Earnings Call: Q4 2019

Mar 12, 2020

Ladies and gentlemen, thank you for standing by and welcome to the NFI Group Inc. Q4 and Fiscal twenty nineteen Results Conference Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer session. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Mr. Stephen King. Thank you. Please go ahead. Thank you, Karina. Good morning, everyone, and welcome to NFI Group's fourth quarter and full year twenty nineteen results conference call. This is Stephen King, NFI's Group Director, Corporate Development and Investor Relations speaking. Joining me today are Paul Subri, President and Chief Executive Officer Glenn Asham, Executive Vice President and Chief Financial Officer, who after twenty eight years retires this month and his successor, Papasu Soni. For your information, this call is being recorded and a replay will be made available shortly. On this morning's call, we'll be walking through a new financial results presentation that can be found in the Investors section of our website. We will call out the slide number referred to as we walk through the presentation. Starting with Slide two, I'll remind all participants and others that certain information provided on today's call may be forward looking and based on assumptions and anticipated results that are subject to uncertainties. Should any one or more of these uncertainties materialize or should the underlying assumptions prove incorrect, actual results may vary significantly from those expected. You are advised to review the risk factors found in NFI's press releases and other public filings on SEDAR for more details. During today's call, we will be highlighting certain fourth quarter and full year twenty nineteen results and provide comparisons to the same periods in 2018. In addition to the new results presentation, we encourage all participants to review the full year audited consolidated financial statements and the associated Management Discussion and Analysis, also known as MD and A, and press release that are posted to our website and on SEDAR. We also want to remind listeners that NFI's full year consolidated financial statements are presented in U. S. Dollars, the company's functional currency, and all amounts referred to are in U. S. Dollars unless otherwise noted. Finally, we note that ADL's financial results have been incorporated into NFI's operations from the acquisition date of May 2839 onward. The MD and A includes historic financial information as well as the separated post acquisition ADL results. Readers will note an enhanced approach to reporting, which follows extensive discussions held with our coverage analysts and various investors to learn from best practices, streamline our reporting and improve the readability of our materials. On this morning's call, Paul will start with 2019 highlights, Glenn will take us through the financial results, Vipassa will review our balance sheet, backlog and 2020 guidance. And finally, Paul will provide some market insights, comment on COVID-nineteen, also known as coronavirus and discuss NFI's outlook. Following that, we'll open the call to analyst questions. Turning to Slide three of our presentation, we explain the implication of NFI's adoption of IFRS 16, which took effect December 3138. IFRS 16 is the accounting standard, which specifies how to recognize, present and disclose leases. This standard provides a single lessee accounting model requiring lessees to recognize assets and liabilities for all major leases. We have elected to utilize the modified retrospective approach in adopting the standard and accordingly comparative information for 2018 has not been restated. All Q4 twenty nineteen numbers reflect the adoption of IFRS while the comparative numbers have not been restated. Our MD and A clearly identifies the impact of the adoption of IFRS 16 on our financial results and I recommend listeners review that information. The table provided on this slide gives a summary of IFRS sixteen's impact on our Q4 and full year results. I'll now pass it over to Paul Subri to provide highlights for fiscal year twenty nineteen. Thanks, Stephen, and good morning, ladies and gentlemen. Like Stephen, I'd like to recognize Glenn Asham, who is retiring later this month. In more than twenty eight years at NFI, Glenn has seen it all and has been tremendously loyal friend and partner. We wish him well in his retirement with his lovely wife, his children, grandchildren and his snowmobiles. I'm also very pleased we've been able to attract someone of Popasu Sony's education, experience and background to join our team. Glenn and Popasu have worked together for the past two point five months on a seamless and orderly CFO transition, and I'm thrilled with the progress that Papasu and Stephen King and our finance teams have made on enhancing and clarifying our reporting materials. So I'll refer now to the deck that Stephen talked about. I'm on Slide four of our results presentation. The 2019 was a milestone for NFI as we delivered a record eighteen forty five equivalent units, our highest quarterly revenue and adjusted EBITDA ever, which was primarily driven by the transformative acquisition of Alexander Dennis Limited or ADL, plus substantial quarter deliveries from New Flyer, MCI and ARBOC. As investors will know, we were challenged with increased work in process or WIP for most of 2019, resulting from the ramp up delays at our new Kentucky based Park Fabrication Facility or KMG and the learning curve associated with several new malls entering the vehicle production at both NFI or sorry, both New Flyer and MCI. As projected, we reduced the majority of the excess WIP inventory and actively managed accounts receivable in the quarter, which significantly lowered our debt and total leverage. Leverage declined by over 50 basis points from a peak of 3.75 times at the end of the third quarter twenty nineteen to 3.24 times at the end of the year. The strength of the fourth quarter has provided us with increased confidence as we look forward to 2020 and our focus on growing top line revenue while driving adjusted EBITDA, free cash flow and earnings per share improvement. In a few minutes, Vipassio will discuss our 2020 outlook, but it's important to note that as our business has evolved with a broader product mix and increased geographic diversification, we've