New Flyer Announces Fourth Quarter and Fiscal Year 2016 Results

• Fiscal 2016 Revenue of $2.3 billion increased by 47.8% compared to Fiscal 2015.

• Fiscal 2016 Adjusted EBITDA and net earnings were $289.1 million and $124.9 million increased by 90.8% and 131.7% compared to Fiscal 2015, respectively.

• Fiscal 2016 earnings per share of $2.10 increased by 116.5% compared to Fiscal 2015.

• Fiscal 2016 Free Cash Flow and dividends declared were C$216.3 million and C$54.0 million, which increased by 99.7% and 59.8% compared to Fiscal 2015, respectively. The Free Cash Flow payout ratio during Fiscal 2016 was 25%.

• Total backlog of 10,187 EUs (valued at $5.23 billion) increased 5.4% during Fiscal 2016.

• Total leverage ratio of 1.94 at end of Fiscal 2016 improved from the pro forma ratio of 2.91 at end of Fiscal 2015

 

WINNIPEG, March 22, 2017 – New Flyer Industries Inc. (TSX:NFI) (TSX:NFI.DB.U) (the “Company”), the largest transit bus and motor coach manufacturer and parts distributor in North America, today announced its results for the 13-week period ended January 1, 2017 (“2016 Q4”) and the 53-week period ended January 1, 2017 (“Fiscal 2016”). Full audited financial statements and Management’s Discussion and Analysis (the “MD&A”) are available at the Company’s web site at: www.www.newflyer.com. Unless otherwise indicated, all monetary amounts in this press release are expressed in U.S. dollars.

Fiscal 2015 results include acquisition of Motor Coach Industries (“MCI”) from December 18, 2015 to December 27, 2015 only.

Operating Results

Transit Bus and Coach Deliveries Equivalent units (“EUs”)	2016 Q4	2015 Q4	% change	2016 Fiscal	2015 Fiscal	% change
New transit bus and coach Pre-owned coach	993 101	689 3	44.1 % 100.0 %	3,511 381	2,480 3	41.6 % 100.0 %
Average EU selling price (U.S. dollars in thousands)
New transit bus and coach average selling price Pre-owned coach average selling price	$ 525.2 98.6	$ 503.2 163.3	4.4 % (39.6)%	$ 517.9 122.3	$ 490.6 163.3	5.6 % (25.1)%

 

Consolidated Revenue (U.S. dollars in millions)	2016 Q4	2015 Q4	% change	2016 Fiscal	2015 Fiscal	% change
New transit bus and coach Pre-owned coach	$ 521.5 10.0	$ 346.7 0.5	50.4% 100.0%	$ 1,818.3 46.6	$ 1,216.2 0.5	49.5% 100.0%
Transit Bus and Coach Manufacturing Aftermarket	531.5 91.1	347.2 71.7	53.1% 27.0%	1,864.9 409.3	1,216.7 322.2	53.3% 27.0%
Total Revenue	$ 622.6	$ 418.9	48.6%	$ 2,274.2	$ 1,538.9	47.8%

Revenue from transit bus and coach manufacturing operations for 2016 Q4 increased by 53.1% compared to the 13- week period ended December 27, 2015 (“2015 Q4”). The increase in 2016 Q4 revenue primarily resulted from a 44.1% increase in total transit bus and coach deliveries compared to 2015 Q4 deliveries and a 4.4% increase in the average selling price of new transit buses and coaches resulting from a favourable sales mix (which now includes coaches). The deliveries increased primarily as a result of the inclusion of MCI’s new and pre-owned coaches. The 2016 Q4 new deliveries increased by 216 EUs compared to the previous quarter, primarily as a result of being able to deliver motor coaches to New Jersey Transit (with the temporary contract suspension lifted) and the increased coach deliveries that typically occur at the end of the year due to favourable tax treatment of depreciation for private customers. Similarly, the transit bus and coach revenue for Fiscal 2016 increased by 53.3% compared to 52-week period ended December 27, 2015 (“Fiscal 2015”), primarily as a result of an increase in transit bus and coach deliveries of 41.6%, and a 5.6% increase in average selling price of new transit buses and coaches. Fiscal 2016 also had an extra week compared to Fiscal 2015. The extra week occurred in the first quarter of Fiscal 2016, during the last calendar week of 2015, a period of above average deliveries.

