NFI Group Announces Second Quarter 2018 Deliveries, Orders and Backlog

Deliveries, Order Activity, and Option Expiry

NFI delivered 1,159 equivalent units (“EUs”) in Q2 2018, an increase of 168 EUs compared to Q2 2017 and an increase of 166 EUs from Q1 2018. NFI’s last twelve months (“LTM”) deliveries were 4,097 EUs, up 444 EUs from LTM Q2 2017. Total inventory at July 1, 2018 decreased 41 EUs from the previous quarter to 592 EUs.

NFI Deliveries (EUs)
	Heavy-Duty Transit (New Flyer)	Motor Coaches (MCI)	Cutaway and Medium-Duty (ARBOC Specialty Vehicles)	Total
Q2 2017	719	272	–	991
Q2 2018	739	287	133	1,159
LTM Q2 2017	2,649	1,004	–	3,653
LTM Q2 2018	2,766	1,032	299	4,097

NFI’s new orders in Q2 2018 totaled 1,413 EUs, which included firm orders of 456 EUs (valued at $177.3 million) and option orders of 957 EUs (valued at $471.9 million). In addition, 505 option EUs were converted to firm orders (valued at $254.0 million).

Total reported orders do not include 130 EUs of new firm and option orders that were pending at the end of the quarter, where approval of the award to NFI had been made by the customer’s board, council, or commission, as applicable, but purchase documentation had not yet been received by NFI and are therefore not yet included in the backlog.

NFI’s LTM Q2 2018 Book-to-Bill ratio (defined as new firm and option orders divided by deliveries) was 154%, compared to a 103% Book-to-Bill ratio for LTM Q2 2017. The Book-to-Bill ratio has been greater than 100% for 16 consecutive quarters.

	New Orders in Quarter (Firm and Option EUs)	New Orders LTM (Firm and Option EUs)	Option EUs Converted in Quarter to Firm	Option EUs Converted LTM to Firm
Q2 2017	958	3,773	389	1,492
Q3 2017	1,634	4,822	559	1,763
Q4 2017	2,520	5,820	238	1,404
Q1 2018	736	5,848	441	1,627
Q2 2018	1,413	6,303	505	1,743

The majority of public transit contracts, bid by both New Flyer and MCI, have a term of five years and include both firm orders and options. The following table shows the number of option EUs that have been exercised or expired annually over the past five years, as well as the current backlog of options that will expire each year – if not exercised.

In EUs	2014	2015	2016	2017	2018 YTD	2019	2020	2021	2022	2023
A. Options      Expired	965	504	550	331	447
B. Options    Exercised	1,149	1,339	2,064	1,404	946
C. Remaining  Options by year of expiry					424	945	1,339	1,827	2,400	971
D. Conversion Rate % = B / (A+B)	54%	73%	79%	81%

 Total Backlog and 2018 Production

At the end of Q2 2018, NFI’s total backlog was 11,685 EUs (valued at $5.80 billion) compared to 11,548 EUs (valued at $5.80 billion) at the end Q1 2018, and 9,901 EUs (valued at $5.04 billion) at the end of Q2 2017.

Total Backlog (EUs)	Firm Orders	Options	Total
Ending backlog at Q1 2018 New orders in Q2 2018 Options exercised in Q2 2018 Deliveries in Q2 2018 Cancelled/expired options in Q2 2018	3,997 456 505 (1,159) (20)	7,551 957 (505) – (97)	11,548 1,413 – (1,159) (117)
Ending Backlog at Q2 2018	3,779	7,906	11,685

 

Total Backlog (EUs)	Firm Orders	Options	Total	$B US
Heavy-Duty Transit Buses	3,092	6,860	9,952	4.989
Cutaway and Medium-Duty Buses	203	–	203	0.019
Motor Coaches	484	1,046	1,530	0.790
Ending Backlog at Q2 2018	3,779	7,906	11,685	5.798

NFI’s total backlog consists of vehicles primarily for public customers. The majority of the backlog relates to New Flyer transit buses for public clients with some contribution from MCI and ARBOC.

Transit buses and motor coaches incorporating clean propulsion systems including compressed natural gas (“CNG”), diesel-electric hybrid, tolley-electric, fuel cell-electric and battery-electric represent approximately 44% of the total backlog.  Zero-emission buses and motor coaches (battery-electric, fuel cell-electric and trolley-electric) represent approximately 4% of total backlog.

Parts Activity

Total shipments by NFI Parts for Q2 2018 increased by 4.8% compared to the previous quarter, and increased by 1.1% compared to Q2 2017.

Gross orders received by NFI Parts in Q2 2018 increased by 4.3% compared to Q1 2018, and increased by 5.7% over Q2 2017.

ARBOC aftermarket parts orders and shipments are not included in these figures as they are not material.

During the second quarter of 2018, NFI Parts continued to advance its integration and optimization strategy by completing the planned move of its Hebron, Kentucky warehouse into an existing facility in Louisville, Kentucky.

Market Demand and Outlook

NFI’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 projections of expected EUs to be placed out for competition over the next five years.

At the end of Q2 2018, active EUs were 3,710 and the total Bid Universe was 22,150 EUs. Active EUs can fluctuate significantly from quarter-to-quarter based on public client tender, procurement and award processes. Active EUs were impacted substantially in the quarter as a result of a single contact award for over 1,500 EUs in the province of Quebec to the sole local competitor. NFI chose not to submit a proposal in the final stages of the procurement process due to restrictive bidding requirements and past award preferences.

