NFI Group Announces Fourth Quarter 2017 Orders, Backlog and 2018 Outlook
Winnipeg, Manitoba, Canada – January 10, 2017: (TSX: NFI) New Flyer Industries Inc. (“NFI Group”) the largest bus and motor coach manufacturer and parts distributor in North America, today announced its order activity and backlog update for the 13-week period ended December 31, 2017 (“Q4 2017”). Year-over-year comparisons reported in this release compare Q4 2017 to the 13-week period ended January 1, 2017 (“Q4 2016”).
The NFI Group order and delivery activity and backlog for Q4 2017 reported in this release includes activity for: transit buses manufactured by New Flyer subsidiaries ( “New Flyer”), motor coaches manufactured by its Motor Coach Industries subsidiaries ( “MCI”) and aftermarket parts and services sold by its aftermarket organization (“NFI Parts”). Also included for the first time is activity for cutaway and medium-duty buses manufactured by its ARBOC Specialty Vehicles, LLC subsidiary (“ARBOC”), since its acquisition on December 1, 2017. Each ARBOC vehicle is considered to be one equivalent unit (“EU”).
The order and delivery activity and backlog as reported excludes pre-owned motor coaches.
Deliveries, Order Activity, and Option Expiry
NFI Group delivered 1,068 EUs in Q4 2017, an increase of 75 EUs compared to Q4 2016 and an increase of 191 EUs over the third fiscal quarter of 2017 (“Q3 2017”). Total inventory at December 31, 2017 was 482 EUs, a decrease of 84 EUs from the previous quarter.
|Q4 2017 Deliveries (EUs)||Full Year 2017|
|Cutaway and Medium-Duty||Total|
|695||346 EU||27 EU||1,068 EU||3,828 EU|
NFI Group’s new orders (both firm and options) in Q4 2017 totaled 2,520 EUs. Order activity in the period included:
- New firm orders for 901 EUs (valued at $434.0 million)
- New option orders for 1,619 EUs (valued at $748.3 million)
- 238 option EUs were converted to firm orders (valued at $117.1 million)
(Firm and Option EUs)
LTM New Orders
(Firm and Option EUs)
Option EUs Converted
Option EUs Converted
NFI Group’s last twelve months (“LTM”) Book-to-Bill ratio (defined as new firm and option orders divided by deliveries) was 152% and has been greater than 100% for 14 straight quarters, demonstrating overall growth in total backlog.
In addition, 273 EUs of new firm and option orders were pending from customers at the end of the period, where approval of the award to New Flyer had been made by the customer’s board, council, or commission, as applicable, but purchase documentation had not yet been received by New Flyer and therefore not yet included in the backlog.
The majority of public transit contracts have a term of five years and include both firm orders and options. The table below shows the number of option EUs that have either expired or been exercised annually over the past five years, as well as the current backlog of options that will expire each year if not exercised.
|A) Options Expired||1,094||965||504||550||331|
|B) Options Exercised||601||1,149||1,339||2,064||1,404|
|C) Current Options by year of expiry||895||1,140||1,305||2,114||2,517|
|D) Conversion rate % = B / (A+B)||35%||54%||73%||79%||81%|
At the end of Q4 2017, NFI Group’s total backlog was 12,157 EUs (valued at $6.02 billion) compared to 10,537 EUs (valued at $5.39 billion) at the end Q3 2017, and 10,187 EUs (valued at $5.23 billion) at the end of Q4 2016.
|Total Backlog||Firm Orders (EUs)||Options (EUs)||Total (EUs)|
Ending backlog at Q3 2017
ARBOC backlog acquired Dec 1, 2017
New orders in Q4 2017
Deliveries in Q4 2017
Cancelled/expired options in Q4 2017
|Ending Backlog at Q4 2017||4,186||7,971||12,157|
NFI Group’s total backlog consists of buses and motor coaches primarily for public customers. Buses and motor coaches incorporating clean propulsion systems (such as natural gas, diesel-electric hybrid, electric-trolley, and battery-electric) represent approximately 50% of the total backlog. Zero-emission buses and motor coaches (battery-electric, fuel cell-electric and electric-trolley) represent approximately 4.5% of total backlog.
