Earnings Call: Q1 2021

May 6, 2021

Welcome to the NFI 2021 First Quarter Financial Results Call. My name is Hilda, and I will be your operator for today. At this time, all participants are in a listen only mode and later we will conduct a question and answer And now, I would like to turn the call over to Mr. Stephen King, Group Director, Treasury, Corporate Development and Investor Relations. Mr. King, you may begin. Thank you, Hilda. Good morning, everyone, and welcome to NFI's Q1 2021 results conference call. This is Stephen King speaking. Joining me today are Paul Subry, President and Chief Executive Officer and Papasiosoni, Chief Financial Officer. For your information, this call is being recorded and a replay will be made available shortly. On this morning's call, we will be walking Starting with Slide 2, Should any one or more of these uncertainties materialize or should the underlying assumptions prove incorrect, actual results may vary significantly You are advised to review the risk factors found in NFI's press releases and other public filings on SEDAR for more details. We also want to remind listeners that NFI's financial statements are presented in U. S. Dollars, the company's functional currency, and all amounts referred to are in U. S. Dollars unless as otherwise noted. On Slide 3, we have included some key terms and definitions to refer you to as you review the information contained within the rest of this presentation. Of note, 0 emission buses or DEBs as we refer to them, list of trolley electric, Hydrogen Fuel Cell Electric and Battery Electric Buses. Equivalent units or EU is a term we utilize for both production and deliveries. The majority of our vehicles represent 1 equivalent unit, while an articulated 60 foot transit bus takes 2 production slots Before I get into the details of the quarter, for those not as familiar with NFI, I'll quickly provide a little bit of background on our business, Specifically, our leadership position in 0 emission battery electric fuel cell electric mobility and how we are driving the transition to a cleaner electric future or what we call the Zevolution. I'm now on Slide 4. NFI is a total mobility solutions provider offering full turnkey solutions of our bus offering in all of our core markets with the widest range of battery electric mass transit vehicles ranging from single deck to double deck articulated medium duty Motor Coaches. Our combined businesses has over 450 years of bus and coach experience And we've been making electric buses for more than 50 years now. Our track record shows that we have been innovators and drivers of new technology for decades. We led the adoption of clean diesel, natural gas, hybrid electric buses in North America, all of which still we may still make today, And we are now leading the transition to battery and fuel cell electric vehicles. Zero emission buses represents about 10% of our first quarter deliveries And our backlog is now at 18% being 0 emission. NFI has the capacity to produce up to 8,000 equivalent units annually And we anticipate that 20% to 25% of our 2021 production will be 0 emission buses, more than doubling the 2020 ZEB production. On April 22, to celebrate Earth Day, we achieved a major electric vehicle milestone, including the completion of over 40,000,000 service miles by Battery and fuel cell electric vehicles and the installation of over 200 electric chargers. Through this mileage milestone, NFI EVs have prevented nearly 112,000 imperial tons of greenhouse gas emissions from entering the environment. The equivalent of removing 23,000 cars from the roads of Canada, the United States, the UK and New Zealand for 1 year. Turning now to Slide 5, I'll quickly touch on some of the other highlights from the quarter. While we continue to feel the impact of COVID-nineteen pandemic, We did see numerous encouraging signs of market recovery with growth in our active procurements and in our backlog. We Also saw unprecedented government funding announcements in the quarter. The combination of recovery from COVID-nineteen and a strong Funding environment will propel NFI's profitable growth as we support agencies, operators who are building back better from the pandemic. Our company wide transformative initiative, NFI Forward, continues to meet our targets. NFI Forward is designed to make us a simpler, leaner company with fewer business units and a reduced footprint. Q1 2021 results included $11,600,000 in adjusted EBITDA savings and an additional $750,000 in annualized free And our first question comes from the line of Alexander Dennis' North American parts business into NFI Parts network, Eliminating redundant inventories, part stocking locations and additional facility investments. As part of our focus on deleveraging and strengthening our balance sheet, on March 1, we completed a CAD250 1,000,000 bought deal equity offering. The proceeds raised were immediately used for debt repayment and the liquidity and flexibility gained from the equity offering allows us now to pursue operational strategic goals Such as investments in our 0 emission products and electric propulsion technology, investments at our NFI Forward and other potential growth opportunities. Environmental, social, governance matters are critical to NFI's operations and they drive our decision making. As mentioned, we continue to see our products deliver emission reductions around and drive socioeconomic change, while internally they have placed increased focus on diversity inclusion in our leadership and our workforce. We joined the fifty-thirty challenge and through continued advancement of our community benefits framework agreements, we are seeing great progress. The quarter has also saw us issue our human rights statement and deliver our management information circular, which will be voted on today at our Annual General Meeting. We reaffirm our full year 2021 guidance for revenue of US2.8 billion dollars to US2.9 billion dollars and adjusted EBITDA of US220 $1,000,000 to US240 $1,000,000 Turning now to Slide 6. Our backlog was up by 82 equivalent units in the quarter, showing signs that the market is now recovering from a pandemic. This was the first increase in the backlog Following 5 consecutive quarters of decline. Based on activity we've seen so far and discussions with our customers around the world, We anticipate that we'll see increased order activity in 2021 as previously delayed orders are released and the benefits of government funding announcements A major accomplishment subsequent to the quarter end was the execution of 198 option award option From BVG, the main transit agency in Berlin, Germany. The contract is Alexander Dennis' first major entry into Continental Europe And presents an excellent growth opportunity for NFI. Faced with