NFI Group Inc.

Paul Soubry - President, Chief Executive Officer, Director Glenn Asham - Chief Financial Officer

Chris Murray - AltaCorp Capital Kevin Chiang - CIBC David Tyerman - Canaccord Genuity Trevor Johnson - National Bank Bert Powell - BMO Capital Markets

Thank you, Melissa. Good morning, ladies and gentlemen.

Welcome to the 2014 second quarter results conference call for New Flyer Industries. Joining me on the call today is Glenn Asham, our Chief Financial Officer.

For your information, this call is being recorded and a replay will made available shortly after the call. As a reminder to all participants and others regarding this call, certain information provided today may be forward-looking and based on assumptions and anticipated results that are subject to uncertainties.

Should anyone or more of these uncertainties materialize or should the underlying assumptions prove incorrect, actual results may vary significantly from those expected. You are advised to review the risk factors found in the company's press releases and further public filings with the Securities administrators for more details.

Let me start by saying that we are very pleased to see our OpEx initiatives and focus on fundamentals rewarded with solid second quarter results. Through hard work, cost management and a combination supplier concessions and customer change orders, we were able to improve on the expected performance from our lower price bus contracts in 2014.

Nearly every one of our operational metrics has improved substantially. A few to note, building station, labor efficiency, overtime, delivery performance, customer acceptance and (Inaudible).

We also had continued encouraging results from our aftermarket parts and our acquisitions in 2013 of Orion parts and NABI have really been complementary to New Flyer. Glenn will take you through the details in a minute, but a few comments to set the stage on the quarter.

Overall revenue was up 30% year-over-year and adjusted EBITDA was 49% year-over-year. Bus manufacturing revenue was up 24% year-over-year, with adjusted EBITDA up 32% year-over-year, and aftermarket parts revenue was up 57% year-over-year, with adjusted EBITDA up 74% year-over-year.

Yesterday, we advised in our press release and MD&A that our expected production rate for H2 '14 will be higher, which resulted in our 2014 full year average line entry of approximately 51EUs per production week, which is compared to our previous average line entry rate of 49 EUs per production week. At this point, we see this bump in production rates as temporary and a direct result of higher mix of articulated buses in the second half of this year.

We have not yet set our production rates for 2015. We continue however to caution that 2014 has a few large contracts on the bus side, where we have been very aggressively - there were very aggressive prices in previous periods and we continue to work on mitigation.

I will now turn it over to Glenn, who will begin our call by talking you through our financial results. Following Glenn's remarks, I will provide some commentary on bid pipeline, second quarter activity, funding and our outlook.

After that, we will open up the call to your questions. With that, I will turn things over to Glenn.

Thank you, Paul. Good morning, everyone.

I will be highlighting certain 2014 second quarter results and provide comparisons to the same period last year. I will focus my commentary on this call to providing key financial insights that will then allow for more time and attention our market, business and strategic efforts.

I would like to direct you to the company's full financial statements and management discussion and analysis of financial statements that are available on SEDAR or the company's website. I do want to remind you that New Flyer's financial statements are presented in U.S.

dollars, the company's functional currency and all amounts are referred to in U.S. dollars unless otherwise noted.

The company generated consolidated revenue of $346.5 million in the second quarter 2014, an increase of 30% compared to $266.6 million during 2013 Q2, primarily due to the significant contributions from the 2013 business acquisitions. Bus revenue increased 23.5% compared, primarily due to increased bus delivery and average selling price.

Quarter-over-quarter New Flyer bus deliveries increased 19% for this quarter compared to the second quarter of 2013. The increased deliveries were primarily a result of inclusion of the NABI bus deliveries after the acquisition on June 21, 2013.

The number of equivalent units delivered in 2014 Q2 was negatively impacted as a result of a delayed customer bus inspection and final acceptance in respect of a few low margin contracts. Management expects to recover these deliveries by year end.

As a result, finished goods inventory at the end of 2014 Q2, included an additional 60 equivalent units. Average selling price per equivalent unit increased 3.8%.

The increase in average selling price is the result of changes in the product sales mix, which included more sales of hybrids, buses and fewer articulated buses. The average selling price can be volatile when comparing two quarters as a result of sales mix.

Aftermarket revenue increased 57.1%. The increase in revenue from aftermarket operations is primarily a result of the increased volumes, incremental revenue from the Chicago Transit Authority mid-life overhaul contract, the Orion parts business and the NABI parts business.

Bus manufacturing operations adjusted EBITDA increased 31.6%. 2014 second quarter bus manufacturing operations adjusted EBITDA of $13.9 million or 5.2% of revenue increased compared to 2013 Q2, bus manufacturing operations.

Adjusted EBITDA of $10.6 million or 4.9% of revenue, primarily a result of increased bus service and a $1.9 million increase in realized investment tax credits. Aftermarket operations adjusted EBITDA increased 74.1%.