decided to provide financial guidance for 2020 rather than units by model type. We've made this change to assist analysts and investors to gain a holistic understanding of our more diversified global business and to minimize the complexity around trying to project specific quarterly performance. On Slide five, we outlined our record delivery performance for 2019 with all product lines reporting significant improvement in the fourth quarter. I will note that heavy duty transit includes both New Flyer and Alexander Dennis units, motor coach includes MCI and Plaxton motor coaches and of course medium duty and low floor cutaways is restricted to ARBOC. With that, I'll now ask Glenn to take us through the detailed financial statements. Thank you, Paul, and good morning, everyone. I'm thrilled to participate in my final quarterly results call with NFI. It has been my honor and privilege to be part of this wonderful little privately held Canadian bus company that has grown up to become a world leader. Turning to Slide six. The fiscal twenty nineteen NFI reported record revenue of US2.9 billion dollars an improvement of 15% from fiscal twenty eighteen. The increase was driven by the addition of ADL and strong fourth quarter, somewhat offset by lower deliveries from Newflower, MSI and ARBOC during the 2019. Fiscal twenty nineteen adjusted EBITDA was $322,000,000 an improvement of 2% from 2018. Adjusted EBITDA increased due to the strong fourth quarter results and the addition of ADL, offset by challenges earlier in the year related to chassis supply to AARBOC, the learning curve challenges of new products at New Flyer and MTI, ramp up challenges at TMG and margin pressure within the coach business. Adjusted EBITDA as a percentage of revenue declined from 12.5% in 2018 to 11.1% in 2019. This change was driven largely by the addition of ADL, whose global business has a different margin profile than NFI's traditional North American business and the previously mentioned operational challenges. Turning to segment results on Slide seven. The Manufacturing segment saw significant growth in revenue and adjusted EBITDA in the 2019 with total revenue of $8.00 $1,000,000 up 39% from the prior year and adjusted EBITDA of $86,000,000 an improvement of 18% from 2018. Full year revenue was up 16% to $2,500,000,000 while adjusted EBITDA was down by $20,000,000 or 7%. Slide eight shows the aftermarket business, which saw significant revenue growth in both the quarter and on a full year basis, with improvements of 3711%, respectively. This growth was driven by addition of ADL and positive product mix offset by reduced citrus sales part sales due to Daimler's 2018 cancellation of MCI's Distribution Rights Agreement, or DRA, relating to the distribution of Daimler's Setra motor coaches and parts. Aftermarket adjusted EBITDA grew by 6% in the fourth quarter and 1% for the full year, as additional top line growth and stronger product mix was offset by the addition of ADL's selling, general and administration costs and decreased contribution from lower set for part sales. Turning to Slide nine. NFI's fiscal twenty nineteen net earnings per share of $0.93 decreased by 64%, primarily as a result of adjustments for purchase price accounting related to ADL, higher interest as a result of acquisition of ADL plus the buildup of work in process and higher income taxes. Adjusted net earnings of $1.65 per share, which is normalized for the non recurring, non cash accounting adjustments related to ADL plus strategic corporate costs, restructuring, equity sale compensation, historic tax adjustments, past service costs and the impact of unrealized gains and losses on interest rate and total return swaps was down by 39%. A reconciliation of net earnings to adjusted net earnings is provided with additional details in the appendix to the presentation. I'll now turn the call over to Papasu, who will discuss our balance sheet, cash flow and forward guidance. Thanks, Glenn. It's great to be part of such a dynamic organization. Picking up on Slide 10, NFI Group is pleased to report that our fourth quarter execution efforts successfully achieved our goal of lowering total leverage. Leverage at the 2019 was down by 51 basis points to 3.24. We continue working towards our target total leverage range of two to 2.5 times, which is expected to be achieved approximately eighteen to twenty four months post the acquisition of ADL. The company's track record of deleveraging following a significant acquisition is evident from this chart. Turning to Slide 11. As illustrated in the table, NFI's free cash flow for 2019 improved slightly due to higher adjusted EBITDA and lower cash capital expenditures, offset by increased interest and taxes. Declared dividends grew by 18%, driven by NFI's increased dividend per share rate of 1 point dollars 7 With the increase in dividends, the fiscal twenty nineteen payout ratio was 50%, up from 43 in 2018. As NFI continues to focus on debt reduction, the Board expects to maintain dividends at the current rate for 2020. Although such dividends are not assured, potential dividend increases will be considered going forward as total leverage is decreased per the ADL acquisition plan. From the chart on the right, NFI's return on invested capital metric or ROIC decreased to 9.7%. The decline in ROIC was a result of several factors including margin pressure within the coach business, poor performance of KMG, the recovery efforts to burn down the excess WIP caused by KMG parts disruption, the learning curve on new models, increased investment invested capital related to the acquisition of ADL, which has a different mix and lower EBITDA margin profile than NFI's legacy operations, and as previously mentioned, accounting adjustments and onetime strategic project costs related to the ADL acquisition. Turning to Slide 12. We have provided a pre and post ADL acquisition revenue profile by customer, geography and product category. The graphs clearly show that following our acquisition of ADL, NFI's business is significantly more diverse with broader product offerings of vehicle types and aftermarket parts and operations in more than 10 countries. We have diversified from being a North American public transit vehicle manufacturer to a diversified global bus and coach business with nearly 20% of our revenue