a difficult comparative 2020 Q1, deliveries were down with All three of our production segments. This was a result of the Q1 of 2020 having nearly 3 months of pre COVID-nineteen activity. We continue to run at lower production rates during Q1 2020 as order delays clearly had impacted our operations. I'll now ask Papaso Soni to take us through the detailed financial statements for NFI. Thank you, Paul. Turning to Slide 7, I'll touch on a Q1 2021 performance factors and comparisons to 2020 Q1. Total revenues declined by 19%, Driven by the lower deliveries from the impacts of the pandemic that Paul discussed, I will note that our aftermarket revenues were essentially flat, to the resiliency and global reach of our parts business. We saw declines in North American public and private operations, offset by increased Asia Pacific revenues, which were up 3 16 percent overall in the quarter. This improvement in Asia Pacific is a good sign for Broader market recovery given Asia Pacific markets were impacted earliest by the pandemic in 2020. In addition, the aftermarket business saw strong purchases of our Clean and Protect product lines, which help our customers provide a safer transportation experience through increased focus on sanitization, cleaning and air purification. Adjusted EBITDA saw a slight year over year decline of 2% As we were able to offset lower deliveries through our focus on the NFI Forward initiative to significantly decrease materials, overhead and general and administrative expenses by $11,600,000 We also saw the benefit of government grants from the Canadian Emergency Wage Subsidy and U. K. Furlough programs to retain Skilled people. Free cash flow was up $1,300,000 or 2% as we had a lower current taxes, realized cash flow benefits from NFI Forward and positive proceeds from the disposition of capital assets. Liquidity at the end of the quarter was at 319,000,000 increase of $172,000,000 from the same period in 2020 $86,000,000 from year end 2020. This increase in liquidity was mostly driven by our recent equity raise. In addition to putting capital to use on strategic investments, We remain focused on returning capital to shareholders through continued dividends. Turning to Slide 8. We saw significant improvement in net earnings and adjusted net earnings year over year, primarily from the benefits of NFI Forward Savings and the impact of government people retention programs. Normalizations to adjusted net earnings included $1,200,000 in onetime nonrecurring Restructuring charges and COVID-nineteen related costs, plus a $1,100,000 unrealized foreign exchange loss and a $3,500,000 unrealized gain on our interest rate swaps. Turning to Slide 9. We provide an update on NFI Forward and the expected future benefits. The anticipated cost savings from NFI Forward will impact both direct and SG and A cost. In aggregate, NFI Forward is starting to deliver an 8% to both manufacturing overhead and SG and A based on the 2019 run rate. Since inception in 2020, NFI Forward has generated $28,600,000 in adjusted EBITDA savings and an additional $1,750,000 in free cash flow savings. Note that the additional free cash flow benefits are on top of the expected cash flow that will be generated from the adjusted EBITDA savings. We remain on target with our plans and anticipate that we'll reach a run rate of at least $67,000,000 in annual adjusted EBITDA savings by 2023, plus an additional $10,000,000 in annual free cash flow savings. These cost reductions will generate significant leverage. As markets We'll grow revenues on a lower fixed cost base with drop through to adjusted EBITDA. On Slide 10, We provide a summary of our 2021 guidance, which we have reaffirmed for revenue, adjusted EBITDA and cash capital expenditures. Today, we're providing an update on our adjusted effective tax rate. I also wanted to add a comment on seasonality. We anticipate year over year revenue and adjusted EBITDA growth in the second and fourth quarter, while the 3rd quarter will be flat to slightly down. A reminder for listeners that in 2021, Q2 and Q3 will be a 13 week period, while Q4 will be a 14 week period for a total fiscal year of 53 weeks. Turning to Slide 11. I'll explain some of the dynamics we're seeing with our tax exposure as our financial results recover from the pandemic. Our North American tax structure includes minimum tax components that are more fixed in nature, plus variable components based on profitability and the impact of non recurring discrete or one time items. We normalize for the non recurring discrete or one time items to calculate our annual adjusted effective tax rate. The current tax structure does cause us to have fixed components in both BEAT and FTC related taxes. BEAT, which is the U. S.-based erosion and anti Abuse tax and FTC generate significant impacts to our current to our tax rate based on our pre tax earnings versus other Canadian companies. We are investigating options to exit this structure. Based on our 2021 guidance, management expects NFI's annual minimum fixed tax expense will be between $18,000,000 to $22,000,000 while its variable taxes will be based on a range of 21% to 23% of adjusted pretax earnings. These ranges are based on current tax legislation and they do not contemplate the impact of potential future tax changes being considered by governments in the U. K, the U. S. And Canada. Finally, I'll comment that NFI is not immune from the impact COVID-nineteen is having on global supply chains. Delays in supply production, global shipping and freight challenges and supply and demand imbalances for many parts and components, including a Worldwide shortfall of semiconductor chips have all created supply chain challenges. NFI does not source semiconductor directly, rather our chip requirements It's for parts and components that we acquire from suppliers. Bus and coach demand is much lower than automotive and truck OEMs and as a result, the shortfalls Have not had a material impact on our production, but a lack of consistent supply in parts and components could cause adverse impacts to NFI's remaining 2021 production schedule and parts sales. I'll now turn the call back over to Paul to discuss the factors driving our 2021 guidance and longer term outlook. Thanks, Patu. Turning to Slide 12, the Q1 of 2020 was a period I'm sorry, was a period that launched unprecedented government support for public transit in Canada, in the U. S. And the United Kingdom. In Canada, the government launched the largest public transit investment program in Canadian history that will see $14,900,000,000 invested in public transit with $2,750,000,000 dedicated for 0 emission procurements. The program includes $5,900,000,000 in dedicated project starts in 2021 And ongoing permanent funding of $3,000,000,000 per year