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NFI Group Inc. reported a strong fourth quarter for 2024, with earnings per share (EPS) exceeding expectations and a notable rise in stock price. The company achieved an EPS of $0.11, surpassing the forecasted $0.052, while revenue slightly missed estimates at $837 million against a forecast of $856.12 million. Post-earnings, NFI Group’s stock surged by 18.99%, reflecting investor confidence in the company’s performance and future prospects. According to InvestingPro data, the company has shown solid revenue growth of 16.28% over the last twelve months, though maintaining profitability remains a challenge.
Key Takeaways
- NFI Group’s EPS beat expectations by $0.058, a significant positive surprise.
- Revenue fell short by $19.12 million, despite strong earnings.
- Stock price surged by 18.99%, nearing its 52-week high.
- Positive outlook on zero-emission buses expected to drive future revenues.
- Strategic supply chain improvements and product innovation highlighted.
Company Performance
NFI Group demonstrated robust performance in Q4 2024, with a 77% year-over-year increase in adjusted EBITDA and a 97.6% improvement in full-year net earnings. The company’s focus on zero-emission buses and supply chain diversification contributed to these strong results, positioning it as a leader in the North American transit and coach markets. InvestingPro analysis reveals the company’s EBITDA stands at $190.46 million, with a healthy current ratio of 1.62, indicating strong short-term liquidity position.
Financial Highlights
- Revenue: $837 million, slightly below forecast.
- Earnings per share: $0.11, exceeding forecast by $0.058.
- Adjusted EBITDA increased by 77% year-over-year.
- Quarterly net earnings of $18.6 million, a $21 million improvement.
Earnings vs. Forecast
NFI Group’s actual EPS of $0.11 surpassed the forecast of $0.052, marking a significant positive surprise. However, revenue fell short of expectations at $837 million compared to the forecasted $856.12 million. The EPS beat indicates strong profitability, while the revenue miss may warrant further scrutiny.
Market Reaction
Following the earnings announcement, NFI Group’s stock price rose by 18.99%, closing at $13.22. This increase reflects strong investor sentiment, driven by better-than-expected earnings and strategic initiatives. The stock is now approaching its 52-week high, indicating renewed market confidence. Based on InvestingPro’s Fair Value analysis, NFI Group appears slightly overvalued at current levels. Subscribers can access detailed valuation metrics and 6 additional ProTips that provide crucial insights into NFI’s financial health and market position.
Outlook & Guidance
NFI Group provided a positive outlook for 2025, with revenue guidance between $3.8 billion and $4.2 billion and adjusted EBITDA expected to reach $320-$360 million. The company anticipates 35-40% of 2025 manufacturing revenues to come from zero-emission buses, highlighting its commitment to sustainable transportation solutions.
Executive Commentary
CEO Paul Zubry stated, "We have effectively sold out 2025 North American public volumes," emphasizing the strong demand for NFI’s products. He also noted, "Our strategic decision to be propulsion agnostic continues to position us well," underscoring the company’s flexible approach to vehicle propulsion.
Risks and Challenges
- Potential impacts from U.S. tariffs and funding uncertainties.
- Supply chain challenges, though mitigated by recent strategic improvements.
- Competitive pressures in the medium-class vehicle market.
Q&A
During the earnings call, analysts inquired about the recovery timeline for seat supply and the potential impacts of U.S. funding changes. The management addressed these concerns, highlighting ongoing efforts to diversify supply chains and adapt to market conditions.
Full transcript - NFI Group Inc (NFI) Q4 2024:
Conference Operator: Good day and thank you for standing by. Welcome to the NFI twenty twenty four Fourth Quarter and Full Year Financial Results 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 today’s conference is being recorded.
I would now like to hand the conference over to your speaker today, Kevin King, Vice President, Strategy, Investor Relations. Please go ahead.
Kevin King, Vice President, Strategy, Investor Relations, NFI Group Inc.: Thank you, Kevin. Good morning, everyone, and welcome to our call. Joining me today are Paul Zubry, our President and Chief Executive Officer and Brian Duznip, our Chief Financial Officer. On today’s call, we will give an update on our quarterly and annual results highlighting year over year improvement across numerous financial metrics, the strong demand environment for our products and our record backlog. We’ll also provide an update on the operating environment, including our assessment of tariff and funding dynamics and our near and long term outlook.
This call is being recorded and a replay will be made available shortly. We will be referring to a presentation that can be found in the Investors section of our website. As we move through the slides via the webcast link, we will call out the slide number as we go for those on the phone. Starting with Slide two, we provide our cautionary or forward looking statements, and we note that certain financial measures referenced today are not recognized earnings measures and do not have standardized meanings prescribed by International Financial Reporting Standards or IFRS. We advise listeners to view our press releases and other public filings on SEDAR for more details.
In the appendix of this presentation, we have provided a list of key terms and definitions that will be used on today’s call, including zero emission buses or ZEVs and equivalent units or EUs. A reminder that NFI statements are presented in U. S. Dollars, the company’s reporting currency, and all amounts referred to are in U. S.
Dollars unless otherwise noted. Slides three and four provide a brief overview of our company. NFI is a global independent bus and motor coach mobility solutions provider. We offer over 60 bus and coach models with a wide range of propulsion types, including clean diesel, natural gas, diesel electric hybrid, battery electric, trolley electric and hydrogen fuel cell electric. We hold leading market share positions in North American transit and coach markets and more detailed information is available in our materials.
Slide five provides some brief insight into NFY’s business mix and our leadership position in the transition to zero emission propulsion. I will now pass the call over to Paul to provide an overview of NFY’s results for the fourth quarter and fiscal twenty twenty four.
