capital - provided for 2025 targets |
9.8% |
|
|
>12% |
- Non-IFRS Measure. See Non-IFRS and
Other Financial Measures section.
The above table outlines guidance ranges for
selected Fiscal 2023 and Fiscal 2024 financial metrics and 2025
financial targets. These ranges take into consideration
management's current outlook combined with 2022 and 2023
year-to-date results and are based on the assumptions set out
below. The purpose of the financial guidance and targets are to
assist investors, shareholders, and others in understanding
management's expectations for the Company's financial performance
going forward. The information may not be appropriate for other
purposes. Information about guidance and targets, including the
various assumptions underlying it, is forward-looking and should be
read in conjunction with the section “Forward-Looking Statements”
and the related disclosure and information about various
assumptions, factors, and risks that may cause actual future
financial and operating results to differ from management’s current
expectations.
NFI has adjusted its Fiscal 2025 long-term
targets, originally announced in January 2021, with expectations to
now deliver approximately $4 billion in revenue, and Adjusted
EBITDA of approximately $400 million, with ~40% of vehicle sales
coming from ZEBs and a ROIC of greater than 12% (unchanged). The
original targets were for $3.9 to $4.1 billion of revenue, $400 to
$450 million of Adjusted EBITDA and a ROIC of greater than 12%. The
2025 targets have been lowered slightly to reflect the anticipated
timing of market recoveries based on the challenges experienced in
2022 and the expectation that the first half of 2023 will continue
to be challenged by supply disruption and that new vehicle
production rates will not increase until later in 2023. In
addition, the expected timing of significant UK government funding
for fleet replacements has been moved from 2023 and 2024 into 2024
and 2025, impacting the anticipated timing of vehicle delivery
volumes in that market.
The 2023 and 2024 guidance ranges provided above
and the 2025 targets are driven by numerous expectations and
assumptions including, but not limited to, the following:
-
Revenue: Anticipated revenue growth in 2023, 2024
and 2025 is based on NFI's firm order backlog, current 2023 and
2024 production schedules, expected backlog option order
conversion, and anticipated 2023, 2024 and 2025 new vehicle orders
and aftermarket parts sales. Revenue guidance and targets reflect
higher volume of ZEB sales and anticipated product mix benefits
plus expected international sales expansion. The guidance ranges
also reflect potential variances in delivery volumes from supply
disruption, product mix and expected timing of production recovery
driving improved efficiency in the second half of 2023 and Fiscal
2024 and Fiscal 2025.
-
ZEB Sales: Expected growth in the percentage of
ZEB sales is based on NFI's firm order backlog, the Company’s
existing vehicle inventory, 2023 and 2024 production schedules,
anticipated 2023, 2024 and 2025 new vehicle orders, anticipated
backlog option order conversion and from review of customers
capital and fleet renewal plans that suggest there will continue to
be increases in their demand for electric vehicles.
-
Adjusted EBITDA: Adjusted EBITDA is expected to
increase in both 2023, 2024 and 2025 as the Company anticipates
recoveries in new vehicle deliveries, changes to product mix, a
higher percentage of ZEB deliveries and improved operating margins,
especially from the second half of 2023 onwards, due to anticipated
recovery in supply chain health. In addition, while there will be
some impact to margins from legacy inflation adjusted contracts in
2023, the majority of NFI's contracts going forward reflect updated
pricing with higher input costs and inflation adjustments. In
addition, the Company has now achieved its targeted cost savings of
$67 million from the NFI Forward initiative, which are expected to
continue, and anticipates an additional $5 million to $8 million of
additional savings from projects entitled NFI Forward 2.0. The
total cost savings achieved under NFI Forward are expected to be
somewhat offset by the impacts of inflation on wage and other input
costs.
-
ROIC: 2025 Targets are driven by the factors noted
above combined with the expectation that there will not be
significant changes in tax rates from current levels.
Guidance and targets above are conditional on
several factors and expectations, including the recovery of supply
chains and other COVID-19-related impacts, a higher percentage of
ZEB sales (which provide a higher revenue and dollar margin
benefit), the mitigation of inflationary pressures, end markets
recovering inline with management expectations, international
expansion, aftermarket parts sales, continuous improvement
initiatives as well as obtaining a new multi-year credit agreement
and availability of adequate liquidity.
NFI's guidance and targets are subject to the
risk of extended duration of the current supply disruptions and the
risk of additional supply disruptions affecting particular key
components. In addition, the guidance and targets do not reflect
potential escalated impact on supply chains or other factors
arising directly or indirectly as a result of the ongoing Russian
invasion of Ukraine. Although NFI does not have direct suppliers
based in Russia or Ukraine, additional supply delays and possible
shortages of critical components may arise as the conflict
progresses and if certain suppliers’ operations and/or subcomponent
supply from affected countries are disrupted further. In addition,
there may also be further general industry-wide price increases for
components and raw materials used in vehicle production as well as
further increases in the cost of labour and potential difficulties
in sourcing an increase in the supply of labour. See Appendix C
Forward Looking Statements for risks and other factors and the
Company's filings on SEDAR.
SELECTED QUARTERLY AND ANNUAL FINANCIAL
AND OPERATING INFORMATION
The following selected condensed consolidated
financial and operating information of the Company has been derived
from and should be read in conjunction with the historical and
current Financial Statements of the Company.
| (U.S. dollars
in thousands, except per Share figures) |
|
|
|
|
|
|
| Fiscal
Period |
Quarter |
|
Revenue |
|
Earnings (loss) from operations |
|
Net earnings (loss) |
|
Adjusted EBITDA1 |
|
Earnings (loss) per Share |
|
2022 |
|
| |
Q4 |
|
682,604 |
|
(140,153 |
) |
|
(150,360 |
) |
|
(5,103 |
) |
|
(1.94 |
) |
| |
Q3 |
|
514,047 |
|
(43,479 |
) |
|
(42,595 |
) |
|
(15,709 |
) |
|
(0.56 |
) |
| |
Q2 |
|
397,952 |
|
(64,218 |
) |
|
(56,740 |
) |
|
(21,345 |
) |
|
(0.74 |
) |
|
|
Q1 |
|
459,330 |
|
(41,763 |
) |
|
(28,068 |
) |
|
(16,942 |
) |
|
(0.36 |
) |
|
|
Total |
|
2,053,933 |
|
(289,613 |
) |
|
(277,763 |
) |
|
(59,099 |
) |
|
(3.60 |
) |
|
2021 |
|
| |
Q4 |
|
694,843 |
|
(4,785 |
) |
|
(8,691 |
) |
|
26,154 |
|
|
(0.12 |
) |
| |
Q3 |
|
492,038 |
|
(2,797 |
) |
|
(15,415 |
) |
|
31,330 |
|
|
(0.22 |
) |
| |
Q2 |
|
582,794 |
|
26,675 |
|
|
2,588 |
|
|
51,856 |
|
|
0.04 |
|
|
|
Q1 |
|
574,119 |
|
26,918 |
|
|
7,033 |
|
|
54,841 |
|
|
0.10 |
|
|
|
Total |
|
2,343,794 |
|
46,011 |
|
|
(14,485 |
) |
|
164,181 |
|
|
(0.21 |
) |
|
2020 |
|
| |
Q4 |
|
711,523 |
|
32,531 |
|
|
8,465 |
|
|
64,956 |
|
|
0.14 |
|
| |
Q3 |
|
663,934 |
|
(16,453 |
) |
|
(24,912 |
) |
|
60,885 |
|
|
(0.40 |
) |
| |
Q2 |
|
333,334 |
|
(72,001 |
) |
|
(74,050 |
) |
|
(24,229 |
) |
|
(1.18 |
) |
|
|
Q1 |
|
710,384 |
|
(25,406 |
) |
|
(67,239 |
) |
|
56,071 |
|
|
(1.08 |
) |
|
|
Total |
|
2,419,175 |
|
(81,329 |
) |
|
(157,736 |
) |
|
157,683 |
|
|
(2.52 |
) |
COMPARISON OF FOURTH QUARTER 2022 RESULTS
|
(U.S. dollars in thousands) |
2022 Q4 |
2021 Q4 |
|
Fiscal 2022 |
Fiscal 2021 |
| |
|
|
|
|
|
| Statement of Earnings
Data |
|
|
|
|
|
| Revenue |
|
|
|
|
|
|
North America |
|
408,192 |
|
|
379,501 |
|
|
|
1,179,846 |
|
|
1,428,001 |
|
|
United Kingdom and Europe |
|
145,265 |
|
|
161,867 |
|
|
|
361,681 |
|
|
362,052 |
|
|
Asia Pacific |
|
8,907 |
|
|
35,970 |
|
|
|
27,234 |
|
|
79,713 |
|
|
Other |
|
— |
|
|
— |
|
|
|
— |
|
|
— |
|
| Manufacturing operations |
|
562,364 |
|
|
577,338 |
|
|
|
1,568,761 |
|
|
1,869,766 |
|
| |
|
|
|
|
|
|
North America |
|
95,102 |
|
|
86,242 |
|
|
|
375,103 |
|
|
348,247 |
|
|
United Kingdom and Europe |
|
19,954 |
|
|
19,311 |
|
|
|
79,166 |
|
|
78,448 |
|
|
Asia Pacific |
|
5,184 |
|
|
11,952 |
|
|
|
30,903 |
|
|
47,333 |
|
|
Other |
|
— |
|
|
— |
|
|
|
— |
|
|
— |
|
| Aftermarket operations |
|
120,240 |
|
|
117,505 |
|
|
|
485,172 |
|
|
474,028 |
|
| Total revenue |
$ |
682,604 |
|
$ |
694,843 |
|
|
$ |
2,053,933 |
|
$ |
2,343,794 |
|
| |
|
|
|
|
|
| (Loss) earnings from
operations |
$ |
(140,153 |
) |
$ |
(4,785 |
) |
|
$ |
(289,613 |
) |
$ |
46,011 |
|
| (Loss) earnings before
interest and income taxes |
$ |
(136,634 |
) |
$ |
(10,398 |
) |
|
$ |
(288,450 |
) |
$ |
34,108 |
|
| Net Loss |
$ |
(150,360 |
) |
$ |
(8,691 |
) |
|
$ |
(277,763 |
) |
$ |
(14,484 |
) |
| Adjusted EBITDA1 |
$ |
(5,103 |
) |
$ |
26,154 |
|
|
$ |
(59,099 |
) |
$ |
164,181 |
|
| |
|
|
|
|
|
| Cash capital expenditures |
$ |
4,732 |
|
$ |
12,948 |
|
|
$ |
21,371 |
|
$ |
33,514 |
|
1. Non-IFRS Measure - See Non-IFRS and Other
Financial Measures section.
Results of Operations
The discussion below with respect to revenue,
operating costs, expenses, and earnings from operations has been
divided between the Manufacturing and Aftermarket operations
segments.
Revenue
|
(U.S. dollars in thousands) |
2022 Q4 |
|
2021 Q4 |
|
|
Fiscal 2022 |
|
Fiscal 2021 |
|
| Manufacturing Revenue |
562,364 |
|
577,338 |
|
|
1,568,761 |
|
1,869,766 |
|
| Aftermarket Revenue |
120,240 |
|
117,505 |
|
|
485,172 |
|
474,028 |
|
| Total Revenue |
682,604 |
|
694,843 |
|
|
2,053,933 |
|
2,343,794 |
|
| |
|
|
|
|
|
| (Loss) earnings from
Operations |
(140,153 |
) |
(4,785 |
) |
|
(289,613 |
) |
46,011 |
|
| (Loss) earnings before
interest and income taxes |
(136,634 |
) |
(10,398 |
) |
|
(288,450 |
) |
34,108 |
|
| Loss before income tax
expense |
(161,308 |
) |
(9,757 |
) |
|
(325,184 |
) |
(4,928 |
) |
| Net
Loss |
(150,360 |
) |
(8,691 |
) |
|
(277,763 |
) |
(14,484 |
) |
Manufacturing revenue for 2022 Q4 decreased by
$15.0 million, or 2.6%, compared to 2021 Q4. Manufacturing revenue
for Fiscal 2022 decreased by $301.0 million, or 16.1%, compared to
Fiscal 2021. 2022 Q4 revenue decreased as a result of decreased
deliveries during the quarter. Fiscal 2022 figures decreased
primarily as a result of the overall reduction in deliveries
resulting from global supply chain and logistics challenges, which
created numerous bottlenecks in the supply chain and disruptions to
parts availability, resulting in operational inefficiencies.
Aftermarket revenue for 2022 Q4 increased by
$2.7 million, or 2.3% compared to 2021 Q4. Aftermarket revenue for
Fiscal 2022 increased by $11.1 million, or 2.4%, compared to Fiscal
2021. The increase in revenue for both periods is related to
increased volume, the increased volume is despite the additional
week in 2021 Q4. The Company also continues to benefit from a
multi-year retrofit program in the Asia-Pacific region, which has
continued throughout 2022, but at a lower run rate as the program
unwinds. This decrease of sales in the Asia-Pacific region is
offset by increases in the North America region.
Cost of sales
|
(U.S. dollars in thousands) |
2022 Q4 |
2021 Q4 |
|
Fiscal 2022 |
Fiscal 2021 |
| Manufacturing |
|
|
|
|
|
|
Direct cost of sales |
491,847 |
|
478,929 |
|
|
1,372,231 |
|
1,505,047 |
|
|
Depreciation and amortization |
19,867 |
|
22,490 |
|
|
77,788 |
|
86,539 |
|
|
Other overhead |
63,153 |
|
72,583 |
|
|
204,132 |
|
189,736 |
|
|
Manufacturing cost of sales |
574,867 |
|
574,002 |
|
|
1,654,151 |
|
1,781,322 |
|
|
As percent of Manufacturing Sales |
102.2 |
% |
99.4 |
% |
|
105.4 |
% |
95.3 |
% |
| |
|
|
|
|
|
| Aftermarket |
|
|
|
|
|
|
Direct cost of sales |
83,094 |
|
77,340 |
|
|
339,945 |
|
316,261 |
|
|
Depreciation and amortization |
2,713 |
|
2,629 |
|
|
10,707 |
|
10,616 |
|
|
Aftermarket cost of sales |
85,807 |
|
79,969 |
|
|
350,652 |
|
326,877 |
|
|
As percent of Aftermarket Sales |
71.4 |
% |
68.1 |
% |
|
72.3 |
% |
69.0 |
% |
| Total Cost of Sales |
660,674 |
|
653,971 |
|
|
2,004,803 |
|
2,108,199 |
|
| As
percent of Sales |
96.8 |
% |
94.1 |
% |
|
97.6 |
% |
89.9 |
% |
The consolidated cost of sales for 2022 Q4
increased by $6.7 million, or 1.0%, compared to 2021 Q4. The
consolidated cost of sales for Fiscal 2022 decreased by 103.4
million, or 4.9%, compared to Fiscal 2021.