beginning in 20262027. We're very excited about the development as based on our U. S. Experience permanent and predictable public transit funding gives transit agencies much better visibility so that they can and current and future multiyear procurements. In the United States, the proposed 2,300,000,000,000 American Jobs Plan includes an 8 program with $85,000,000,000 for public transit, dollars 174,000,000,000 to win the EV market And a commitment to replace 50,000 diesel transit vehicles with electric vehicles. The U. S. Government continues to work on a 5 year Invest in America Act, which is the proposed replacement for the current FAST Act, the federal act by which transit vehicles are funded in the United States. The U. S. Government's Coronavirus Economic Relief Transportation Services or SIRTS program was created to support This is an important stimulus for many of our private motor coach customers who saw significant declines in revenue from the pandemic And who are now starting to resume operations as travel, sporting activities and conventions return. In the UK, the government continues to unveil details of its national bus strategy, and we will see more than 4,000 zero emission vehicles put into service in the future. During the quarter, the Scottish government launched an ultra low emission bus scheme or SULEBs that provides funding for the purchase of electric vehicles. ADL has already received orders for 172 electric buses from operators using this program. In addition to these major funding announcements, On Earth Day 2021, each of Canada, the U. S. And the UK announced new major greenhouse gas emission reduction targets for 2,030 and 2,035. The combination of reduction targets and strong stable funding bodes well for NFI's near and long term success as we leverage our leadership position in core markets Although the proposed legislation announcements are encouraging for the future of public transit, we do not yet have all the details of when the proposals and funds will materialize and timing impact on orders and financial performance. NFI will continue to monitor and provide updates as appropriate through its quarterly and regular disclosures. On Slide 13, we provide an update on the North American bid universe. As mentioned earlier, an encouraging sign It's a 14% improvement in 1st quarter active bids as compared to the Q4 of 2020. A reminder that active bids are procurements where we have submitted a proposal and that are where we have submitted a proposal and that are already in progress or submitting a proposal that has been released, meaning they have most significant near term impact on awards and operations. The forecasted 5 year North American industry procurement developed through detailed discussions with transit agency was down slightly about 8% from the quarter of 2020. This decrease is primarily a result of the increase in active bids combined with the transit agencies revisiting their capital plans As they evaluate the impact of COVID-nineteen and they look to the new government funding announcements and adapt that to their 0 emission vehicle strategies. As customers evaluate their electric vehicle transition plans, some of those procurements for traditional propulsion slowed in the interim. We anticipate that the forecasted 5 year industry procurement will increase in 2021 as transit agencies and operators learn more about and are able to access the multibillion dollar government funding programs. As of 2021 and the end of 2021 Q1, 6,424 units or 27.5 percent of our total bid universe is 0 emission, highlighting the ongoing evolution I'll also note that in addition to the traditional request proposals and the procurements, We continue to see an increased usage of purchasing schedules, which includes state and national contracts and a cooperative agency purchasing agreements. These schedules allow multiple operators within the prescribed region or defined list to purchase buses, typically in an expedited basis. NFI is currently named at over 20 of these purchasing schedules either directly or through our ARBOC dealers. We've received more than 600 vehicle awards from these schedules since 2018, which highlights their growing use by North as an important procurement tool. Please note that these schedules are not recorded in backlog as they do not have defined quantities For NFI or any other OEM, once a customer makes a purchase under one of these agreements, the purchase The unit is immediately recorded as a firm order. Turning to Slide 14. NFI's projected trajectory over the coming years through 2025 targets as shown. We are well positioned for the near and long term with expectations for growth Getting to $3,900,000,000 to $4,100,000,000 in revenue and $400,000,000 to $450,000,000 in adjusted EBITDA by 2025. Our performance will be driven by 1st, our focus on bus and motor coaches. We've strong public and private customer base with long standing In addition, we will continue to grow new markets through Alexander Dennis and ARBOC. 2nd, we have This segment of the business will help underpin our 2025 targets. 3rd, we have the largest zero emission bus capacity in North America and the UK With proven track record in delivering electric vehicles and we will lead the market's transition to a zero emission future with expectations that 35 percent of our 2025 production will be higher priced and higher margin zero emission buses, more than tripling what we had in 2021 2020, sorry. 4th, NFI Forward has and will create volume leverage as we deliver high revenue on a lower fixed cost base. This is evidenced by our targets including an expected revenue CAGR of more than 8% with our adjusted EBITDA CAGR targeted at more than 16%. And finally, we will continue to invest in our business and return capital to shareholders. We are pleased with our 2021 Q1 And confident in our business recovery plan and our market outlook. I'll now turn it back to Stephen to summarize today's discussion And then following that, we'll open it up for analyst questions. Thanks, Paul. Turning now to Slide 15, I'll recap this morning's call. Q1 2021 was a solid quarter with signs of significant improvement in active procurement and we have the view that the market is on the path to recovery from the COVID-nineteen pandemic. We continue to see unprecedented government support for transit. This will help drive order activity and growth with a strong focus on a reduction of emissions. It's not a matter of if the future is electric, it is a matter of when. NFI is ready today for the transportation of tomorrow. Although we anticipate 2021 deliveries will remain lower than pre COVID-nineteen levels, we are positioned for market recovery and have already seen strong improvements from NFI Forward to Drive volume leverage. Following