In EUs	Bids in Process	Bids Submitted	Total Active	Forecast New Procurements over next 5 Years	Total Bid Universe
Q2 2017	1,253	6,852	8,105	14,166	22,271
Q3 2017	1,541	5,072	6,613	14,303	20,916
Q4 2017	3,091	1,687	4,778	16,406	21,184
Q1 2018	2,974	3,479	6,453	17,186	23,639
Q2 2018	1,319	2,391	3,710	18,440	22,150

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 does not publish a Bid Universe metric for private sector buses or motor coaches.

Sales of cutaway and medium-duty buses manufactured by ARBOC are generated on a transactional basis through third party dealers who hold contracts directly with the operators.  Bids are submitted by and agreements are held with non-exclusive dealers and therefore cutaway and medium-duty bus activity is not included in the NFI Bid Universe metric.

Management continues to expect bus procurement activity by public transit agencies throughout the United States (“U.S.”) and Canada to remain robust based on an aging fleet, healthy 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. While some traditional fixed route and line haul operators have seen increased competitive headwinds from reduced demand and increased competition, including new e-commerce entrants, MCI remains well positioned to deliver coaches in this segment. MCI is also focused on opportunities for motor coach sales in the public transit, employee shuttle and tour and charter segments.

NFI’s master production schedule combined with current backlog and orders anticipated to be awarded by customers under new procurements is expected to enable NFI to deliver approximately 4,350 EUs in fiscal 2018, an increase of 522 EUs over fiscal 2017, with production rates varying from quarter to quarter due to product mix and award timing.

NFI’s 2018 deliveries are expected to comprise of the following vehicle types:

Heavy-Duty Transit	Motor Coach	Cutaway and Medium-Duty	Total
2,774 EU	1,076 EU	500 EU	4,350 EU

While parts sales remain difficult to forecast, management expects the parts market to remain relatively stable in 2018, with quarter-to-quarter volatility typical for this segment of the business.

Commodity Price Increases, Tariffs and Surtaxes

There has been considerable interest in recent weeks on the impact to NFI from rising commodity prices as well as tariffs and surtaxes on U.S. and Canadian steel imports.

NFI uses aluminum, carbon steel and stainless steel in the manufacture of bus and coach frames. However, these raw materials, before processing, comprise less than 3% of total material costs. NFI currently anticipates an immaterial impact for the remainder of 2018 from current market increases in aluminum and steel pricing. Major components which include aluminum and steel are purchased under fixed price or contract specific quotations. Management expects that any future component cost increases should be recoverable through new contract pricing or through the producer price index (PPI) mechanisms in multiyear contracts.

On June 1, 2018 the U.S. federal government imposed tariffs on Canadian steel and aluminum imported into the U.S., and in retaliation the Government of Canada imposed certain surtaxes on U.S. steel and aluminum imported into Canada after July 1, 2018. The majority of the aluminum and steel used at NFI manufacturing facilities is from U.S. sources, largely in support of the Buy America conditions of U.S. public customers who require 65% U.S. material content (which increases further to 70% in Q4 2019). Canadian surtaxes paid on the importation of U.S. aluminum and steel used in manufacturing in our Canadian plants that are then re-exported to the U.S. are eligible for the Canadian federal Duties Relief Program (DRP), which remains open for now.

NOTE: All dollar amounts are stated in U.S. currency based on an exchange rate of U.S. $1.00 = CAD $1.3168 to calculate the value of the Canadian contracts in this release. One Equivalent Unit represents one 30-foot, 35-foot or 40-foot heavy-duty transit bus, one medium-duty bus, one low-floor cutaway bus or one motor coach.

About NFI Group Inc.

NFI 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 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’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-electric.

• 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 7,300 are powered by electric motors and battery propulsion and 1,600 are zero-emission.
• Motor Coach Industries 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.
• ARBOC is North America’s low-floor, body-on-chassis (“cutaway”) bus leader serving transit, paratransit, and shuttle applications. With more than 3,000 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.
• NFI Parts is North America’s most comprehensive parts organization, providing replacement parts, technical publications, training, service, and support for NFI Group’s bus and motor coach product lines.

Further information is available at www.nfigroup.com, www.www.newflyer.com, www.mcicoach.com and www.arbocsv.com. The common shares of NFI are traded on the Toronto Stock Exchange under the symbol NFI.

Forward-Looking Statements

This press release contains forward-looking statements relating to expected future events and financial and operating results of NFI Group that involve risks and uncertainties. Such forward-looking statements include statements with respect to market demand for buses and motor coaches, outlook of the bus, motor coach and parts businesses, NFI’s expected deliveries in 2018 and the impact of commodity price increases, tariffs and surtaxes.

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 order activity levels from customers, ability of NFI to fulfill its production schedule, changes to the cost of materials, impact of developments relating to cross-border tariffs and surtaxes, including the continued availability of the DRP, market and general economic conditions and economic conditions of and funding availability for customers to purchase buses and to purchase parts or services, customers may not exercise options to purchase additional buses, the ability of customers to suspend or terminate contracts for convenience 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.

For further information, please contact:

Stephen King
Group Director, Corporate Development and Investor Relations
NFI Group Inc.
Ph: 204-224-6382
[email protected]