Cost of sales from Manufacturing operations in
2022 Q4 was $574.9 million (102.2% of Manufacturing operations
revenue) compared to $574.0 million (99.4% of Manufacturing
operations revenue) in 2021 Q4, an increase of $0.9 million, or
0.2%. Cost of sales from Manufacturing operations in Fiscal 2022
was $1.7 billion (105.4% of Manufacturing operations revenue)
compared to $1.8 billion (95.3% of Manufacturing operations
revenue) in Fiscal 2021. Cost of sales increased as a percentage of
revenue in both periods, mainly due to operational inefficiencies
resulting from supply shortages and impacts of inflation.
Government grant programs, which were primarily received to assist
with the retention of skilled personnel, ended and therefore
resulted in no amounts being recorded in 2022 compared to the
significant support received in the same period in 2021, resulting
in lower cost of sales as a percentage of revenue in the prior
year.
Cost of sales from Aftermarket operations in
2022 Q4 was $85.8 million (71.4% of Aftermarket revenue) compared
to $80.0 million (68.1% of Aftermarket revenue) in 2021 Q4, an
increase of 3.3% as a percentage of revenue. Cost of sales from
Aftermarket operations in Fiscal 2022 was $350.7 million (72.3% of
Aftermarket revenue) compared to $326.9 million (69.0% of
Aftermarket revenue) in Fiscal 2021. Cost of sales increased as a
percentage of revenue in both periods primarily due to product mix
and the effects of inflation, including freight costs, that were
not fully transferred to the end customer.
Gross Margins
|
(U.S. dollars in thousands) |
2022 Q4 |
2021 Q4 |
|
Fiscal 2022 |
Fiscal 2021 |
|
Manufacturing |
(12,520 |
) |
3,336 |
|
|
(85,409 |
) |
88,445 |
|
|
Aftermarket |
34,432 |
|
37,536 |
|
|
134,520 |
|
147,150 |
|
| Total Gross
Margins |
21,912 |
|
40,872 |
|
|
49,111 |
|
235,595 |
|
| |
|
|
|
|
|
| As a percentage of
sales |
|
|
|
|
|
|
Manufacturing |
(2.2) |
% |
0.6 |
% |
|
(5.4) |
% |
4.7 |
% |
|
Aftermarket |
28.6 |
% |
31.9 |
% |
|
27.7 |
% |
31.0 |
% |
|
|
3.2 |
% |
5.9 |
% |
|
2.4 |
% |
10.1 |
% |
There was negative gross margin in Manufacturing
for 2022 Q4 of $12.5 million ((2.2%) of Manufacturing revenue),
which decreased by $15.9 million compared to a gross margin of $3.3
million (0.6% of revenue) for 2021 Q4. There were negative gross
margins in Manufacturing for Fiscal 2022 of $85.4 million ((5.4)%
of Manufacturing revenue), which decreased by 173.9 million, or
196.6%, compared to a gross margin of $88.4 million (4.7% of
Manufacturing revenue) in Fiscal 2021.
Manufacturing gross margin decreased as a
percentage of revenue in both periods, mainly due to heightened
inflation and operational inefficiencies resulting from supply
chain and logistics challenges. The supply chain challenges that
caused a shortage of key parts caused low production volumes,
resulting in the Company absorbing more fixed overhead on a per
unit basis. At the end of 2021, the Company was no longer eligible
for government grants, which were primarily received to assist with
the retention of skilled personnel. This resulted in no amounts
being recorded in 2022 compared to the significant support received
in the same period in 2021, contributing to a lower gross margin
percentage.
Aftermarket gross margins for 2022 Q4 of $34.4
million (28.6% of Aftermarket revenue) decreased by $3.1 million,
or 8.3%, compared to 2021 Q4 gross margins of $37.5 million (31.9%
of Aftermarket revenue). Aftermarket gross margins for Fiscal 2022
of 134.5 million (27.7% of Aftermarket revenue) decreased by 12.6
million, or 8.6%, compared to Fiscal 2021 gross margins of 147.2
million (31.0% of Aftermarket revenue). The decrease in gross
margins and gross margins as a percentage of revenue for both
periods is mainly due to product mix and the effects of inflation
as increases to labour, freight and product costs were not fully
transferred to the end customer.
Selling, general and administrative costs and other
operating expenses (“SG&A”)
|
(U.S. dollars in thousands) |
2022 Q4 |
2021 Q4 |
|
Fiscal 2022 |
Fiscal 2021 |
| Selling expenses |
7,484 |
7,735 |
|
32,009 |
27,271 |
| General and administrative
expenses |
48,981 |
46,557 |
|
198,739 |
176,868 |
| Other costs |
1,163 |
1,094 |
|
9,300 |
1,030 |
| Total
SG&A |
57,628 |
55,386 |
|
240,048 |
205,169 |
The consolidated SG&A for 2022 Q4 of $57.6
million (8.4% of consolidated revenue) increased by $2.2 million,
or 4.0%, compared to $55.4 million (8.0% of consolidated revenue)
in 2021 Q4. The consolidated SG&A for Fiscal 2022 of $240.0
million (11.7% of consolidated revenue) increased by 34.9 million,
or 17.0%, compared to $205.2 million (8.8% of consolidated revenue)
in Fiscal 2021.
SG&A expenses in 2022 Q4 increased across
business units to meet operational needs and have increased due to
the effects of inflation. Additionally, the increase for Fiscal
2022 is impacted by a $7.0 million legal settlement which was
incurred during 2022 Q2, and a liability related to the closure of
the Pembina facility and the related withdrawal from the
multi-employer pension plan of $7.0 million. In 2021 Q4, the
Company received $2.5 million of government grants and $7.7 million
for Fiscal 2021. These grants offset costs during those periods,
while in 2022 the Company was no longer eligible for these specific
grants that were primarily received to assist with the retention of
skilled personnel. This resulted in no amounts being recorded in
2022 compared to the significant support received in the same
periods in 2021, resulting in higher SG&A as a percentage of
revenue.
Government Grants
The Company recorded government grants during
the year on a net basis to the following categories:
|
(U.S. dollars in thousands) |
2022 Q4 |
2021 Q4 |
|
Fiscal 2022 |
Fiscal 2021 |
| |
|
|
|
|
|
| Cost of
sales |
— |
2,039.0 |
|
— |
48,382.0 |
| Selling, general and
administration costs and other operating expenses |
— |
295.0 |
|
— |
8,059.0 |
|
Total government grants |
— |
2,334.0 |
|
— |
56,441.0 |
|
|
|
|
|
|
|
Realized foreign exchange
loss/gain
In 2022 Q4, the Company recorded a realized
foreign exchange loss of $0.6 million compared to a gain of $9.7
million in 2021 Q4. In Fiscal 2022, the Company recorded a realized
foreign exchange gain of $5.2 million compared to a gain of $15.6
million in Fiscal 2021.
The Company uses foreign exchange forward
contracts to buy various currencies in which it operates with U.S.
dollars, Canadian dollars and GBP. The purchase of these currencies
using foreign exchange forward contracts at favorable forward rates
compared to the spot rates at settlement were the primary reason
for the gains in the fiscal period.
Earnings (loss) from
operations
Consolidated losses from operations in 2022 Q4
were $140.2 million ((20.5%) of consolidated revenue) compared to
losses of $4.8 million ((0.7%) of consolidated revenue) in 2021 Q4,
an increase of $135.4 million or 2820.8%. Consolidated losses from
operations in Fiscal 2022 were 289.7 million ((14.1)% of
consolidated revenue) compared to earnings of 46.0 million (2.0% of
consolidated revenue) in Fiscal 2021.
2022 Q4 losses from operations attributable to
the Manufacturing Segment were $156.6 million ((27.9)% of
Manufacturing revenue) compared to losses of $35.6 million ((6.2)%
of Manufacturing revenue) in 2021 Q4. Losses from Manufacturing
operations in Fiscal 2022 were $356.1 million ((22.7)% of
Manufacturing revenue) compared to losses of $46.0 million ((2.5)%
of Manufacturing revenue) in Fiscal 2021. The decrease as a
percentage of revenue in 2022 Q4 was primarily attributable to
lower new vehicle deliveries, increased inflation and operational
inefficiencies resulting from supply chain and logistics
challenges.
Earnings from operations related to Aftermarket
operations in 2022 Q4 were $17.7 million (14.7% of Aftermarket
revenue) compared to $21.2 million (18.0% of Aftermarket revenue)
in 2021 Q4. Earnings from operations related to Aftermarket
operations in Fiscal 2022 were $66.0 million (13.6% of Aftermarket
revenue) compared to $83.3 million (17.6% of Aftermarket revenue)
in Fiscal 2021. Earnings from Aftermarket operations over both
periods were lower due to unfavourable sales mix, and the
inflationary impact on costs that were not fully passed through to
the customer.
Unrealized foreign exchange
gain/loss
The Company has recognized a net unrealized
foreign exchange gain (loss) consisting of the following:
|
(U.S. dollars in thousands) |
2022 Q4 |
2021 Q4 |
|
Fiscal 2022 |
Fiscal 2021 |
| Unrealized gain (loss) on
forward foreign exchanges contracts |
5,657 |
|
594 |
|
|
(6,631 |
) |
(4,048 |
) |
|
Unrealized gain (loss) on other long-term monetary
assets/liabilities |
(1,728 |
) |
(6,393 |
) |
|
7,229 |
|
(7,743 |
) |
|
|
3,929 |
|
(5,799 |
) |
|
598 |
|
(11,791 |
) |
At January 1, 2023, the Company had $50
million of foreign exchange forward contracts to buy currencies in
which the Company operates (U.S. dollars, Canadian dollars, and
GBP). The related asset of $1.7 million (January 2, 2022: $0.4
million asset) is recorded on the audited consolidated statement of
financial positions as a current derivative financial instruments
asset and the corresponding change in the fair value of the foreign
exchange forward contracts is recorded in the audited consolidated
statements of net loss and total comprehensive loss.
Earnings (loss) before interest and income taxes
(“EBIT”)
In 2022 Q4, the Company recorded an EBIT loss of
$136.6 million compared to EBIT loss of $10.4 million in 2021 Q4.
In Fiscal 2022, the Company recorded EBIT loss of $288.5 million
compared to EBIT of $34.1 million in Fiscal 2021.
Interest and finance costs
The interest and finance charges for 2022 Q4 of
$24.7 million increased by $25.4 million compared 2021 Q4. The
quarterly increase is primarily due to higher interest cost, a fair
market value loss on the adjustment to the Company's interest rate
swaps and lower gain on the adjustment to the Company's embedded
derivatives. The Company had a fair market value loss on the
interest rate swap of $1.2 million in 2022 Q4 compared to a gain of
$9.9 million in 2021 Q4. The Company had a fair market value gain
on its cash conversion option of $5.6 million compared to $10.9
million in 2021 Q4.
The interest and finance charges for Fiscal 2022
of $36.7 million decreased by $2.3 million compared to Fiscal 2021.
The yearly decrease is mostly related to higher fair market value
gain on the adjustment to the Company's interest rate swap as well
as the Company's cash conversion option, offset by increased
interest related to the Company's convertible debt. The Company had
a fair market value gain on the interest rate swap of $37.7 million
in Fiscal 2022 compared to a gain of $23.2 million in Fiscal 2021.
The Company had a fair market value gain on the cash conversion
option of $16.6 million in Fiscal 2022 compared to $10.9 million in
Fiscal 2021.
The fair market value adjustments on the
interest rate swaps relate to risk management activities management
has undertaken to reduce the uncertainty related to the Company's
cost of borrowing. The Company's first interest rate swap fixes the
interest rate which the Company will pay on $600.0 million of its
long-term debt at 2.27% plus an applicable margin. The fixed
portion amortizes $20 million annually and matures in October 2023.
The notional value of the swap as at January 1, 2023 was $540
million.
On July 9, 2020, the Company entered into a $200
million amortizing notional interest rate swap designed to hedge
floating rate exposure on its Credit Facility. The interest rate
swap fixes the interest rate at 0.243% plus applicable margin until
July 2025. The swap begins amortizing on January 9, 2023 at a rate
of $20 million per annum. The Company's accounting policy does not
designate these types of instruments as accounting hedges. As a
result, interest rate increases will result in mark-to-market
gains, while interest rate decreases will result in mark-to-market
losses.
The fair value of the interest rate swap asset
of $27.8 million at January 1, 2023 (January 2, 2022:
liability of $30.5 million) was recorded on the audited
consolidated statements of financial position as a derivative
financial instruments liability and the change in fair value has
been recorded in finance costs for the reported period.
Earnings (loss) before income taxes
(“EBT”)
EBT loss for 2022 Q4 of $161.3 million increased
by $151.6 million compared to EBT loss of $9.8 million in 2021 Q4.
EBT loss for Fiscal 2022 of $325.2 million increased by $320.3
million compared to EBT loss of $4.9 million in Fiscal 2021. The
primary driver is a $103.9 million non-cash goodwill impairment
charge in ARBOC ($23.2 million) and the ADL Manufacturing ($80.7
million) cash generating units ("CGUs"). The goodwill impairment
reflects increases in market interest rates, as well as timing of
the market recovery from the COVID-19 pandemic and the related
supply chain disruptions. Other factors attributing to the changes
of EBT are addressed in the Earnings (loss) from Operations and
interest and finance costs sections above.
Income tax expense
The income tax recovery for 2022 Q4 was $10.9
million compared to $1.1 million in 2021 Q4. The income tax
recovery is primarily due to reduced earnings before taxes, and the
recognition of previously unrecognized foreign tax credits, offset
by the detrimental impact of a non-deductible goodwill impairment,
and the derecognition of deferred tax assets associated with
Canadian loss carryforwards, and restricted interest in the UK.
The income tax recovery for Fiscal 2022 was
$47.4 million compared to an expense of $9.6 million in Fiscal
2021. The increase in the overall income tax recovery is primarily
due to reduced earnings before taxes, recovery of state income
taxes, the recognition of previously derecognized foreign tax
credits, and the impact of the revaluation of deferred tax balances
due to the increase in the UK corporate tax rate from 19% to 25%,
which negatively impacted the Fiscal 2021 Effective Tax Rate
("ETR"). The above beneficial items were offset by the detrimental
impact of a non-deductible goodwill impairment, non-deductible
foreign exchange, and the derecognition of deferred tax assets
associated with both Canadian loss carryforwards, and restricted
interest in the UK.
The ETR for 2022 Q4 was 6.8% and the ETR for
2021 Q4 was 10.9%. The ETR for Fiscal 2022 was 14.6% and the ETR
for Fiscal 2021 was (193.9)%.
