Meta Platforms Q2 2023 Earnings Call Transcript

Quartr
Provided by Quartr
August 16, 2023

There are 6 speakers on the call.

Operator

Good day and thank you for standing by. Welcome to the NFI Second Quarter 2023 Financial Results Conference Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer session. You may also submit questions via the webcast.

Operator

Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Stephen King, Vice President, Strategy and Investor Relations. Please go ahead.

Speaker 1

Thank you, Shannon. Good morning, everyone, and welcome to NFI Group's 2nd quarter 2023 results conference call. This is Stephen King speaking. Joining me today are Paul Subry, President and Chief Executive Officer and Prapassu Soni, Chief Financial Officer. On today's call, we will provide an update on our comprehensive refinancing plan, Q2 2023 results, discuss the bid and order environment and our 2023 and longer term outlook.

Speaker 1

This call is being recorded and a replay will be made available shortly. We will be using a presentation that can be found in the Investors section of our website. While we will be moving the slides via the webcast link, We will also call out the slide number as we go through the deck for participants on the phone. Starting with Slide 3, I would like to remind all participants and others that certain information provided on today's call may be forward looking and based on assumptions and anticipated results that are subject to uncertainties. Should any one or more of these uncertainties materialize or should the underlying assumptions prove incorrect, actual results may vary significantly from those expected.

Speaker 1

You're advised to review the risk factors found in NFI's press releases and other public filings on SEDAR for more details. We also want to remind listeners that NFI's financial statements are presented in U. S. Dollars, the company's reporting currency, and all amounts referred to are in U. S.

Speaker 1

Dollars, unless otherwise noted. On Slide 4, we have included some key terms and definitions referred to in this presentation. Of note, 0 emission buses, or ZEBs, It consists of battery electric, hydrogen fuel cell electric and trolley electric buses. Equivalent units or EUs is a term we use for both production slots and delivery statistics. Most of our vehicles represent 1 equivalent unit, while an articulated 60 foot transit bus takes 2 production slots and is therefore equal to 2 equivalent units.

Speaker 1

Slides 5, 6 and 7 provide a brief overview of NFI. For those interested in a more in-depth introduction to our business, Please visit our investor website and listen to our 2022 Q4 results call. NFI continues to lead the transition to 0 emission buses and coaches or what we call the Zevolution. Throughout this presentation, we will refer to Zevs, Vitrale Electric, battery electric or fuel cell. Slide 8 provides updated statistics on our capability and performance in ZEB.

Speaker 1

In total, NFI has delivered 3,123 ZEBs In 2015, we have completed over 120,000,000 electric service miles in over 140 cities across 6 countries. Demand for ZEBS continues to accelerate quickly. In our North American public bid universe, over 50% of anticipated customer purchases Over the next 5 years, our electric vehicles and 36% of our total backlog are now ZEV. I'll now pass it over to Paul Impeyas, who will provide an update on our nearly finalized comprehensive refinancing plan, recap the financial results for the Q2.

Speaker 2

Thank you, Stephen, and good morning, everyone. I'll begin on Slide 10. In the Q1 of 2023, we embarked on a comprehensive refinancing plan that included multi year amendments to our senior credit facilities, seeking a covenant profile that matched our performance and recovery trajectory. Since that time, we have made significant progress on all components of that refinancing plan, Including $133,000,000 private placement equity financing from Coliseum Capital, a $92,000,000 bought deal subscription receipt financing and a new CAD50.5 million equity private placement with a leading global asset manager that was announced today. The new private placement is for the purchase of 5,000,000 shares at NFI and will have a statutory 4 month hold period.

Speaker 2

It, like all the other equity financing, is contingent on the completion of the full refinancing plan. The addition of this new equity financing has allowed us to lower our proposed 2nd lien debt financing from $200,000,000 to approximately $180,000,000 providing interest savings and lowering our total overall leverage. This change is also expected to be accretive to our current metrics. Through the various transactions, we will generate approximately $443,000,000 in total gross proceeds, dollars 250,000,000 will be used for the permanent pay down to our senior credit facilities and the remaining funds after payment of fees will be used to strengthen NFI's liquidity by approximately $135,000,000 to $140,000,000 Our focus now is to finalize the remaining legal documentation to close all of the mutually conditional components of the refinancing plan. We expect that this comprehensive refinance will complete prior to August 31, 2023, and we anticipate closing it sooner.