Paul Zubry, President and Chief Executive Officer, NFI Group Inc.: Thank you, Steven, and good morning, everyone. Thanks for joining us today. So before we get into the details of our presentation today, reflecting Q4 and our fiscal twenty twenty four results, I’d like to reflect on a few key points to set up the stage. During the past year, we generated significant growth across our business and we continue to advance both our operational and financial recovery. Yes, we faced specific supply related disruption, which impacted our results in the second half of twenty twenty four, but we responded with a detailed and aggressive action plan.
We’ve experienced performance improvement that alongside other actions and progress, we have supply diversification and that supports our forecasted growth for 2025 and beyond. We achieved several major milestones in fiscal twenty twenty four, including our highest annual orders ever, the largest backlog in our history and record financial results in our aftermarket segment. Our strategic decision is to be propulsion agnostic, utilize localized production and distribution facilities and to offer customized solutions continues to position us well in a very fluid macro environment. I’d like to acknowledge the efforts, dedication, ingenuity and hard work of our entire team who helped us deliver in 2024 and who continue to provide industry leading support for our customers. I’m now on Slide seven.
Slide seven is a summary of our Q4 and fiscal twenty twenty four results. Starting with demand, we had new orders in the quarter of nineteen oh four equivalent units, up 81% year over year. This contributed to our highest annual orders ever with a total backlog of 9,489 EUs in 2024, which is a 55% increase from our 2023 numbers. Our backlog comprised of both firm orders and options continues to grow at a very strong pace and hit a record $12,800,000,000 at the end of twenty twenty four, totaling 15,135 equivalent units. This growth continues to be primarily driven by North American public transit operators with a number of bidders on new RFPs has reduced substantially.
And in many cases, NFI is the sole bidder or one of two bidders. And for some competitions, we are the only provider of certain models and propulsion types. Our full year book to bill ratio remained strong at 121.4%, primarily driven by these increased orders I just described. Our option backlog conversion rate also showed continued recovery, reaching 76% on an LTM basis. Our financial results demonstrated our continued recovery in growth.
We achieved a 77 year over year increase in quarterly adjusted EBITDA, contributing to $145,200,000 improvement on a fiscal year basis. We achieved net earnings of approximately $19,000,000 a gain of $21,000,000 year over year. After continuous years of cost optimization efforts, expansion of our parts basket and focused efforts on alternative part identification, our aftermarket segment continued to deliver exceptional performance in an exceptional quarter with $157,100,000 in revenue and $32,800,000 of adjusted EBITDA, up sixteen percent and eleven percent year over year respectively, contributing to yet another record year. Reducing working capital and enhancing liquidity remains a key focus for us. While we continue to manage through seat supply disruptions at New Flyer, which also affects NFI parts, which elevated our inventory balances, we did see positive impacts from the benefits of public customer improved contracting terms and conditions.
This included prepayments and milestone payments incorporated into many bus contracts. Overall, we saw a small decline in liquidity during the quarter reflecting the puts and takes of these various items. On Slide eight, we show the continued improvement we’ve managed to recover in overall supply chain health. The chart shows our high and moderate risk and high impact suppliers. As we’ve moved through the end of twenty twenty four and the first few months of 2025, we continue to see overall improvement.
There were numerous actions we’ve taken to drive these improvements, including active supplier development and monitoring programs. We currently have just three companies that are considered high risk, high impact, down from 50 at the peak in 2022, with mediums risk suppliers continuing to drop as well. On Slide nine, we detail one of those high risk suppliers and the most disruptive supplier in 2024, our primary North American transit bus seat provider. Let me take a step back and explain how we got here. This is a long time supplier that has been a valued partner for us for over twenty years and consistently performed during that time.
Like their entire industry, the supplier had to decrease production during the pandemic and the supply chain held that continued from that. As markets recovered in 2023, they increased production to match rising demand for buses. This happened in the same time as they were in the process of moving to a new upgraded facility and they also saw a rise in turnover of key staff. These factors led to their operations falling far behind schedule resulting in significant missed deliveries to a variety of bus OEMs in the third quarter of twenty twenty four. Since then, NFI has worked with the seat supplier and in coordination with other impacted customers of them, we created an advisory council and assisted in the development execution of recovery plan.
This includes dedicated on-site support from NFI’s fabrication team, the engagement of external consultants and adjustments to our production schedule to lower demand in a period to allow this supplier to recover. We’ve also onboarded another Buy America compliant seed supplier who starts delivering seeds early in the second half of twenty twenty five to diversify our supply base. It is important to note that changing suppliers once a bus has been engineered, is on the production line or semi completed off the line, it’s not an option on each bus order to change suppliers. The graph on the right shows the improvement in the number of offline New Flyer buses missing seats in our inventory. This peaked at the November and has since come down to levels just below where we were at our third quarter earnings call.
Based on year to date performance and ongoing action plan, we anticipate sustained improvement in seat supply performance as they are projecting to be delivering seats to the production lines on schedule at the end of the second quarter, while we are also committing to lowering the inventory of the buses that are missing seats. Now turning to Slide 10, we review our fourth quarter deliveries. We had another record quarter of low floor cutaway bus deliveries, up 62%, while transit bus and coach deliveries were both slightly down in the quarter. Transit deliveries reflect the impact of this seat supply disruption with planned deliveries in twenty twenty four Q4 pushed into 2025. In total, the seat supply disruption led to a loss of approximately 100 equivalent units of planned fourth quarter deliveries.
Quarterly production rates were also lower as we managed our finishing activities on buses that were missing seats. Coach deliveries reflect a reduction in the fourth quarter public and private sales with a carryover inventory expected to be sold in 2025. Offsetting this decline in deliveries was an 11% year over year increase in the average selling price of heavy duty transit buses and a 25% year over year increase in the average price of a motor coach. This also coincided with the improved manufacturing gross margins. I’ll now turn it over to Brian Dusip to discuss our results in more detail.
Brian? Thanks, Paul.