The 2022 Q4 ETR is favourably impacted by state
income taxes, and the recognition of previously unrecognized
foreign tax credits. These benefits are more than offset by the
detrimental impact on ETR from the non-deductible goodwill
impairment, combined with the derecognition of deferred tax assets
associated with Canadian loss carryforwards, and restricted
interest in the UK.
Net loss
The Company reported net losses of $150.4
million in 2022 Q4, an increase of 141.7 million, or 1630.1%,
compared to net losses of $8.7 million in 2021 Q4. The Company
reported net losses of $277.8 million in Fiscal 2022, an increase
of net losses of 263.3 million, or 1817.7%, compared to net losses
of 14.5 million in Fiscal 2021. The net losses are a result of the
items discussed above.
|
Net loss(U.S. dollars in millions, except per
Share figures) |
2022 Q4 |
2021 Q4 |
|
Fiscal 2022 |
Fiscal 2021 |
|
(Loss) earnings from operations |
(140.2 |
) |
(4.8 |
) |
|
(289.7 |
) |
46.0 |
|
| Gain (loss) on
disposition of property, plant and equipment |
(0.4 |
) |
0.2 |
|
|
0.6 |
|
(0.1 |
) |
| Unrealized foreign
exchange gain (loss) on monetary items |
3.9 |
|
(5.8 |
) |
|
0.6 |
|
(11.8 |
) |
| Interest and finance
costs |
(24.6 |
) |
0.6 |
|
|
(36.7 |
) |
(39.0 |
) |
| Income tax recovery
(expense) |
10.9 |
|
1.1 |
|
|
47.4 |
|
(9.6 |
) |
| Net Loss |
(150.4 |
) |
(8.7 |
) |
|
(277.8 |
) |
(14.5 |
) |
| |
|
|
|
|
|
| Net loss per Share
(basic) |
(1.9 |
) |
(0.1 |
) |
|
(3.6 |
) |
(0.2 |
) |
|
Net loss per Share (fully diluted) |
(1.9 |
) |
(0.1 |
) |
|
(3.6 |
) |
(0.2 |
) |
The Company recorded net loss per Share for 2022
Q4 of $1.94 compared to net loss per Share of $0.12 in 2021 Q4. The
Company's net loss per Share for Fiscal 2022 of $3.6 compared to a
net loss per Share of $0.21 in Fiscal 2021. The per Share net loss
increased in both periods as a result of decreased earnings during
the period, offset by increased Shares outstanding as discussed
below.
Cash Flow
The cash flows of the Company are summarized as follows:
|
(U.S. dollars in thousands) |
2022 Q4 |
2021 Q4 |
|
Fiscal 2022 |
Fiscal 2021 |
|
Cash (used in) generated by operating activities before non-cash
working capital items and interest and income taxes paid |
(11,727 |
) |
23,568 |
|
|
(88,755 |
) |
153,180 |
|
| Interest paid |
(15,467 |
) |
(17,254 |
) |
|
(58,348 |
) |
(64,224 |
) |
| Income taxes recovered
(paid) |
(3,044 |
) |
2,998 |
|
|
1,422 |
|
(19,550 |
) |
| Cash
flow (invested in) provided by working capital |
31,743 |
|
143,848 |
|
|
(96,169 |
) |
45,824 |
|
|
Net cash (used in) generated by operating activities |
1,505 |
|
153,160 |
|
|
(241,850 |
) |
115,230 |
|
| Net cash generated by (used
in) financing activities |
17,175 |
|
(118,821 |
) |
|
238,279 |
|
(59,992 |
) |
| Net
cash used in investing activities |
(8,504 |
) |
(18,971 |
) |
|
(24,531 |
) |
(30,792 |
) |
Cash flows from operating
activities
The 2022 Q4 net operating cash used in operating
activities of $1.5 million is mainly comprised of $30.2 million of
net cash loss and $31.7 million of cash invested in working
capital. The 2021 Q4 net operating cash outflow of $153.2 million
is comprised of $9.3 million of net cash earnings and $143.8
million of cash generated by working capital.
The Fiscal 2022 net operating cash used in
operating activities of $241.9 million is mainly comprised of
$145.7 million of net cash loss and $96.2 million of cash invested
in working capital. The Fiscal 2021 net operating cash inflow of
$115.2 million is comprised of net cash earnings of $69.4 million
and $45.8 million of cash provided by working capital.
Cash flow from financing
activities
The cash generated by financing activities of
$17.2 million during 2022 Q4 is comprised mainly of proceeds of
revolving credit facilities of $25.8 million and proceeds from
lease obligations under capital of $3.1 million. As at Fiscal 2022,
$238.3 million of cash has been generated by financing activities
due to the proceeds from revolving credit facilities of $285.2
million, which was offset by dividend payments of $22.4 million,
and lease obligation repayments of $24.5 million.
Cash flow from investing
activities
|
(U.S. dollars in thousands) |
2022 Q4 |
2021 Q4 |
|
Fiscal 2022 |
Fiscal 2021 |
|
Acquisition of intangible assets |
(3,736 |
) |
(1,888 |
) |
|
(10,212 |
) |
(2,748 |
) |
| Proceeds from disposition of
property, plant and equipment |
2,803 |
|
1,277 |
|
|
1,687 |
|
6,182 |
|
| Long-term restricted
deposits |
— |
|
(5,412 |
) |
|
5,365 |
|
(712 |
) |
|
Acquisition of property, plant and equipment |
(4,732 |
) |
(12,948 |
) |
|
(21,371 |
) |
(33,514 |
) |
|
Cash used in investing activities |
(5,665 |
) |
(18,971 |
) |
|
(24,531 |
) |
(30,792 |
) |
Cash used in investing activities was lower in
2022 Q4, primarily due to decreased investments in long-term
restricted deposits and property, plant and equipment.
Credit risk
Financial instruments which potentially subject
the Company to credit risk and concentrations of credit risk
consist principally of cash, accounts receivable and derivatives.
Management believes that the credit risk associated with accounts
receivable is mitigated by the significant proportion of
counterparties that are well established public transit
authorities. Additionally, the U.S. federal government funds a
substantial portion of U.S. public sector customer payments -
up to 80% of the capital cost of new transit buses, coaches or
cutaways, while the remaining 20% comes from state and municipal
sources. There are a few U.S. public sector customers that obtain
100% of their funding from state and municipal sources. The maximum
exposure to the risk of credit for accounts receivables corresponds
to their book value. Historically, the Company has experienced
nominal bad debts as a result of the customer base being
principally comprised of municipal and other local transit
authorities. Management has not observed, and does not anticipate,
significant changes to credit risk as a result of the COVID-19
pandemic.
The purchase of new coaches, transit buses or
cutaways by private fleet operators is paid from the operators' own
capital budgets and funded by their own cash flow. A significant
portion of private fleet operators choose to finance new coach
purchases with lending organizations. In some cases, MCI assists in
arranging this financing, and in some cases, it provides financing
through its ultimate net loss program. The Company has experienced
a nominal amount of bad debts with its private sales customers as
most transactions require payment on delivery. Management has not
observed, and does not anticipate, significant changes to credit
risk as a result of the COVID-19 pandemic.
The carrying amount of accounts receivable is
reduced through the use of an allowance account and the amount of
the loss is recognized in the earnings statement within SG&A.
When a receivable balance is considered uncollectible, it is
written off against the allowance for doubtful accounts. Subsequent
recoveries of amounts previously written off are credited against
SG&A in the consolidated statements of net loss and total
comprehensive loss.
The following table details the aging of the
Company’s receivables and related allowance for doubtful
accounts:
|
U.S. dollars in thousands |
January 1, 2023 |
|
January 2, 2022 |
| Current, including
holdbacks |
344,920 |
|
|
375,012 |
|
| Past due amounts but not
impaired |
|
|
|
| 1 – 60 days |
15,931 |
|
|
15,857 |
|
| Greater than 60 days |
5,480 |
|
|
5,892 |
|
| Less: allowance for doubtful
accounts |
(107 |
) |
|
(270 |
) |
| Total
accounts receivables, net |
366,224 |
|
|
396,491 |
|
The counterparties to the Company's derivatives
are chartered Canadian banks and international financial
institutions. The Company could be exposed to loss in the event of
non-performance by the counterparty. However, credit ratings and
concentration of risk of the financial institutions are monitored
on a regular basis.
Commitments and Contractual
Obligations
The following table describes the Company’s
maturity analysis of the undiscounted cash flows of leases and
accrued benefit liabilities as at January 1, 2023:
|
U.S. dollars in thousands |
Total |
2023 |
2024 |
2025 |
2026 |
2027 |
Post 2027 |
|
Leases |
208,795 |
25,533 |
20,558 |
16,013 |
13,875 |
12,223 |
120,593 |
| Accrued
benefit liability |
3,700 |
3,700 |
— |
— |
— |
— |
— |
|
|
212,495 |
29,233 |
20,558 |
16,013 |
13,875 |
12,223 |
120,593 |
As at January 1, 2023, outstanding surety
bonds guaranteed by the Company totaled $375.6 million
(January 2, 2022: $375.9 million). The estimated maturity
dates of the surety bonds outstanding at January 1, 2023 range
from February 2023 to December 2039. Management believes that
adequate facilities exist to meet projected surety
requirements.
The Company has not recorded a liability under
these guarantees as management believes that no material events of
default exist under any applicable contracts with customers.
Under the Credit Facility, the Company has
established a letter of credit sub-facility of $100.0 million
(January 2, 2022: $100.0 million). As at January 1, 2023,
letters of credit totaling $24.5 million (January 2, 2022:
$11.8 million) remain outstanding as security for contractual
obligations of the Company under the Credit Facility.
As at January 1, 2023, letters of credit in
the UK totaling $18.3 million remain outstanding as a security for
contractual obligations of the Company outside of the UK facility
(January 2, 2022: $40.6 million). Additionally, there are $25.3
million of letters of credit outstanding outside of the Credit
Facility.
As at January 1, 2023, management believes
that the Company was in compliance in all material respects with
all applicable contractual obligations and the Company has not
provided for any costs associated with these letters of credit.
The Company does not have any off-balance sheet
arrangement or any material capital asset commitments at
January 1, 2023.
Share Option Plan
The Board adopted a Share Option Plan (the “2013
Option Plan”) for NFI on March 21, 2013, under which certain
employees of NFI and certain of its affiliates may receive grants
of options for Shares. The 2013 Option Plan was amended and
restated on December 8, 2015, December 31, 2018 and August 5, 2020.
Directors who are not employed with NFI are not eligible to
participate in the 2013 Option Plan. A maximum of 3,600,000 Shares
are reserved for issuance under the 2013 Option Plan. The options
vest one-quarter on the first grant date anniversary and an
additional one-quarter on the second, third and fourth anniversary
of the grant date.
|
Option Grant dates |
Number |
Exercised |
Expired |
Vested |
Unvested |
Expiry date |
Exercise price |
Fair Value at grant date |
|
March 26, 2013 |
490,356 |
(490,356 |
) |
— |
|
— |
|
— |
March 26, 2021 |
$10.20 |
$1.55 |
| December 30, 2013 |
612,050 |
(602,419 |
) |
(9,631 |
) |
— |
|
— |
December 30, 2021 |
$10.57 |
$1.44 |
| December 28, 2014 |
499,984 |
(252,233 |
) |
(11,368 |
) |
(236,383 |
) |
— |
December 28, 2022 |
$13.45 |
$1.83 |
| December 28, 2015 |
221,888 |
(19,532 |
) |
— |
|
(202,356 |
) |
— |
December 28, 2023 |
$26.75 |
$4.21 |
| September 8, 2016 |
2,171 |
— |
|
(2,171 |
) |
— |
|
— |
September 8, 2024 |
$42.83 |
$8.06 |
| January 3, 2017 |
151,419 |
(1,610 |
) |
(11,888 |
) |
(137,921 |
) |
— |
January 3, 2025 |
$40.84 |
$7.74 |
| January 2, 2018 |
152,883 |
— |
|
(29,198 |
) |
(123,685 |
) |
— |
January 2, 2026 |
$54.00 |
$9.53 |
| January 2, 2019 |
284,674 |
— |
|
(59,186 |
) |
(169,118 |
) |
56,370 |
January 2, 2027 |
$33.43 |
$5.01 |
| July 15, 2019 |
2,835 |
— |
|
— |
|
(2,126 |
) |
709 |
July 15, 2027 |
$35.98 |
$4.90 |
| December 31, 2019 |
519,916 |
— |
|
(78,772 |
) |
(330,861 |
) |
110,283 |
December 31, 2027 |
$26.81 |
$3.36 |
| December 28, 2020 |
258,673 |
— |
|
(26,603 |
) |
(116,041 |
) |
116,029 |
December 28, 2028 |
$24.70 |
$6.28 |
| February 10, 2021 |
1,894 |
— |
|
— |
|
(947 |
) |
947 |
December 28, 2028 |
$28.74 |
$6.28 |
| August 16, 2021 |
601 |
— |
|
— |
|
(150 |
) |
451 |
August 16, 2029 |
$30.79 |
$6.28 |
| January 3, 2022 |
311,892 |
— |
|
(7,940 |
) |
— |
|
303,952 |
January 3, 2030 |
$20.26 |
$6.10 |
|
April 1, 2022 |
1,728 |
— |
|
— |
|
— |
|
1,728 |
April 3, 2030 |
$16.25 |
$6.51 |
|
|
3,512,964 |
(1,366,150 |
) |
(236,757 |
) |
(1,319,588 |
) |
590,469 |
|
$27.41 |
|
The vested options granted on December 28, 2014
due to expire on December 28, 2022 remain exercisable.
The Board adopted a new share option plan on
March 12, 2020 (the "2020 Option Plan"), which was approved by
shareholders on May 7, 2020, and amended on August 5, 2020, under
which certain employees of NFI and certain of its affiliates may
receive grants of options for Shares. Directors who are not
employed with NFI are not eligible to participate in the 2020
Option Plan. A maximum of 3,200,000 Shares are reserved for
issuance under the 2020 Option Plan. The options vest one-quarter
on the first grant date anniversary and an additional one-quarter
on the second, third and fourth anniversary of the grant date. No
options have been issued under the 2020 Option Plan.
The following reconciles the Share options outstanding:
| |
Fiscal 2022 |
|
Fiscal 2021 |
|
|
Number |
Weighted average exercise price |
|
Number |
Weighted average exercise price |
|
Balance at beginning of period |
1,617,759 |
|
C$28.82 |
|
1,503,117 |
|
C$29.32 |
| Granted during the period |
313,620 |
|
C$20.24 |
|
261,168 |
|
C$24.73 |
| Expired during the period |
(21,322 |
) |
C$28.84 |
|
(110,449 |
) |
C$31.93 |
|
Exercised during the period |
— |
|
C$0.00 |
|
(36,077 |
) |
C$10.49 |
|
Balance at end of period |
1,910,057 |
|
C$27.41 |
|
1,617,759 |
|
C$28.82 |
Restricted Share Unit Plan for Non-Employee
Directors
Pursuant to the Company’s Restricted Share Unit
Plan for Non-Employee Directors, a maximum of 500,000 Shares are
reserved for issuance to non-employee directors. The Company issued
20,292 director restricted Share units (“Director RSUs”), with a
total value of $0.2 million, in 2022 Q4. Approximately $0.1 million
of the issued Director RSUs were exercised and exchanged for 7,603
Shares.