generated outside of North America and 30% coming from private customers. Turning to Slide 13. We've highlighted our backlog, which represents one element of our business stability over multiple years. For 2019, year ending backlog was 10,742 EUs with a total value of $5,200,000,000 The middle chart of the page highlights the age of the options expiries that extend out to 2024. While NFI's backlog is primarily related to our North American heavy duty transit operations within New Flyer and ADL, MCI and ARBOC both started 2020 with a strong firm order backlog. As Paul mentioned at the start of this call, we have now decided to provide financial guidance for fiscal twenty twenty, including a range adjusted EBITDA. The detailed guidance ranges can be seen on Slide 14. I'll provide some clarification on how these ranges were calculated and some context on the potential outcomes that can impact our guidance. Adjusted EBITDA for 2020 of $320,000,000 to $350,000,000 is based on our expectations of mid teen revenue growth, assisted by a full year of ADL operations, our existing vehicle backlog and anticipated new vehicle orders plus margin improvement as NFI's KMG parts fabrication facility shifts from a loss position to profitability with operations no longer delaying new vehicle production. The guidance range does not include any potential impact from COVID-nineteen, which Paul will discuss. While we do not anticipate a repeat of twenty nineteen's challenges, the lower end of our adjusted EBITDA range is based on scenarios where production is negatively impacted by some of the same factors we experienced this past year, plus any additional weather delays and supply disruptions. We expect our cash capital expenditures in fiscal twenty twenty to be between $45,000,000 and $55,000,000 following elevated periods in 2017 through 2019 for growth projects, with the majority of 2017 spend being maintenance projects. Our adjusted effective tax rate is anticipated to be between 31% to 33% based on NFI's corporate structure, operating jurisdictions and existing and proposed tax legislation. It excludes the impact of purchase accounting, adjustments related to the acquisition of ADL and other one time items, which may increase the expected ETR. We continue to expect free cash flow conversion to be in the range of 45% to 50% of adjusted EBITDA based on our historic experience. Before handing it over to Paul, I want to highlight that I've included a few appendices in our deck to assist with your review. Financial highlights summary for the fourth quarter and a full year 2019 and non IFRS reconciliation tables for both 2018 and 2019. With that, I'll turn it over to Paul. Thanks, Patasse. As you've heard throughout this call, we achieved a record fourth quarter twenty nineteen and we executed in our wood production plan. We're pleased with our performance and optimistic about where we go from here. Overall, our end markets performed in 2019 as expected, and we are the market share leader in all of our core markets. According to industry sources, the North American heavy duty transit market delivered 6,753 EUs in 2019, up 4% over 2018. Newflower market share was 41.2%, down slightly by about 1% from previous year, mostly as a result of previously mentioned operational challenges we experienced in the first March of the year. According to the American Bus Association survey, the North American motor coach market had 2,053 deliveries in 2019 and as expected was down about 10.2% over 2018. The good news MCM market share was 46.1% or up 1.2% from 2018 as our new models continue to penetrate the market. While ADL operates in a number largest is The UK transit market where data is calculated based on new vehicle registration data provided to the Society of Motor Manufacturers and Traders. As anticipated, the market was down 13% to seventeen twenty eight EUs delivered in twenty While '19. ADL earned an incredible 72% market share in The UK, up 5% from 2018. Other ADL markets remained broadly stable with Hong Kong moving past its peak delivery cycle. Zero emission buses accounted for 7% of all ADL-twenty nine deliveries and ADL remained the market leader in U. K. Zero emission buses. Overall, we continue to have a positive outlook on our end markets as public transit remains a primary method of transportation for millions of users. The age of the population is increasing and numerous jurisdictions are implementing strategies to improve accessibility through advanced mobility solutions while improving air quality through the migration to zero emission propulsion technology for both buses and coaches. While the overall outlook is positive, we do anticipate continued competitive pressure in some areas with softness in subsegments and geographic regions. The timing of zero emission bus transition is expected to continue to impact projected awards delivering margins during fiscal twenty twenty. In addition, we continue to anticipate several contract wins, but with smaller firm numbers per order. Increased use of state contracts for procurements and fewer long term option orders as agencies increase their purchases of ZEBs, but want to maintain flexibility and propulsion type during their transition. Overall, these market dynamics play into NFI strength of being propulsion agnostic on proven platforms for bus and coach. While there are significant discussion about the adoption of ZEBs and the entrance of new competitive offerings of all electric bus manufacturers in North America, in 2019 ZEBs represented 8.9% of the total market. So while it has grown, it still remains a relatively small segment. We're proud of our leadership position in ZEBs and the fact that all of our facilities can now manufacture zero emission buses, which we believe will provide us a competitive advantage as the market grows. To say we've been pleased with the addition of ADL to the NFI Group is an understatement. We continue to see this transformative acquisition as a platform for growth with ADL being the largest bus and coach provider in The UK and the global market leading on double deck vehicles. With an established presence in numerous geographic jurisdictions. While conversion to IFRS is behind ADL and the synchronization of many of our policies are now deployed, our investment case continues to hold strong. As many of the pieces