This is primarily due to additional adjusted EBITDA generated by the Chicago Transit Authority mid-life overhaul program and the acquisition of NABI parts and the Orion parts businesses. Profit margins have improved during the second quarter 2014, primarily as a result of improved market fundamentals and the benefits to the product mix that has resulted from far broader portfolio of services and parts offerings to customers.

Net earnings increased by 111.6%, compared to primarily as a result of improved earnings from operations offset by increased income taxes and a $3.9 million impairment charge related to product rationalization of the NABI Bus platform. Management carried out a review of the recoverable amount of related assets related to the NABI Bus platform.

The review led to the recognition of impairment loss relating to the NABI Bus trade name and related equipment that no longer meet the definition of an asset. Net earnings per share in 2014 Q2 were $0.06 a share, 100% increase from net earnings per share of $0.03 generated in the second quarter of 2013.

The company generated free cash flow of CAD 26.5 million during the 2014 year-to-date as compared to CAD 16.2 million for the year-to-date period in 2013. The company declared dividends in 2014 year-to-date of CAD16.2 million as compared to CAD14.5 million in 2013 year-to-date period.

The amount of dividends declared increased in 2014 year-to-date as a result of issuing 11.1 million shares in fiscal 2013 to Marcopolo. Management believes that sufficient free cash flow will be generated to maintain the current dividend rate of $0.585 per share, which is paid monthly.

During 2014 Q2, the company decrease its cash by $9.9 million primarily to increase investment in non-cash working capital items such as increased inventories and decreased accounts payable partially offset by decreased accounts receivable. Inventory increased by 60 equivalent units over the WIP at the end of 2014 Q1.

The 60 used that were not delivered as a result of delayed inspection acceptance on a few contracts. Management expects to recover these deliveries on these contracts by year end.

With that, I will turn it back to Paul.

Thanks, Glenn. We remain encouraged with the [economic] recovery in the United States and not a specific in individual states.

The latest U.S. state tax question, show an increase during the first quarter of 2014 compared to the same quarter of last year.

The result was number of EUs in the total bid universe at the end of 2014 Q2 was 19,728 EUs, an increase compared to 18,097 EUs at the end of Q2 2013, however the number of active EUs, which we define as the request for proposals received in process of review of New Flyer, and bids and proposals submitted by New Flyer awaiting customer action at the end of Q2 2014 decreased by 3,791 EUs compared to Q2 of 2013. A lag in procurement activity was experienced in the first half of 2014, followed by an increase of number of new RFPs issued.

However, the average number of EUs on these new RFPs decreased when we compare them to last year. We continue to anticipate that the amount of bus procurement activity by public transit agencies throughout the U.S.

and Canada should recover throughout 2014 and 2015 based on our expected customer fleet, understanding of customer fleet replacement plans. New Flyer's 2014 Q2 LTM book-to-bill ratio, which we define as new firm and option orders divided by deliveries) as 162%.

This is now New Flyer's sixth consecutive quarter with an LTM book-to-bill ratio greater than 100%. While ratio above 100% implies that more orders were received than billed, indicating increased demand for New Flyer products.

Lots of discussion and press and oversight into the U.S. federal funding situation, some insight from our perspective, the U.S.

federal transit program is funded from general revenues of the government and from revenues credited to the Mass Transit Account of the Highway Trust Fund. Each year, new legislation must be passed to appropriate general revenues that will fund transit programs and set an obligation limitation that allows expenditure of funds from the Mass Transit Accounts for transit programs.

The current funding bill, what they refer to as MAP-21, expires on September 30, 2014. On July 15, 2014, the House of Representatives approved a bill to temporarily fund and ensure solvency of the Highway Trust Fund through May of 2015.

On July 31, 2014, the U.S. Senate approved the legislation that's passed by the House and the extension bill must now be passed and approved by the President, Obama, which we expect to happen.

An Outlook, as Glenn mentioned earlier, we announced our decision last month to focus on a single heavy-duty transit and BRT bus platform that features New Flyer Xcelsior product. This decision to rationalize to a common platform for all heavy-duty and BRT transit buses is expected to improve our competitiveness by leveraging combined bus volume production and purchasing for greater efficiencies.

We further anticipate that this decision will enable product enhancements and optimize aftermarket support to better serve our customers now and in the future. The plan also involves the transition to a common information technology infrastructure across the combined company.

Our plan is production of the NABI bus LFW and BRT models are to be phased out with the Anniston, Alabama facility transitioning to an Xcelsior manufacturing plant in the second half of 2015. We have a full time dedicated team now already working on the project.

As you know, we also began manufacturing delivering minibuses in early 2014, St. Cloud facility through a joint venture with the UK's Alexander Dennis.