Compensation of Key
Management
Key management, who represent related parties of
NFI, includes members of the Board of Directors, President and CEO,
the CFO, presidents of each business unit, executive vice
presidents and vice presidents. The compensation expense for key
management for employee services is shown below:
|
|
Fiscal 2022 |
Fiscal 2021 |
|
Salaries and short-term employee benefits |
$ |
10,412 |
$ |
11,775 |
| Post-employment benefits |
|
554 |
|
619 |
|
Share-based payment benefits |
|
492 |
|
2,144 |
|
|
$ |
11,458 |
$ |
14,538 |
Share-based payment benefits shown above
represent the PSU, RSU, Director RSU, DSU and stock option expense
that was recorded in the period.
Critical accounting estimates and
judgments
The Company's critical accounting estimates and
judgments can be found within note 2 to the 2022 Annual Audited
Financial Statements. In order to allow the Company’s external
auditors to complete their final normal course audit procedures the
audited financial statements are expected to be filed on SEDAR and
the Company's website by the end of this week. Management does not
anticipate there will be any changes between the information
included herein and the final audited statements.
New and amended standards adopted by the
Company
No new or amended standards were adopted by the
Company during the period.
Future Changes to Accounting
Standards
The following issued accounting pronouncements
represent a summary of the pronouncements that are likely to, or
may at some future time, have an impact on the Company.
IFRS 17 – Insurance Contracts:
In May 2017, with amendments in June 2020, the
IASB issued IFRS 17, Insurance Contracts which will replace IFRS 4,
effective for annual reporting periods beginning on or after
January 1, 2023, which introduced new guidance for recognition,
measurement, presentation and disclosure of insurance
contracts.
The standard requires entities to measure
insurance contract liabilities as the risk-adjusted present value
of the cash flows plus the contractual service margin, which
represents the unearned profit the entity will recognize as future
service is provided. Depending on the type of contract, this is
measured using the general measurement model or the variable fee
approach. Expedients are specified, provided the insurance
contracts meet certain conditions. The premium allocation approach
is permitted for the liability for remaining coverage on contracts
with a duration of one year or less, or where the use of the
premium allocation approach closely approximates the use of the
general measurement model. If, at initial recognition or
subsequently, the fulfillment cash flows are in a net outflow, the
contract is considered onerous and the excess is recognized
immediately in profit. A loss recovery component is recognized
immediately in profit representing amounts recoverable from
reinsurers related to onerous contracts. Management is currently
assessing the impact of this standard on its consolidated financial
statements.
IAS 1 - Presentation of Financial
Statements:
Disclosure of Accounting policies which amends
IAS 1, Presentation of financial statements was issued in February
2021, effective for annual reporting periods beginning on or after
January 1, 2023. The amendments to the standard clarify some
requirements relating to materiality, order of notes, subtotals,
accounting policies and disaggregation. The amended paragraphs
require entities to disclose their material accounting policy
information rather than significant accounting policies, as well as
provided a four-step materiality process to determine which
accounting policy disclosures are required. Management is
currently assessing the impact of this standard on its consolidated
financial statements.
Classification of Liabilities as Current or
Non-current, which amends IAS 1, was issued January 2020, effective
for annual reporting periods beginning on or after January 1, 2024.
This clarified a criterion in IAS 1 for classifying a liability as
non-current: the requirement for an entity to have the right to
defer settlement of the liability for at least 12 months after the
reporting period. Management is currently assessing the impact of
this standard on its consolidated financial statements.
NON-IFRS AND OTHER FINANCIAL MEASURES
This MD&A is based on reported earnings in accordance with
IFRS and on the following non-IFRS and other financial
measures:
Adjusted EBITDA and Net Operating Profit after
Taxes
Management believes that Adjusted EBITDA, and
net operating profit after taxes ("NOPAT") are important measures
in evaluating the historical operating performance of the Company.
However, Adjusted EBITDA and NOPAT are not recognized earnings
measures under IFRS and do not have standardized meanings
prescribed by IFRS. Accordingly, Adjusted EBITDA and NOPAT may not
be comparable to similar measures presented by other issuers.
Readers of this MD&A are cautioned that Adjusted EBITDA should
not be construed as an alternative to net earnings or loss
determined in accordance with IFRS and NOPAT should not be
construed as an alternative to earnings (loss) from operations
determined in accordance with IFRS as an indicator of the Company's
performance.
The Company defines Adjusted EBITDA as earnings
before interest, income tax, depreciation and amortization after
adjusting for the effects of certain non-recurring, non-operating,
and items occurring outside of normal operations that do not
reflect the current ongoing cash operations of the Company. These
adjustments are provided in the following table reconciling net
earnings or losses to Adjusted EBITDA based on the historical
Financial Statements of the Company for the
periods indicated.
The company defines NOPAT as Adjusted EBITDA
less depreciation of plant and equipment, depreciation of
right-of-use assets and income taxes at a rate of 31%.
|
(U.S. dollars in thousands) |
2022 Q4 |
2021 Q4 |
|
Fiscal 2022 |
Fiscal 2021 |
|
Net loss |
(150,360 |
) |
(8,691 |
) |
|
(277,763 |
) |
(14,484 |
) |
| Addback |
|
|
|
|
|
|
Income taxes |
(10,948 |
) |
(1,066 |
) |
|
(47,421 |
) |
9,556 |
|
|
Interest expense15 |
24,673 |
|
(641 |
) |
|
36,734 |
|
39,036 |
|
|
Amortization |
22,580 |
|
25,117 |
|
|
88,495 |
|
97,154 |
|
|
(Gain) loss on disposition of property, plant and equipment |
410 |
|
(186 |
) |
|
(565 |
) |
112 |
|
|
Fair value adjustment for total return swap9 |
— |
|
647 |
|
|
952 |
|
681 |
|
|
Unrealized foreign exchange (gain) loss on non-current monetary
items and forward foreign exchange contracts |
(3,929 |
) |
5,799 |
|
|
(598 |
) |
11,791 |
|
|
Costs associated with assessing strategic and corporate
initiatives7 |
— |
|
(106 |
) |
|
— |
|
(106 |
) |
|
Past service costs and other pension costs11 |
— |
|
— |
|
|
7,000 |
|
— |
|
|
Proportion of the total return swap realized10 |
— |
|
(597 |
) |
|
(275 |
) |
(712 |
) |
|
Equity settled stock-based compensation |
397 |
|
293 |
|
|
1,346 |
|
1,738 |
|
|
Unrecoverable insurance costs and other12 |
164 |
|
— |
|
|
8,489 |
|
718 |
|
|
Expenses incurred outside of normal operations17 |
1,708 |
|
— |
|
|
3,761 |
|
— |
|
|
Prior year sales tax provision13 |
— |
|
1,996 |
|
|
— |
|
2,036 |
|
|
COVID-19 costs14 |
— |
|
2,926 |
|
|
— |
|
3,959 |
|
|
Out of period costs16 |
(938 |
) |
1,234 |
|
|
(1,597 |
) |
1,234 |
|
|
Impairment loss on goodwill18 |
103,900 |
|
— |
|
|
103,900 |
|
— |
|
|
Restructuring costs8 |
7,240 |
|
(571 |
) |
|
18,443 |
|
11,468 |
|
| Adjusted EBITDA |
(5,103 |
) |
26,154 |
|
|
(59,099 |
) |
164,181 |
|
|
Depreciation of property, plant and equipment and right of use
assets |
(14,884 |
) |
(16,965 |
) |
|
(57,013 |
) |
(64,368 |
) |
|
Tax at 31% |
6,196 |
|
(2,849 |
) |
|
35,995 |
|
(30,942 |
) |
| NOPAT |
(13,791 |
) |
6,340 |
|
|
(80,117 |
) |
68,871 |
|
| |
|
|
|
|
|
| Adjusted EBITDA is comprised
of: |
|
|
|
|
|
|
Manufacturing |
(30,521 |
) |
(7,711 |
) |
|
(149,164 |
) |
51,654 |
|
|
Aftermarket |
22,882 |
|
25,083 |
|
|
86,154 |
|
98,669 |
|
|
Corporate |
2,536 |
|
8,782 |
|
|
3,911 |
|
13,858 |
|
(Footnotes on page 33)
Free Cash Flow and Free Cash Flow per
Share
Management uses Free Cash Flow and Free Cash
Flow per Share as non-IFRS measures to evaluate the Company’s
operating performance and liquidity and to assess the Company’s
ability to pay dividends on the Shares, service debt, pay interest
on Convertible Debentures and meet other payment obligations.
However, Free Cash Flow and Free Cash Flow per Share are not
recognized earnings measures under IFRS and do not have
standardized meanings prescribed by IFRS. Accordingly, Free Cash
Flow and the associated per Share figure may not be comparable to
similar measures presented by other issuers. Readers of this
MD&A are cautioned that Free Cash Flow should not be construed
as an alternative to cash flows from operating activities
determined in accordance with IFRS as a measure of liquidity and
cash flow. The Company defines Free Cash Flow as net cash generated
by or used in operating activities adjusted for changes in non-cash
working capital items and adjusted for items as shown in the
reconciliation of net cash generated by operating activities (an
IFRS measure) to Free Cash Flow (a non-IFRS measure) based on the
Company’s historical Financial Statements.
The Company generates its Free Cash Flow from
operations and management expects this will continue to be the case
for the foreseeable future. Net cash flows generated from operating
activities are significantly impacted by changes in non-cash
working capital. The Company uses its credit facilities to finance
working capital and therefore has excluded the impact of working
capital in calculating Free Cash Flow.
The Company defines Free Cash Flow per Share as Free Cash Flow
divided by the average number of Shares outstanding.
|
(U.S. dollars in thousands, except per Share figures) |
2022 Q4 |
2021 Q4 |
|
Fiscal 2022 |
Fiscal 2021 |
| Net cash generated by (used
in) operating activities |
1,505 |
|
150,246 |
|
|
(241,850 |
) |
115,230 |
|
|
Changes in non-cash working capital items3 |
(31,743 |
) |
(139,640 |
) |
|
96,169 |
|
(45,824 |
) |
|
Interest paid3 |
15,467 |
|
17,254 |
|
|
58,348 |
|
64,224 |
|
|
Interest expense3 |
(24,156 |
) |
(20,108 |
) |
|
(77,797 |
) |
(70,432 |
) |
|
Income taxes paid (recovered)3 |
3,044 |
|
(2,998 |
) |
|
(1,422 |
) |
19,550 |
|
|
Current income tax (expense) recovery3 |
21,556 |
|
(10,517 |
) |
|
19,809 |
|
(22,430 |
) |
|
Repayment of obligations under lease |
(5,647 |
) |
(2,206 |
) |
|
(24,535 |
) |
(18,192 |
) |
|
Cash capital expenditures |
(4,732 |
) |
(12,948 |
) |
|
(21,371 |
) |
(33,514 |
) |
|
Acquisition of intangible assets |
(3,736 |
) |
(1,888 |
) |
|
(10,212 |
) |
(2,748 |
) |
|
Proceeds from disposition of property, plant and equipment |
14 |
|
2,649 |
|
|
1,687 |
|
6,182 |
|
|
Costs associated with assessing strategic and corporate
initiatives7 |
— |
|
(106 |
) |
|
— |
|
(106 |
) |
|
Defined benefit funding4 |
(301 |
) |
1,590 |
|
|
4,265 |
|
3,652 |
|
|
Defined benefit expense4 |
916 |
|
(3,070 |
) |
|
(3,497 |
) |
(6,420 |
) |
|
Past service costs and other pension costs11 |
— |
|
— |
|
|
7,000 |
|
— |
|
|
Expenses incurred outside of normal operations17 |
1,708 |
|
— |
|
|
3,762 |
|
— |
|
|
Equity hedge |
(582 |
) |
— |
|
|
(1,003 |
) |
— |
|
|
Proportion of the total return swap realized10 |
— |
|
(597 |
) |
|
(275 |
) |
(712 |
) |
|
Unrecoverable insurance costs and other12 |
164 |
|
— |
|
|
8,489 |
|
718 |
|
|
Out of period costs16 |
(938 |
) |
1,234 |
|
|
(333 |
) |
1,234 |
|
|
Prior year sales tax provision13 |
— |
|
1,996 |
|
|
— |
|
2,036 |
|
|
Restructuring costs8 |
5,678 |
|
171 |
|
|
11,741 |
|
9,516 |
|
|
COVID-19 costs14 |
— |
|
2,926 |
|
|
— |
|
3,959 |
|
|
Foreign exchange gain (loss) on cash held in foreign currency5 |
(20 |
) |
(2,873 |
) |
|
771 |
|
(2,897 |
) |
|
Free Cash Flow1 |
(21,803 |
) |
(18,885 |
) |
|
(170,254 |
) |
23,026 |
|
|
U.S. exchange rate2 |
1.3538 |
|
1.2634 |
|
|
1.3209 |
|
1.2385 |
|
| Free
Cash Flow (C$)1 |
(29,517 |
) |
(23,859 |
) |
|
(224,889 |
) |
28,518 |
|
|
Free Cash Flow per Share (C$)6 |
(0.3826 |
) |
(0.3272 |
) |
|
(2.9140 |
) |
0.4072 |
|
|
Declared dividends on Shares (C$) |
— |
|
16,390 |
|
|
12,288 |
|
61,645 |
|
|
Declared dividends per Share (C$)6 |
— |
|
0.2125 |
|
|
0.1599 |
|
0.8500 |
|
- Free Cash Flow
is not a recognized measure under IFRS and does not have a
standardized meaning prescribed by IFRS.
-
U.S. exchange rate (C$ per US$) is the weighted average exchange
rate applicable to dividends declared for the period.
-
Changes in non-cash working capital are excluded from the
calculation of Free Cash Flow as these temporary fluctuations are
managed through the credit facilities which are available to fund
general corporate requirements, including working capital
requirements, subject to borrowing capacity restrictions. Changes
in non-cash working capital are presented on the consolidated
statements of cash flows net of interest and income taxes
paid.
-
The cash effect of the difference between the defined benefit
expense and funding is included in the determination of cash from
operating activities. This cash effect is excluded in the
determination of Free Cash Flow as management believes that the
defined benefit expense amount provides a more appropriate measure,
as the defined benefit funding can be impacted by special payments
to reduce the unfunded pension liability.