of the world leading diversified bus and coach company are now in place, New Flyer, MCI, RBAC, ADL and NFI Parts, we can now pivot our attention to focus on overall sourcing opportunities, overhead cost efficiency, leveraging shared technologies and building on our combined strength. Like the entire world, we're well aware of the COVID-nineteen or coronavirus. While NFI has been experiencing some minor supply delays, the virus has not yet materially impacted NFI's production operations nor has the company experienced any adverse impact on delivery of our products. Additional supply delays and possible shortages of critical components may arise if the disruption of certain suppliers' operations and or their subcomponent supply from China or elsewhere continues to escalate. Such occurrences or negative impacts of the outbreak on customer demand for products could potentially have a material adverse effect on NFI's operations. NFI is monitoring the dynamic situation, actively accessing supply chain alternatives and developing appropriate mitigation plans. We've implemented policies for essential travel only and deployed employee awareness updates and advanced hygiene programs at all of our facilities. We've also deployed expanded IT capability, LAN capability and put remote work concepts in place where appropriate. From a customer perspective, it's hard to generalize. While every operator is different, some insights are possible for each of our major segments. First, and as you might expect, all operators are laser focused on the health and safety of their employees and customers and are cleaning and disinfecting their vehicles multiple times each day. In North America, we have not seen any impact on public agency bus procurements, but if the virus continues to spread and prevention policies are put in place, things like travels and inspectors could impact our builds or our bus and coach delivery and acceptance. Private North American operators are seeing reduced ridership in certain segments, mostly in the line haul and tour and charter space. If this reduction continues due to the spread of virus, it could potentially impact demand of our new and pre owned motor coaches. Some of our international customers are experiencing reduced ridership. While these customers are providing a public service, most if not all are private companies and many are publicly traded. Due to the commercial pressures, if significant reductions in ridership continue, it may delay capital spending decisions and therefore potentially delay fleet replacement plans. Having said all that, I want to reiterate that to date, we have not seen any material impact on vehicle manufacturing or deliveries or orders from COVID-nineteen at NFI. Finally, NFI parts business continues building momentum from Q4 twenty nineteen and is showing a strong Q1 twenty twenty. With respect to COVID-nineteen, a number of our customers are now reaching out to check if NFI will have sufficient supply on hand to support their spare parts needs going forward. And again, to date, no major impact has been experienced. Given that it's nearly impossible to forecast to accurately forecast the impact of COVID-nineteen on NFI, the company has not included any adjustments related to the 2020 guidance that Papasu provided or any other outlook information contained herein or in our MD and A. Anyone that has watched NFI over the past few years will know that our business experiences seasonality due to the nature of each of the unique market segments and the varied annual production and vacation schedules of each of our production facilities. We continue to expect that the first quarter will be the company's slowest period with potential to be slightly down or flat to prior year with increased activity expected to occur in the second, third and fourth quarters. As always, vehicle deliveries may shift from quarter to quarter depending on timing of client inspections and each customer's own unique acceptance processes. To summarize, I'll turn to Slide five sorry, Slide 15 in our deck. After a challenging year, we finished 2019 strong and now have our whip under control across NFI Group. KMG is stabilized and we are profitable in 2020 and will be profitable in 2020 with continued post upside sorry, post-twenty twenty as it begins to manufacture parts for other NFI Group companies. ADL has been a tremendous addition and we look forward to the growth that they can provide us. We lowered our leverage and that we expect that continue with a plan to get back to our targeted two to 2.5 times range driven by strong adjusted EBITDA and free cash flow performance, all while continuing to pay a healthy dividend. As we look to 2020 and beyond, our business case is poised for growth in both top line, adjusted EBITDA, free cash flow and earnings per share. Ladies and gentlemen, thanks for joining this call. Together with the collective experience of over four twenty two years of design, building and supporting bus and motor coach experience and more than 105,000 vehicles on the road every day. More than ever, we're proud of NFI's history and we're excited about our future. We'll now open the line for questions. Karina, please provide the instructions to our callers. Thank you. Your first question is from the line of Chris Murphy from AltaCorp Capital. Please go ahead. Your line is open. Thanks, folks. Good morning. Guys, we just talked maybe a little bit about the guidance and just maybe if you can give us a little bit more granularity on some of the moving parts that get in there. So I think as you said, kind of some revenue growth expected. I was wondering if you can give us some color on how you think that's going to move between the parts business and the manufacturing business. And as well, just what kind of sight line do you have in terms of the loading as we go into 2020? Thanks, Chris. Paul here. So you know and all the other analysts know as part of our discussions and survey and reviews of how to approach guidance given this mix of a business. The way we built it up is we went back to every single of the business units. We looked at mix of units. We looked at margin in the firm portion of the backlog, margin in the options we expected to convert and margins that we expected to bid on proposed contracts going forward. We then kind of had an upside