While sales volumes have not yet met our initial targets, we now have dealer in place on both sides of the border, the private markets and we now have a successfully completed our test report, which allows us to actively sell to public transit agencies and access FTA funds for these types of supply sources. In summary, we are focused on continuing to enhance our competitiveness.

We continue to pursue costs and overhead savings in daily operations through operational excellence initiatives and now with the decision to integrate the NABI Bus platform and rationalize the product, we think we can enhance our competitiveness in a significant way. We remain in compliance with all of our current facility covenants with ample headroom and we plan to maintain dividends at current levels.

New Flyer remains poised to continue as the leading provider of heavy-duty transit buses and a leading provider of aftermarket parts and support in Canada and United States. We are really proud of our history and more and more we are excited about our future.

Thanks for listening today. With that I will invite your questions.

Anastasia, can you please provide our instructions to our callers?

Thank you. Good morning.

Hi, Chris.

Paul, just going back to you earlier comments about bookings. The book in the quarter were a little light, but you are talking about the fact that you expect, I guess, to see an improvement.

At least on an LTM base, it's I guess, if I am reading between the lines stay about that 100% level. What is it that gives you the confidence that you are actually going to see those numbers materialized over the next little?

I guess, as part of that, are you seeing any impact from some of the funding issues?

Well, let's take the second one first, Chris. We have not been able to tie any competition or any issuance of an RFP directly to somebody say I'm working on federal funding, that ground there may be some of the discussions about them wanting to release RFPs and so forth, we are not able to make a direct correlation and that was a concern for everybody.

There is a general belief in the industry like we did in the last cycle and that they will go through a number of revisions before they put a completely new bill in place. As you know and as we all know the administration published The Grow America Act that had tremendous amount of money a whole bunch of other issues tagged to it, but our entail and our discussion that there is a lot more work to be done before something of that nature ever gets passed.

That has the tie between funding and RFPs. Now the second, for the first part of your question relates to our commentary about.

Yes. There was a kind of a slowdown in the active RFPs compared to a year ago.

Remember that a year ago was a really dramatic ramp up than what it was two or three years ago, so there was a little bit of a real blip, if you will, in the number of kind of stale or held back RFPs that hit the street. We saw two phenomena.

A, we saw some of our customers pushing out release of their RFPs, so best entail we have, there is a number of RFPs that are imminent and are really there has been even a few since quarter and there have been released and is more to be expected in the second half of this year. Of course it's not a guarantee, but our best entail from our discussions with customer says those will hit the street.

The other issue is the number of units that actually are included in these RFPs on average has gone down a little bit, so we are trying to understand whether that's customers not wanting to put too many options into their RFPs, because they don't tend to use them or in the past maybe they tacked on a few more options and then they didn't want them. We try to sell them or whether that's something else that's driving that, but I must tell you when we go customer-by-customer and we look at all the targets that we have and all of the expected RFP replacement of plans for the fleet, we remain fairly confident that the rest of this year '15 should have some really solid bid activity, so that was really the basis of our commentary.

Okay. Great.

Thanks. Just maybe following-up to that, one of things I guess we are all sort of expecting at some point is that you eventually get through to get some of the backlog that had sort of an impaired margin, so I guess we can look at this one of the couple of ways.

What you can do on the cost side, but also can you discuss what you are seeing in terms of pricing and margin that you guys are going to have. Any thoughts on how you see margin either on a percentage basis or on a EBITDA per EU basis evolving over the next, call it, 6 to 12 months.

Well, we are actively bidding, so while there is RFPs on the street and yes there was lower EUs per RFP. We are actively bidding.

We continue in some cases to find our competitors know aggressively bidding on certain one, in our view, crazy price. We see somewhere there, where there like us are targeting to have a more healthy margin and some of those things.

We have used the word in the last couple of quarters around. We felt that some of the bidding activity has begun to normalize, where capacity was starting to get more in line with the overall demand.

Margin has two fundamental issues, right, what price you get and your ability to reduce your cost and we have been focusing largely on the cost side of it through the rationalization of the industry and the challenges with some of our competitors. I think it's too early for us to be able to predict whether there is going to be price list, how we bid, but I can tell you that between what we are doing and how we are operating from an operational excellence perspective today and with the plans that we got from rationalizing our product lines that there is a material margin opportunities for us that we can execute just by rationalizing it and going to a common platform.

We are not going to provide you the quantum or magnitude of those changes, but we are really encouraged. As you know in our press release around a common platform, we felt that the investment we made could be paid back to three years which gives you some indication of how much that really should be.

Okay. Then I guess, along those same lines in thinking about the volume increase on the back half.

How much, what should we be thinking about it at you are increasing that production rate. Some of the operational excellence things you have done.

I assuming that that production rate increase you sort of get without having to lot of overhead. Are we thinking about that the right way?

There should be just the natural gains that come just from running more units through the same overhead?