-
Foreign exchange gain (loss) on cash held in foreign currency is
excluded in the determination of cash from operating activities
under IFRS; however, because it is a cash item, management believes
it should be included in the calculation of Free Cash Flow.
-
Per Share calculations for Free Cash Flow (C$) are determined by
dividing Free Cash Flow by the total number of all issued and
outstanding Shares using the weighted average over the period. The
weighted average number of Shares outstanding for 2022 Q4 was
77,154,934 and 72,927,889 for 2021 Q4. The weighted average number
of Shares outstanding for Fiscal 2022 and Fiscal 2021 are
77,144,445 and 70,039,835, respectively. Per Share calculations for
declared dividends (C$) are determined by dividing the amount of
declared dividends by the number of outstanding Shares at the
respective period end date.
-
Normalized to exclude non-operating expenses and recoveries related
to the costs of assessing strategic and corporate initiatives.
-
Normalized to exclude non-operating restructuring costs. Costs
primarily relate to severance costs, inefficient labour costs,
increased medical costs and right-of-use asset impairments and
inventory impairments associated with NFI Forward restructuring
initiatives. Free Cash Flow reconciling amounts are net of
right-of-use asset and property, plant and equipment
impairments.
-
The fair value adjustment of the total return swap is a non-cash
(gain) loss that is excluded from the definition of Adjusted
EBITDA. Beginning in Q2 2022, hedge accounting was applied to the
total return swap derivative and therefore, the portion of the
(gain) loss on the fair value adjustment, which does not apply to
the current period is recognized in other comprehensive
income.
-
A portion of the fair value adjustment of the total return swap is
added to Adjusted EBITDA and Free Cash Flow to match the equivalent
portion of the related deferred compensation expense recognized.
Beginning in Q2 2022, hedge accounting was applied to the total
return swap derivative and therefore, the portion of the (gain)
loss on the fair value adjustment, which does not apply to the
current period is recognized in other comprehensive income.
-
Costs and recoveries associated with amendments to, and closures
of, the Company's pension plans. Q2 2022 includes $7.0 million for
the liability related to the closure of the Pembina facility and
withdrawal from the multi-employer pension plan.
-
Normalized to exclude non-operating costs related to an insurance
event that are not recoverable, or are related to the
deductible.
-
Provision for sales taxes as a result of an ongoing state sales tax
review.
-
Normalized to exclude COVID-19 related costs. Costs primarily
relate to asset impairments, medical costs directly related to
COVID-19 and miscellaneous operating costs associated with
COVID-19. Asset impairments are primarily attributable to pre-owned
coach inventory. During 2022, management determined costs related
to sanitization and masks were an operating cost and would no
longer be included in the definition.
-
Includes fair market value adjustments to interest rate swaps and
the cash conversion option on the Convertible Debentures. 2022 Q4
includes a loss of $1.2 million and 2021 Q4 includes a gain of $9.9
million for the interest rate swaps. 2022 Q4 includes a gain of
$5.6 million and 2021 Q4 includes a gain of $10.9 million on the
cash conversion option. Fiscal 2022 includes a gain of $37.7
million and Fiscal 2021 includes a gain of $23.2 million for the
interest rate swaps. Fiscal 2022 includes a gain of $16.6 million
and Fiscal 2021 includes a gain of $10.9 million for the cash
conversion option.
-
Includes adjustments made related to expenses that pertain to prior
years. Fiscal 2022 includes expenses related to amounts that should
have been capitalized from Fiscal years 2010 - 2021. Fiscal 2021
includes expenses related to amounts owed from Fiscal years 2016 -
2020, and expenses related to amounts owed from Fiscal years 2014 -
2020.
-
Includes adjustments made related to items that occurred outside of
normal operations. This includes specified items purchased in
broker markets at a premium and associated broker fees, which the
Company provided to suppliers, and does not normally directly
purchase. Also included is the additional labour costs associated
with the shortage of the specified item.
-
Includes impairment charges with respect to ARBOC's goodwill of
$23.2 million and the ADL manufacturing CGU's goodwill of $80.7
million.
Liquidity
Liquidity is not a recognized measure under IFRS
and does not have a standardized meaning prescribed by IFRS. The
Company defines liquidity as cash on-hand plus available capacity
under its credit facilities, without consideration given to the
minimum liquidity requirement under the Amended Facilities.
Backlog
Backlog value is not a recognized measure under
IFRS and does not have a standardized meaning prescribed by IFRS.
The Company defines backlog as the number of EUs in the backlog
multiplied by their expected selling price.
Book-to-Bill Ratio
Book-to-bill ratio is not a recognized measure
under IFRS and does not have a standardized meaning prescribed by
IFRS. The company defines book-to-bill ratio as new firm orders and
exercised options divided by new deliveries.
Working Capital Days
Working Capital Days is not a recognized measure
under IFRS and does not have a standardized meaning prescribed by
IFRS. The Company defines Working Capital Days as the calculated
number of days to convert working capital to cash. It is calculated
by the number of days in the fiscal year (2022 Q4 YTD - 365 days)
divided by the working capital turnover ratio (total sales for the
last twelve months divided by average working capital for the last
thirteen months).
Working Capital Days is calculated based on the
following financial statement line items: Accounts Receivable and
Inventories less Accounts Payables, Deferred Revenue and
Provisions.
Payout Ratio
Payout ratio is not a recognized measure under
IFRS and does not have a standardized meaning prescribed by IFRS.
Management believes the payout ratio is an important measure of the
Company's ability to pay dividends with cash generated. The Company
defines payout ratio as the declared dividends divided by the Free
Cash Flow.
Adjusted Net Earnings (Loss) and Adjusted Net Earnings
(Loss) per Share
Management believes that Adjusted Net Earnings
(Loss) and the associated per Share figure are important measures
in evaluating the historical operating performance of the Company.
Adjusted Net Earnings (Loss) and Adjusted Net Earnings (Loss) per
Share are not recognized measures under IFRS and do not have
standardized meanings prescribed by IFRS. Accordingly, Adjusted Net
Earnings (Loss) and Adjusted Net Earnings (Loss) per Share may not
be comparable to similar measures presented by other issuers.
Readers of this MD&A are cautioned that Adjusted Net Earnings
(Loss) and Adjusted Net Earnings (Loss) per Share should not be
construed as an alternative to Net Earnings (Loss), or Net Earnings
(Loss) per Share, determined in accordance with IFRS as indicators
of the Company's performance.
The Company defines Adjusted Net Earnings (Loss)
as net earnings (loss) after adjusting for the after tax effects of
certain non-recurring, non-operating and items occurring outside of
normal operation, that do not reflect the current ongoing cash
operations of the Company. These adjustments are provided in the
following reconciliation of net earnings (loss) to Adjusted Net
Earnings (Loss) based on the historical Financial Statements of the
Company for the periods indicated.
The Company defines Adjusted Net Earnings (Loss)
per share as Adjusted Net Earnings (Loss) divided by the average
number of Shares outstanding.
|
(U.S. dollars in thousands, except per Share figures) |
2022 Q4 |
2021 Q4 |
|
Fiscal 2022 |
Fiscal 2021 |
| Net loss |
(150,360 |
) |
(8,691 |
) |
|
(277,763 |
) |
(14,484 |
) |
| |
|
|
|
|
|
| Adjustments, net of tax1,
7 |
|
|
|
|
|
|
Fair value adjustments of total return swap4 |
— |
|
295 |
|
|
657 |
|
310 |
|
|
Unrealized foreign exchange loss (gain) |
(2,711 |
) |
2,639 |
|
|
(413 |
) |
5,365 |
|
|
Unrealized loss (gain) on interest rate swap |
795 |
|
(4,496 |
) |
|
(26,019 |
) |
(10,538 |
) |
|
Unrealized gain on Cash Conversion Option |
(3,831 |
) |
(4,965 |
) |
|
(11,439 |
) |
(4,965 |
) |
|
Portion of the total return swap realized5 |
— |
|
(272 |
) |
|
(190 |
) |
(324 |
) |
|
Costs associated with assessing strategic and corporate
initiatives2 |
— |
|
(106 |
) |
|
— |
|
(106 |
) |
|
Equity settled stock-based compensation |
274 |
|
134 |
|
|
929 |
|
791 |
|
|
(Gain) loss on disposition of property, plant and equipment |
283 |
|
(85 |
) |
|
(390 |
) |
51 |
|
|
Past service costs and other pension costs6 |
— |
|
— |
|
|
4,830 |
|
— |
|
|
Unrecoverable insurance costs and other12 |
114 |
|
— |
|
|
5,858 |
|
327 |
|
|
Expenses incurred outside of normal operations13 |
1,178 |
|
— |
|
|
2,595 |
|
— |
|
|
Prior year sales tax provision8 |
— |
|
908 |
|
|
— |
|
926 |
|
|
Other tax adjustments10 |
22,292 |
|
(2,833 |
) |
|
18,984 |
|
2,669 |
|
|
COVID-19 costs9 |
— |
|
1,331 |
|
|
— |
|
1,801 |
|
|
Out of period costs11 |
(1,911 |
) |
562 |
|
|
(1,102 |
) |
562 |
|
|
Accretion in carrying value of convertible debt and cash conversion
option |
1,342 |
|
274 |
|
|
5,272 |
|
274 |
|
|
Impairment loss on goodwill14 |
103,900 |
|
— |
|
|
103,900 |
|
— |
|
|
Restructuring costs3 |
4,996 |
|
(260 |
) |
|
12,726 |
|
5,218 |
|
| Adjusted Net Loss |
(23,639 |
) |
(15,565 |
) |
|
(161,565 |
) |
(12,123 |
) |
| |
|
|
|
|
|
| Loss per Share (basic) |
(1.94 |
) |
(0.12 |
) |
|
(3.60 |
) |
(0.21 |
) |
| Loss per Share (fully
diluted) |
(1.94 |
) |
(0.12 |
) |
|
(3.60 |
) |
(0.21 |
) |
| |
|
|
|
|
|
| Adjusted Net Loss per Share
(basic) |
(0.31 |
) |
(0.21 |
) |
|
(2.09 |
) |
(0.17 |
) |
| Adjusted Net Loss per Share
(fully diluted) |
(0.31 |
) |
(0.21 |
) |
|
(2.09 |
) |
(0.17 |
) |
- Addback items are
derived from the historical financial statements of the
Company.
-
Normalized to exclude non-operating expenses and recoveries related
to the costs of assessing strategic and corporate initiatives.
-
Normalized to exclude non-operating restructuring costs. Costs
primarily relate to severance costs, inefficient labour costs,
increased medical costs and right-of-use asset impairments and
inventory impairments associated with NFI Forward restructuring
initiatives. Free Cash Flow reconciling amounts are net of
right-of-use asset and property, plant and equipment
impairments.
-
The fair value adjustment of the total return swap is a non-cash
(gain) loss that is excluded from the definition of Adjusted
EBITDA. Beginning in Q2 2022, hedge accounting was applied to the
total return swap derivative and therefore, the portion of the
(gain) loss on the fair value adjustment, which does not apply to
the current period is recognized in other comprehensive
income.
-
A portion of the fair value adjustment of the total return swap is
added to Adjusted EBITDA and Free Cash Flow to match the equivalent
portion of the related deferred compensation expense recognized.
Beginning in Q2 2022, hedge accounting was applied to the total
return swap derivative and therefore, the portion of the (gain)
loss on the fair value adjustment, which does not apply to the
current period is recognized in other comprehensive income.
-
Costs and recoveries associated with amendments to, and closures
of, the Company's pension plans. Q2 2022 includes $7.0 million for
the liability related to the closure of the Pembina facility and
withdrawal from the multi-employer pension plan.
-
The Company has utilized a rate of 54.5% to tax effect the
adjustments in periods related to Fiscal 2021. A rate of 31.0% has
been used to tax effect the adjustments for all other periods.
-
Provision for sales taxes as a result of an ongoing state sales tax
review.
-
Normalized to exclude COVID-19 related costs. Costs primarily
relate to asset impairments, medical costs directly related to
COVID-19 and miscellaneous operating costs associated with
COVID-19. Asset impairments are primarily attributable to pre-owned
coach inventory. During 2022, management determined costs related
to sanitization and masks were an operating cost and would no
longer be included in the definition.
-
Includes the impact of changes in deferred tax balances as a result
of substantively enacted tax rate changes. The 2021 and 2022
amounts include the impact of the revaluation of deferred tax
balances due to the enacted increase in the UK corporate tax rate
from 19% to 25% in 2021 Q3. Also included in 2022 Q4 is the impact
of the reduction of deferred tax assets related to the
derecognition of loss carry forwards in Canada, and restricted
interest in the UK.
-
Includes adjustments made related to expenses that pertain to prior
years. Fiscal 2022 includes expenses related to amounts that should
have been capitalized from Fiscal years 2010 - 2021. Fiscal 2021
includes expenses related to amounts owed from Fiscal years 2016 -
2020, and expenses related to amounts owed from Fiscal years 2014 -
2020.
-
Normalized to exclude non-operating costs related to an insurance
event that are not recoverable, or are related to the
deductible.
-
Includes adjustments made related to items that occurred outside of
normal operations. This includes specified items purchased in
broker markets at a premium and associated broker fees, which the
Company provided to suppliers, and does not normally directly
purchase. Also included is the additional labour costs associated
with the shortage of the specified item.
-
14. Includes impairment charges with respect to ARBOC's goodwill of
$23.2 million and the ADL manufacturing CGU's goodwill of $80.7
million.
ROIC
ROIC is not a recognized measure under IFRS and
its components do not have standardized meanings prescribed by
IFRS. Management believes that ROIC is an important measure in
evaluating the historical performance of the Company. The Company
defines ROIC as net operating profit after taxes divided by average
invested capital for the last 12-month period.