Revenue from aftermarket operations in 2016 Q4 increased by 27.0% compared to 2015 Q4 and increased 27.0% in Fiscal 2016 compared to Fiscal 2015 primarily a result of aftermarket revenues generated by MCI. The pro forma aftermarket business revenue (which includes MCI) for 2015 Q4 was $98.1 million and $416.7 million for Fiscal 2015 when also excluding the revenue from the Chicago Transit Authority mid-life overhaul program. Therefore, the core aftermarket revenue in 2016 Q4 decreased 7.2% compared to the pro forma aftermarket revenue for the core business in 2015 Q4, but remained essentially flat in Fiscal 2016 compared to Fiscal 2015.

Consolidated Adjusted EBITDA (U.S. dollars in millions)	2016 Q4	2015 Q4	% change	2016 Fiscal	2015 Fiscal	% change
Transit Bus and Coach Manufacturing	$ 58.8	$ 31.2	88.5%	$ 208.6	$ 90.0	131.8%
Aftermarket	18.0	13.4	34.3%	80.5	61.5	30.9%
Total Adjusted EBITDA	$ 76.8	$ 44.6	72.2%	$ 289.1	$ 151.5	90.8%
Adjusted EBITDA % of revenue
Transit Bus and Coach Manufacturing	11.1%	9.0%	2.1%	11.2%	7.4%	3.8%
Aftermarket	19.8%	18.6%	1.2%	19.7%	19.1%	0.6%
Total	12.3%	10.6%	1.7%	12.7%	9.8%	2.9%

Consolidated Adjusted EBITDA increased by 72.2% and 90.8% during 2016 Q4 and Fiscal 2016 respectively, compared to their corresponding periods in the previous year, which is primarily a result of increased unit deliveries and improved margins.  Contributors to the increase in margin in the period is a very favourable sales mix, cost savings synergies

relating to the MCI acquisition, continued cost reductions achieved through the Company’s operational excellence initiatives and integration of MCI and the full impact from the New Flyer and NABI product rationalization.

Margins vary significantly between orders due to factors such as pricing, order size, propulsion system and product type and components specified by the customer. Management cautions readers that quarterly Adjusted EBITDA can be volatile and should be considered over a period of several quarters.

The 2016 Q4 aftermarket operations Adjusted EBITDA increased 34.3% compared to 2015 Q4 as a result of Adjusted EBITDA generated from MCI’s aftermarket business. As well, the Fiscal 2016 aftermarket Adjusted EBITDA increased 30.9% compared to Fiscal 2015. The aftermarket Adjusted EBITDA as a percentage of revenue for 2016 Q4 has increased 1.2% as compared to 2015 Q4 and increased by 0.6% when comparing to Fiscal 2016 to Fiscal 2015.

Bus and Coach Adjusted EBITDA per EU delivered (U.S. dollars)	2016 Q4	2015 Q4	$ change	2016 Fiscal	2015 Fiscal	$ change
Transit bus and coach manufacturing Adjusted EBITDA (in millions)	$ 58.8	$ 31.2	$ 27.6	$ 208.6	$ 90.0	$ 118.6
New transit bus and coach deliveries (EUs)	993	689	304	3,511	2,480	1,031
Bus and Coach Adjusted EBITDA per new EU delivered (in thousands)	$ 59.2	$ 45.3	$ 13.9	$ 59.4	$ 36.3	$ 23.1

Pre-owned coaches are sold effectively at break even and therefore the related deliveries are not included in the calculation of transit bus and coach Adjusted EBITDA per new EU delivered.