|Total Backlog||Firm Orders (EUs)||Options (EUs)||Total (EUs)||
|Heavy-Duty Transit Buses||3,542||6,622||10,164||5.13|
|Cutaway and Medium-Duty Buses||322||–||322||0.03|
|Ending Backlog at Q4 2017||4,186||7,971||12,157||6.02|
NFI Group’s Bid Universe metric reports active public sector competitions in Canada and the United States, and provides an overall indicator of active bid activity and expected heavy-duty transit bus and motor coach market demand. It is a point-in-time snapshot of: (i) EUs in active competitions, defined as all requests for proposals received and in process of review plus bids submitted and awaiting customer action, and (ii) management’s forecast based on public customer projection of expected EUs to be placed out for competition over the next five years.
At the end of Q4 2017 the number of active EUs was 4,778 EUs and total Bid Universe was 21,184 EUs.
Bids in Process
|Bids Submitted (EUs)||Total Active (EUs)||Forecast New Procurements over next 5 Years (EUs)||Total Bid Universe (EUs)|
Procurement of heavy-duty transit buses and motor coaches by the public sector is typically accomplished through formal multi-year contracts, while procurement by the private sector is typically through transactional sales. As a result, NFI Group does not publish a Bid Universe metric for private sector buses and motor coaches.
The sale of cutaway and medium-duty buses manufactured by ARBOC are accomplished on a transactional purchase order basis through third party dealers who hold contracts directly with the customers. Bids are submitted by and agreements are held with a network of dealers and therefore cutaway and medium-duty bus activity is not included in the Bid Universe metric.
Total parts shipments by NFI Parts for Q4 2017 increased by 5.1% compared to the previous quarter, and increased by 7.5% compared to Q4 2016.
Gross parts orders received by NFI Parts in Q4 2017 increased by 1.8% compared to the previous quarter, while increasing by 10.3% over Q4 2016.
For 2017, ARBOC aftermarket parts orders and shipments were not material and not included in these figures.
Management continues to expect that transit bus, cutaway and medium duty buses, and motor coach procurement activity by public transit agencies throughout the U.S. and Canada to remain robust based on an aging fleet, overall economic conditions, expected customer fleet replacement plans, and active or anticipated procurements.
Management continues to anticipate stable private sector demand for motor coaches through 2018 given healthy market dynamics including the economy, travel trends and credit markets.
As the population ages and ease of access becomes more of a focus, management also believes the demand for low-floor cutaway and medium-duty buses with greater accessibility will grow from it’s current level of 5% of the total market, following the migration that occurred in heavy-duty transit bus space.
NFI Group’s master production schedule combined with current backlog and orders anticipated to be awarded by customers under new procurements is expected to enable NFI Group to deliver approximately 4,350 EUs in fiscal 2018 with production rates varying from quarter to quarter due to product mix and award timing.
2018 deliveries are expected to comprise of the following vehicle types:
|Heavy-Duty Transit||Motorcoach||Cutaway and Medium-Duty||Total|
|2,750 EU||1,100 EU||500 EU||4,350 EU|
Following Daimler’s recent decision to terminate MCI’s Setra Distribution Rights Agreement (DRA), there are no sales of new Setra motor coaches planned for 2018. The DRA was established in 2012, and since then MCI has only sold a total of 282 new Setra coaches, of which 21 were sold in 2017.
With respect to parts, ongoing surveys and discussions with large parts customers continue to indicate a number of market effects including: inventory reduction strategies, budget constraints and fleet modernization efforts. Although part sales remain difficult to forecast, management expects that the parts market will remain relatively stable in 2018, but may experience quarter-to-quarter volatility as is typical for this segment of the business. As a result of the Setra DRA termination however, approximately $4 million of parts sales have been removed from the budget for the second half of 2018.
U.S. Tax Reform
As a result of U.S. tax reform in December 2017, NFI Group expects a reduction in consolidated effective tax rate (ETR). NFI Group’s consolidated ETR prior to US tax reform ranged from 32% to 36% reflecting benefits related to interest deductions and the domestic production activities deduction which will no longer be available. Although the US federal statutory tax rate decreased from 35% to 21%, NFI Group‘s ETR for 2018 and subsequent years is expected to be in the range of 29% to 31%.