Again, Chris, we were very careful in choosing our words in our MD&A and our press release and even the script today. We found the stars aligned where there is a period here for five or six months, where we have got a whole bunch artics hold backs on top of each.

Other than some tweaking with direct labor in certain parts of the business, we believe we can run that business without any real material overhead increase, so you we are very comfortable with our ability to execute. We don't yet really have a view of 2015 and whether those numbers could be sustained.

We think they are temporary, because of that a high percentage of artics, but we really believe that we can execute with really a little bit of direct labor add and - a lot actually.

Okay. Great.

All right. Thanks.

I will get back in the queue.

All right. Thanks, Chris.

Hi. Thanks for taking my question here.

I guess, the first, I just want to dig into the EBITDA per EU in the second half of the year. A big the big delta between what you put up in Q1 and Q2, and provided some good detail as to why that was the case.

When I look out on a about half of the year and maybe longer-term, how should we think about EBITDA per EU. Would it be somewhat closer to what Q2 was or maybe Q1 given you called out that is more articulated buses being delivered in the back half of the year.

There may be longer term when I think of the integration of NABI and the product rationalization that you are doing, will that remove some of the negative fix factor you were seeing in your EBITDA per EU, so that maybe longer term that has a chance to move up higher as well?

Kevin, I will try to take that one on. I guess, first of all as you know, trying to predict our business quarter-by-quarter given what our contract manufacturers back somewhat difficult, so we can see a lot of volatility quarter-by-quarter, so we would caution anyone trying to take one quarter result and say that's sort of the run rate for the company.

Obviously, we are very pleased with this result. A lot of this result has come in through cost reduction initiatives.

Obviously, those types of things you would expect to be able to hold, but there still continues to be the mix of orders throughout 20 2014. We still have got to build out some of these low margin orders, so I guess as I would look at on an EBITDA per unit, we are running I guess close to 24,000 for the quarter.

Year-to-date, we are running at 19,000, so quite a big swing there. I would suggest, we are going to be somewhere between the two, but can't really give you any more guidance than that.

That's helpful. Just longer-term in terms of, as you do the product rationalization, do you actually benefit from a positive mix factor moving forward here?

Yes. As we said, when we announced the product rationalization, we will invest $20 million and expect to recover that in two to three years, so, say, $7 million to $10 million costs reduction through that initiative.

Okay. Then just secondly, great comments on what's happening in the U.S.

in terms of the regulatory issues that you are facing, when I think of the possibility that the Buy America contact could increased 100% over the next few years here. Does that impact your product rationalization strategy in terms of how you invest in your asset given that where some of the stuff is getting built could be impacted by potential regulation in the next two years?

Really good question, Kevin. Some color on that, so first of all, the Grow America Act that was proposed had kind of two major sticking points that stick out.

A, the amount of money that they wanted to invest in transportation, all elements of it, roads bridges, transit unit you name it was significant. We read and take out of that, but that administration's focus on its time to really spend some money on the infrastructure.

As part of that then was if we were going to spend all those taxpayer money, there is a need for job growth, so clearly the title The Grow America Act really is about sustainable jobs. As you just highlighted, there was a provision in the proposed legislation that went from the current buy America 60 to 70 to 90 to 100.

As an industry, this was on a New Flyer phenomena as industry sure there is ability to migrate on my great percentage of compliant and every contract is different depending on the way the customer. There are times when we sneak over the 60% line and there is signs when we are 85% or 90% U.S.

to client. Again depending on what the customer wants for axels, transmissions and so on and so forth.

When it comes to a New Flyer scenario, we currently got at the highest level, call it, 3,300 people. There's about 1,900 or 2,000 physical in the U.S.

and about 1,300 or so in Canada. In Canada, what we do today is we fabricate part of the bus, so electrical components individual piece parts, we build the shell for certain our production capacity and then we ship that to U.S.

for Buy America. With the product rationalization strategy, what we are going to start to look at is not only setting up the NABI facility in Anniston building Xcelsior.

It's about what are subcomponent work that we currently do at subcontractors and so forth could we do potentially in our facility, so we do have the ability to lever potentially more U S content. U.S.

legislation got, really are opinion, crazy where it thought 80,90 or 100% compliance. First of all 100% is everybody us, [Nova], Gillig whoever would have an impossible time complying with it.

I must too say got to 80% and so forth. We then would need to look at things we fabricate ourselves, things we source in Canada, and potentially dual source them into the U.S, so what we might gain on synergy of some things, you might lose some of this synergy by having duplicate sources.

As you know, 80% of kind of volume over time is in the U.S. 20% in Canada.

Of course the other thing that comes out of that, if the U.S. legislation does get aggressive there is probably going to be a reaction from the Canadians about what have to be sourced in Canada.

Our idea of the whole thing is that 75% of parts that we deliver to a Canadian customer is U.S. content anyway.

Okay.