the Q1 equity raise, we have a much stronger balance sheet. Combined with our cash flow generation, we now have the flexibility to evaluate strategic investments to grow our 0 emission battery electric and hydrogen fuel cell businesses. We continue to innovate and disrupt ourselves and the market, and we are excited about the future of NFI. We've had numerous new product launches this quarter, including new battery and fuel cell electric models, North America's 1st Level 4 automated transit bus and Clean and Protect Parts products and solutions to keep riders safe. We are leading this evolution to a 0 emission future with strong 2021 guidance and 2025 targets that would see us drive top line growth and even better margin performance. Before opening the call to analyst questions, we want to recognize our very own Jennifer McNeil, Vice President of Public Sector Sales and Marketing for New Flyer and MCI. Jennifer was named 1 of 26 Climate Champions across Canada. She was recognized alongside others during a virtual ceremony marking 6 months to COP, The 2021 United Nations Climate Change Conference of the Parties and highlighting global efforts to tackle climate change. Jennifer has illustrated ingenuity in leading our industry leading zero emission future and she's been driving a driving force behind NFI's We'll now open the call for Q and A. Hilda, please provide instructions to our callers. Thank We have a question from Chris Murray from ATB Capital Markets. Thanks folks. Good morning and congratulations on the decent quarter. I guess the first question I've got is more going back to your comment about the fact that you're starting to see order activity pick up, and you noted the backlog, it Actually, you had some increase in the backlog. Can you talk a little bit for order intake over the next couple of quarters. And is there anything that you're seeing in that order intake It actually drives you above your guidance for 2021. Hi, Chris. Good question. Thanks for that. We in every one of our business, the order intake, the number of sold slots, the length of the contract, the number of units 2019 or 2015 for that matter. So that phenomena continues to happen. As we work through the year, for the most part, we work to Almost somewhere between 20 30 week kind of preproduction schedules, meaning we need we get an order, we go through the confirmed The design and specification of the vehicle, the customer, and then we do the non recurrent engineering and the supply chain building, sourcing and building so that we can build the bus on time. So the ability to exceed our performance and our guidance for this year is probably less than our ability Just given that time frame, our ability to manage that complexity. The other dynamic that Papaso talked about today is Like every other OEM in the world, we're all dealing with dynamics of chips and the impact it has on our supply chain. We're still in the middle The pandemic as much as we were seeing some areas of positive signs, we still have plants and suppliers that have been shut down as The result of COVID and then that start back up and so forth. So we reiterated our guidance of $220,000,000 to $240,000,000 on EBITDA. We know our schedules. We know where We have sold slots and where we have a little bit of uncertainty across all of our facilities. Having said that, The actual the number of discrete RFPs that are hitting the street is up. That's positive, which has translated into that increase in the bid universe. And of Now starting to see the recovery of the backlog, which is a really positive sign because as we hit COVID, it really just started to burn down and everybody kind of had pens down. So I would think by the time we get to the end of the second quarter into the third quarter, we'll have really Visibility of all the production slots for the rest of this year. And again, hoping at that point in time, we'll be confident we'll be able to reiterate our guidance at that point. Okay, fair enough. And then just kind of moving on, another quick question for you. I think I was a bit surprised at the Frankly, the strength of the shipments in Motor Coaches, it was probably we were expecting basically de minimis, so it's maybe Is there any signs that with the U. S. Appearing to be getting better, that that's going to be Or was Q1 more of just a flushing of existing inventory? Just any color there would be helpful. You've watched that market for a long time. And as of all of our markets, it's the one that not only slowed down as a result of the pandemic, it stopped, Which then led us, you'll remember last year to a decision to relieve ourselves, if you will, or liquidate the entire pre owned coach pool, which continues from our Perfective to absolutely be the right decision at the right time. Surprisingly, and again, we're seeing In opening up the Summit of America, the United Motor Coach Association, which has an annual conference that was canceled last year, they actually proceeded with their conference about 10 days ago or 2 weeks ago or so forth. The attendance was reasonable given that it was in person. The discussion and temperament and interest of the operators who are now starting to move again and starting to Pull out in terms of their vehicles is positive. We did sell some of the units. We have continued to be very stingy on the trade And very smart around the valuation of them. We still have the private motor coach production capacity idled. And as you know, we still have completed units or what we call fast tracks, spec vehicles that have been built, and we'll continue to burn those down. But I would say my outlook or gut feeling about the pace of recovery of Motor Coach And the pace of North American kind of opening up is higher today than it was 3 or 4 months ago. That hasn't yet really translated into a lot of buys yet. And of course, the biggest factor there is does an operator have the cash flow to be able to make the commitment? And what did they do with their own fleet? And then can they get financing for the purchase of a new vehicle or a pre owned coach vehicle? The other positive and I think it reflects in our Q1 results is that Brian Dussev's parts business here, NFI Parts actually had a pretty good quarter on the private as well as the public side, which kind of sends the signal that these guys are getting ready Start moving in a little bit more frequency at this point in time. Again, I think another quarter from now we'll be a little bit smarter on the pace of vaccination, the pace Opening up of the U. S. And maybe Canada to some extent and be able to give a little bit more color. But I'm more encouraged today than I was 3 months ago, for example. Okay, great. Just one quick question for you, just back to Steve's comment about looking