Reconciliation of Shareholders' Equity
to Invested Capital
|
(U.S. dollars in thousands) |
2022 Q4 |
|
2022 Q3 |
|
2022 Q2 |
|
2022 Q1 |
|
| Shareholders' Equity |
$ |
577,151 |
|
710,984 |
|
783,905 |
|
850,323 |
|
| |
|
|
|
|
| Addback |
|
|
|
|
|
Long term debt |
|
896,626 |
|
859,297 |
|
718,139 |
|
677,996 |
|
|
Obligation under lease |
|
131,625 |
|
122,666 |
|
131,077 |
|
139,129 |
|
|
Convertible debentures |
|
217,516 |
|
211,281 |
|
224,947 |
|
229,673 |
|
|
Derivatives |
|
(21,620 |
) |
(18,904 |
) |
(8,179 |
) |
4,806 |
|
|
Cash |
|
(49,987 |
) |
(39,832 |
) |
(50,274 |
) |
(26,604 |
) |
|
Bank indebtedness |
|
— |
|
— |
|
— |
|
1,233 |
|
|
Invested Capital |
|
1,751,311 |
|
1,845,492 |
|
1,799,615 |
|
1,876,556 |
|
|
Average of invested capital over the quarter |
|
1,798,402 |
|
1,822,554 |
|
1,838,086 |
|
1,829,374 |
|
|
|
|
|
|
|
|
|
2021 Q4 |
|
2021 Q3 |
|
2021 Q2 |
|
2021 Q1 |
|
| Shareholders' Equity |
|
871,772 |
|
787,010 |
|
814,502 |
|
824,643 |
|
| |
|
|
|
|
| Addback |
|
|
|
|
|
Long term debt |
|
586,411 |
|
1,049,273 |
|
963,630 |
|
1,008,733 |
|
|
Capital leases |
|
143,675 |
|
150,212 |
|
153,967 |
|
150,553 |
|
|
Convertible debentures |
|
225,768 |
|
— |
|
— |
|
— |
|
|
Derivatives |
|
31,883 |
|
20,920 |
|
21,609 |
|
23,996 |
|
|
Cash |
|
(77,318 |
) |
(64,822 |
) |
(47,695 |
) |
(23,063 |
) |
|
Bank indebtedness |
|
— |
|
— |
|
— |
|
1 |
|
|
Invested Capital |
|
1,782,191 |
|
1,942,593 |
|
1,906,013 |
|
1,984,863 |
|
|
Average of invested capital over the quarter |
|
1,862,392 |
|
1,924,303 |
|
1,945,438 |
|
1,927,577 |
|
| |
|
|
|
|
| |
|
|
|
|
Capital Allocation
Policy
The Company has established a capital allocation
policy based on an operating model intended to provide consistent
and predictable cash flow and maintain a strong balance sheet. This
policy has established guidelines that are reviewed by the Board on
a quarterly basis and provides targets for maintaining financial
flexibility, business investment, and return of capital to
shareholders.
Maintaining Financial Flexibility
The Company plans to prudently use leverage to
manage liquidity risk. Liquidity risk arises from the Company’s
financial obligations and from the management of its assets,
liabilities and capital structure. This risk is managed by
regularly evaluating the liquid financial resources to fund current
and long-term obligations, and to meet the Company’s capital
commitments in a cost-effective manner.
The main factors that affect liquidity include
sales mix, production levels, cash production costs, working
capital requirements, capital expenditure requirements, scheduled
repayments of long-term debt obligations, funding requirements of
the Company’s pension plans, income taxes, credit capacity,
expected future debt and equity capital market conditions.
The Company’s liquidity requirements are met
through a variety of sources, including cash on hand, cash
generated from operations, the credit facilities, leases, and debt
and equity capital markets.
At January 1, 2023, the Company has convertible
debentures outstanding of $338 million. The Debentures may be
converted in whole or in part from time to time at the holder’s
option into 30.1659 Shares for each C$1,000 principal amount of
Debentures, representing a conversion price of approximately
C$33.15 per Share and total potential conversion of 10,196,074
shares.
On December 29, 2022, the Company amended the
Credit Facility and the UK Facility (together the "amended
facilities"). Amendments provide relief from previous key financial
covenants (Total Leverage Ratio (“TLR”), Minimum Adjusted EBITDA
and Interest Coverage Ratio (“ICR”)) for the fourth quarter of 2022
and the first two quarters of 2023 (the period ending June 30, 2023
(the “Waiver Period”)) to provide the Company with relaxed
covenants as the Company navigates supply chain disruptions,
heightened inflation and other impacts of the COVID-19 pandemic.
During the Waiver Period, the Company is subject to a Total Net
Debt to Capitalization (“TNDC”) ratio, starting in January 2023,
and a minimum Adjusted EBITDA covenant starting in March 2023. The
terms of the amended facilities impose restrictions over the
declaration and payment of dividends until the Waiver Period has
ended.
On January 20, 2023 the Company entered into
agreements with the Government of Manitoba for a C$50 million debt
facility, for general corporate purposes, and EDC for credit
facilities of up to $150 million to support supply chain financing
($50 million) and surety and performance bonding requirements for
new contracts (up to $100 million).
The Credit Facility has a total borrowing limit
of $1 billion, which includes a $100 million letter-of-credit
facility subject to the Company being in compliance with its credit
covenants. $24.5 million of outstanding letters-of-credit were
drawn against the Credit Facility at January 1, 2023. The Credit
Facility bears interest at a rate equal to LIBOR or a U.S. base
rate for loans denominated in U.S. dollars and a Canadian prime
rate or bankers' acceptance rate for loans denominated in Canadian
dollars, plus an applicable margin to those rates and matures on
August 2, 2024.
The UK Facility has a total borrowing limit of
£40 million which matures on June 30, 2023. Amounts drawn under the
UK Facility bear interest at a rate equal to LIBOR plus an
applicable margin.
The details of the covenants under the amended
facilities are as follows:
|
|
Total Leverage Ratio |
Interest Coverage Ratio |
Total Net Debt to Capitalization |
Minimum Cumulative Adjusted EBITDA |
Minimum Liquidity |
|
January 1, 2023 |
Waived |
Waived |
Waived |
Waived |
$25,000 |
| January 2, 2023 - March 31,
2023 |
Waived |
Waived |
<0.62:1.00 |
>($28,000) |
$25,000 |
| April 1, 2023 - April 30,
2023 |
Waived |
Waived |
<0.62:1.00 |
>($31,000) |
$25,000 |
| May 1, 2023 - May 31,
2023 |
Waived |
Waived |
<0.62:1.00 |
>($35,000) |
$25,000 |
| June 1 - June 30, 2023 |
Waived |
Waived |
<0.62:1.00 |
>($35,000) |
$25,000 |
| July 3, 2023 - October 1,
2023 |
<4.50 |
>2.00 |
N/A |
N/A |
$25,000 |
| October 2, 2023 - December 31,
2023 |
<4.00 |
>2.50 |
N/A |
N/A |
$25,000 |
| January 1, 2024 and
thereafter |
<3.75 |
>3.00 |
N/A |
N/A |
$25,000 |
-
TLR is calculated as borrowings on the Credit Facilities, not
including the Company’s 5.0% convertible debentures, less
unrestricted cash and cash equivalents, divided by Adjusted EBITDA,
typically calculated on a trailing twelve-month basis. When the TLR
is reintroduced in 2023 Q3, Adjusted EBITDA will be annualized
until a full rolling four quarters of results are available (i.e.,
period ending 2023 Q3);
- ICR is calculated
as the same trailing twelve month Adjusted EBITDA as the TLR
divided by trailing twelve month interest expense on the Credit
Facilities, the Company’s 5.0% convertible debentures and other
interest and bank charges.
- Total Net Debt to
Capitalization is calculated as borrowings on the Credit
Facilities, less unrestricted cash and cash equivalents, divided by
Shareholder’s Equity, as shown on the Company’s balance sheet, plus
borrowings on the Credit Facilities. The calculation of
shareholder's equity is adjusted to exclude up to $100 million of
goodwill impairment.
- Cumulative Adjusted
EBITDA starting with 2023 Q1 results.
- Liquidity
is calculated as unrestricted cash and cash equivalents plus the
aggregate amount of credit available under the Credit
Facilities.
| US
dollars in thousands |
January 1, 2023 |
January 2, 2022 |
|
Liquidity Position (must be greater than $25 million[2021: must be
greater than $50 million]) |
$ |
173,507 |
$ |
794,332 |
1. Represents a supplementary financial measure.
See Non-IFRS and Other Financial Measures section.
As of January 1, 2023, NFI's liquidity was
$173.5 million, without consideration given to the minimum
liquidity requirement of $25 million under the amended facilities.
As part of the Company's efforts to improve working capital and
liquidity, NFI requested prepayments and deposits from certain
customers. As of January 1, 2023, the Company has received $36.1
million in prepayments and is continuing to work with other
customers on plans that would help alleviate some of NFI's working
capital investments while it navigates through the supply chain
challenges.
Due to the ongoing uncertainty created by
continuing supply chain disruptions, the Company now expects that
lower Adjusted EBITDA combined with the Company's anticipated debt
profile will affect the Company's ability to comply, after the
expiry of the Waiver Period, with certain financial covenants under
the amended facilities. These events result in a material
uncertainty that may cast significant doubt as to the ability of
the Company to continue as a going concern.
The Company expects operations to continue into
the long-term. The Company is taking a number of operational steps
including cost savings measures to ensure adequate short-term
liquidity. Additionally, the Company is continuing to work directly
with suppliers and sub-suppliers to search for alternate or
substitute parts where possible, increase production line parts
inventories and develop longer lead times to better support new
vehicle production.
NFI and its banking syndicate partners are now
focused on developing new long-term credit arrangements, and NFI
will be seeking agreements that provide appropriate capacity and
covenants matched to the Company’s anticipated financial
performance and recovery. The Company is targeting completion of
these changes prior to the end of the Waiver Period.
In assessing whether the going concern
assumption was appropriate, the Company took into account all
relevant information available about the future including its
backlog, demand for its products, government funding levels in its
core markets and the Company's ability to raise additional capital
from various lenders by issuing long-term debt or additional common
shares, or other securities through either a public offering,
rights offering or private placement.
The Company believes that, its cash position and
capacity under its amended facilities, combined with anticipated
future cash flows and access to capital markets, will be sufficient
to fund operations, meet financial obligations as they come due and
provide the funds necessary for capital expenditures, and other
operational needs. See Appendix C.
The Company remains focused on deleveraging its
balance sheet and returning to its target leverage of 2.0x to 2.5x
total debt to Adjusted EBITDA. Management had originally expected
the Company to return to those levels 18 to 24 months following the
acquisition of ADL in May 2019, but the impact of COVID-19 and the
continuing supply chain disruptions has extended the expected
timing of deleveraging. Management believes it will achieve its
longer-term leverage targets as the recovery from COVID-19
continues, the anticipated supply of parts and components slowly
stabilizes, the Company achieves the benefits of the NFI Forward
strategic cost reduction initiatives and the Company continues to
focus on reducing working capital.
Compliance with financial covenants is reviewed
monthly by management and reported quarterly to the Board. Other
than the requirements imposed by borrowing agreements, the Company
is not subject to any externally imposed capital requirements.
Capital management objectives are reviewed on a quarterly basis or
when strategic capital transactions arise.
Business Investment
The Company plans to invest in the current
business for future growth and will continue to invest in common
systems and lean manufacturing operations to improve quality and
cost effectiveness, while also investing to expand the Company's
expertise in ZEBs, Infrastructure SolutionsTM, and Advanced Driver
Assistance Systems ("ADAS") and automated vehicles. The Company has
made significant investments in its ZEB production capabilities to
be prepared for the expected longer-term transition to a more
electrified fleet. New Flyer now has the capability to manufacture
ZEBs at all of its North American facilities. Alexander Dennis is
the market leader in ZEBs with production capabilities at all of
its UK facilities, MCI has invested in its electric coach offering
for both public and private customers, and ARBOC developed its
medium-duty Equess CHARGETM electric bus. NFI is planning for the
roll-out of next generation battery technology through a second
battery supplier for a first quarter 2023 launch based on projects
that originally kicked off in 2020. In November 2022, Alexander
Dennis announced that several of its vehicles will now offer its
next-generation electric driveline and future-proof battery system,
with first deliveries planned for 2023. To support customers making
the transition to zero-emission fleets, NFI launched its
Infrastructure SolutionsTM business in 2018. Infrastructure
SolutionsTM has helped numerous agencies develop and launch
infrastructure installation projects.
The Company has automated bus projects in
development with specialized partners who have a deep understanding
of artificial intelligence and ADAS. As part of this program to
advance automated vehicles and ADAS, on January 29, 2021, NFI
announced the launch of the New Flyer Xcelsior AV™, North America's
first automated Level 4 transit bus. The first vehicles using this
technology went into production in the fourth quarter of 2021.
Alexander Dennis continues to advance its autonomous bus programs
in the United Kingdom with ongoing pilot programs in Scotland and
expectations for additional trials on its new Enviro100AEW bus
platform in 2023. NFI has also made numerous investments into
telematics solutions to ensure customers can track detailed
performance and maintenance metrics associated with their
vehicles.
NFI has also made investments to reduce the
company's overall manufacturing footprint and integrate operations
through its NFI Forward and NFI Forward 2.0 initiatives. These
investments have generated significant annualized cost savings that
will positively contribute to NFI's financial results going
forward.
The Company will consider business acquisitions
and partnerships that will further grow and diversify the business
and contribute to long-term competitiveness, but the Company's
capital allocation priorities are currently focused on
deleveraging, strengthening its balance sheet and supporting the
recovery of operations. As such investments will primarily be
focused on internal initiatives. Investment decisions are based on
several criteria, including but not limited to: investment required
to maintain or enhance operations; enhancement of cost
effectiveness through vertical integration of critical supply and
sub-assembly in-sourcing; and acquisitions in current or adjacent
markets that are considered accretive to the business.
Return of Capital to Shareholders
The Company intends to have a Share dividend
policy that is consistent with the Company's financial performance
and the desire to retain certain cash flows to support the ongoing
requirements of the business and to provide the financial
flexibility to pursue revenue diversification and growth
opportunities. Under the terms of NFI's credit facilities, the
Company is not permitted to declare or pay dividends. Currently
dividends have been suspended, future decisions on the resumption
of dividend payments will be dependent on financial performance and
compliance with credit facility covenants.
The Company's 2022 Q4 Free Cash Flow was
(C$29.5) million with no dividends declared during this period. For
2021 Q4 Free Cash Flow was C($23.9) million compared to declared
dividends of C$16.4 million. This resulted in payout ratio1 of nil%
in 2022 Q4 compared to (68.6)% in 2021 Q4.
|
Total Capital Distributions to Shareholders(U.S.
dollars in millions) |
2022 Q4 |
2021 Q4 |
|
Fiscal 2022 |
Fiscal 2021 |
| Dividends paid |
$ |
— |
$ |
11.9 |
|
$ |
9.4 |
$ |
46.5 |
1. Represents a non-IFRS ratio, meaning it is derived from a
non-IFRS measure, which does not have a standard meaning, so it may
not be a reliable way to compare NFI to other companies. The ratio
is calculated using Free Cash Flow, which is a non-IFRS measure.
See Non-IFRS and Other Financial Measures section.
Controls and Procedures
Internal Controls over Financial
Reporting
Management is responsible for establishing and
maintaining internal controls over financial reporting (“ICFR”), as
defined under rules adopted by the Canadian Securities
Administrators. ICFR were designed under the supervision of, and
with the participation of, the President and Chief Executive
Officer (“CEO”) and the Chief Financial Officer (“CFO”). The
Company’s ICFR are designed to provide reasonable assurance
regarding the reliability of financial reporting and the
preparation of Financial Statements for external purposes in
accordance with IFRS.