The transit bus and coach manufacturing Adjusted EBITDA per EU delivered in 2016 Q4 has increased by $13.9 thousand compared to 2015 Q4. The pro forma Adjusted EBITDA per EU delivered in 2015 Q4 was $56.3 thousand, the acquisition of MCI having increased Adjusted EBITDA per EU by $11.0 thousand. The remaining increase of $2.9 thousand of Adjusted EBITDA per EU delivered in 2016 Q4 compared to 2015 Q4 is a result of margin enhancements.

Similarly, the transit bus and coach manufacturing Adjusted EBITDA per EU delivered in Fiscal 2016 has increased by $23.1 thousand compared to Fiscal 2015. The pro forma Adjusted EBITDA per EU delivered in Fiscal 2015  was

$44.4 thousand, the acquisition of MCI having increased Adjusted EBITDA per EU by $8.1 thousand. The remaining increase of $15.0 thousand of Adjusted EBITDA per EU delivered in Fiscal 2016 compared to Fiscal 2015 is a result of margin enhancements, contributed by higher sales price, cost savings synergies relating to the acquisition and integration of MCI, cost reductions as a result of the full impact from the New Flyer and NABI rationalization, on-going continuous improvement efforts and a favourable sales mix.

Net earnings (U.S. dollars in millions)	2016 Q4	2015 Q4	$ change	2016 Fiscal	2015 Fiscal	$ change
Earnings from operations	$ 61.2	$ 24.0	$ 37.2	$ 216.6	$ 92.9	$ 123.7
Non-cash loss	(1.4)	(0.9)	(0.5)	(1.8)	(3.0)	1.2
Interest income (expense)	3.6	(3.5)	7.1	(21.0)	(14.2)	(6.8)
Income tax expense	(21.9)	(5.5)	(16.4)	(68.9)	(21.8)	(47.1)
Net earnings	$ 41.5	$ 14.1	$ 27.4	$ 124.9	$ 53.9	$ 71.0
Net earnings per share (basic)	$ 0.68	$ 0.25	$ 0.43	$ 2.10	$ 0.97	$ 1.13

Net earnings during 2016 Q4 increased by 194.5% compared to 2015 Q4, primarily as a result of improved Earnings from Operations offset by the increase in income tax expense. This resulted in net earnings per Share in 2016 Q4 of

$0.68 compared to $0.25 per Share generated during 2015 Q4. Similarly, net earnings for Fiscal 2016 increased by 131.7% compared to Fiscal 2015.

Liquidity

Free Cash Flow and Declared Dividends (CAD dollars in millions)	2016 Q4	2015 Q4	% change	2016 Fiscal	2015 Fiscal	% change
Free Cash Flow Declared dividends	$ 45.1 $ 14.9	$ 47.4 $  8.6	(4.9)% 73.3 %	$ 216.3 $ 54.0	$ 108.3 $ 33.8	99.7% 59.8%

The Company generated Free Cash Flow of C$45.1 million during 2016 Q4, a decrease of 4.9% compared to C$47.4 million in 2015 Q4. The Company declared dividends in 2016 Q4 of C$14.9 million, an increase of 73.3% compared to C$8.6 million in 2015 Q4 primarily as a result of conversion of the 6.25% convertible unsecured subordinated debentures of the Company (“Debentures”) by the holders to common shares of the Company (“Shares”) and the 53% cumulative increase in the annual dividend rate during Fiscal 2016. There were 5.6 million Shares issued as a result of Debenture conversions during Fiscal 2016. As at January 1, 2017, approximately 88% of the original $65 million of Debentures issued had been converted to Shares at a conversion price of $10 per Share. The remaining Debentures will mature on June 30, 2017.

The Company generated Free Cash Flow of C$216.3 million during Fiscal 2016 which increased 99.7% compared to C$108.3 million in Fiscal 2015. The Company’s declared dividends in Fiscal 2016 of C$54.0 million increased 59.8% compared to C$33.8 million in Fiscal 2015. The Fiscal 2016 Free Cash Flow payout ratio (declared dividends divided by Free Cash Flows) is 25.0% compared to 31.2% in Fiscal 2015.