at strategic options around electric bus. Is that More focused around things like supply chain or is that something where I know you've got the relationship with BYD internationally, but your competitor inside North America, but they've got some other call it But your competitor inside North America, but they've got some other, call it structural challenges with some of the regulations in the U. S. Is that kind of something that we should be thinking about? Or I mean any color Just on that comment would be helpful. Well, it's a really good question. And of course, that's the essence or the importance of our business right now is That transitioning and not to beat a dead horse, but we continue to see it as a evolution. It's not going to be a light switch. Therein lies Both the well, the strength of our business. If 0 emission goes faster, we build them on the same production lines, we can go faster. If Your mission takes longer to transition. We build the conventional vehicles. And so we have profit opportunity and performance opportunity regardless of the pace of change in that market. We're really pleased with the product portfolio. And if you've seen our announcements, I'm sure you've looked at them, Chris, over the last, let's call it, 6 months, right? We brought out the next Generation of the Excelsior Transit Bus. We just yesterday launched the officially launched a Electric Motor Coach, the guys in the U. K. Have a really progressive partnership with BYD on electric vehicles, but they So we're going to continue to electrify our portfolio, Pleased at the progress, really pleased at the performance that we're seeing on reports from Pick One Seattle or King County or Toronto and how we did relative to competitors. What Steve was referring to is that we just can't keep our heads in the ground. And so what we do in terms of supply chain, where we We manufacture our own batteries with modules that come from another provider that the ability to be a smart buyer of both Sales and battery packs and battery management system, those things to be able to be really agile as that changes is really critical to us. And then the other thing is we're getting pretty good, if you will, at managing that element of our business. And so we're not going to keep just Stayed or focused on where we are. We're going to continue to look for diversification and growth as we grow our business. Make no mistake, 2021 It's better than 2020, but we're still in the middle of a pandemic and there's lots of water that's got to go under the bridge before we're in a normal marketplace. Okay. Thanks folks. I'll pass the line. Thanks Chris. Thank you. Our next question comes from Nalman Sathiya from Laurentian Bank. So my first question is towards the active bids. I know that it's up in the U. S. Market, but if you could just provide some color on the U. Okay, Mark, I know you don't have an active Red Universe there, but are your sales team taking more meetings than what they used to take? Or what's the environment like in that market? It's a really good insight, Noam, because as you know, the U. K. Market took a kind of a hit similar to the Coach, where private operators pandemic hits, they're operating, cash flows are dramatically down And buying and order activity or fleet planning kind of was idled. The couple of things to point to. 1st, pre pandemic, the UK's national bus strategy and plan for 0 emission was kind of defined. Post pandemic now we're in the middle of it. The British government has actually started moving forward with actually deployment of their national bus strategy. The Scottish government has moved very quickly with the Sulebs money, which is tangible dollars right now. And so our sales teams in the U. K. Have actually been fairly positive and fairly busy Going out and trying to work with these customers because they kind of idled their purchase activity for almost a year to 1.5 years as we managed our way through the pandemic. So while we don't have the same kind of by the U. K. And the pace at which that market will recover. The fact that there's government money behind it is truly helpful to allow those private operators to Moving out. And the health of all those operators as you look in their public filings whether it's FirstGroup or Stagecoach or Areeva Go ahead. Are starting to see positive recovery not only in ridership, but in their performance financially. So short answer is Really encouraged by the progress we're seeing. Okay. No, that's great to know. And just on the supply side challenges I'm just wondering that in terms of timings and delays, that's one thing, but are you seeing any cost pressures as well because we have seen in Some commodities like steel prices have gone up. Are they impacting you on the cost side in any way or that's still the same? It's a really good question. So first, just on timing and delivery. Of course, Every business that works internationally or that buys either outside of their own country or wherever has logistic challenges, Has the whole computer chip challenge and the implications that has, supplier X that builds Y for us has shut Schedules, we've pulled units forward, we've pushed units back, we've level loaded our factories as best we can and that will continue. It hasn't materially affected our business, but we're eyes wide, wide open at trying to manage that. Of course, our quantities are nowhere near What you would see in a truck factory or a vehicle, a car factory. From a cost perspective, remember how the vast majority of our stuff is costed. We are bidding based on cost of bill of materials. And so the margin on the work that we are building Today was based on us developing a cost of bill of materials at some point previously at a certain cost point and so forth. Going forward as we see increases in either commodities, parts that have chips in them, whatever, we are then increasing the cost and then Therefore, increasing the sale price on bids going forward. So not to say it won't have an impact on us, but it won't be a material impact At this point in time, we don't envision. Okay. No, that's fair. That's good color. And just maybe a last one from my end. So you have reaffirmed your guidance. I'm just wondering that there's a component of government grants. How are you thinking about that? Let's say, if you if the Grant's fall off is the idea that going forward the revenue will be enough to absorb all those costs or you think that if the grants are not there you can take out those costs? Well, effectively the first part or the first statement you made is the way we're focusing. People could criticize us and say, hey, the only reason you exceeded your quarter or quarter expectations was because of government furlough schemes or government to wage Well, that's absolutely