Management adheres to the “Internal Control –
Integrated Framework 2013” (“COSO 2013”) from the Committee of
Sponsoring Organizations of the Treadway Commission.
Management, under the supervision of the CEO and
CFO, evaluated the design and operational effectiveness of the
Company’s ICFR as of January 1, 2023 in accordance with the
criteria established in COSO 2013, and concluded that the Company’s
ICFR are effective.
ICFR, no matter how well designed, have inherent
limitations. Therefore, ICFR can provide only reasonable assurance
with respect to financial statement preparation and may not prevent
or detect all misstatements.
Disclosure Controls
Management is responsible for establishing and
maintaining disclosure controls and procedures in order to provide
reasonable assurance that material information relating to the
Company is made known to them in a timely manner and that
information required to be disclosed is reported within time
periods prescribed by applicable securities legislation. There are
inherent limitations to the effectiveness of any system of
disclosure controls and procedures, including the possibility of
human error and the circumvention or overriding of the controls and
procedures. Accordingly, even effective disclosure controls and
procedures can only provide reasonable assurance of achieving their
control objectives. The Company’s CEO and CFO have concluded that
disclosure controls and procedures as at January 1, 2023 were
effective.
Appendix B - 2022 Fourth Quarter Order
Activity
Demand for Transit Buses and Motor Coaches
The Company’s "Bid Universe" metric tracks known
active public competitions in Canada and the United States and
attempts to provide an overall indication of anticipated heavy-duty
transit bus and motor coach public sector market demand. It is a
point-in-time snapshot of: (i) EUs in active competitions, defined
as all requests for proposals received by the Company and in
process of review plus bids submitted by the Company and awaiting
customer action, and (ii) management’s forecast, based on data
provided by operators for their fleet replacement plans, of
expected EUs to be placed out for competition over the next five
years.
NFI's end markets continued to show strong signs
of recovery throughout 2022. Following large declines in the second
half of 2020 as a result of the pandemic delaying orders in core
markets, active bids rebounded significantly in 2021, averaging
6,850 EUs from 2021 Q2 through 2021 Q4. As of 2022 Q4, active bids
reached 10,507 EUs, up 53.5% year-over-year, the highest number of
active bids on record. The Company ended 2022 Q4 with 5,169 bids in
process, and another 5,338 bids submitted. Management expects
active bids will continue to remain high through 2023 as markets
recover during the continuing COVID-19 pandemic and new government
funding is used by transit agencies.
The forecasted five-year North American industry
procurement has rebounded from the lows of the first half of 2021.
Year-over-year, the Total Bid Universe increased by 17.0%, or 4,471
EUs. NFI expects that the forecasted five-year North American
industry procurement will remain high through 2023 as transit
agencies continue to formalize their short- and long-term
procurement plans linked to the multi-billion funding programs
announced and/or launched by governments in Canada and the U.S.
As at 2022 Q4, 15,689 EUs, or 51.0%, of the
Total Bid Universe is ZEBs, an increase of 54.6% year-over-year,
which supports management's expectations for a continued increase
in the demand for ZEBs.
The Bid Universe EUs fluctuate significantly
from quarter-to-quarter based on public tender activity procurement
and award processes.
|
|
Bids in Process (EUs) |
Bids Submitted (EUs) |
Active EUs |
Forecasted Industry Procurement over 5
Years (EUs)1 |
Total Bid Universe (EUs) |
| 2021 Q4 |
1,783 |
5,062 |
6,845 |
19,468 |
26,313 |
| 2022 Q1 |
805 |
4,757 |
5,562 |
20,809 |
26,371 |
| 2022 Q2 |
4,477 |
3,105 |
7,582 |
21,565 |
29,147 |
| 2022 Q3 |
2,881 |
7,226 |
10,107 |
20,377 |
30,484 |
| 2022 Q4 |
5,169 |
5,338 |
10,507 |
20,277 |
30,784 |
1. Management’s estimate of anticipated future
industry procurement over the next five years is based on direct
discussions with select U.S. and Canadian transit authorities. This
estimate includes potential public customers activity for New Flyer
and MCI vehicles, but excludes potential ARBOC and ADL U.S. and
Canadian sales.
Procurement of heavy-duty transit buses and
motor coaches by the U.S. and Canadian public sector is typically
accomplished through formal multi-year contracts and purchasing
schedules (state and national contracts, agency purchasing
contracts), while procurement by the private sector in North
America, the UK and Europe and Asia Pacific is typically made on a
transactional basis. As a result, the Company does not maintain a
Bid Universe for private sector buses and coaches.
The sale of cutaway and medium-duty buses
manufactured by ARBOC is accomplished on a transactional purchase
order basis through non-exclusive third-party dealers who hold
contracts directly with the customers. Bids are submitted by and
agreements are held with a network of dealers. Cutaway and
medium-duty bus activity therefore is not included in the Bid
Universe metric.
ADL does not currently have a Bid Universe
metric for the UK and European or Asia Pacific markets similar to
New Flyer and MCI's North American Bid Universe; however, ADL does
maintain a sales pipeline. Management does not believe a similar
Bid Universe metric for those markets is suitable given that the
majority of customers in those regions are private operators who
make annual purchase decisions. The overall UK market declined from
2015 to 2019, and was expected to increase in 2020 before it was
hit disproportionately hard by the COVID-19 pandemic, with bus
ridership down by nearly 80% at its worst point in 2020. While
management saw signs of recovery in 2021 and 2022, supply chain
challenges have continued to disrupt the market. In 2023,
management expects stronger recovery based on customers' fleet
recovery plans and an aging UK vehicle fleet. Governments continue
to focus on the green recovery and government funding is starting
to materialize. This funding, plus future investments under plans
to expand transport service in communities outside of London is
expected to contribute to market growth in 2023 and beyond.
Alexander Dennis has seen the benefits of this anticipated recovery
as it has essentially sold the majority of its UK production slots
for 2023, although at slightly lower production rates. Alexander
Dennis continues to grow its installed fleet in Europe with
multi-year contracts in Ireland and Germany. The European market is
highly fragmented with numerous players providing niche
opportunities for ADL in the future.
In Asia Pacific, the Hong Kong market is highly
cyclical, and, following busier periods in 2015 through 2018, the
market has declined as anticipated. As in other regions, Hong Kong
was also impacted by the COVID-19 pandemic, but ADL remains the
leader in double-deck buses and retains deep customer relationships
in Hong Kong. Management saw some recovery in 2022 and continues to
expect the Hong Kong market to see stable annual deliveries and a
slow recovery through 2023, including the delivery of Alexander
Dennis' first battery-electric buses to key customers in Hong Kong
as transit companies gear up for the transition to zero-emission
buses. New Zealand and Singapore remain highly cyclical markets
with more predictable purchasing expectations based on vehicle age;
Alexander Dennis continues to see significant opportunities in both
markets and is also pursuing additional expansion programs in South
Africa and the Middle-East region.
Order activity
New orders (firm and options) during 2022 Q4
totaled 2,578 EUs, an increase of 60.4% from 2021 Q4. The timing of
new orders can vary based on transit agency procurement processes,
with the fourth quarter typically being a busier period tied to
agency and operator approval meetings. The new firm and option
orders awarded to the Company for Fiscal 2022 were 5,786 EUs, an
increase of 22.5% from Fiscal 2021. The Company was successful at
converting 118 EUs of options to firm orders during 2022 Q4, a
decrease from the 217 EUs converted in 2022 Q3 and from the 277 EUs
converted in 2021 Q4; option conversions vary quarter-to-quarter.
These 118 EUs of option conversions contributed to the 638 EUs
converted to firm orders during Fiscal 2022. While, there were
declines in option conversions from 2021 to 2022, these were
primarily related to older contracts and changes in customers
expected fleet replacement plans. Further details are provided
below under the "Options" section.
In 2022 Q4, NFI received orders for 1,118 EUs of
battery-electric, zero-emission vehicles, a 780% increase from the
127 EUs from 2022 Q3. These 1,118 EUs of ZEBs equate to 43.4% of
all new firm and option orders for the quarter, which increased
from 28.0% in 2022 Q3.
In addition, 806 EUs of new firm and option
orders were pending from customers at the end of 2022 Q4, where
approval of the award to the Company had been made by the
customer’s board, council, or commission, as applicable, but
purchase documentation had not yet been received by the Company and
therefore not yet included in the backlog. This was down from the
1,360 EUs of pending new firm and option orders as of the end of
2022 Q3, as the Company received a high number of new awards in
2022 Q3. NFI anticipates that the majority of the units currently
in bid award pending will convert into backlog during 2023 Q1.
|
|
New Ordersin Quarter(Firm
andOption EUs) |
LTM New Orders(Firm
andOption EUs) |
OptionConversions
inQuarter (EUs) |
LTM OptionConversions (EUs) |
| 2021 Q4 |
1,607 |
4,724 |
277 |
1,110 |
| 2022 Q1 |
1,407 |
4,919 |
218 |
1,051 |
| 2022 Q2 |
1,348 |
5,147 |
85 |
734 |
| 2022 Q3 |
453 |
4,815 |
217 |
797 |
| 2022 Q4 |
2,578 |
5,786 |
118 |
638 |
Options
In 2022 Q4, 831 options expired, as compared to
804 options in 2022 Q3, and as compared to 117 options that expired
in 2021 Q4. Option expiries can vary significantly
quarter-to-quarter and management is not concerned about the large
number of option expiries in 2022 Q4. Certain agencies are letting
a portion of older options expire as they re-evaluate their
longer-term fleet planning decisions with an increased focus on the
procurement of ZEBs rather than traditional internal combustion
engine propulsion. In certain cases, customers have issued new
procurements to replace the expired options. NFI replenished a
significant amount of the expired options through new orders in
2022. Overall demand remains at record levels and will support
future option orders.
A significant number of public transit contracts
in the U.S. and Canada have a term of three to five years. In
addition, some contracts in the UK and APAC also have multi-year
terms. The table below shows the number of option EUs that have
either expired or have been exercised annually over the past five
years, as well as the current backlog of options that will expire
each year if not exercised.
|
|
2017 |
|
2018 |
|
2019 |
|
2020 |
|
2021 |
|
2022 |
|
2023 |
2024 |
2025 |
2026 |
2027 |
Total |
| A) Options Expired (EUs) |
331 |
|
741 |
|
512 |
|
1,202 |
|
819 |
|
1,924 |
|
|
|
|
|
|
5,529 |
| B) Options Exercised
(EUs) |
1,404 |
|
1,795 |
|
1,518 |
|
953 |
|
1,110 |
|
638 |
|
|
|
|
|
|
7,418 |
| C) Current Options by year of
expiry (EUs) |
|
|
|
|
|
|
750 |
258 |
537 |
1,559 |
1,506 |
4,610 |
|
D) Conversion rate % = B / (A+B) |
81 |
% |
71 |
% |
75 |
% |
44 |
% |
58 |
% |
25 |
% |
|
|
|
|
|
|
The Company's conversion rate can vary
significantly from quarter-to-quarter and should be looked at on an
annual or LTM basis. Option expirations in 2020, 2021, and 2022
were primarily a result of agencies allowing a portion of their
options from older contracts awarded in 2016 and 2017 to expire as
they re-evaluate their longer-term fleet planning decisions.
In addition to contracts for identified public
customers, the Company has increased its focus on purchasing
schedules (state and national contracts, cooperative agency
purchasing agreements) with the objective of having multiple
available schedules, from which customers within a prescribed
region or from defined list, can purchase. The Company is currently
named on over 30 of these purchasing schedules, either directly or
through its dealers. These schedules are not recorded in backlog as
they do not have defined quantities allocated to the Company or any
other original equipment manufacturer. Once a customer purchases a
bus under one of these agreements, the purchase is recorded as a
firm order. The Company has received more than 1,050 vehicle awards
from these schedules since the start of 2018, showing their growing
use by transit agencies as a procurement alternative in North
America.
The Company's 2022 Q4 Book-to-Bill1 ratio
(defined as new firm orders and exercised options divided by new
deliveries) was 144.0%, an increase from 131.9% in 2021 Q4. This
increase in Book-to-Bill was driven by a 60.4% increase in
year-over-year orders combined with lower deliveries. Fiscal 2022
Book-to-Bill was 133.9%, an increase from 115.1% for Fiscal 2021.
Active bids, including bids submitted, are at record levels (see
page 46).
Backlog
The Company's total backlog consists of buses
sold primarily to U.S. and Canadian public customers and private
operators in the UK and Europe. The majority of the backlog relates
to New Flyer transit buses for public customers with some of the
backlog consisting of units from MCI, ADL and ARBOC. Options for
ARBOC vehicles are held by dealers, rather than the operator, and
are not included as options in the NFI backlog, but are converted
to firm backlog when vehicles are ordered by the dealer.
Transit buses and motor coaches incorporating
clean propulsion systems, including compressed natural gas,
diesel-electric hybrid, and ZEBs, which consist of
trolley-electric, fuel cell-electric, and battery-electric buses,
represent approximately 63.6% of the total backlog as of the end of
2022 Q4, up slightly from 62.6% as of the end of 2022 Q3. As at the
end of 2022 Q4, there were 2,628 ZEBs in the backlog, representing
a record of 28.6% of the total backlog, up from the previous record
of 21.2% in 2022 Q3.
Footnotes
1. Represents a supplementary financial measure.
See Non-IFRS and Other Financial Measures section.
|
|
2022 Q4 |
|
2022 Q3 |
|
2021 Q4 |
| |
Firm Orders |
Options |
Total |
|
Firm Orders |
Options |
Total |
|
Firm Orders |
Options |
Total |
| Beginning of period |
4,153 |
|
4,352 |
|
8,505 |
|
|
4,366 |
|
5,308 |
|
9,674 |
|
|
3,346 |
|
4,757 |
|
8,103 |
|
|
New orders |
1,371 |
|
1,207 |
|
2,578 |
|
|
388 |
|
65 |
|
453 |
|
|
1,157 |
|
450 |
|
1,607 |
|
| Options exercised |
118 |
|
(118 |
) |
— |
|
|
217 |
|
(217 |
) |
— |
|
|
277 |
|
(277 |
) |
— |
|
|
Shipments1 |
(1,034 |
) |
— |
|
(1,034 |
) |
|
(783 |
) |
— |
|
(783 |
) |
|
(1,087 |
) |
— |
|
(1,087 |
) |
|
Cancelled/expired |
(32 |
) |
(831 |
) |
(863 |
) |
|
(35 |
) |
(804 |
) |
(839 |
) |
|
(58 |
) |
(117 |
) |
(175 |
) |
| End of
period |
4,576 |
|
4,610 |
|
9,186 |
|
|
4,153 |
|
4,352 |
|
8,505 |
|
|
3,635 |
|
4,813 |
|
8,448 |
|
| Consisting
of: |
|
|
|
|
|
|
|
|
|
|
|
|
Heavy-duty transit buses |
3,602 |
|
4,342 |
|
7,944 |
|
|
3,114 |
|
4,082 |
|
7,196 |
|
|
2,726 |
|
4,515 |
|
7,241 |
|
|
Motor coaches |
347 |
|
268 |
|
615 |
|
|
358 |
|
270 |
|
628 |
|
|
373 |
|
298 |
|
671 |
|
|
Cutaway and medium-duty buses |
627 |
|
— |
|
627 |
|
|
681 |
|
— |
|
681 |
|
|
536 |
|
— |
|
536 |
|
|
Total Backlog |
4,576 |
|
4,610 |
|
9,186 |
|
|
4,153 |
|
4,352 |
|
8,505 |
|
|
3,635 |
|
4,813 |
|
8,448 |
|
1. Shipments do not include delivery of
pre-owned coaches as these coaches are not included in the
backlog.