Speaker 2

Please stay tuned for announcements in the very short term. In addition to significant effort expended on the refinancing plan, We've maintained our laser focus on cash management across NFI. Operational performance is improving, But WIP and total working capital levels remain temporary elevated. We anticipate significant cash inflows from working capital with the potential to reach up to 100,000,000 in the second half of twenty twenty three. As we move into 2024 and 2025, we will be investing in working capital as we increase production rates and increase the amount of 0 emission buses built.

Speaker 2

Our goal is to ensure where our working capital levels achieve a more typical pre pandemic profile on a turns basis or as a percentage of LTM revenue. Turning now to our Q2 2023 results, I will begin on Slide 12. We continue to see very high level demands for our products and services. Year over year, our North American public bid universe is up 120% and active bids are up 33%. We ended the 2nd quarter with 1682 equivalent units of bids in process and another 8,372 equivalent units of bids that were already submitted, resulting in a new record for the highest number of bids submitted by NFI within 1 quarter.

Speaker 2

We expect this heightened level of bids to translate into steady orders and to support our backlog throughout the remainder of 2023 and into 2024 and 2025. We also saw significant improvement in supply performance and associated production efficiencies. There's no question it will take time for our operations production efficiency to get back to pre pandemic levels, but Q222 2023 showed Promising signs of significant recovery, supporting our line entry ramp up and hiring efforts that we've embarked on. In the quarter, Manufacturing segment for bus and coach deliveries were up 66%. Revenue increased by 66% and adjusted EBITDA improved by 159% from the same quarter in 2022.

Speaker 2

The significant improvement was driven by higher volumes, improved sales mix and record quarterly performance from the aftermarket segment of NFI actually exceeded our expectations. The manufacturing segment did see lower than expected 0 emission deliveries. This was due to the requirement to install new drain technology into the energy storage systems on select battery electric buses in North America. The drains were primarily installed in June July and the majority of the impacted vehicles have now been delivered to customers. We expect that nearly all of these vehicles will be out of inventory in the Q3.

Speaker 2

The strength of our market leading aftermarket parts business has continued through the first half of Going forward as the private markets continue to recover and through the execution of several midlife vehicle programs, We anticipate the aftermarket segment will continue to generate revenue growth and strong margin contribution. However, adjusted EBITDA margin percentage may be slightly lower as the no seen in the first half of the year given the strong outperformance seen so far this year. NFI's total backlog remains at 6 point $7,000,000,000 up $1,200,000,000 from the same time last year. New orders were down slightly quarter over quarter, but mostly due to the timing of certain new awards from customers. In addition to the formal awards received in the quarter, we had another 7 19 equivalent units that were in pending awards.

Speaker 2

These are situations where we have been named as a provincial partner by the customer, but formal purchase documentation has not yet been received. We expect these pending awards combined with the over 8,000 equivalent units of bids submitted will drive significant order activity before the end of the year. Of note, The average sale price per unit in our total backlog is up 20% from the same period in 2022. Now turning to Slide 13 is a highlight of our overall NFI supplier performance. We've been showing you this for quite some time.

Speaker 2

Overall supplier risk rating, which compiles a detailed risk Assessment process data from our top 750 suppliers continues to show signs of health and improvement. We've seen a solid trend of improving supplier delivery performance And this has happened even as we've started to ramp up the levels of production. Speaking of which, we have continued with our plan to increase new vehicle production rates in the second half this year, subject to continued and sustained supply performance. And we're in the process of hiring an estimated additional 100 direct team members before the end of this year. This brings you to Slide 14.

Speaker 2

These are our quarterly vehicle line entry rates or otherwise stated the number of new buses and coach builds that we start in our production facilities and the quarterly WIP dollar investments. Line entries of the first half of twenty twenty three have showed material improvement from 'twenty one and 'twenty two. By the time we get to 2025, we expect line entries to be back around 1500 units per quarter similar to the 2019 levels we experienced pre COVID. I'll now ask the capacitor to walk you through the highlights of our financial results, after which he will provide you with our outlook on the business and the market.

Speaker 3

Thanks, Paul. Picking up on Slide 15, backlog remains strong at 9,803 units split almost equally between firm and option orders. We have essentially sold all 20 23 production slots and have sold a higher percentage of 2024 slots then where we would typically by this time of year. We also have customer options out to 2028, providing significant visibility for future years. Heavy duty transit bus deliveries were up by 85% year over year, Lower cutaways were up 87% and Coach deliveries were essentially flat.