true. However, had we not had those, we would have been far deeper at cutting into the cost of our business. So the good news, I guess, is the Canadian SUEZ program or the UK FURO program are doing exactly what they're intended to do, which is keep the infrastructure, keep the team in place. So that's the good news out of this. We have not forecasted significant government subsidy forward into our guidance for the full year. So if our volume drops because we can't fill a slot or because we have to adjust because of supply chain whatever. You have to believe that the government wage subsidy programs will help bridge that gap to some extent. If our volume stays as we currently got has it forecasted and we don't get that subsidy, we still think we'll live in that area of guidance of 220 to 240. Did we how many are you still there? Yes, yes, no, that's great color. I'll get back into the line. Thank you. All right. Thanks, man. Thank you. Our next question comes from Maggie MacDougall from Stifel. Good morning. Hi, Maggie. Thanks for taking my question. So I'm wondering, looking at the slide in your deck, at all the various Government incentives put in place and it seems like there's new ones being announced every day in support of 0 emission transportation Development and growth, if you're starting to see any of those influence your backlog. So it was noted that 18% of your total Products and that's up from 6% at the end of last year. Wondering if this is just kind of natural movement or if some of these initiatives have actually started to push that up? Sure. So I'll start, Maggie, and then get Paul to jump in. So I think the one that we've seen so far initially has been the SULIB, The Scottish Ultra Low Emission Bus Scheme. So ADL was able to be named on 172 units in the UK and Scotland From that program. And then on the others, it's we're still I think everybody is still looking at what these government programs mean and what the funds are going to mean. I think overall outside of the recent government announcements, we are starting to see agencies make that migration from Before they were doing pilot programs or smaller initial electric bus testing programs. And now so that was kind of 5, 10, 15, 20 units. Now they are starting to move towards kind of more of the 50 to 100 unit type orders, but that migration is going to continue to take time as bigger cities Kind of do those initial orders for larger EVs and then secondary cities will take more time over multiple years. And I think that's what a lot of this government grant money and government support money. It's a long term vision, to drive adoption and to drive 0 emission So we haven't seen a lot of drive yet in 2021, but I think we expect we'll see increased order activity in the second half of the year And then through 2022, through 2023 and beyond. Maggie, Paul, just a little bit color to add to Stephen. The reason the Scottish program has grabbed immediate traction is because they're private operators that So their ability to take the announcement and convert that to an order is a matter of days, weeks or months, as opposed to North America where a government announcement then has to trickle into a process of what the actual program looks like. And then the transit agency has to adapt or modify or embed In their actual fleet replacement plan, then they got to put an RFP on the street. So all this stuff to us is encouraging about the next chapter, meaning really more 2022 And beyond that it is really going to affect 2021 where they're not private operators. Okay. Thank you, guys. Thank you. Our next question comes from Jonathan Lamers from BMO Capital Markets. Good morning. Hi, Jonathan. Paul, hi. On the Excelsior ChargeNG, You mentioned that New Flyer is assembling its own battery packs. Is New Flyer also assembling the modules? And what other parts of the Powertrain is new Flyer doing in house now? No, that's a good point. So If you walked I know you've been there, but if you went to our for example, our Anniston, Alabama facility, you would see a dedicated cell set up in the plant where we buy Today that module comes from Exalt Energy and the battery management system associated with it comes from Exalt. We then are taking those If you will, and embedding them into a we nickname it Juice Box, but effectively a battery container with Manufacturing of the ultimate pack that goes on the bus and buying the component modules. As I think we've talked in previous calls and investor We continue to look at the strategy associated with cell sourcing and ultimately where that comes. We today use pouch cells in both our new flyers, our Equis sorry, our Equis charges and our NCIs. And we are clearly evaluating back to my point in kind of our initial discussions, our desire at this point Just because of the pace of change, the cost reduction, the global manufacturing dynamics, we're not going to be in the cell manufacturing game. In In some cases, we may want to be into the sell packaging game, but today we are not. And we want to be the smartest agile buyers. Now with respect to the other stuff, our largest partner for example on the New Flyer program standpoint is Siemens. So we will buy the powertrain and the electric motors and other things from Siemens to be part of that. So our job is effectively to be the system And for the 0 emission transit bus work, Are you finding that the customers are more amenable to a standardized bus model? Or do they continue to require highly customized specs like Certain seat layouts and component systems. I know you and I have actually had this conversation a number of times. We have not seen any progress towards a standard seat layout, a standard window tint or The standard camera layout, a standard whatever. And so therein lies That continued challenge of production and engineering and sourcing efficiency, the good news is that's what we're built on. That's what into our vehicles and then getting into service and then of course supporting them through that. And of course every customer is different. I can honestly say that we haven't yet seen Any progress towards the like my buts and how many do you want, whether it's in the U. K, even in Asia or North America In any way, shape or form, we still see a massive degree of customization. And of course, in today's environment where the orders are have been smaller, The nonrecurrent engineering for a 5 bus order is the same amount of time as the nonrecurrent engineering for a 50 bus order. Therein lies some of the challenges around Flexing the cost base, the other dynamic is that we have a cost base that today supports conventional buses, but also a cost base that's supporting 0 emission, Which is why this NFI initiative was so important to really take a bite out of our overhead