It's a long answer to kind of give you some insights, but what we are setting up as part of our integration team is they are basically trying to stimulate that if legislation changed, how do we march along that path over a period of time, what parts of our businesses are implicated. We have got some really skilled and some trained people in here at Winnipeg.

We have got lots of fabrication expertise, we have got welding expertise, plumbing, electrical and so you know how do we satisfy the Canadian market and the U.S. market and deal with those issues.

We believe there's a lot of negotiation and a lot of water that's going under the bridge before we get to that kind of change, but rest assured from our perspective, we are going to spend a lot of time in understanding which levers we can pull internally and what we can pull in our supply base. By the way, geek say, it isn't just a New Flyer issue.

Nova has got the same issues and Gillig has got the same issues relative to their source.

Okay. That's great color.

For me, just a last one for me, I will jump back in the queue. Just any updates in terms of any conversations you have Marcopolo in terms of expanding your product line, brining some of their technology within your network or vice versa, selling some of the heavy-duty buses that you currently produce into their global network.

Has that conversation moved forward at all?

No. Some color on that, a reminder, they are not an insider, so they heard about our product rationalization at the same time as you did.

We are doing some market studies jointly to look at some opportunities, but I must admit those of taking a little bit of a back burner, because of what we felt was the most important thing, get the execution integration or parts businesses all together is high-priority and now what we claim, if you will, is project united of bringing the platform across the company takes a whole bunch of internal focus, so we continue to look at studies, but nothing is imminent and nothing from a product perspective. They continue to be a really good sounding board for us.

Technical issues, global competitive issues, approaches to the products and technology and have been very helpful whenever we have called or asked about unique issue or scenario, but there's nothing pressing to say show up next week with this platform or that product.

Perfect. That's it for me.

Again, congrats on a good quarter there.

Thanks, Kevin.

Yes. Good morning, guys.

I just wanted to clarify Glenn's comment or make sure I understood it. On the margins for the second half, did you say best guess is between the first half average in the Q2 or the Q1 and the Q2?

When we look at the Q1 was and we would expect on average to be a little below that, so I would expect to be somewhere between the year-to-date average and the Q2 number.

Okay. Q2 being the 24,000 and the H1 being 19,000?

Yes.

Okay. Thanks.

Second question, Paul, you mentioned that and within the text too that the number of units per P/E seems to have come down and you speculated maybe it's fewer options or whatever. Could you put some numbers just broad-brush to what we are looking at here, normal versus what you have been seeing lately?

I don't have that specific. It's a great question and we probably should have had a quantum there's, so we will try to think of how to communicate in the future, but the FPA has been stingy, if you will, on trying to crack down starting earlier this year of certain transit agencies putting extra options or certain OEMs of buses like our competitors kind of creating their own mini consortium, so the rules have tightened up now where you actually have that named agencies on individual competitions as opposed to being able to free flow and sell options and transfer options anywhere.

That has really kind of started to add framework by we our competitors are working. The quantum the number of average EUs per bid, gees, I just don't know right now, because I don't have the data in front of me to give what that percentage is.

Okay. That's fair enough.

Sort of related to that, I guess, then. It sounds like hope to see an improved demand for product in the future over the remainder of this year and into next year.

You have increased the line rate at least temporarily. Do you think that there is the potential there to be able to support an increase in 2015 or is it just too early to tell?

Well, you know that's a really good question. In fact, our board had the same question when we presented yesterday.

We kind of think of it this way. It used to be, I mean, when I started here five-and-a-half years ago, it was almost kind of a year lead time from when we started to quote to when we started to build buses, plus or minus depending on the customer opportunity.

We have really worked hard at our production processes and so forth that if somebody puts an RFP on the street today, we can get them buses in, say, four to six months instead of 12 months, so this upcoming expected bid activity over the back half of this year will really influence what we think and we are bidding very aggressive lead times right now. I think that will point to differentiation.

We think that will really influence whether there is temporary blip in our production is sustainable. You can't underestimate.

I mean, you have seen the place. David, you have been here.

You can't underestimate the ability to put more products through the facility when you a high mix of artics. Just the ability to run line, the number of labor hours per bus, the sourcing of working capital requirements through with the amount of overhead and over safety inspection and so forth, so we got lucky in the back half of this year where we got a lot artics in the mix.

Whether that will be that case next year at this point it is probably too early to tell. We are pleased with what we have in firm and the expected options we think will convert next year at this point or our current assessments and we are pleased that for the most part the margin in the backlog is consistent or potentially even a little bit better than what we have got, so the stage is set for August 15, but it's a little bit early to kind of give any guidance or insights into what we think those production rates will be.

Okay. Fair enough.

Then on working cap, obviously, it's up a lot with the ramp up. Do you think you could get working cap to breakeven or even into the positive this year on cash?