Speaker 3

We also saw higher average sales prices within Heavy Duty Transit and Coach, reflecting our ongoing efforts to adjust pricing to reflect inflation as well as Transition to higher priced 0 emission vehicles. Turning to Slide 16, we show our gross margins by quarter from 2019 through the 2nd quarter of 2023. Aftermarket continued to deliver strong margins driven by healthy demand, Favorable mix and our efforts to lower freight cost. Manufacturing margins bottomed out in the Q2 of 2022 and are now positive for the first time since 2021. We forecast the positive margin improvement trend to continue as we ramp up operations and move beyond legacy inflation impacted contracts.

Speaker 3

On slide 17, we provide additional key financial indicators. Adjusted EBITDA exceeded expectations at $12,200,000 a significant increase from this time last year. And free cash flow, while still negative primarily due to higher interest expenses, improved by 37% year over year. Liquidity ended at $81,500,000 down from the $124,100,000 at the end of the Q1. The decrease was driven by higher borrowing on our credit facilities, which supported increased working capital levels from spare parts inventory, offline buses and higher accounts receivable balances tied to the timing of deliveries.

Speaker 3

AR was especially impacted by the late delivery of electric buses where new drain technology was installed. We are confident of our refinancing plan will improve liquidity by over $135,000,000 But as we await its completion, We have been taking other actions to support financial flexibility. On July 20, 2023, we sold our interest rate We temporarily lowered the minimum liquidity requirement under our senior secured facilities from $25,000,000 to $5,000,000 We appreciate the syndicate's flexibility on this change. Following completion of the refinancing plan, minimum liquidity will increase back to $50,000,000 On Slide 18, We outlined the impact of net loss and adjusted net loss. Our net loss for the quarter improved by $8,000,000 from 2022 Q2, primarily due to increased vehicle deliveries and solid aftermarket performance.

Speaker 3

Adjusted net loss also increased as there were several larger one time costs in 2022 related to insurance, pension and restructuring for which we normalized that did not repeat in 2023. I'll now turn the call back to Paul to discuss our outlook and financial guidance.

Speaker 2

Thanks, Pappasu. So I'm now on Slide And I'll provide a summary of some of our key demand metrics. The chart shows the last 5 years of North American public Bid Universe, which includes bids received, bids that have been already submitted to customers and a 5 year outlook of demand based on customers' fleet replacement plans. The active bids of over 10,000 equivalent units combined with the 5 year customer outlook provides a record total bid universe of order 31,600 equivalent units, which supports our view that vehicle demand will continue to remain high going forward. Bids submitted by NFI were up 170% year over year, which resulted in a very busy period for our sales and bid teams.

Speaker 2

U. S.-based public transit agencies also continued the use of purchasing schedules that have become an alternative to the traditional unique customer procurements. NFI is named on over 25 of these state or purchasing schedules that where we've been awarded over 1100 equivalent units off these schedules since 2018. NFI's Infrastructure Solutions business has become an important part of our overall Allowing us to provide turnkey offerings of both charging infrastructure and 0 emission vehicles. Since its inception, we've been responsible for the installation of in 2023 that lasts through 2025.

Speaker 2

On Slide 21, we've highlighted our order and delivery While there were fewer actual awards in the quarter, mostly due to customer timing and the large number of active bids, On an LTM basis, we have received awards of over 5,800 equivalent units. We also expect significant award activity in the 3rd and 4th quarters based on the current pending awards and submitted bids. The quarter saw several other milestones, including the delivery of our first electric J-four thousand five hundred Private Motor Coach to a Canadian operator named Universal Coastline and the launch of the Alexander Dennis next generation Enviro 500 electric double decked to the largest operator in Hong Kong named KMB. Slide 22 shows NFI's book to bill ratio remained well above 100% since our low of 2021. The current demand environment suggests this will continue.

Speaker 2

Auction conversion rates on the LTM basis remained low, but improved over the Q1 of 'twenty three. This lower conversion rate is expected to be a temporary issue As we've seen numerous older internal combustion engine and legacy EV orders expire and being replaced by new zero emission bus orders, We anticipate conversions rates will continue to improve in the second half of this year and well into 2024. On Slide 24, we provide a quick summary of the record funding in place each of our major markets of Canada, the U. S. And the United Kingdom.