downside for each of the businesses. We rolled that all together. So as we said in our speaking remarks this morning, we expect kind of a mid teen growth that is a blend of both the manufacturing and the parts business. Now the parts business itself has a different dynamic going forward because now we add the blend of ADL's parts, which is a combination of The U. K. Parts business and the North American parts business rolled up into one total parts sales type roll up from an overall company perspective. The units makes it very difficult given average sales price, average mix, now geographic differential on mix. For example, the margin in the Hong Kong or in Singapore is different than The UK, which is different than North America and so forth. We try to embed in the margin discussion and our margin range that recovery from KMG from a loss making to a breakeven to a profitable business and that's been rolled into that upside downside, if you will, on the range of the EBITDA for the business. Does that help? Yes. I guess what I'm trying to get an idea of is you're putting out some numbers there, to your point, the I'm trying to gauge the confidence you have of how much of the year is already filled and ready to roll. And so you're basically just your point rolling up kind of some known knowns as opposed to trying to figure out where to fill the rest of the year? All right. So we don't obviously and have always struggled a little bit of disclosing a percentage of slots sold versus the total slots open and so forth. Maybe some color by business might help. The New Flyer business, as you know, is a complete contractual business. We've seen a migration over the last couple of years from large multiyear contracts with very large procurement quantities that help fill up big blocks of the schedule over the year. Chris has challenged in the last couple of years with those smaller total orders, but also smaller firm and a smaller backlog element of it. As we start 2020 and as we started this year, the portion of slots that New Flyer has sold relative to total slots is about the same as it was last year. And so the vast majority of the year is filled. Chris and his team still have a number of units that need to be contracted in the, say, call it the next sixty or ninety days that would fill out the total manufacturing schedule for the year. But we're in a pretty good place. Having said that, the whole world now with coronavirus and so forth adds an element of uncertainty. NCI, a different business now. NCI, as we know, is roughly two thirds to three quarters commercial customers, the rest being public operators. The public portion of MCI is effectively booked for the year, so it's far more of an execution story. The private side of the business is a combination of a couple of large fleet operators and then all kinds of ones and twos. Again, I would say that MCI starts the year in about the same place, if not a little bit healthier than we saw last year. Alexander Dennis is a very different business because now you have all of the different geographic considerations. And of course, some of the big contracts in the past, let's call it five years, such as the peak in Hong Kong demand and some other things now rolled out over to a broader customer base. I would like an ADL situation similar to what I described with New Flyers that a good portion of the year is effectively contracted work and therefore it's an execution story more than we got to worry about where the work is coming from. Having said that, a portion of ADL is transaction and a portion of and the Plaquestone business is like NCI, one or two or X number of units at a time. RBAC, as you know, is a business that doesn't sell direct to the customers, it sells through dealers. And of course, we are working to the contract that the dealer has with the end operator. And now it's a mix of both cutaway type businesses as well as our buses story as well as medium duty. I would put ARBOC in the category again closer a little bit to the New Flyer camp where a good portion of the year is contracted, but we still have to actually win and convert orders, if you will, between now and call it the end of the third quarter to be able to execute by of the year. So that's the four major segments from a manufacturing standpoint. And of course, as you know from the aftermarket, rough order of magnitude, about 40% of our aftermarket is contractual, whether it's a vendor managed inventory contract or whether it's we have a certain customer, we have their windshield wiper contract for five years kind of thing. So about 40% of that business is contracted. The rest of it is transactionally oriented or kits or batch buys and so forth, which is why the parts business is a little bit more difficult and delicate to forecast. Hopefully that without getting too definitive around percentages, hopefully that gives you some color of why we're far more confident this year at executing in a range of EBITDA and we're able to give that guidance. Okay, fair enough. Just a couple of quick clarifications on the CapEx. Should I assume that that CapEx number also includes the principal portion of lease payments? No, that would be over and above. Okay, great. And then just my last question, just go back to the Investor Day, the comment that you made on some of the larger electric vehicle awards were that they were probably going to be eighteen to twenty four months out. And then I think you had indicated that there was an order out of the Pacific Northwest, which could be maybe one of the earlier ones, that one actually looked like it materialized earlier. Is there some shift in what you're seeing in terms of the market? Is there some dynamic that's happening where some transit authorities may be moving faster than you originally thought in terms of being able to convert to orders? It's a really good question, Chris, and it's a little bit delicate to answer because every customer, every operator, every political environment, any funding environment is different. And then overlay that with the fact that the FAST Act expires in the end of the third quarter of this year. And then overlay with that, there's an election cycle and now, of course, overlay that the crazy dynamic around the coronavirus and people's laser focus on today. But to say that there's been a shift, would