Brian Duznip, Chief Financial Officer, NFI Group Inc.: Just picking up on Slide 11, aftermarket saw another strong quarter with gross margins of 28.4%, down slightly year over year reflecting sales mix and the impact of some larger retrofit programs in North America. In the Manufacturing segment, gross margins declined slightly year over year from the previous quarter. This decrease in margin was primarily due to higher depreciation amortization costs plus lower overhead absorption linked to the lower bus and coach deliveries, primarily linked to the seat supply disruption. Slide 12 walks through year over year changes in adjusted EBITDA within our reporting segments. Manufacturing EBITDA was up by $24,100,000 even with these lower deliveries.
The increase reflects favorable sales mix and improved pricing plus an $11,000,000 normalizing adjustment to reflect the non recurring impact of seat disruption and associated production and labor inefficiencies. Our aftermarket segment continued to deliver healthy EBITDA growth driven by sales volume, including sales for other bus manufacturers’ products, pricing adjustments and favorable product mix. Corporate adjusted EBITDA improved due to the positive impacts of foreign exchange and lower incentive compensation accruals. Turning to Slide 13, you can see annual or LTM adjusted EBITDA for both manufacturing and aftermarket segments from 2020 to 2024. Both segments have seen strong improvements.
Aftermarket adjusted EBITDA achieved a record of $139,500,000 in 2024 and Manufacturing has seen strong recovery from the lows of 2022 with $126,000,000 year over year improvement in 2024 and further growth projected in 2025. Moving to Slide 14, the chart depicts the company’s quarterly adjusted EBITDA since twenty twenty Q3. The dark blue bars on the chart tell the story of NFI’s manufacturing experience over the past few years. This includes the impacts of the pandemic, related supply chain challenges, rapid inflation and the subsequent recovery and growth trajectory that we saw in 2024. Our aftermarket segment has remained steady throughout this period displaying the business’s consistency and its ability to dynamically adjust pricing in response to changing market factors.
On Slide 15, the company reported net earnings for the period of $18,600,000 a $21,000,000 improvement from the same time last year, representing earnings per share of $0.16 On a full year basis, we saw an improvement of 97.6%. We’ve also provided a chart on this page that reconciles net earnings to adjusted net earnings. This includes normalization adjustments, including the $11,000,000 for unrecovered labor and overhead costs related to seat disruption, which is shown as other. A full reconciliation of these adjustments is available in our MD and A and press release. On Slide 16, quarterly free cash flow was positive with a slight decrease year over year driven by taxes and the acquisition of intangible assets.
We did, however, we did have a $6,800,000 investment in working capital reflecting the impacts of higher working capital balances and the unwind of some advanced payments in our deferred revenue. Slide 17 outlines inventory and production rates. In the quarter, we saw a decrease in raw material balances, while work in process and finished goods were flat. Typically, we would see a more pronounced decline in fourth quarter inventory as it is our seasonally busiest delivery quarter, but levels remained elevated primarily due to seat disruption. Line entries also remained flat from the previous quarter, primarily due to consciously slowing down production as we aim to improve seat supply performance and with the seasonal timing of holidays.
On Slide 18, we recap our total leverage ratio and covenants. You can see the significant decline in our leverage ratio on the chart from over 14.1 times at the end of the fourth quarter of twenty twenty three to 4.37 times at the end of twenty twenty four. We continue to expect to recover to our target total leverage ratio in the range of two to 2.5 times by the end of twenty twenty five, well within our bank covenants, which are shown on the chart. As a reminder, this calculation excludes our convertible debentures. Liquidity and cash management remain a top priority as we navigated through the seeding headwinds and continue our production ramp up.
These efforts include the pursuit of customer prepayments and deposits and managing payment terms with suppliers. We proactively obtained another temporary waiver from our credit syndicate partners that allowed us to access the additional $50,000,000 under our secured facilities should we need it. This is in place until 03/31/2025. We did this out of an abundance of caution as we expect that our current liquidity combined with additional customer payments will be sufficient to fund operations. Subsequent to quarter end, we resumed a $75,000,000 receivable financing program with CIBC Capital Markets.
This enhances NFI’s financial flexibility, accelerates cash flow from receivables, supports total liquidity and lowers interest expense. Our senior credit facility matures in April 2026, becoming current in April 2025. We continue to actively work on our broader capital structuring plan with a goal to address our credit facility’s timing, improve our overall liquidity and lower total interest expense. That is a primary focus for us in the first half of twenty twenty five. As we’ve seen our overall results improve, we believe we have multiple options available to us in the debt markets and are very encouraged by the discussions we’ve had thus far.
I’ll now turn the call back to Paul to discuss our outlook.
Paul Zubry, President and Chief Executive Officer, NFI Group Inc.: Thanks, Brian. As we look to 2025 and beyond, we believe that NFI is poised for a strong recovery with growth in revenue, adjusted EBITDA, free cash flow, ROIC and net earnings. Over the next few slides, I’ll walk through the key factors underpinning this continued recovery, our expected growth and comment on a few of the key risk factors and dynamics in our current operating environment. On Slide 20, we look at our record orders in 2024 of 9,489 equivalent units. In the fourth quarter, we maintained our momentum with several new flower wins, including an order from Washington, D.
C. Metro for up to 500 buses with an initial firm order of 100. This order displayed the strength of our propulsion agnostic offering as an example, as it included both diesel electric hybrid and battery electric buses. MCI had a major win in the fourth quarter with a five year contract from Ontario’s Metrolinx that included 80 firm orders for clean diesel motor coaches and options for potential future orders. During the quarter, we also shipped our very first electric motor coach from our Pennant, North Dakota facility, a major achievement for that plant.