We were listening to our board…

I guess, what I can say had we not had that 60-unit issue at the end of Q2, we definitely would have positive cash flow in the quarter. Those 60 units is outside of what we would consider to be our normal working capital level.

Our plan is to eliminate them, so I think the answer is yes. We can sustain the working capital with what is our current planned rates and avoid sort of those production issues or customer issues that we had on this one contract then yes, I think we would be positive cash flow.

Just a little color too, David. This contract is for the first build for this customer from that facility.

There is always a learning curve with New Flyer and the customer and customer's unique inspection criteria. They had a few change orders that they wanted, implemented after we had built the buses.

It's not major surgery, but for example there were some merit issues by [issues] and so forth. This one customer has a specific approach and that they won't accept the buses until all those changes have been made.

As we are pumping out x buses a week before you what you got 60 sitting in the lot that needs a little bit of tweaking, so it's not a major quality issue. It's clearly a temporary issue.

We are doing way better on the delivery and acceptance, quality of our bus and therefore the days to accept it down, so the minute we get these things accepted, we feel very comfortable with the pace at which that will generate cash flow to payout to revolver.

Okay. It sounds like just ballpark this should be like $25 million freed up just assuming around little over $400,000 per EU.

Is that having…

That will be a good estimate.

Okay. That's great.

Then just the housekeeping things, the charge $3.9 million, was there any tax on that or tax effect from that, actually want to get a clean EPS number.

Well, our intangible assets related to the NABI acquisition effectively were not tax deductible, so we had the deferred tax asset, it will unwind some of that deferred. Sorry, we had said deferred tax liability then unwind some of this, so it will be a deferred tax impact should not be a current tax.

Okay. In the quarter, you have got a $3.9 million charge.

It sounds like it just dropped straight through to the bottom line.

Well, there was a deferred tax offset, no current tax offset.

Okay. Then just the last question, so it seems to me that your payout ratio could end up fairly low somewhere in that 50% 60% range if you can get some of these issues like working and I am just wondering thinking in the longer-term sense, what you see the extra money or all the money you are cumulating or will be cumulating going forward.

At some point, the dividend increase in mind or do you have to major growth initiative out there that that could use up the cash?

Yes. Great question as well and candidly for the last couple of years this hasn't been a discussion that we had the pleasure of having, so we head to a situation now where we have just kind of executed on that.

First window corporate restructure, we bought a little facility CCB in '10 and then we did the Marcopolo play and then Orion and NABI and so forth and we are spending a lot time now focused on the integration. When it comes to, we are going to have to spend some money on will refer to as project United, the platform rationalization.

There is $20 million of the unplanned dollars that were going to go through some: capital and some operating costs, so that's kind of the first order of business. We are also in the process of rationalizing the IT systems and infrastructure strategy with our parts - Orion demonstrated to New Flyer, but NABI New Flyer part still operate separately.

There could be a little bit of a need for cash there. We do have a couple of strategic projects on the go that could be scenario where we invested.

Candidly that's a conversation we are starting to have with the board is, we have got to have need for some of this or we need to look at try to ensure shareholders participate in the value that we have created, so we are not at the point now where we really know what we want to do with it. We are looking at all the possible options.

Again, our mandate of our company went from a pure IDS, which was a yield play 100% to kind of a nice that comfortable yield with the gross kind of mandate and we have continued to want to diversify our business maybe with a smart, albeit, small market size parts was a very important diversification play for long-term stability now we are looking at some other things that ultimately will give us growth and diversification.

Okay. Just to clarify the $20 million spending, is that over the next year or?

Yes. That would be over the next, say, 12 to 18 months.

Okay. The only charge related to that would be the one that's happened.

Is that right?

We will have some accelerated depreciation as well over some of the tooling related to the NABI line, but that's a non-cash charge.

All right. Okay.

Perfect. Thanks very much, guys.

Thanks, David.

Morning, folks.

Hey, Trevor.

Paul, at the beginning of your prepared remarks, you listed a number of operational excellence items that you are pleased with that were I think either at record high or 20 in the right direction. Can you just repeat those and let us know is there still some juice left or are we kind of captive in terms of what you could do?

Well, you know, and you have been here as well. You have seen kind of the efforts.

Some of the things just rattled off, building station is probably the key operational metric. By that, we means, we have got the product line defined and certain cash to happen in individual station before the bus moved in the next station.

That metric has been all over the place over the last number. As we have optimized the flow, and I have done some job design, lots of training, done a way better job at the engineering activity and supply activity.

What we are seeing now for example is our building station is consistently at 95%. Meaning, 95%100 taxed are done in the station which they should be and that has a huge impact on labor efficiency which is the I mentioned.

We are probably up about 7 to 10 points of labor efficiency now from what we were on average across the company before we really started a lot of the OpEx initiatives. Then that trickles into the reduction of our overtime and that the amount of additional time we have to spend out of station to get stuff done.