say is kind of not yet. We continue to see a whole bunch of operators trying to take advantage of unique funding like the loan program with the FDA and so forth to buy batches of buses or to be able to convert an order that they thought originally they were going to put out for sorry, an RFP that they said they put out for diesel that they now are hybrid have gone for ZEB. As I said in our statement in North America, the transit space, that market is about 8% or eight plus percent, if you will, of the total market. So what's happening as we expected, we have seen some bigger RFPs, which is really nice to see in terms of 100 or so type plus or minus quantities. But we are still in that dynamic where the reality of every transit agency trying to figure out how they're going to fund the incremental cost of an electric bus, but also fund the capital costs associated with infrastructure and then trying to figure out in their own unique environments where the energy is going to come from, which then dictates the strategy of depot charging versus en route and so forth. I would not characterize it as a shift. I would characterize it consistently the way we've seen it as we walk through 2019. The good news is that with the exception of some challenged operators or maybe some of the competitive product maybe not performing in the marketplace, we're seeing teething pains, putting a new fleet in of electric buses and getting their chargers infrastructure up to speed and then the reliability and all that. There's lots of learning and teething pains associated, but we're starting to see good solid recurrent execution, if you will, or output of those buses and then meeting their delivery cycles or their operating cycles during the day. And that's really, really positive we think for the future. I will reiterate that we do not see electric bus or zero emission, whatever whether it's electric fuel cell or electric trolley as a revolution. This is going to be a continued evolutionary scenario over the next, call it, five, seven, ten, twelve, fifteen years, which again, I believe what Chris and Ian and Colin have done, if you will, and now at the ARBOC business of multi propulsion approach to work with operators through that transition, I bodes well for our offering. And we're pretty pleased with the bid universe, but also our success and win rate on zero emission opportunities. All right. Sounds great. And Glenn, congratulations on your retirement. Thank you. Your next question is from Cameron Doerksen with National Bank Financial. Please go ahead. Your line is open. Yes, thanks. Good morning. I wonder if you could maybe just K. Market and the opportunities for ADL. We've had the Prime Minister in The U. K. Has made an announcement about a big investment in buses in the country. I don't think the details have been fully released, but I was wondering what you think the opportunities are there for ADL? It's a really good question, Cam, because we know and we saw going through the diligence and the acquisition and of course the integration of ADL, we kind of saw a couple of years slowdown of that market. And again, as we announced in our remarks today, we saw another slowdown that year. The inverse though in terms of ADL's market share, they've been able to do a really good job with conventional propulsion systems, but also their leadership around the zero emission buses. So remember too and most of our investors and analysts will know this, but the operators in The UK are private operators who bid and operate basically an essential or public service. And so these businesses have kind of a different operating cost, sparing ratio and so on and so forth the way they operate their fleets. As we look into 2020, we're and again notwithstanding who knows the impact of coronavirus in the next short term or medium term, but dynamic of we're starting to see those operators really, really looking at multiyear replacements and upgrades, but also being very encouraged by the stability now, if you will, of a U. K. Government that has a majority, has a strategy and now is willing to make that commitment. And as you said, we have not seen details of that transpires and how any subsidy assistance and support to electric vehicles goes in. But again, just like New Flyer and just like MCI, ADL has been very aggressive with multiple propulsion strategies, whether it's diesel or hybrids are now zero emission. And again, we think we're poised for good solid growth as The U. K. Gets through its whole Brexit dynamic, but also sets itself forward for reinvestment in the country and of course a federal government strategy on that. So it's hard to be specific, but in our multi year plan, we're pretty excited about the opportunities of The UK. Combine that with the challenges as we all know with respect to ADL's largest competitor, which is another company that went through administration and is now in the process of trying to kind of reorganize their business and recompete, we've been the benefactor of being that good solid supplier and the timing for our acquisition of EDL couldn't be any better. Okay. No, that's good. Maybe a second question for me and it's maybe a history lesson to some extent. I think maybe the concern out there is that this COVID COVID-nineteen will trigger a more broad based recession in North America. I'm just wondering if you can just remind us or talk a bit about what the experience, particularly on the North American public transit side of the business, what the experience was in 2009 as far as order activity and any benefit from infrastructure spending and that sort of thing from a stimulation point of view? I mean, I realize it was a bit of a different scenario back then with the credit crisis, but just maybe talk us through what New Flyer specifically saw from transit agencies during that period? Yes. I think that's a really good point. And we didn't put it in our remarks because it's hard to predict. But the last time we saw this, you're absolutely right, we saw the federal government in The U. S. Step up with a stimulus program as some of our investors were aware. We actually hosted a town hall with the Vice President and I think six or seven of the major ministers, if you will, in terms of a strategy for stimulus. We may find ourselves in a situation where recession challenges in