On Slide 21, you can see the culmination of these orders driving our backlog at the end of the year to record heights of over 15,000 equivalent units valued at over $12,800,000,000 We’re essentially sold out in our North American public markets for 2025 and we’re selling well into twenty twenty six holding option orders that now extend all the way out to 2,030. NFI continues to retain a strong order book that will help propel recovery and growth further into 2025 and beyond. This view is partially driven by data on Slide 2022, which highlights the increase in average sales price or ASP per equivalent unit in our total backlog, including both firm and option orders. The ASP has increased for both heavy duty buses, the dark blue line, and motor coaches, the light blue line. Year over year ASP for heavy duty buses was up 11% and up 71% since 2021.
ASP for Motor Coaches was up 25% in the year and 51% over that same time period back to 2021. These average sale price increases were driven by a combination of a higher ZEB orders percentage, inflation adjusted pricing and significantly improved bid margins reflecting the much improved competitive environment for us. These higher selling prices will translate onto our income statement as we move through 2025, ’20 ’20 ’6 and future year deliveries. Our backlog has shown tremendous growth and we expect demand to continue as we show key demand metrics for North American public markets on Slide 23. We ended the quarter with a total active bid universe of 7,094 equivalent units, including 3,657 in bids submitted and another 3,437 of EUs and bids in process.
The black on the chart overlays the timing of awards versus active bids at that time. You can see the correlation between the bids submitted in the light blue and the contract awards. Typically, with a lag of a couple of quarters from submission to award, we anticipate current bidding activity will continue to help further grow our already record backlog. Our five year expected public bid universe, which is compiled from the customer fleet replacement plans remains very strong at 21,797 equivalent units. Slide 24 provides insights into our book to bill and option conversion ratios.
Our option conversion ratio has improved significantly since a low in 2022 and now hit 76.3% in 2024. Our book to bill ratio continues to remain well above 100%, driven by increasing order volume and exercised options. We anticipate both ratios to remain strong through 2025 and beyond. I’m now on Slide 25. Before I get to our detailed guidance ranges for 2025, I wanted to provide some key factors that drive our expectations.
I just walked through the strength of our backlog and order book. Not only have we effectively sold out 2025 North American public volumes, we also expect improvement in the per unit economics as we’ve seen better average selling prices and resulting margins as the competitive environment has improved for us. Our strong aftermarket business gives us a solid foundation for performance in 2025. And while our overall supply chain health has been improving, we unfortunately continue to manage our way through the seat supply disruption that has impacted deliveries for the last six months. We do anticipate improvement in 2025 production, but levels will remain somewhat muted as we take a conservative approach on production ramp up.
We do this to ensure that we do not cause supplier production inefficiencies that would result in more offline unfinished buses. As you’ve heard from us on previous calls, The UK market demand for Alexander Dentists has not developed as we had hoped, leading expectations that we will see lower than planned deliveries in the market in 2025. While this is a challenge, The UK generally offers lower margins than our North American business and thankfully the aftermarket business in The UK and international markets continues to perform very well. It’s important to note that our twenty twenty five guidance range does not include the potential impacts from U. S.
Or Canadian counter tariffs. I’ll discuss that again in a few slides. Slide ’26 provides some additional context on seasonality and profitability. The graph has our fiscal year ’20 ’20 ’4 adjusted EBITDA by quarter. We saw 56% of our full year EBITDA in second half of twenty twenty four and would expect a similar type of profile in 2025.
Our first quarter is typically the slowest quarter, although we expect significant year over year improvement. Sequentially, we expect the potential for a slight decrease from the fourth quarter of last year. On the right hand chart, we show our improving margin profile. Our gross margin per equivalent unit, which includes cutaway, medium duty, motor coach and heavy duty transit buses for both North America and international markets saw some small improvement year over year, but it was impacted by the seat disruption and delivery timing in the fourth quarter. We project this metric will show strong growth in 2025.
Slide 27 summarizes our now provided guidance ranges for 2025. We expect to generate adjusted EBITDA between $320,000,000 and $360,000,000 from revenues of $3,800,000,000 to $4,200,000,000 with 35% to 40% of our manufacturing revenues coming from zero emission buses. We expect capital expenditures of between $50,000,000 and $60,000,000 and a return on invested capital between 912%. The 2025 guidance ranges for the selected financial metrics provided take into consideration year to date performance, seed supplier recovery, which I’ll admit has taken longer than we expected, our current outlook combined with assumptions that I just walked you through. On Slide 28, I want to touch on the broader macro environment, especially the fluid and dynamic tariff situation.
While still developing, the potential for 25 tariffs on imports into The U. S. And Canadian counter tariffs of 25% on imports from The U. S. Into Canada remain a real possibility.
As we know, there are now 25% tariffs in place on steel and aluminum imports into The United States. We are taking numerous actions to prepare and respond to these tariffs by adjusting supply sources where possible, leveraging our localized production facilities on both sides of the borders and regionalized aftermarket parts distribution networks and continue to work on contractual terms of our firm orders. We have just also moved as much finished goods bus inventory as possible to the appropriate jurisdictions. This will help any lower near term impact of tariffs. So what’s the potential exposure identified for tariffs?
Within the New Flyer business, approximately two thirds of our production is already 100% completed in The United States for American customers. They therefore have lower tariff exposure on the outset. For the other one third that is started in Canada in terms of building a shell, approximately half of those buses are finished for U. S. In The U.
S. For American customers, while the other half come back to Canada for our Canadian customers. These buses would obviously have larger tariff exposure. As we announced last year, we are now actively working on our all Canadian bus build plan to allow us to build full buses in Canada. This project is on track and on budget and it’s planned to start manufacturing full Canadian build buses in the fourth quarter of this year, and we will build that capacity through 2026.
This too will help lower tariff exposure for Canadian imports. Through the enhanced clauses and provisions of our public agency contracts, we currently anticipate passing on the tariff impact to those public customers. Public coach is just like transit bus market. However, there are no domestic U. S.