At the end of 2022 Q4, the Company's total
backlog (firm and options) of 9,186 EUs (valued at $5.6 billion2),
increased compared to 8,505 EUs (valued at $4.9 billion2) at the
end of 2022 Q3. The increase was driven by high levels of new
awards in North American and UK transit operations in the quarter,
offset somewhat by high deliveries and option expiries. In
addition, 806 EUs of new firm and option orders were pending from
customers at the end of 2022 Q4, where approval of the award to the
Company had been made by the customer’s board, council, or
commission, as applicable, but purchase documentation had not yet
been received by the Company and therefore not yet included in the
backlog. The summary of the values is provided below.
|
|
2022 Q4 |
|
2022 Q3 |
|
2021 Q4 |
| |
|
EUs |
|
|
EUs |
|
|
EUs |
| Total firm orders |
$ |
2,515.4 |
4,576 |
|
$ |
2,276.2 |
4,153 |
|
$ |
1,981.1 |
3,635 |
| Total
options |
|
3,123.0 |
4,610 |
|
|
2,589.5 |
4,352 |
|
|
2,553.2 |
4,813 |
|
Total backlog2 |
$ |
5,638.4 |
9,186 |
|
$ |
4,865.7 |
8,505 |
|
$ |
4,534.3 |
8,448 |
2. Represents a supplementary financial measure.
See Non-IFRS and Other Financial Measures section.
In the Company's 2022 Q3 financial report, the
average price of an EU in backlog was incorrectly stated as $640.9
thousand due to a calculation error; the correct number should have
been $572.1 thousand. As of 2022 Q4, the average price of an EU in
backlog is now $613.7 thousand, a 14% increase from 2021 Q4.
Appendix C - Forward-Looking
Statements
Meaning of Certain References
References in this Press Release to the
“Company” are to NFI and all of its direct or indirect
subsidiaries, including New Flyer Industries Canada ULC (“NFI
ULC”), New Flyer of America Inc. (“NFAI”), The Aftermarket Parts
Company, LLC (“TAPC”), KMG Fabrication, Inc. ("KMG"), Carfair
Composites Inc. (“CCI”) and Carfair Composites USA, Inc. (“CCUI”,
and together with "CCI", "Carfair"), The Reliable Insurance Company
Limited, ARBOC Specialty Vehicles, LLC ("ARBOC"), New MCI Holdings,
Inc. and its affiliated entities (collectively, "MCI”), NFI
Holdings Luxembourg s.a.r.l., and Alexander Dennis Limited and its
affiliated entities (collectively, "ADL") References to “New Flyer”
generally refer to NFI ULC, NFAI, TAPC, KMG, CCI, and CCUI.
References in this Press Release to “management” are to senior
management of NFI and the Company.
The Shares trade on the Toronto Stock Exchange
(“TSX”) under the symbol NFI and the Convertible Debentures trade
on the TSX under the symbol NFI.DB. As at January 1, 2023,
77,155,016 Shares were issued and outstanding. Additional
information about NFI and the Company, including NFI’s Annual
Information Form and information circular, is available on SEDAR at
www.sedar.com.
References to NFI's geographic regions for the
purpose of reporting global revenues are as follows: "North
America" refers to Canada, United States, and Mexico; United
Kingdom and Europe refer to the United Kingdom and Europe; "Asia
Pacific" or "APAC" refers to Hong Kong, Malaysia, Singapore,
Australia, and New Zealand; and the "Other" category includes any
sales that do not fall into the categories above.
This press release contains “forward-looking
information” and “forward-looking statements” within the meaning of
applicable Canadian securities laws, which reflect the expectations
of management regarding the Company’s future growth, financial
performance, and liquidity and objectives and the Company’s
strategic initiatives, plans, business prospects and opportunities,
including the duration, impact of and recovery from the COVID-19
pandemic, supply chain disruptions and plans to address them, and
the Company's expectation of obtaining long-term credit
arrangements and sufficient liquidity. The words “believes”,
“views”, “anticipates”, “plans”, “expects”, “intends”, “projects”,
“forecasts”, “estimates”, “guidance”, “goals”, “objectives” and
“targets” and similar expressions of future events or conditional
verbs such as “may”, “will”, “should”, “could”, “would” are
intended to identify forward-looking statements. These
forward-looking statements reflect management’s current
expectations regarding future events (including the temporary
nature of the supply chain disruptions and operational challenges,
production improvement, the recovery of the Company’s markets and
the expected benefits to be obtained through its “NFI Forward”
initiative) and the Company’s financial and operating performance
and speak only as of the date of this press release. By their very
nature, forward-looking statements require management to make
assumptions and involve significant risks and uncertainties, should
not be read as guarantees of future events, performance or results,
and give rise to the possibility that management’s predictions,
forecasts, projections, expectations or conclusions will not prove
to be accurate, that the assumptions may not be correct and that
the Company’s future growth, financial condition, ability to
generate sufficient cash flow and maintain adequate liquidity,
obtain long-term credit arrangements, and the Company’s strategic
initiatives, objectives, plans, business prospects and
opportunities, including the Company’s plans and expectations
relating to the duration, impact of and recovery from the COVID-19
pandemic, supply chain disruptions, operational challenges, and
inflationary pressures, will not occur or be achieved.
A number of factors that may cause actual
results to differ materially from the results discussed in the
forward-looking statements include: the Company’s business,
operating results, financial condition and liquidity may be
materially adversely impacted by the ongoing COVID-19 pandemic and
related supply chain and operational challenges, employee
absenteeism and inflationary effects; the Company’s business,
operating results, financial condition and liquidity may be
materially adversely impacted by the Russian invasion of Ukraine
due to factors including but not limited to further supply chain
disruptions and inflationary pressures; 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 and/or the Debentures may cease to exist,
which may limit the ability of securityholders to trade Shares
and/or Debentures; the market price for the Shares and/or the
Debentures 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, 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; current
requirements under U.S. “Buy America” regulations may change and/or
become more onerous or suppliers’ “Buy America” content may change;
failure of the Company to comply with the U.S. Disadvantaged
Business Enterprise (“DBE”) program requirements or the failure to
have its DBE goals approved by the U.S. FTA; absence of fixed term
customer contracts, exercise of options and customer suspension or
termination for convenience; 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; the Company’s business may be materially
impacted by climate change matters, including risks related to the
transition to a lower-carbon economy; operational risk resulting
from inadequate or failed internal processes, people and/or systems
or from external events, including fiduciary breaches, regulatory
compliance failures, legal disputes, business disruption,
pandemics, floods, technology failures, processing errors, business
integration, damage to physical assets, employee safety and
insurance coverage; international operations subject the Company to
additional risks and costs and may cause profitability to decline;
compliance with international trade regulations, tariffs and
duties; dependence on unique or limited sources of supply (such as
engines, components containing microprocessors or, in other cases,
for example, the supply of transmissions, batteries for
battery-electric buses, axles or structural steel tubing) resulting
in the Company’s raw materials and components not being readily
available from alternative sources of supply, being available only
in limited supply, a particular component may be specified by a
customer, the Company’s products have been engineered or designed
with a component unique to one supplier or a supplier may have
limited or no supply of such raw materials or components or sells
such raw materials or components to the Company on less than
favorable commercial terms; the Company’s vehicles and certain
other products contain electronics, microprocessors control
modules, and other computer chips, for which there has been a surge
in demand, resulting in a worldwide supply shortage of such chips
in the transportation industry, and a shortage or disruption of the
supply of such microchips could materially disrupt the Company’s
operations and its ability to deliver products to customers;
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; the Company may incur material losses and costs as a result
of product warranty costs, recalls and remediation of transit buses
and motor coaches; production delays may result in liquidated
damages under the Company’s contracts with its customers;
catastrophic events, including those related to impacts of climate
change, 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 and other claims; the
Company may have difficulty selling pre-owned coaches and realizing
expected resale values; the Company may incur costs in connection
with 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, no matter how well designed, have inherent limitations;
there are inherent limitations to the effectiveness of any system
of disclosure controls and procedures, including the possibility of
human error and the circumvention or overriding of the 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 or model variants; acquisition risk; reliance on
third-party manufacturers; 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 may be distributed, which may restrict
potential growth; the Company is dependent on its subsidiaries for
all cash available for distributions; the Company may not be able
to make principal payments on the Debentures; redemption by the
Company of the Debentures for Shares will result in dilution to
holders of Shares; Debentures may be redeemed by the Company prior
to maturity; the Company may not be able to repurchase the
Debentures upon a change of control as required by the trust
indenture under which the Debentures were issued (the “Indenture”);
conversion of the Debentures following certain transactions could
lessen or eliminate the value of the conversion privilege
associated with the Debentures; future sales or the possibility of
future sales of a substantial number of Shares or Debentures may
impact the price of the Shares and/or the Debentures and could
result in dilution; payments to holders of the Debentures are
subordinated in right of payment to existing and future Senior
Indebtedness (as described under the Indenture) and will depend on
the financial health of the Company and its creditworthiness; if
the Company is required to write down goodwill or other intangible
assets, its financial condition and operating results would be
negatively affected; and income and other tax risk resulting from
the complexity of the Company’s businesses and operations and the
income and other tax interpretations, legislation and regulations
pertaining to the Company’s activities being subject to continual
change.
Factors relating to the global COVID-19 pandemic
include: the magnitude and duration of the global, national and
regional economic and social disruption being caused as a result of
the pandemic; the impact of national, regional and local
governmental laws, regulations and “shelter in place” or similar
orders relating to the pandemic which may materially adversely
impact the Company’s ability to continue operations; partial or
complete closures of one, more or all of the Company’s facilities
and work locations or the reduction of production rates (including
due to government mandates and to protect the health and safety of
the Company’s employees or as a result of employees being unable to
come to work due to COVID-19 infections with respect to them or
their family members or having to isolate or quarantine as a result
of coming into contact with infected individuals); production rates
may be further decreased as a result of the pandemic; ongoing and
future supply delays and shortages of parts and components, and
shipping and freight delays, and disruption to labour supply as a
result of the pandemic; the pandemic will likely adversely affect
operations of suppliers and customers, and reduce and delay, for an
unknown period, customers’ purchases of the Company’s products and
the supply of parts and components by suppliers; the anticipated
recovery of the Company’s markets in the future may be delayed or
increase in demand may be lower than expected as a result of the
continuing effects of the pandemic; the Company’s ability to obtain
access to additional capital if required; and the Company’s
financial performance and condition, obligations, cash flow and
liquidity and its ability to maintain compliance with the covenants
under its credit facilities. There can be no assurance that the
Company will be able to maintain sufficient liquidity for an
extended period, obtain long-term credit arrangements, or access to
additional capital or access to government financial support or as
to when production operations will return to previous production
rates. There is also no assurance that governments will provide
continued or adequate stimulus funding during or after the pandemic
for public transit agencies to purchase transit vehicles or that
public or private demand for the Company’s vehicles will return to
pre-pandemic levels in the anticipated period of time. The Company
cautions that due to the dynamic, fluid and highly unpredictable
nature of the pandemic and its impact on global and local
economies, supply chains, businesses and individuals, it is
impossible to predict the severity of the impact on the Company’s
business, operating performance, financial condition and ability to
generate sufficient cash flow and maintain adequate liquidity and
any material adverse effects could very well be rapid, unexpected
and may continue for an extended and unknown period of time.
Factors relating to the Company's “NFI Forward”
initiative include: the Company's ability to successfully execute
the initiative and to generate the planned savings in the expected
time frame or at all; management may have overestimated the amount
of savings and production efficiencies that can be generated or may
have underestimated the amount of costs to be expended; the
implementation of the initiative may take longer than planned to
achieve the expected savings; further restructuring and
cost-cutting may be required in order to achieve the objectives of
the initiative; the estimated amount of savings generated under the
initiative may not be sufficient to achieve the planned benefits;
combining business units and/or reducing the number of production
or parts facilities may not achieve the efficiencies anticipated;
and the impact of the continuing global COVID-19 pandemic, supply
chain challenges and inflationary pressures. There can be no
assurance that the Company will be able to achieve the anticipated
financial and operational benefits, cost savings or other benefits
of the initiative.
Factors relating to the Company’s financial
guidance and targets disclosed in this press release include, in
addition to the factors set out above, the degree to which actual
future events accord with, or vary from, the expectations of, and
assumptions used by, NFI’s management in preparing the financial
guidance and targets and the Company’s ability to successfully
execute the “NFI Forward” initiative and to generate the planned
savings in the expected time frame or at all.
Although the Company has attempted to identify
important factors that could cause actual actions, events or
results to differ materially from those described in
forward-looking statements, there may be other factors that could
cause actions, events or results not to be as anticipated,
estimated or intended or to occur or be achieved at all. Specific
reference is made to “Risk Factors” in the Company’s Annual
Information Form for a discussion of the factors that may affect
forward-looking statements and information. Should one or more of
these risks or uncertainties materialize, or should underlying
assumptions prove incorrect, actual results may vary materially
from those described in forward-looking statements and information.
The forward-looking statements and information contained herein are
made as of the date of this press release (or as otherwise
indicated) and, except as required by law, the Company does not
undertake to update any forward-looking statement or information,
whether written or oral, that may be made from time to time by the
Company or on its behalf. The Company provides no assurance that
forward-looking statements and information will prove to be
accurate, as actual results and future events could differ
materially from those anticipated in such statements. Accordingly,
readers and investors should not place undue reliance on
forward-looking statements and information.
NFI (TSX:NFI)
Historical Stock Chart
From Dec 2024 to Jan 2025
NFI (TSX:NFI)
Historical Stock Chart
From Jan 2024 to Jan 2025