operators and cost structures associated with COVID-nineteen where the federal government steps in, in addition to maybe assisting the individuals that have been affected, but more importantly affecting and trying to get people back into public transportation and using that as a job creation vehicle and we may actually see a stimulus. Just for fun, some rough order numbers in 2008 in North America, there was about 5,200 units delivered, which was a 200 units or so delivered compared higher than the previous year. In 2009 that jumped to 06/1932 2010 it jumped to 5,933. So we saw two good solid years as a result of government stimulus. Hard to plan on and hard to bank on, but there is a possibility and a high probability that a stimulus approach may actually help some of what New Flyer delivers, ARBOC and potentially even MCI and ADL in North America and quite frankly around the world if there's other stimulus approaches. Okay. That's really helpful. Thanks very much. Thanks, Ken. Your next question is from the line of Jonathan Lamers with BMO Capital Markets. Please go ahead. Your line is open. Good morning. I have a question on the seasonality in the guidance. I believe there's a comment that EBITDA is expected to be down slightly for Q1. Could you explain what businesses are causing that? Well, thanks Jonathan. It's Paul here. Of course, as you know, it's a contract business. Every customer has its own delivery schedule, its own acceptance methodologies, inspection and acceptance both on-site and once it gets to our customers' facilities. So the seasonality, while it traditionally is low in the first and then recovers in the second and then low in the third, primarily because of plant shutdowns or holiday and vacation periods and so forth and then is stronger in the fourth as we have across the business. As we have forecasted 2020 and as we looked at every single bus that's online and every single contract, our current projection is that the first quarter could be flat to down relative to previous year. Again, that's part of the reason why we felt moving to a full year adjusted EBITDA guidance range takes out the importance of anybody trying to project one quarter over the other, and we wanted to provide our investors with an insight around expectations for first quarter. Okay. So no color on whether that's in the motor coach business or the public transit business in North America, for example? Well, again, at the risk of being a little bit protective about our individual customers and our individual market segments and so forth, This is based on a unit by unit, market by market buildup and a product line buildup. You'll know that we actually did a great job of effectively burning off and delivering a whole bunch of the whip in the fourth quarter. MCI had a strong quarter, if you will, in the fourth and so forth. I'm not sure I can point to any specific segment or business that sticks out as predominantly higher or lower, if you will, at this point from last year. I think I would just add that same as you mentioned, Paul, in your remarks, quarter to quarter things move back and forth. And so if you looked at ADL, if you looked at in our MD and A, you can see their historic information for 2018 and 2019 and pretty big swings from Q1 to Q2 and I think that just depends on the customers and the region and where the vehicles are being delivered. So same type of expectation this year, it's just kind of things moving between quarter to quarter. So as we said Q2, Q3 and Q4 we expect growth and Q1 kind of flattish to down just because of that movement of deliveries. Okay. Thanks. And on the 2020 guidance, I think some investors are concerned about the impact that COVID-nineteen could have on broader economic demand with potential implications for the private sector. So could you tell us what your guidance is assuming today for the motor coach market for 2020? Well, as you know, Jonathan, we don't break out the guidance. We've rolled it all up into one because of the movement. We have effectively projected MCI plus the plaques and portion of ADL to be kind of flat to up year So it's rolled up into the overall unit. I will remind investors and analysts that our projection of $320,000,000 to $350,000,000 and that range does not include any implications or projection associated with the coronavirus. I will also remind that I was pretty explicit in my notes. To date, we have not had any material impact on our ability to get parts, our ability to get people to work to build buses. Could that change? It might change. We have not rolled that into our forecast. The overall business, because of the nature of building 7,000 or 8,000 units a year, every single day, we're always in a bit of a firefight mode in terms of making sure that we get parts to the production line. And David White, the Head of our Global Supply, who works every day with across those businesses, kind of like in yesterday's discussion that the results or implications from coronavirus today hasn't had a material impact or differential than a year ago fighting the same kind of fires in terms of supply to the point of use installation across those businesses. It's not a same product. It's of every single customer and every single part is different. And so we're being able to manage that. As you know, because of the nature of our business and the large proportion of U. S. And publicly funded contracts, we live in a Buy America world where now 70% of the content has to be U. S. Origin. Having said that, an engine that comes from Cummins, for example, has international parts on that engine. And so it's not just our direct supply, but it's the indirect supply based on those guys' subcomponents that may have an impact on our business. I'll go back to we're comfortable today based on keeping this guidance in place and have not reflected on a COVID impact on it. Okay. Thanks. And one question on the Q4 earnings. The corporate segment expense was particularly low. I appreciate that incentive compensation was down. But were there any reversals related to the year end accounting that you would call out for us as we think about a reasonable run rate for that segment going forward? I think the only thing, Jim, you called out obviously our incentive programs, we've had an adjustment of our provisions. And obviously, the long term