Producers of motor coaches. MCI is the only supplier of public coaches for Buy America contracts, which we start in Canada to build a shell and finish in The United States. In the private coach market, we build completely in Canada, similar to our main competitor located in Quebec, while other motor coach OEMs build and import buses from Europe. We anticipate it will be difficult to pass on any increased costs resulting from tariffs to a very price sensitive private customer, and we do not have the same contractual protections in the private market as we do in the public markets. In addition, importers from Europe may see pricing benefit compared to the Canadian importers unless there is a corresponding increase in tariffs applied by the U.
S. Government on European imports, of which there are strong signals that may happen. It is difficult to project an exact financial impact of tariffs. We are monitoring this closely and working with industry groups and our lobbyists to determine the best path forward. As mentioned in the short term, we have moved most of our private market coach inventory to The United States in advance of any potential tariffs being impacted.
We will continue to collaborate with our customers, our suppliers, our industry partners and government partners on the tariff front to do as much as we can to alleviate the risks and we will provide updates as things develop and how it relates to NFI. We are also working very actively with the Canadian government on what they call the remission process or effectively exemptions of tariffs for U. S. Materials and finished goods that we import into Canada. We are working the same process for RBAC and Alexander Dennis buses that we make in The United States and import it to Canadian customers, where no domestic Canadian provider exists.
Finally, there’s also been questions regarding U. S. Funding for transit based on language in recent executive orders from The United States. Overall, we anticipate that all appropriated funds from the U. S.
Government for committed orders will be honored. For the most part, this covers our firm backlog. And recall that only we only add an order to firm backlog once we have received a purchase order. There’s been no question increased scrutiny on electric bus funding at The U. S.
Federal level and this is something we are monitoring closely with the FTA and our industry groups. While this may result in a change to the models of our incoming orders, our propulsion agnostic approach of offering multiple propulsions helps offset those concerns. We can provide whatever products make sense for each of our customers. Generally, ICE production historically and currently has been less demanding and less complex to build than zero emissions, which provides an opportunity to increase throughput should we see a significant shift in model demand. I will mention that should tariffs be implemented over a long period of time or funding profiles change, there is potential for decrease in total loader sizes.
This situation may develop if bus prices increase to a level where customers may not have the appropriate funding required to purchase buses per their original plan due to expected higher average selling prices. Therefore, we may see less buses per order. In closing on Slide 29, let me provide a few comments to recap and then we’ll open the call to question and answers. We have a very strong finish in 2024 with significant improvements in overall adjusted EBITDA and net earnings, even as we navigated a very unfortunate and significant supply chain disruption in our seed supply. Our total backlog of $12,800,000,000 is the largest in our history, and we have very strong firm orders for 2025 and 2026 and a very active bid pipeline.
Our competitive positioning in North America remains strong and supports our improving product margin profile. Aftermarket continues to shine, providing steady recurring revenue and a solid foundation for 2025 and future cash flow generation. In The UK, the competitive dynamics have changed as I described. We’ve introduced a completely new and refreshed lineup of bus models, and we are aggressively actioning initiatives to lower our costs. We continue advanced efforts to improve our competitive positioning, but we do anticipate lower deliveries in 2025 from The UK part of our business.
The political environment, as we all know, is fluid with changing dynamics, and we’ll continue to take all actions possible to ensure our appropriate response. We look forward to 2025 where we anticipate growth in revenues, adjusted EBITDA, earnings and return on invested capital, and we’re off to a very good start in the first seventy two days of this year. Kevin, please open the line now for questions and provide instructions to our callers to ask questions. Thank you.
Conference Operator: Thank you. Our first question comes from Chris Murray with ATB Capital Markets. Your line is open.
Chris Murray, Analyst, ATB Capital Markets: Yes. Good morning, gentlemen. I can ask the first question. Good morning. So thinking about Paul, you made some comments about the cadence in 2025 and sort of the recovery plan.
So I was wondering if we can talk a little bit more in detail. You’ve mentioned there is the seat supplier seems to be getting itself addressed. You did mention there’s a new battery supplier that could be potentially an issue. So I’m just wondering a couple of things. One, if we walk through kind of the details of the cadence on how you think this will evolve over the year, absent other factors.
But then more importantly, what I’m trying to figure out is what would your exit rate look like as we get to 2025 and we start looking at what I would hope to be a more normal operating environment as we go into 2026 and 2027?
Paul Zubry, President and Chief Executive Officer, NFI Group Inc.: Well, I think you’ve actually nailed it in your question, Chris. Like when we had done our plans in the fourth quarter of last year as we headed into 2025, we expected a certain ramp up across each parts of our business. As I described, The UK has come off a little bit, so we’ve downgraded that. New Flyer, we’d expect a certain run rate and a certain zero emission volume. The seat supply, which really hit us hard in the fourth quarter of last year and continues through the first quarter, we’ve muted some of the production increases that we had originally planned because as I described and I think Brian described, the last thing we want is more offline buses waiting seats, which sucks up working capital and is also very disruptive to operations.
So from a New Flyer perspective, the years effectively sold out with every slot with a firm order. And so by delaying a little bit, we’ve changed the curve of our production ramp up. MCI has a good balance between public and private customers. As I said, the risk there is depending on how the tariffs play out may change that mix and may change somewhat slowdown potentially some of the private motor coach work. The parts business is not really seasonal.
It continues to be very solid quarter by quarter and we’ve seen increases there. And the RBAC business continues to do really well. They ramped up their production volumes significantly last year and we have further growth planned for this year and it too is effectively all sold out. So when you say exit rate, what do you mean in terms of production volumes? It will be higher in the fourth quarter than it is in the first quarter for sure.
Is that what you’re referring to?