Speaker 2

This substantial financial support provides a positive backdrop and continues to drive 0 emission bus demand. For more detailed overview of the funding environment, Please refer to 2022 fiscal year results on our website. Turning to Slide 25, We show our guidance for 2023 2024 and our 2025 targets. Based on NFI's year to date performance and expected second half results, We've now increased the lower end of our 2023 guidance range for both revenue and adjusted EBITDA for this year. We now anticipate adjusted EBITDA of $40,000,000 to $60,000,000 in 2023, followed by significant recovery in 2024 of $250,000,000 to 300,000,000 and a target of approximately $400,000,000 by 2025.

Speaker 2

The growth in our financial projections is driven by a combination of volume recovery, Production efficiency recovery, improved product pricing and an increased mix of 0 emission buses. As you can see in the chart, our total deliveries dropped significantly from 2019 to 2022, effectively in half. Our 2025 targets for units have us back to about 2019 delivery levels of approximately 6,000 total equivalent units. To meet these expectations, we will ramp up production, which is primarily a function of a stable supply chain and the addition of labor to existing facilities rather than requiring major investment capitals of new facilities. We plan to exit 2023 at a higher production levels and will increase we'll continue to increase that in 2024, driving volume and overhead absorption leverage that will deliver on our approved adjustment EBITDA and our operating profits and cash flow.

Speaker 2

We anticipate we will complete nearly all of the legacy inflation impacted contracts in 2023, with the majority of those contracts With the majority of contracts built in 2024 and 2025 being appropriately priced, matching higher material input and wage cost to contract pricing and enhanced margins. We remain confident we can achieve our targets with the expectations that we will exceed the $400,000,000 adjusted EBITDA target for We've maintained our 12% ROIC target for 2025 with a potential for significant outperformance on this metric as we deliver our balance sheet and see improved working capital with our new financial plan in place. In addition, there have been some recent announcements in the U. S. Of heavy duty transit market that may provide opportunities for our New Flyer business.

Speaker 2

In June 2023, Nova Bus, a division of Volvo Truck and Bus announced it would be ceasing production of transit buses in the United States by 2025. And just last week, our competitor Proterra announced that it filed for Chapter 11 bankruptcy protection. It's early days to fully understand the potential impact on the market and on NFI and we are monitoring closely. On Slide 26, one of the underlying factors on our financial expectations is increased 0 emission bus sales. 0 emission deliveries have increased rapidly from our 8% of total volume in 2020 to 23% last year in 2022 with expectations that will make up more than 40% of our deliveries by 2025.

Speaker 2

Zero emissions as a percent of our backup are also been growing quickly, Doubling in size from 21 to 22 and rating stable at that level 36 at record 36% in 2023 quarter 2. Slide 27 shows the average price of each unit in our total backlog, which has dramatically increased for both heavy duty transit buses and motor coaches since the start of the COVID pandemic in 2020, effective in combination of higher zero emission bus orders, inflation adjusted pricing and improved margins in our new contracts. On Slide 28, we summarize our investment thesis. The last 36 months at NFI has been extremely difficult to navigate. I believe the actual results in the first half of twenty twenty three combined with our projections for the remainder of the year Appropriately, Deborah state that we have turned the corner and recovery is now fully underway and in front of us.

Speaker 2

Completing the financing plan with both new debt and equity is expected to close in the very near term and will be a major step for NFI and tremendous demonstration of confidence by our investors in our business, and our strategy, our products and where we're headed. We are pleased with the first half performance,

Speaker 4

but there

Speaker 2

is more to do. We are confident about the path we're on and the road in front of us. And as always, we're proud of our history and more than ever excited about NFI's future as a market leader. I'll now open the line for analyst questions. Shannon, please provide instructions to our callers.

Operator

Thank You may also submit questions via the webcast. Please standby, we'll compile the Q and A roster. Our first question comes from the line of Chris Murray with ATB Capital Markets. Your line is now open.

Speaker 4

Yes. Thanks, guys. Good morning. Paul, maybe looking at the outlook a little bit and just the supply chain, So I guess it looks like a handful of suppliers are still having some issues with. As we think about the ramp, what's left to kind of get fixed, if you will, or what's out there that causes you some concern About being able to achieve the ramp right now.