in SG and A and that's been very successful. Thanks. I would think the customization is a real competitive advantage and barrier to entry for New Flyer. And just a quick question on the Slide at the end with the market share gains for Coach and ADL, those were very impressive in 2020. Have any of the competitors left those markets? Look, I'm just thinking about your 2025 guidance and what you might be assuming for the shares there? It's a good question. We haven't seen anybody leave. We've seen Everybody stumbles, us included, if you will. The market share on New Flyer It continues, I think, really to be underpinned by the fact that we can sell any kind of propulsion today and not all of Competitors can do that. Some of them can only provide a battery bus, some of them cannot provide whether it's an articulated or a double deck. In the motor coach space, I think we have softened the blow on our business, way selfishly or maybe Intra looking, but better than any of our competitors. And we the fact that we now have New Flower and MCI together as one operating entity and Able to take cost out our ability to kind of manage our way through that to continue to provide the field service support and all that parts has been really, really good. The U. K. Market, we haven't seen anybody leave. We saw one company out there that's owned by Ashik Leyland, let's call it stumble a little bit on some of their issues. We saw one of the other competitors, Wright Bus, go through a Chapter 11 or an administration process and Is recovering really betting their business to some extent on a hydrogen future where we continue to believe we've got to be propulsion agnostic. So Long way of saying nobody's left. I think some of them are hurting way more than we are. Again, pleased the fact that we're A diversified business that we kind of handle the blows and the punches to some extent better than anybody else has. Yes. Like I guess Paul, the only one I know Van Houle a few years ago had They've thought that. But they haven't left the market. They're still importing vehicles from Macedonia, which in itself causes some challenges, But nobody's left. Thanks for your comments. Thanks, John. Thank you. Our next question comes from Cameron Doerksen from National Bank. Thanks. Good morning. Hi, Ken. So a question for Paphaso, just on the, I guess, working capital in Q1. I guess, the Cash flow investment and working capital was really high, I guess, mainly due to the payables change. Just wondering if there was something unusual there And if you could maybe update us on your expectations for working capital investment for the full year. I think previously it was kind of expected there'd be a modest, I guess, investment in working capital, but just wondering if anything has changed? No, I think to your point, Cameron, just a couple of As you know how our year ended last year, it was a little bit of a timing thing there with our payables. So we did pay those I can take care of those early this year was 1. Number 2 is, I think from a full year perspective, we are still expecting to have Some of the from a full year perspective, we do expect to have some cash tied up with working capital like we've kind of stated in the Especially with our EV moves. Yes. And I think Cameron too In Q1, I know we were carrying some of that inventory that we had on some of the private coaches and Retail coaches in the UK that were from order deferrals and stuff from 2020. So some of that was heightened in Q1 2021. Okay. Okay. That's good. Second question, just on the Double Deck Order that you have in Berlin, you highlighted that one in your prepared remarks. I guess maybe the I guess you were originally thinking about Ultimately, assembling that bus with a site in Continental Europe. I guess the plan, and maybe correct me if I'm wrong, is to build all those buses on that contract in the UK. I'm just wondering if ultimately you may need to have some sort of assembly capability on Continental Europe if you're going to pursue additional contracts there? Yes, great question, Cam. And here's the way we looked at it. As we were able to successfully acquire ADL in May of 2019, Looking at the demand we expected in 2020 for the UK, we thought that our capacity might be a little bit challenged. And so that's why we started looking at a Continental build. The second issue was the uncertainty around Brexit and what it would mean for import or export duties or Challenges in terms of moving parts and solar and solar. Of course, with Brexit behind us and with now a little bit more color at the pace of the UK recovery, What you stated is exactly true. We really think we can continue to build these things cost effectively in the UK and deliver to Berlin. Longer term, as the UK market gets back to some maybe fuller sense of normal, there is a scenario that could mean Continental build. At this point in time, all we're doing is really assess continue to assess our options. We've looked at a number of sites. We've talked to a number of partners. And if we needed to pull that trigger, we've got some cards to play. At this point, we are really focused on the efficiency and profitability of the UK Building both for the UK market as well as Continental Europe market. And that Berlin contract is a big, big deal. The incumbent was a German company. And so for us to walk in, deliver or the ADL team deliver a couple of pilot buses that performed as And there are still a couple of 100 options on that contract. So really encouraging for the team. Okay. So you don't you would not expect that say for future orders in Berlin or other German cities say that the contract requirements would require local assembly? It doesn't seem as We have not seen that. Now of course protection dynamics around the world on the recovery has A lot of different places and ours included a lot of industries. At this point in time, we don't have a build in Germany or a build in Europe requirement and quite honestly haven't seen talk of that at this point at all. Okay. Our next question comes from Daryl Young from TD Securities. Thanks. Good morning, guys. First off, just with respect to following up on the Europe discussion. We've seen some big headline numbers on hydrogen investment in Europe. And just wondering if you've seen any shift. And I think you actually mentioned one of your competitors is Sort of banking on the hydrogen shift, but if you could just maybe talk about the dynamics there versus full battery electric and what you're seeing on the ground? Yes. So let's focus a little bit to start on the U. K. Market. There are some hydrogen buses being sold in Today, the most of the EVs or 0 emission buses are batteries. And of course, our strategy today continues to be to work with BYD. And And deliver them. In the