The quality metrics in terms of First Pass quality of all the installations and so forth up a percentage, customer acceptance, the number of snags written up by a customer at the end of our production line and then number of snags written. Once the bus gets the facility is down by a significant factor.

That reduces our cost the field service replication of warranty issues and so and so forth. You know what it really is trying to show you some clarity around stuff that we've been doing and how it ultimately takes into account some really good operational execution.

Your question about is there more juice? Yes.

I think there is more juice in the core machine. There is also juice in the ability to get NABI to build the Xcelsior and run at the same operating metric, because today in almost category NABI, at all say a range of 5% to 510% less performing then where New Flyer that's part of our excitement about the inability to payback that investment so quickly.

You mentioned earlier about just nimble you can be now in terms of getting an order and getting it filled and starting to build buses within say four to six months versus the year prior. As you standardize your platform, again, everyone on the same page and the same bus-type, is that number conceivably shrink a little bit more.

Actually, Trevor, but at the same time it then comes out of our control customers' control inside of customers a 46 months of the year prior as you can occupy again on the presentation I do that number conceivably shrank a little bit more potentially translate the same time it then becomes out of our control inside the customers control there's no with respect to our customers there is still a in many situations a different purchasing agent or authority from the actual maintenance or acquisition authority of the bus authority, so there's a lot of process that paperwork and sign off. The other issue candidly is that we don't make all the parts.

We make some, but we are largely assemblers, so while we can do a phenomenal job at designing and issuing a mill material. You still got a pretty sophisticated supply chain.

Some of which haven't done some great OpEx things themselves, some of which haven't. It truly though, we believe, it's a competitive advantage.

We say that when our materials, we talk to our board, we talk to our customers about one of our strengths now is we were forced to figure how to do it faster and now were able to respond to those customers, so some of the large guys like New York for example that really is an important differentiator in addition to the price choice, but around getting them the ability to fill their fleet faster.

Got you. Okay.

Then just lastly, looking aftermarket, I am not sure if you have shared this in the past, but can you give us a sense of the order of magnitude for the CTA and kind of expected timeline or any of the impact that maybe might be kind of normalize those that we saw on Q2?

I believe, we are on…

$80 million to $85 million for the CTA contract, there are two elements to it one where we are actually providing the parts and managing the subcontract labor and another part of the contract where we are the prime contractor and the engine work for example is being done by the incumbent dealers, so the margins on - is equal to the other program. That program is about halfway through, so we probably got to about mid-16 before that specific programs pans out…

Mid-15.

Mid-15.

Yes. Got you.

The profitability on that relative to the kind of the legacy aftermarkets' business is a comparable on a blended basis?

No. It's less than the normal aftermarket business.

It's low, yes, okay. Perfect.

Good quarter guys. Thanks so much.

Paul, another good quarter in the overall business and the EBITDA margin in the bus business is actually not that different than what we've seen in the last couple years, so it's hard to look at these results and kind of take your comments that you we are going to be negatively impacted by all these low margin, we can take them with a greater salt. Now, it seems.

I wonder if you could help us just work through how much of this quarter margin was really mix in terms of having more hybrid buses versus the cost focused that you put in into the business?

Just clarity, Bert, first of all hybrids versus the diesel versus the CNG doesn't really have a differential margin anymore. There used to be a time when we were held positions where we got a premium on a CNG offering or premium on a hybrid.

That isn't the case anymore. We build up the cost of building material based on the customer spec, we apply an average targeted margin and we very are proposed margin based on what we think the customer selection criteria, competitive intensity and so forth.

It's not like you've got advantageous product mix, you have got advantageous customer contracts mix or poor customer contract mix. Glenn, I don't know.

I couldn't give any quantums on how much of the margin comes from us calling back labor efficiency customer change order, supplier concessions as opposed to just advantageous price contracts.

I don't think we have nor do we want to provide any of that. It's a very competitive dynamic.

If I could just go at one aspect of it then just in terms of change orders of those typically associated with you pretty good margins. Was that more of an impact in the quarter that would otherwise you have seen in the past quarters.

Yes. I would say so.

I would say, we knew we had three, four very delicate contracts. We went back to the customer and said you want this?

How about that and got some customer change orders. We went back to our supply base and said can we do some things to participate mutually where we can improve our margin position and reduce some cost.

Moving back to our factories and really focused on some of the things we are investing in OpEx around labor efficiency and overtime of those things, which overall kicked in. I really feel good given where we started the year given guidance really as late or as early as three quarter last year that we had some really tough contracts and well the margins are not as you said a minute ago are not that parable relative to history.

We work really hard to pull out stuff back. Going forward, irrespective of what the pricing is, we should be able to keep some of those gains.

Okay. Thanks for that.

Where you stand today in terms of building your production slots for the rest of the this year? What's unbilled at this point?