Speaker 2

Good morning, Chris. I mean, look, it's a conversation we've been having for 3 or 4 years now and I think you more than anybody or any in our analyst community have watched and monitored our business for a long time. The customized nature of our products, not just in North America, but at Alexander Dennis as well has always creates complexity of supply chain, Given unique demands or requests of certain things on the buses from customers, what made it so bad as we came out of COVID was Things specifically around electric components, semiconductors, the chips associated with the products that we buy and so forth. As we now see our supply community, most of those systemic global issues of demand have gone away. It's now moved down to Specific supplier challenges either with some of their input materials or some of their own labor demands.

Speaker 2

And we've got some great examples in our business of Things as simple as seats or windows, where suppliers to our business slow their business or drop their business dramatically during COVID started to ramp up and now struggling to staff their business to supply us at this current pace. So as you know, we've done a number of things. We've Made investments in redundant inventories in our factory And somewhere in the neighborhood of $50,000,000 to $70,000,000 of excess spare parts inventory in our business to try and band aid or help support where we think we may have troubling suppliers. We've alternate supported alternate source, sorry, wherever we possibly can. We continue to manage the pace of ramp up with both those issues, our own labor supply as well as the supply from our of our customers.

Speaker 2

We still have excess offline work in process. And so both Chris Paul Davis in the UK are managing the burn off, if you will, of that excess whip at the same time as they're actually ramping up their businesses. We've been very careful not to overpromise the ramp up of our business, but we're feeling more and more comfortable every day that our supply community Is able and capable to work alongside us to increase. The other thing we've done is ramped up and added a number of people and we've got more to add in terms of helping, managing and supplier development associated with those that supply chain community, both from our facilities or supporting some of those critical suppliers at their locations. So we really believe we've turned the corner.

Speaker 2

We've got still excess width to get rid off Our lines generate cash flow, but we are very pleased at the pace that we're now able to start to ramp up. Okay.

Speaker 4

And is there any particular category of Part or component that is an issue or is it kind of moving around day to day?

Speaker 2

Every customer is different. Some of the issues that we still kind of see that let's call them commodities, high voltage cables, the sheer ramp up Across the world of electric vehicles, whether it's cars, trucks, buses, whatever, the demand on the high voltage cable community And the looms associated with it is one of the commodities we're struggling with. The other one that continues to be a bit of a problem, although improving is glass or the fabrication of windows. But compare that to a year or 2 years ago where we talked so much about microprocessors and electrical wiring harnesses and so forth, Some of it today is still just day to day management of current suppliers, but I really can't point to any global commodities that are causing us problems today.

Speaker 4

Okay. Maybe moving on just thinking about kind of the market in the U. S. And some of the shifts there. So if I go back and I think about U.

Speaker 4

S. Market share Pre pandemic, between Proterra and Nova, you're probably maybe about a quarter of the market. And we've also seen Nova's This is the company Proterra or not Proterra, Brevo pulled out of the U. S. Market and the public market side and Coach as well.

Speaker 4

Just thinking about this a couple of different ways. One, you've got a very high number of bids in process right now, which I'm going to guess Some of those might be direct competitors on those bids, so kind of curious about that. But also when I go back and I think about the market over the last, Call it 20 years, I mean, we're seeing different market participants exit. I think about Flexible, maybe like I think it was 2,005, you saw Orion, You guys helped Navi exit the market, but there was also some opportunities for you guys to either take over contracts or move around contracts. Kind of wondering about given the fact you're sold out through 2023, 2024 sounds pretty full.

Speaker 4

What kind of opportunity set is there for you right now to do that? Is there anything in the aftermarket to maybe look at? And I guess the other piece of this is, is there any risk on some of the contracts or some of the transit authorities where you were Dual source with Nova that there's risk in the future, of just being the single source supplier.

Speaker 2

Well, those are questions, Chris, that we ask ourselves every day. Of course, we're a number of weeks since de novo made their announcement. They haven't really said anything Public in addition to that, 2025 is a year and a half from now. So we'll see what that really means in terms of activity. And of course the Proterra news is absolutely fresh.