Chris Murray, Analyst, ATB Capital Markets: Yes. So if I think if you were to normalize, as you kind of get up to a call it a line entry rate or whatever, if you’re talking about 5,000 buses for ’25 roughly, would that be kind of the run rate we’d enter 26 at for the full year ’26 or would we be above that? I guess is what I’m trying to understand.
Paul Zubry, President and Chief Executive Officer, NFI Group Inc.: Yes, that’s a good point. So let’s take it more because mix has a big issue in here. And depending on what happens to kind of zero emission demand in ’26 relative to both funding and or the tariff impact, we expect with the guidance now of $320,000,000 to $360,000,000 for $2,025,000,000 dollars we expect a run rate leaving $2,025,000,000 dollars somewhere around $400,000,000 adjusted EBITDA. And so our fourth quarter potential EBITDA is somewhere in the range of $100,000,000 There’s no question we have lower volume than what we originally expected a couple of years ago, but the margins are significantly better given the competitive dynamics.
Chris Murray, Analyst, ATB Capital Markets: Okay. That’s helpful. Thank you. And then I don’t know if you or Brian want to take this one, but Brian, you did allude to the fact that leverage should get down to two and to 2.5 times by year end, which I thought was pretty impressive considering where you’re coming from. Can you walk us through a little bit of what you’re thinking about?
Because you did mention some refinancing opportunities near term. And I know I get
Daryl Young, Analyst, Stifel: this question all the time, so
Chris Murray, Analyst, ATB Capital Markets: I’ll just ask it again about equity. But if you could talk about kind of the debt restructuring and any need for equity, that would be great.
Brian Duznip, Chief Financial Officer, NFI Group Inc.: Yes. So good question. And I think from my previous comments, we have we’re keeping a very close eye on this, of course, and we have a number of options debt options available to us, and we think we’ll be able to satisfy and real liquidity needs and taking care of any refinancing work through those debt options. And just kind of reiterate from Q3 that at this point, we don’t see the need for any additional equity.
Paul Zubry, President and Chief Executive Officer, NFI Group Inc.: Chris, let me add some color to Brian. As we slow down production and change schedules based on seats, the affected seed supplier is somewhere was somewhere in the neighborhood of 60% of our supply. So we have other seed suppliers for the rest of our production range. So as we slow that down and when you slow it down in relatively short window, you end up with material on its way into that original production schedule. So we still have bloated spare parts before they start to hit the production line and we have bloated approximately 100 units sitting at the fence waiting the finalization of those seats.
So in addition to the increase in volume through the year, the better margins, we have a natural burn down, if you will, of excess working capital that sits in our business. Those two things and when you overlay the strong cash from parts of our business like new Flutter Parts or anti parts story and RBAC, there is a significant delevering potential that’s happened. And as Brian said, we’d be remiss to be or we’d be unhonest to tell you that we’re not actively looking at all kinds of different scenarios relative to our current financing.
Daryl Young, Analyst, Stifel: Okay. Thanks. I’ll leave it there. Thank you. Thanks, Chris.
Conference Operator: One moment for our next question. Our next question comes from Krista Friesen with CIBC. Your line is open.
Krista Friesen, Analyst, CIBC: Hi. Thanks for taking my question. Just to dive in on the seating supplier here. So you’ve got an additional seating supplier coming online in at the beginning of H2. Can you walk us through what you’re thinking that ramp up will look like for that seating supplier?
And when would you expect to kind of reach a normalized level of receiving seats from all of your suppliers now?
Paul Zubry, President and Chief Executive Officer, NFI Group Inc.: Thanks, Chris. It’s a good question. And it’s hard to imagine one supplier of seats has such a dramatic impact on our business. But the context is highly customized buses with specified seats, not just who it’s from, but the style, how they’re mounted into the bus and so on and so forth. And as we’ve talked about many times, once you start the design of a bus based on the spec from the customer, once you start the sourcing of it, once you start the building of it, you can’t change suppliers midstream.
So in addition to this very active effort with NFI as well as quite frankly and honestly a really good cooperation from our friends over at Gillig who are also affected by this. We have think we have resolved the core problems and we will start to see this supplier deliver. They have been delivering better, but can be fully caught up. They tell us by the April, we’ve handicapped it to say probably by the end of the second quarter. Now the new supplier that is brought on not only has set up capability, but also has to get specked into buses.
And as you know, from bid to award to building those buses can be twelve to eighteen months. So it’s not like we can flip a switch very quickly. We have tried to level load and of course, it’s a decision the customer has to make who those feeds come from. So our current projections is that by the end of the second quarter, we are back to this troubled supplier plus the other two suppliers delivering to point of entry or point of installation on the line by the end of the second quarter. It is way better than it was.
It’s unfortunately not as fast as we would like to.
Krista Friesen, Analyst, CIBC: Okay, great. And maybe just on the liquidity front, it seems that NetFi managed quite successfully through the worst of the ceding issue in Q4 in terms of liquidity finishing the quarter at $127,000,000 I think. What caused you or what are you seeing that caused you to seek an extension on that waiver for Q1?
Paul Zubry, President and Chief Executive Officer, NFI Group Inc.: Well, I’ll start off and then Brian add some color, please. But remember, in the fourth quarter, you don’t really know how deep or how bad the problem is until you get into it. So we had certain expectations in the fourth quarter of seed supply and then we ended up with significant buses offline and therefore unplanned capital tied up. Now overlay in that, the process that started over a year ago when the White House administration was really disappointed in the FTA and our industry around the way contracting work and how more expensive buses were having to be funded, working capital funded by all the OEMs, which then had a ripple effect down the supply chain. That task force that was set up by Avta, I have to tell you is the most effective task force I’ve ever been involved with.