The January 1, 2017 liquidity position of $268.1 million is comprised of $255.1 million available under the revolving portion of the Credit Facility (the “Revolver”) and $13.0 million of cash, compared to a liquidity position of $255.6 million at October 2, 2016. The liquidity has improved $12.5 million or 4.9% during 2016 Q4. The increased liquidity during 2016 Q4 relates to improved cash flow from operations during the period. As at January 1, 2017 there were $77.0 million of direct borrowings and $10.9 million of outstanding letters of credit related to the $343.0 million Revolver.

The Company’s total leverage ratio (defined as net indebtedness excluding Debentures, divided by Adjusted EBITDA) of 1.94 at January 1, 2017 improved from the pro forma ratio of 2.91 at December 27, 2015. The pro forma adjustment represents MCI’s full year Adjusted EBITDA for Fiscal 2015. As at January 1, 2017, the Company was in compliance with its covenant that requires the total leverage ratio to be less than 4.00.

Outlook

The Company’s annual operating plan for the 52-weeks ended December 31, 2017 (“Fiscal 2017”) is focused on maintaining and growing its leading market position in the heavy-duty transit bus and motor coach markets and aftermarket parts distribution through enhanced competitiveness.

The Company expects to deliver approximately 3,650 EUs of new transit buses and motor coaches during Fiscal 2017, an increase of 4% from Fiscal 2016 based on a very healthy order backlog, bid universe and management’s belief that the procurement activity by public transit agencies throughout the U.S. and Canada for both transit buses and motor coaches should remain robust.

Management took the necessary time to evaluate MCI and assess the various scenarios before determining further strategic actions to pursue longer term synergies and improved competitiveness. With the customized nature of the public market, and the increasing U.S. content requirements under U.S. legislation, significant procurement synergies resulting from sourcing leverage are not easily attainable. Any material sourcing changes must take into consideration an evaluation from several perspectives, including: current supplier agreements, customer specified components, bus reliability and performance, and aftermarket serviceability and spare parts implications.

As a result of the year long evaluation, the Company announced a decision to appoint presidents of the various operating businesses. Effective January 1, 2017, Wayne Joseph became President, Transit Bus Business, Ian Smart became President, Motor Coach Business and Brian Dewsnup became President, Aftermarket Parts Business for both New Flyer and MCI. These strategic leadership changes align organizational structure and capital deployment plans to create the best environment for customer support, enhanced competitiveness and growth. To build customer focus, Mr. Smart (MCI) and Mr. Joseph (New Flyer) will be responsible for all aspects of original equipment manufacturer (“OEM”) design, engineering, purchasing, sales and marketing, production and operations. Formerly managed within the MCI aftermarket business, the six MCI service centers (soon to be seven), field service teams, warranty and the technical call center, which assists operators, technicians and drivers around the clock, will now be managed by MCI’s Motor Coach Business. The change in customer and field support reporting has been very successful at New Flyer, and going forward the Motor Coach Business at MCI will also own the support and reliability of the products it designs and builds.

The combination of the MCI and New Flyer aftermarket parts businesses, training and publications into one business under the direction of Mr. Dewsnup solidifies the Company as the largest transit bus and motor coach parts supplier in North America, with a goal of a common platform to improve the Company’s inventory utilization and delivery performance.

Management believes that growth in the motor coach and transit bus aftermarket parts market will be in the range of zero to 2% in 2017.  This expectation is due to a number of factors such as:

• the increase in new motor coach and bus deliveries in recent years to medium and large operators has resulted in enhanced fleet replacement, creating somewhat of a dampening effect on the aftermarket business, and

• overall transit bus and motor coach fleet size and utilization remain fairly consistent, which drives demand for routine preventive maintenance and

While overall industry aftermarket growth is anticipated to be relatively flat, the Company continues to focus on enhancing customer service levels, growing its market share and improving efficiency, profitability and working capital utilization.