Speaker 2

I'll focus those questions and conversation more internally. We know what we've sold. We know the margins that we bid on those contracts. We believe that we've embedded a significant Comfort in the costing base of those contracts, so that we believe that if we execute as we have in the past, our margins will be considerably better than what we saw in 2021 and And even some of them this year in 2023. The sheer number of units that are Sitting out there and bids that we've already submitted, we've been very appropriately priced and very Conscious about the margin coming out of those things.

Speaker 2

I'm not so sure that we want to absorb Any of the contracts that our competitors have taken, they were all bid like us at a time when they were very aggressive. We have our own known customers. We have our known bids where we've gone after. The last thing we want to do to ourselves, to our Employees or our customers or our investment community is overpromised. We're trying to ramp up too fast.

Speaker 2

We're comfortable with the supply chain recovery, And there's potential to improve some of those labels. But remember, we got to balance that with labor. And you know, Chris, that when you walk through our facilities, this isn't just Put a part on a shelf type labor. These people have to be able to read blueprints. They have to be able to interrogate the computer.

Speaker 2

They have to deal with the variability of every bus being different down the production line. So we're just going to play this game very carefully. We're very comfortable with where we're at. We gave those guidance numbers long before Nova Talked about their strategy or Proterra advised of their financial challenges. From where I sit, there is absolutely upside, but we're not going to overpromise or get aggressive to try to take that stuff and put at risk our own recovery.

Speaker 2

The financing allows us to have the financial flexibility to be able to navigate through that. The unwind of the WIP generates Cash flow that we today have sucked up in our business, as I mentioned in my commentary, as we get more 0 emission buses into Our business, it by definition sucks up more working capital because they're more expensive parts or batteries and things that go into those vehicles. The aftermarket business, is there more opportunity? Well, Proterra has an exact number, but maybe 1,000 buses on the road. It's not a massive aftermarket.

Speaker 2

And Nova, of course, Nova has a partnership with Prevost on the support of their vehicles in Canada and the United States through a shared Service Infrastructure and the Parts Business. So I'm not sure there's a massive upside there. We're going to play our game. We're not going to chase our competitors.

Speaker 4

Great. Fair enough. And maybe the other just kind of maybe one follow-up question to the whole of it. I mean, one of the things that we were talking about around electric vehicles for the last Few years anyway, is the risk of new entrants into your space. Certainly, we've seen a lot of new entrants in the light auto space.

Speaker 4

What are your thoughts about The maturity of the heavy duty market, where you guys operate. And do you still think it's as much a risk as it used to be With new entrants into the marketplace or you think that this might settle out with 2 or 3 players and then we move from there?

Speaker 2

Well, Chris, we're always healthy, healthy paranoid about the recovery of our competitors or the The performance of our competitors are about the threat of new entrants. Years ago, we heard a strategy of FanDuel, for example, showing up To North America and never did. Could this open a door for them? Sure. Buy America compliant U.

Speaker 2

S. Sourced vehicle that has to be tested in North American standards does not happen overnight. We saw a competitor that went through the SPAC process called arrival, Try and disrupt the space with a standard vehicle. What color do you want and how many do you want? And effectively sold nothing in North America.

Speaker 2

I think that one contract Five buses, I don't think they were even delivered. We have a very solid competitor in Gillegg. We have smaller competitors like Eldorado National. Who knows what comes out of the bankruptcy of Proterra, whether the Proterra bus business survives and so forth. I think where we sit our position is, boy, the market demand is better than it's ever been.

Speaker 2

We have A known order book with solid margins in it. We have bids out there with solid margins in it. If the market gets a little bit better and we can get more, we'll do it. I don't see new entrants showing up tomorrow anytime quick, but there's always the threat that somebody like the European manufacturers takes capability and sets up in North America or the Chinese manufacturers that are privately owned to try and show up and set up in North America. But I point to somebody like BYD that got into this space, maybe put a 1,000 buses on the road in the long period they were here, but really haven't disrupted the market.

Speaker 2

It's a very unique, highly customized space that we're very, very good at. So I would say there's more wind in our sails than anybody else's right now, but we're being very cautious Set the pace that we're going to recover. And in our notes, Chris, in our commentary today, and you've seen this before, we're not projecting to get to crazy market levels or to double Our overall business and what we're expecting to do is get back to our pre COVID levels with much healthier margins and a significantly stronger aftermarket business. If there's more on top of that, that's only good upside for our business.

Speaker 4

All right. Fair enough. Thanks folks.