evolution of the propulsion system strategy at Alexander, Dennis, Paul Davis and the team are building on New Flyer's success Of embedding hydrogen fuel cells into a double deck vehicle. And I believe By the end of Q4 of this year, we'll be in trials on that vehicle. It It's an interesting opportunity. This strategy of being propulsion agnostic continues to play well for us and we continue to believe there There is no one size fits all. In Continental Europe, where today we are really a niche player, right? We've sold double decks into Switzerland, Now into Germany, the ability to provide a diesel going forward to build a clean diesel or a battery electric vehicle Or now the hydrogen fuel cell, I think is going to be important. We're not going to be selling buses in every city in Europe. We are very much where there's high volume, High density and we're double decked makes a whole bunch of sense in there. At this point in time, we really don't have a single deck strategy for Europe. The ability to provide hydrogen will play well. And of course, all you got to do is get involved in the debates about whether hydrogen makes sense in the future, whether it's blue or green hydrogen, Where they get it from, do they make it themselves and so forth, that has to play out in every municipality and the politics of every country and region. But the ability to provide that, I think, is important for us, and we're going to do it. Great. And then just one more. With respect to some of the new players that have entered the market through SPACs or other means, can you just remind us How long the process is to get a Buy America compliant bus and whether you've seen any New entrants looking to start that process? So just to go back to step 1 and not to be Too simplistic about it. There is no certificate from the government that says you're Buy America. We've heard some people talk about I am Buy America compliant. Well, quite honestly, every contract, every build has to be Buy America compliant and meet 2 major criteria. 1 is The content, the material content has to be a minimum now of 70%. And the second thing, there's a whole bunch of tasks That physically must happen in the United States for it to be by America compliant. Simple example, we can't put a door on a bus that's built in Canada because That has to be physically done in the United States. There's a whole list of tasks. So that's the ground rules at which we play. That's how we've evolved our business. That's how we've evolved our supply chain over That's how we've moved some of the fabrication capability to our facilities or to suppliers in the United States. From Art up story, if you will, or a new story, not to pick on them, but our friends at Proterra, for example, that business has been around for, I think, 14 or 16 years. They have 600 vehicles on the road in that period of time. And of course, their supply chain, their manufacturing, just like everybody else have to evolve The bigger issue then is to be able to access the federal funds is all of those vehicles actually have to go through the Altoona track testing, which is The sanction tracked by the FDA and getting through Altoona can be up to a year long before that happens. And it's not like you test 1 bus and they're all passed. Every different variant has to be tested to the Altoona standards. So the ability to scale from a new startup or so forth is not as simple as It may seem on paper. In terms of startups or new guys that have come through SPACs, We saw Proterra go through or in the process of a de stacking process, but they're already in the place in the space today. Lion Bus, for example, another Canadian company that's in the process of destocking, they don't make the kind of vehicles that we make. So that's not really a competitive dynamic. The only one the other one that has come through the SPAC process that really maybe is targeting some of our opportunity is a company called Arrival, A UK company that went through de stacking process. I think they're complete now and are talking about delivering a single deck Low floor transit bus. There is no announced plans for them of testing that in North America. I know they're going to be testing their single deck Vehicle, I think it was a customer in the Q4 of this year. So again, sorry to ramble a little bit, but is that a little bit of color of kind of the it's not like a guy shows up and says, do you like my bus? How many on tomorrow. Yes. That's great color and fits with what I was expecting. So a longer much longer Thank you. And at this moment, we show no further questions. I would like to turn the call back to Mr. King for final remarks. So we do have one webcast question. I'm Just going to read that aloud and then we'll wrap it up. So our webcast question, how can NFI move quicker To take advantage of the EV momentum in terms of manufacturing ramp up and profitability. It's a good question. If you dive deep into our materials and our business, we are already delivering 0 emission vehicles on all of our production Facilities in all of our models. So it's not like we have to create a new product. The second issue then is, if EV adoption goes faster, We then will we don't have to convert our production lines anymore. We've already made the investment to build a diesel, a hybrid, a natural gas, an electric trolley, a fuel cell or All on the same production line. And so we're talking about mix change on the product line as opposed to having to change the product lines. We've already invested in all the charging or hydrogen infrastructure in our facilities to be able to fuel buses or charge buses and so forth. We've already trained all of our sales force and field service teams to be able to support those products in the field. So kind of the way we've positioned our business is, if it goes faster, we're ready. If it goes slower, we're that's the business we're in today. We will continue to push and evolve the product introductions as the market changes, as battery technology evolves, Electric Motors and Systems and so forth as well. But it's not like we have to turn our business to capture the market share going forward. We're already playing that game, in fact, leading it in market share today. So thanks for that question. I think it came from a gentleman named Phil Simpson. Thank you. Right, back over to you, Steve. Okay. Thanks, Paul. So thanks, Paul and Pobasu and everyone for joining us today. Before we wrap, just want to remind everyone that we'll be holding our Our Annual General Meeting virtually at 1 pm Eastern. Details on how to join are posted on our website. And I'll also note that our 2020 Environment, Social and Governance Report or ESG will be released later this month. You everyone for joining us today. We will now terminate the call.