During Fiscal 2016, the Company began investing in MCI’s facilities and information technology to harmonize them with New Flyer, along with a company-wide transformation to enhance MCI’s Quality-at-the-Source, “zero defect” production culture. Further investments in Fiscal 2017 are planned with respect to service centers, support infrastructure and next generation product development; such as a battery-electric coach and a 35-foot J-model coach.

The Company’s financial performance during first quarter of Fiscal 2017 will be based on 13-weeks whereas compared to the first quarter of Fiscal 2016 which included 14-weeks. The extra week in Fiscal 2016 is a result of the Company’s floating year-end. The extra week occurred during the last week during December 2015. First quarter deliveries have historically been lower compared to fourth quarter deliveries.

Conference Call

A conference call for analysts and interested listeners will be held on Thursday March 23, 2017 at 3:00 p.m. (ET). The call-in number for listeners is 888-231-8191, 647-427-7450 or 403-451-9838. A live audio feed of the call will also be available at:

http://event.on24.com/r.htm?e=1357886&s=1&k=8A588337916B37E826E3E9268DB08B27

A replay of the call will be available from 6:00 p.m. (ET) on March 23, 2017 until 11:59 p.m. (ET) on March 30, 2017. To access the replay, call 855-859-2056 or 416-849-0833 and then enter pass code number 62332684. The replay will also be available on New Flyer’s web site at www.www.newflyer.com.

Non-IFRS Measures

“Earnings from Operations” refer to earnings before interest, income taxes and unrealized foreign exchange losses or gains on non-current monetary items. “Adjusted EBITDA” consists of earnings before interest, income taxes, depreciation, amortization and other non-cash charges and certain other non-recurring charges as set out in the MD&A. “Free Cash Flow” means net cash generated by operating activities adjusted for changes in non-cash working capital items, interest paid, interest expense, income taxes paid, current income tax expense, effect of foreign currency rate on cash, past service cost, defined benefit funding, non-recurring transitional costs relating to business acquisitions, costs associated with assessing strategic and corporate initiatives, product rationalization costs, defined benefit expense, cash capital expenditures, fair value adjustment to MCI’s inventory and deferred revenue, gain received on total return swap settlement, proportion of the total return swap realized and principal payments on capital leases. Management believes Earnings from Operations, Adjusted EBITDA and Free Cash Flow are useful measures in evaluating the performance of the Company. However, Earnings from Operations, Adjusted EBITDA and Free Cash Flow are not recognized earnings measures and do not have standardized meanings prescribed by International Financial Reporting Standards (“IFRS”) and may not be comparable to similarly titled measures used by other issuers. Readers are cautioned that Earnings from Operations and Adjusted EBITDA should not be construed as an alternative to net earnings or loss determined in accordance with IFRS as an indicator of the Company’s performance, and Free Cash Flow should not be construed as an alternative to cash flows from operating, investing and financing activities determined in accordance with IFRS, as a measure of liquidity and cash flows. A reconciliation of Adjusted EBITDA and Free Cash Flow to net earnings and cash flow from operations, respectively, is provided in the MD&A.

About the Company

The Company is the largest transit bus and motor coach manufacturer and parts distributor in North America with fabrication, manufacturing, distribution and service centers in Canada and the United States and employs approximately 5,000 team members.

Through its Canadian and U.S. subsidiaries, NFI ULC and NFAI, the Company is North America’s heavy-duty transit bus leader and offers a high quality transit bus product line (Xcelsior^® and MiDi^® models), incorporating the broadest range of drive systems available, including: clean diesel, natural gas, diesel-electric hybrid, electric-trolley and now battery-electric. New Flyer actively supports over 42,000 heavy-duty transit buses (New Flyer, NABI and Orion) currently in service.

Through its Canadian and U.S. subsidiaries, Motor Coach Industries Limited and Motor Coach Industries, Inc., the Company is the leader in motor coaches in Canada and the U.S., MCI offers a J-model which is the industry’s best- selling intercity coach for 12 consecutive years, and the D-model, the industry’s best-selling coach line in North American motor coach history. MCI is also the exclusive distributor of the Setra S417 and S407 in the United States and Canada. MCI actively supports over 28,000 MCI motor coaches currently in service and offers 24-hour roadside assistance 365 days a year.