Huge engagement and sponsorship by the FTA, active involvement by roughly the 25 largest transit agency CEOs and then the supply community. And so if we sat here and did a diagnostic on our current contracts, we didn’t have any milestone payments before or advanced payment bullets on contract award type things and so forth. That is now a major change to our industry that will pay dividends for us as an OEM community going forward. The second thing is we made some conscious decisions not to keep the line entry rate at what we originally thought for this year and therefore slowed down the incoming material where we could. So those two things transpire to mitigate some of the damage quite significantly.
Had we not had those, we would have way more bloated inventory and working capital. So Brian, if you’d add any color to that as well.
Brian Duznip, Chief Financial Officer, NFI Group Inc.: Yes. Just to address the question regarding the waiver, I just Paul mentioned that our inventory going bridging over the year end was higher than we would have expected or normal. And we just felt it was prudent to go in and pull a bunch of different levers in case the recovery of the seating supplier and the shipment of the buses was delayed. And so you saw a couple of things we mentioned. One was the waiver through the end of the first quarter, we just thought it was prudent to go ahead and do that.
And our syndicate has been very supportive of us. So that was something that was relatively easy for us to do. You would have also seen the subsequent to the end of the year, we restarted the AR program, which brought some additional liquidity into the business. And then we’ve mentioned kind of over the past while that we’ve been aggressively pursuing milestone payments and we’ve been working with the supply base. And so what you’re really seeing there was in an uncertain world, you need to make sure you have as many tools as you can to provide as much liquidity as you can.
And so we worked on kind of all of those fronts simultaneously just to make sure that we had enough in the business that we could orderly go out and address the long term liquidity and the long term refinancing. And so we wanted to make sure that we did that. And so it was an abundance of caution to go out and work with the banks on that.
Krista Friesen, Analyst, CIBC: Okay. Thank you. And just one last one, if I could. Just to confirm, all of your products right now, whether it’s the motor coach or the transit bus, they are compliant under USMCA right now, so they would be part of the waiver until April
Paul Zubry, President and Chief Executive Officer, NFI Group Inc.: That’s correct, Krista.
Krista Friesen, Analyst, CIBC: Perfect. Thank you. I’ll jump back in the queue.
Paul Zubry, President and Chief Executive Officer, NFI Group Inc.: Thank you.
Conference Operator: One moment for our next question. Our next question comes from Cameron Duerksen with North National Bank Financial. Your line is open.
Cameron Duerksen, Analyst, National Bank Financial: Thanks. Good morning. I wanted to ask a question about, I guess, the funding environment in The U. S. Obviously, a fair bit of uncertainty here now with the new administration.
You mentioned that your expectation is that all the firm orders that you’ve got with U. S. Transit agencies would be pretty safe as those are allocated funds. How are the options treated? I mean, sort of my understanding was that the options over the next number of years would also be kind of funded out of the current funding bills.
So maybe just sort of discussion around how those options might be impacted by any changes in funding decisions by the U. S. Administration?
Paul Zubry, President and Chief Executive Officer, NFI Group Inc.: Yes. Thanks, Cameron. So if you think of and there’s different buckets and different colors of money. So let’s kind of stay out of which funding vehicle happens. But at the highest level, a customer wants to put it on an RFP and they work their methodology of local financing, the match of roughly 20% and which program, whether it’s formula funds or loan or whatever the federal program is.
And they go out and get that money allocated. Once it’s allocated then to put in a contract, it needs to be appropriated. The money that’s appropriated specific to those contracts is only the firm portion of it. The challenge then becomes now depending what the administration does relative to, let’s say, zero emissions or whatever dynamic both that’s all quantum of funding, but also funding for certain types of products. The debate then comes to as we move through 2025 and 2026, we’re a very high percentage of firm contracts where money is already appropriated.
What we don’t yet know is what’s going to happen to the money that’s allocated but not yet appropriate. And it’d be imprudent even trying to opine on that. I mean, we’re all watching DOGE and other initiatives in The U. S. To relook at the size of government, to relook at where the money is being spent.
There’s clearly a different tone from the administration on zero emission vehicles relative to ICE vehicles. And so the good news is we have time because we have a very, very strong firm order book over the next couple of years. The other good news to us is that if the funding changes from, let’s say, zero emission focus to, who knows, hybrid or even back straight to pure ice, we also offer that. And there’s a lot of products where we are the only provider for a certain model given the changing in competitive dynamics. So as I handicap it, I say there’s going to be a change based on all the stuff that’s going on in Washington.
The short term, let’s call it ’25, ’20 ’6, there really shouldn’t be that much impact on our planned production schedules, at least for public customers. Could we see the size the total size or the mix of our option backlog change? Probably, but no idea yet or no indication of what that might mean.
Cameron Duerksen, Analyst, National Bank Financial: Okay. That’s helpful. And you sort of mentioned the competitive environment. We’ve been asked this in the past about the potential for a new competitor coming into The U. S.
Market or North American market broadly. It seems like that’s still a number of years away, but we’ve had a recent, I guess, order success from a new competitor in the Vancouver market. I presume that maybe you guys are bidding on that as well. So any updated thoughts there on the prospects of new competition coming into the North American market in the next few years?
Paul Zubry, President and Chief Executive Officer, NFI Group Inc.: Let’s break the business up. So on the small buses, the RBAC buses, we really are the only low floor provider. And at this point, we don’t really have any insight, knowledge or awareness of any inbound or new startups, if you will, getting into the low floors. The medium class vehicle market has changed quite dramatically because two of the main providers in that space were Eldorado and Vicinity. And Vicinity is 100% gone.
Eldorado basically was shut down and is trying to be revived. If we handicap that, we think the probability of that is fairly low. So the medium class vehicle, again, we think we’re in a great place. On the motor coated market, remember, there are no U. S.
Domestic manufacturers. So there’s Prevost in Canada and Us and then there’s importers like Daimler makes them in Turkey as does Temsa and the Van Hul makes them in Macedonia. So the tariff dynamic will have, I think, will play prominently in the private motor coach market. In the Buy America public market, we are the only ones with U. S.