This range includes US state taxes which brings the combined US federal and state statutory tax rate to approximately 27% and the impact related to the fact that NFI’s most significant Canadian operating entity (New Flyer Industries Canada ULC, an entity taxed in both the US and Canada) will not be able to fully utilize foreign tax credits as the Canadian tax rate is now higher than the US Federal tax rate. The expected ETR range can also be significantly impacted for non-recurring items.
NFI Group’s manufacturing facilities operate in an integrated manner with parts and components shipping in both directions over the Canadian/US border. NFI Group’s supply chain has been established to ensure compliance with the more stringent US Federal Buy America requirements for rolling stock funded by FTA grants. In the case of both New Flyer and MCI public customers, a certain quantity of bus and motor coach shells are manufactured in Canada and shipped for final assembly in the United States. In the case of private sector sales, all MCI motor coaches are manufactured in Canada.
Under the current NAFTA agreement, all shells and finished buses and coaches move across the border free of any duties. Nearly all the purchased components sourced in the NAFTA region meet the current 62.5% regional content requirement and therefore also move across the border free of any duties. NFI Group today pays immaterial tariffs for non-NAFTA supply.
Any amendments that would impose duties on parts, shells and finished bus and coach could have a financial impact given materials comprise 70% of manufacturing costs and complete buses and coaches are imported to each country on a regular basis. Management continues to closely monitor NAFTA negotiations and is developing contingency plans to mitigate should changes occur to the current agreement.
NOTE: All dollar amounts are stated in U.S. currency based on an exchange rate of U.S. $1.00 = CAD $ 1.2545 to calculate the value of the Canadian contracts in this release.
About NFI Group
NFI Group and its subsidiaries comprise the largest bus and motor coach manufacturer and parts distributor in North America, with 32 fabrication, manufacturing, distribution, and service centers located across Canada and the United States and employing nearly 6,000 team members.
NFI Group provides a comprehensive suite of mass transportation solutions under several brands: New Flyer® (heavy-duty transit buses), ARBOC® (low-floor cutaway and medium-duty buses), MCI® (motor coaches), and NFI Parts™ (bus and coach parts, support, and service). NFI Group’s vehicles incorporate the widest range of drive systems available ranging from clean diesel, natural gas, diesel-electric hybrid, trolley-electric, battery-electric and fuel cell.
- New Flyer is North America’s heavy-duty transit bus leader and offers the most advanced product line under the Xcelsior® and Xcelsior CHARGE™ brands. New Flyer actively supports over 44,000 heavy-duty transit buses (New Flyer, NABI, and Orion) currently in service, of which 6,400 are powered by electric and battery propulsion.
- ARBOC is North America’s low-floor, body-on-chassis (“cutaway”) bus leader serving transit, paratransit, and shuttle applications. With more than 2,500 buses in service, ARBOC leads the low-floor cutaway bus market providing unsurpassed passenger accessibility and comfort over traditional high-floor cutaway vehicles. ARBOC also offers a medium-duty bus for transit and shuttle applications.
- MCI is North America’s motor coach leader offering the J-Series, the industry’s best-selling intercity coach for 11 consecutive years, and the D-Series, the industry’s best-selling motor coach line in North American history. MCI actively supports over 28,000 coaches currently in service.
- NFI Parts is North America’s most comprehensive bus and motor coach parts organization, providing replacement parts, technical publications, training, service, and support for NFI Group’s product lines.
This press release may contain forward-looking statements relating to expected future events and financial and operating results of NFI Group that involve risks and uncertainties. Although the forward-looking 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 forward-looking statements, and the differences may be material. Actual results may differ materially from management expectations as projected in such forward-looking statements for a variety of reasons, including, but not limited to changes in Canadian or United States tax legislation, trade policies in the United States and Canada (including NAFTA) may undergo significant change, potentially in a manner materially adverse to NFI Group and those risks and uncertainties discussed in the materials filed with the Canadian securities regulatory authorities and available on SEDAR at www.sedar.com. Due to the potential impact of these factors, NFI Group disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, unless required by applicable law.
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