Speaker 1

Thanks, Chris.

Operator

Thank you. Our next question comes from the line of Cameron Doerksen with National Bank Financial. Your line is now open.

Speaker 5

Yes, thanks. Good morning. A question on the, I guess, the second lien loan. Wonder if you can talk A little bit about some of the terms. I mean, it looks like the interest rate is going to be 14.5%.

Speaker 5

But what about term and ability to prepay? I mean, the reason why I ask is that, It's a pretty high interest rate. It feels like a year from now, given the progress that you're making and your projections that You should be able to refinance this at a much more attractive rate. So just anything you can describe about the ability to prepay and terms around that?

Speaker 2

So we obviously can't get into all of the details because it hasn't closed yet. We're in the late, late stages in here. I'll let Pat to talk about some of the concepts rather than specific numbers around prepay and so forth. But you're absolutely right. The whole strategy of that was a different kind of debt to be able to reduce the bank syndicate, but also make sure that you have a flexibility to do what we needed to.

Speaker 2

So, Paphas, some color for Cameron that you might want to add. Yes. So, I mean, at this stage, one of the things, like Paul said, we can't get into all the details, But we are looking at a prepay option and expect we'll have some flexibility not to go in

Speaker 3

the full 5 years in terms of the bridge financing. As

Speaker 2

we kind of get through this and announce it, I'm sure we'll get into a lot more of the details.

Speaker 5

Okay. Fair enough. I guess, we'll wait and see on that. On the I guess, the pricing, I mean, you've highlighted the 20% increase In the backlog pricing, I wonder if you can maybe just describe how much of that kind of increase year over year is related to more 0 emission buses waiting in the backlog versus actual price. And with that 20% year over year, is that Enough or more than enough to fully offset the inflationary pressures you've seen over the last couple of years?

Speaker 2

Well, it's a really good question, Cam. And of course, You and the other analysts have seen the way we do this stuff. But remember, these are highly customized, highly spec. The cost of bill of materials based it on unique requirements for seats or windows or cameras or whatever the customer wants. We have multi year supply contracts with our battery providers, so we got a pretty good handle on the inflationary costs associated with that.

Speaker 2

The backlog of our 0 emission buses has gone up from say 13% or 14% to now 36%. So when we sit in a bid meeting today, if it's a conventional bus, we've got a pretty good handle or conventional ICE bus. We've got a pretty good handle on the history, the costs. We have accounted for all of the inflationary pressure and some, Plus, we've taken a much more aggressive on margin. We've got a pretty solid backlog and so we're being very strategic about who we're going to sell our capacity to.

Speaker 2

We're going to focus on our key customers that have been loyal to us. The 0 emission pricing has some elements of new risk around a different supply chain and so forth. But the days that we experienced in 2020 or 2021 where we had to run around and try and figure Who we're going to sell some slots to because nobody was exercising their options right now are behind us. And so we have this luxury of being able to be pretty strategic and Pretty aggressive on who we're going to sell capacity to. And as I said to Chris, the dynamic now with uncertainty around 2 of our competitors, We have a we're kind of feeling in a much more comfortable position as we bid that.

Speaker 2

Overall, clearly, 0 emission buses command A higher sales price given the bill of materials, but also a higher margin given the risk associated with that. And we're headed to 40% to 45 Percent of our production in 2025 was 0 emission vehicles, whether it's battery electric or fuel cell electric and we're just managing that very, very carefully. We're not swinging for the fences and making promises. We're being so prudent on costing and pricing, but we're actually being far more Aggressive on our own position around the margin associated with selling those slots given the demand.

Speaker 5

Okay. No, that makes a lot of sense. I'll pass the line. Thanks very much.

Speaker 2

Thanks, Cameron.

Operator

Thank you. And I'm currently showing no further questions from the phone lines. I'll hand the call back over to you, Stephen.

Speaker 1

Okay. Well, thanks, Shannon, and thanks, everyone, for your questions this morning. As always, please feel free to reach out to us at any time with any future questions or further questions, And please visit our website and hopefully you'll hear from us again soon on the comprehensive refinancing. Thanks and have a great day.

Operator

This concludes today's conference call. Thank you for participating. You may now disconnect.

Remove Ads
Powered by Quartr
Earnings Conference Call
Meta Platforms Q2 2023
00:00 / 00:00
Remove Ads