piece is covers sort of three years' worth of grants. So they have a fairly significant impact given what's happened to us both our the business and the market and the share price over the last one year period. Hey, Jonathan, one of the things we also did as in the back of our presentation, you'll see our walks that you can see for each quarter that provides our one timers and the walk to EBITDAs. Okay. I'll pass the line. Thanks. Thanks, Your next question is from the line of Kevin Chiang with CIBC. Please go ahead. Your line is open. Hey, thanks for taking the questions here. And Glenn, congrats on retirement. I heard spring in Winnipeg is beautiful. Maybe just I know I appreciate that COVID-nineteen is difficult to forecast and you're not the only company facing this issue, but and that it hasn't had a material impact on your operations to date. But as I guess you think of planning for whatever could come out of this and maybe a more worst case scenario, are you thinking about or when would you think about maybe inventorying, maybe higher value parts that maybe supply chain constrained if we do face bigger issues around importing products from wherever your suppliers are getting them from into North America? Is there something you're looking at to determine whether you'd want to carry more inventory than normal so that you can maintain your manufacturing capabilities? It's a really good comment, and it goes beyond all that. But each of the businesses literally has a daily call, not only from as a result of COVID, but anyway associated with that very complex supply chain coming in. I would suggest that we know the critical parts. In some of our cases, we're just in time, if you will, or five or six days inventory in the shop floor. At some of our businesses, we have a warehouse function preproduction entry, so we have a little bit of contingency stock in there. We're absolutely doing everything we can to try and guess this. The good news is that based on being a contractual business, almost all of our businesses really knows what they need to build between now and, say, the half year, if you will, or as we move into. So we're laser focused on every one of those parts. To say that we've been able to kind of push that out and decide pre buys or pre stocking of certain parts, I would say that's part of the normal business we do all day long and we're adding that oversight. Other things, you can imagine everything we're doing. We've killed the nonessential travel. We've done some creative stuff on the IT systems, for example. We've pre bought a whole bunch of laptops, and we've added a whole bunch of LAN and WAN capabilities so that if we have to have certain levels of people to work from home, of course, you have a manufacturing business that it's impossible to do from home, but you have a customer support function, spare parts function, engineering, product management, customer program management and all these other things that could be done virtual and remote. So we're obviously trying to do like every other business, understand the implications. To date, it hasn't been a material impact. We've seen some of our customers impacted, as I mentioned, but that hasn't changed any to date, knock on wood, any procurement or any of the build strategies we have for this year. That's great color. And then I know it's been maybe a more recent phenomenon, but energy prices have totally collapsed this week and maybe there's a view that oil prices and thus diesel and all the component energy products that come out of oil will be cheaper for a longer period of time. I know one of the things you said at your Investor Day and I think at previous calls is that just doing like a simple payback, you can make the argument for an electric bus that over the lifespan of a bus, you be positive after ten years or so. Given where energy prices are now, is there any sense that people may look at the payback differently and that might change how people look at long term bus demand or people still pretty committed to this because there's other environmental benefits for doing it? Well, it's interesting the way you phrase that because absolutely it may change the economic curve from a ten or a twelve year crossing, if you will, from the total cost of ownership of an electric versus a diesel bus. But as we've seen, the vast majority of the desire for electric is not an economic decision. In most cases, it's a political, environmental, social decision. And because it's not anything turns on a dime, these are multiyear decade long type strategies. I think that bodes well for our strategy where I have a competitor that shows up with a customer with only electric bus offering and we can offer electric, we can offer hybrid natural gas and so on and so forth. Ironically, we've had a couple of customers tell us yesterday that they've actually used the reduction in fuel prices as a way to lock in their fuel strategies for a bit of a longer period of time to give them some runway or flexibility on their op costs. So I think your comment is absolutely valid. It may tweak or change the curve of adoption, but it will not fundamentally change the migration to electric. And again, the good news is we're able to provide any type of propulsion system with that customer and also current fleet commonality what they have today over that transition period. I think that really bodes well for all of our product lines. Thank you. And we do not have any further audio questions. I turn the call back over to the presenters. Great. Thank you, Karina. Thanks everyone for joining our call. Before we terminate, I just want to remind listeners that we'll be hosting our Annual General Meeting on Thursday, May 7 at the Fairmont Hotel in Winnipeg. The event starts at two p. M. CST. And also finally, I just wanted to mention too that yesterday you may have seen on our site, we launched a community benefits program with the Transportation Diversity Council within New Flyer. And it's a pioneering agreement, the first of its kind in America. And so we just wanted to highlight that. And if you want to see more details, obviously the full release is on our website and the whole the entire community benefits program is on the website as well. Thank you very much. Have a great day. This concludes today's conference call. You may now disconnect.