Domestic completion capability. So then the big issue becomes new flatter. And as you know, Ken, because you’ve covered us for a long time, we went through Babbi was around and became part of us. Orion went away. BYD showed up and now kind of sits in the funding penalty box.
El Dorado went away. BY sorry, so all those dynamics. The Solaris did win a couple of trial contracts in The United States where those buses, one in I think in New York and one in Seattle. Those trial contracts of five buses with options are going to be made in Poland. There is no indication at this point in time that Solaris is set up in The U.
S. Yet or in Canada. We know and expect that to happen. Solaris did win an RFP put out by TransLink in Vancouver for a series of trolley buses, some firms, some options. Our understanding and we haven’t yet had our full debrief.
Our understanding is that their price made in Poland was notably different than ours. Like I don’t mean a little bit, but a lot. So there’s a dynamic of a Canadian domestic competitor, us competing against the Polish import. There are no by Canada content rules in that RFP. And so that’s the only one we know of any size where there’s been an impact on us.
We do expect them to show up in North America and this goes back to us improving our product, our service, our relationship with customers. To think that we won’t have competition going forward, it would be naive. So they’re coming, the pace at which they’ll actually enter the market and could the U. S. Government’s initiatives around mix and so forth change the game for them, who knows.
Cameron Duerksen, Analyst, National Bank Financial: Okay. No, that’s very helpful. I appreciate the time. Thanks.
Paul Zubry, President and Chief Executive Officer, NFI Group Inc.: Thanks, Tamara.
Conference Operator: One moment for our next question. Our next question comes from Daryl Young with Stifel. Your line is open.
Daryl Young, Analyst, Stifel: Hey, good morning, everyone. Just a quick question around the new seat supplier. Can you remind us what percentage of the back half of the year production they’re going to represent? And then are they producing today? Is it coming the seats going to be coming from a new facility?
Any just detail you can give us there around maybe any teething pains or risks to them delivering the seats in the back half of the year?
Paul Zubry, President and Chief Executive Officer, NFI Group Inc.: My position and thought is that based on our supply team. The supplier’s name is Kiel. Kiel is a very, very prominent German supplier of seats to bus and rail and motor coach in Europe. In fact, Kiel is a supplier to NCI today. Kiel has set up facilities in The United States to be Buy America compliant.
Their designs are, for the most part, proven and we know them and we’ve worked with them a lot. We have, of course, the choice of seats is largely the customers. So the customers have had to be comfortable that Kiel can provide. We historically have kind of had 55%, sixty % from our current troubled supplier and 40% from the other supplier, the other major supplier. So we have worked hard with our customers and of course with our current suppliers about adjusting that mix.
The portion of our back half of twenty twenty five seats that will come from Kiel is still less than maybe 10% of our business. It is not a massive, but it just adds future competitive tension to the seats of quarters to perform.
Daryl Young, Analyst, Stifel: Got it. Okay. And then secondly, this is a bit more of a hypothetical question, but if we did see a wide scale cancellation of the ZEVs and orders rebid to ICE, how do you feel about the ability to deliver $350,000,000 to $400,000,000 of EBITDA, just given a big part of the narrative has been higher price points for ZEBs and higher EBITDA per EU?
Paul Zubry, President and Chief Executive Officer, NFI Group Inc.: It’s a great question. But for 2025, those contracts are funded locked and loaded. So I don’t believe that any change in funding dynamics or mix will have an impact on our current year. Could it impact 26% and therefore option conversion and new wins and so forth? Absolutely.
The margins on diesel or natural gas or hybrid are less than we see on zero emission, but they are easier to build through a production line. So the trade off may be lower margin per unit, higher volume through the facility. And so if you just look at the sheer size of the backlog or even the bid universe, both active and expected, if the game changes on mix, net net, I don’t see a massive change on volume. You still have fleets throughout North America that are trying to renew their fleets. And when there’s a large component of the being federally funded and the local operators pay 100% of operating and fuel costs, they’re motivated to continue upgrading and changing their fleets.
And so maybe part of it is good planning and good strategy and part of it is good luck, but our belief that having production lines that are agnostic and product portfolio that we can sell the same
Daryl Young, Analyst, Stifel: bus, whether it’s diesel, natural gas,
Paul Zubry, President and Chief Executive Officer, NFI Group Inc.: that we can sell the same bus, whether it’s diesel, natural gas, electric, battery, fuel cell, whatever, that will prove very prominent. We have many suppliers show up during the SPAC days that were just zero emission and couldn’t sustain production lines. And we have one competitor that’s pulled out of The U. S. By American market and has already made public statements that they’re only going to do CEBs going forward.
So I’ll go back to my statement. Mix may change. Margin per unit is different, but volume has the potential to increase. It has really no impact on our aftermarket business either because that is about supporting an installed fleet that’s already there.
Daryl Young, Analyst, Stifel: Got it. That’s helpful. Thanks. And thanks for the comprehensive presentation guys. I’ll jump back in the queue.
Paul Zubry, President and Chief Executive Officer, NFI Group Inc.: Thanks, John. Thanks, Tim.
Conference Operator: And I’m not showing any further questions at this time. I’d like to turn the call back over to Steven for any closing remarks.
Kevin King, Vice President, Strategy, Investor Relations, NFI Group Inc.: All right. Thank you, Kevin, and thanks, everyone, for joining the call today. As always, do reach out to us at any time with questions and please do check out all the materials on our Investors section of our website and you’ll hear from us soon again to start thinking about the AGM in May. Thanks everyone and have
Daryl Young, Analyst, Stifel: a great day.
Conference Operator: Ladies and gentlemen, this does conclude today’s presentation. You may now disconnect and have a wonderful day.
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