The Company also operates North America’s most comprehensive aftermarket parts organization providing support for all types of transit buses and motor coaches. All New Flyer’s transit buses and MCI’s coaches are supported by an industry-leading comprehensive warranty, service and support network.

The common shares and convertible unsecured subordinated debentures of the Company are traded on the Toronto Stock Exchange under the symbols NFI and NFI.DB.U, respectively.

Forward-Looking Statements

Certain  statements  in  this  press  release  are  statements”, which reflect the expectations of management regarding the Company’s future growth, results of operations, performance and business prospects and opportunities. The words “believes”, “anticipates”, “plans”, “expects”, “intends”, “projects”, “forecasts”, “estimates” and similar expressions are intended to identify statements. These statements reflect management’s current expectations regarding future events and operating performance and speak only as of the date of this press release. Forward-looking statements involve significant risks and uncertainties, should not be read as guarantees of future performance or results, and will not necessarily be accurate indications of whether or not or the times at or by which such performance or results will be achieved. A number of factors could cause actual results to differ materially from the results discussed in the forward-looking statements. Such differences may be caused by factors which include, but are not limited to, availability of funding to the Company’s customers to purchase transit buses and coaches and to exercise options and to purchase parts or services at current levels or at all, aggressive competition and reduced pricing in the industry, material losses and costs may be incurred as a result of product warranty issues and product liability claims, changes in Canadian or United States tax legislation, the absence of fixed term customer contracts and the suspension or the termination of contracts by customers for convenience, the current

U.S federal “Buy-America” legislation, U.S. Disadvantaged Business Enterprise Program requirements, local content and job creation bidding preferences and requirements under Canadian content policies may change and/or become more onerous, trade policies in the United States and Canada may undergo significant change, potentially in a manner materially adverse to the Company, production delays may result in liquidated damages under the Company’s contracts with its customers, the Company’s ability to execute its planned production targets as required for current business and operational needs, currency fluctuations could adversely affect the Company’s financial results or competitive position in the industry, the Company may not be able to maintain performance bonds or letters of credit required by its existing contracts or obtain performance bonds and letters of credit required for new contracts, third party debt service obligations may have important consequences to the Company, the covenants contained in the Company’s senior credit facility and the indenture governing its Debentures could impact the ability of the Company to fund dividends and take certain other actions, interest rates could change substantially and materially impact the Company’s profitability, the dependence on limited sources of supply, the timely supply of materials from suppliers, the possibility of fluctuations in the market prices of the pension plan investments and discount rates used in the actuarial calculations will impact pension expense and funding requirements, the Company’s profitability and performance can be adversely affected by increases in raw material and component costs, the availability of labour could have an impact on production levels, new products must be tested and proven in operating conditions and there may be limited demand for such new products from customers, the Company may have difficulty selling pre-owned coaches and realizing expected resale values, the ability of the Company to successfully execute strategic plans and maintain profitability, risks related to acquisitions, joint ventures, and other strategic relationships with third parties and the ability to successfully integrate acquired businesses and assets into the Company’s existing business and to generate accretive effects to income and cash flow as a result of integrating these acquired businesses and assets. The Company cautions that this list of factors is not exhaustive. These factors and other risks and uncertainties are discussed in its press releases and materials filed with the Canadian securities regulatory authorities and available on SEDAR at www.sedar.com.

Although the statements contained in this press release are based upon what management believes to be reasonable assumptions, investors cannot be assured that actual results will be consistent with these statements, and the differences may be material. These statements are made as of

the date of this press release and the Company assumes no obligation to update or revise them to reflect new events or circumstances, except as required by applicable securities laws.

For further information: Jon Koffman

Investor Relations

Tel: (204) 224-6672

E-mail: [email protected]