Yes. If you take the run rate that we just gave of 51 per production week, on average throughout the year ties 50 production weeks, but that was in 20-50 whatever the number is.

We have got about approximately 100 slots, where we have been beside it. The slot plan for somebody, but don't yet have the contractual documentation whether it's a contractor or whether it's an option or assignment.

We feel very comfortable, we will be able to fill those open slots between now and the end of this quarter, so that when hit the fourth quarter, we have no slots that are not yet firmly filled. It's always juggle for those last couple where somebody wanted earlier and somebody wanted the bus later and we are juggling to fill those slots, but we feel very comfortable about our ability to execute and that's why given the high mix of artics that's why we were clear in our average for the year has gone up to 51.

Just in the aftermarket business, you alluded to the fundamentals. What exactly are you try to communicate well with that statement.

Well, there is a couple of things that have happened. When the saw the economy had a real challenge in '08, '09, part of '10.

You know, we saw the impact on some of the bidding activity and the bus activity and we burnt our backlog and so forth. The same phenomenon around budgeting even though it's different color of your pocket, the money at the transit agencies had the operator slowing down in the first line, so they started burn down their inventories on the shelves and only by inventory for individual projects or jobs that were in the interest facilities at that time.

We now are starting to see some of these operators replenishing their inventories or taking a longer-term view about how much they are going to buy as opposed to just buying for today. The field is better at the state level and specific levels they are perfect everywhere, but it's better and better and better over the last, call it, 9 quarter, 10 quarters, and that is translating into the transit agency taking a more proactive and a longer term view on the maintenance, which bodes well for ability to buy spare parts - for them to buy spare parts.

I will add to that benefit of us buying the Orion parts business, and then the teaming and corporation of the New Flyer. That will be prioritized to try and buy better and satisfies customers have improved our fulfillment rates.

Maybe a little more margin uptick in some cases we were just being smarter. It sure is encouraging that that business is a much, much larger portion of the New Flyer, which has less cyclicality and a lot of stickiness for the long-term.

Is this a bit of an inventory restocking effect that are seeing…

Yes. It could be some of that.

Yes.

Okay. That's great.

Thank you very much.

Thanks Bert.

Thanks guys. Just one more question and it's on the MiniMed, just looking at it, I mean you sort of alluded to the fact we are having some issues maybe with some sales and the deal flow.

Can you just sort of give us a better update and I think the thing that's gotten me a little concerned at least at this point is the fact that in disclosure you said you Europe at least 15 units in WIP right now. We have seen this kind of high considering you are kind of running at a like one per week-type brake, so can you help me understand kind of what that station is going to look like over the next year, call it, a year with that program and your expectations if you could.

Yes. I want to be a little careful, Chris, from a competitive perspective, pointing to the stuff we have talked about in the past.

Our plan this year was to delivery about 60 buses. We are within (Inaudible) of getting that number some of it are delivered for customer some will be delivered for stock at dealer and candidly we may actually carry a couple ourselves because of the private market has a much, much shorter lead time interest in order to delivery.

2015 we are just like our heavy-duty bus business we're not totally clear on exactly how much we are going to build next year. It's not going from to go to 300 and from zero 300 overnight, but we didn't load expect us to go much more we are relying entering kind of started with one a week and then two week.

I wouldn't get too worried that there's 15 in with you were still proving out I don't know 20 of them or so by now. At this point, we are still proving out and validating all the tooling and so forth in the plants and we had basically field aligned to be able to operate.

It is a dedicated line, so it not like you got extra bodies running back and forth between our heavy-duty line and our mini line. I think we are comfortable with the lift.

We are comfortable with our quality. We've now got the environment to be able to sell, so one of the biggest issues was this having amount to in report that takes forever to get, but be able be able to say to that transit agency you can use federal funds this now passes the federal standard, so there is a couple of those pacing milestone that caused us a bit of a delay.

Okay. I mean, the plan is still that you'll move out 60 this year.

Then, I mean, is it fair to think that that WIP then falls maybe somewhat in line with what you are doing. I mean, you are running sort of, [call it] - back of the 60.

As you said you were kind of looking at kind of call it 2, 500 EU delivered on the main line. You are running kind of call it, 260, 280 units, so I just the ratios should seem a little odd?

Yes. No.

You are right, we are hosting a new programs, so you are absolutely right, we got probably disproportionate with as you launch that.

Okay, but there is nothing you are seeing in the design and the quality of…

No. Don't worry about that.

Candidly, we did it based on ADLs, U.K. very successful U.K.

design, but make it by Buy-America complied. It's not just us building the line, we had to quality whole bunch of U.S.

sources to be able to build those parts and that just takes time.

Okay. Great.

Thanks, guys.

Okay. Chris.

Thank you, Anastasia. I really appreciate everybody joining us today.

We look forward to another quarter. We will talk to you in a couple of months.

Take care.