NFI Group Inc.

Paul Soubry - President and CEO Glenn Asham - Chief Financial Officer

Bert Powell - BMO Capital Market Chris Murray - AltaCorp Capital Kevin Chiang - CIBC

Thanks Sharon, and good morning, ladies and gentlemen. Welcome to the 2015 third quarter results call for New Flyer Industries.

Joining me today is Glenn Asham, our Chief Financial Officer. And for your information, this call is being recorded and a replay will be made shortly available after the call.

As a reminder to our participants and others regarding this conference call, certain information provided today maybe 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.

You are advised to review the risk factors section found in the company's press releases and other public filings with the securities administrators for more details. So let me start today's call by saying we are pleased to see our efforts rewarded with another very solid quarter, which can be summed up by reflecting on an advantageous product mix, continued results from our Opex program, the effective integration of NABI bus into New Flyer, something we call project United, a focus on cost management and continued strong aftermarket parts performance.

To summary the quarter, total revenue was up 9% year-over-year and our adjusted EBITDA was up 48% year-over-year. The Bus revenue was up 9% with adjusted EBITDA up 72% and our aftermarket parts revenue was up 6% year-over-year, with adjusted EBITDA up 26% year-over-year.

So let me turn it over to Glenn, who will take you through our 2015 Q3 results and then following Glenn's remarks I'll provide some commentary on the bid pipeline, our order activity, the funding environment, our business outlook and then just take about some exciting news about a very prestigious award that we have been nominated for. And then following that, we'll be glad to open up the call to your questions.

So with that over to you, Glenn.

Thank you, Paul, and good morning, everyone. I will be highlighting certain 2015 third quarter results and provide comparisons to the same period last year.

I will focus my commentary on providing key financial insights that will then allow Paul time to provide insight on the market, business and our strategic efforts. I would like to direct you to New Flyer's full financial statements and management discussion and analysis of financial statements that are available on SEDAR or the company's website.

I will 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 $364.7 million for the third quarter of 2015, an increase of 1.1%, compared to $360.8 million during the third quarter of 2014.

Bus revenue of $293 million, increased by 5.1% compared to the third quarter of 2014. Bus deliveries this quarter were consistent with the third quarter of 2014.

The increase in bus revenue was largely driven by an increase in the average selling price per equivalent unit of 4.5%, resulting from a more favorable product mix. The average selling price can be volatile when comparing two fiscal quarters as a result of sales mix.

Aftermarket revenue decreased 12.6%. The decrease in 2015 third quarter aftermarket revenue is primarily a result of completion of the Chicago Transit Authority or CTA mid-life overhaul program, which concluded in June 2015.

Excluding the CTA mid-life overhaul program, the revenue from aftermarket for the third quarter of 2015 of $71 million, increased approximately $5 million compared to $66.2 million in the third quarter of 2014. Bus adjusted EBITDA increased 72.1%.

This was primarily due to a favorable sales mix, pricing improvements, improved labor efficiencies, and the cost savings achieved from the transition to the Xcelsior in Anniston, Alabama. Management had anticipated and previously provided guidance that on average margin on orders planned for production in fiscal 2015 were expected to be higher than the average margins achieved during fiscal 2014.

Adjusted EBITDA from bus per equivalent unit can be volatile on a quarterly basis and therefore management believes that our longer term view should be taken when comparing bus margins. Aftermarket adjusted EBITDA increased 11.7% primarily as a result of improved aftermarket parts fundamentals and the benefit to the product mix that has resulted from a broader portfolio of services and parts offerings to customers.

Net earnings increased by $6.4 million and earnings per share increased by $0.12 per share. The company reported net earnings of $16.6 million in the third quarter 2015, representing an improvement compared to net earnings of $10.2 million in the third quarter of 2014, primarily as a result of improved earnings from operations, offset by an increase in income tax expense.

The company’s net earnings per share $0.30 in 2015 third quarter compared to $0.18 generated during the third quarter of 2014. The improved earnings from operations resulted in the company generating free cash flow of C$22.1 million during the third quarter of 2015, compared to C$17.9 million in the same quarter in 2014.

The company declared dividends in the third quarter of 2015 of C$8.6 million, as compared to C$8.1 million in the third quarter of 2014. The amounts of dividends declared increased in the third quarter of 2015, as a result of the dividend rate increase in May, 2015.

The current annual dividend rate is C$0.62 per share, which is paid monthly. Our free cash flow payout ratio of 38.9% in the third quarter of 2015 improved compared to 45.5% during the third quarter of 2014.

As of September 27, 2014, there were $44 million of direct borrowings, and $9.5 million of outstanding letters of credit related to the $115 million revolving credit facility. With that, I'll turn it back to Paul.

Thanks Glenn. Let me talk first about our quarter, our bid pipeline, order activity and backlog.

The New Flyer bid universe remained close to 20,000 equivalent units, which we believe reinforces our view of a robust market demand, which is really driven by a continued aging US fleet and then the recovering economy and improving budgets across America. The pipeline of active EUs consists of bids received with proposals in process and proposals submitted and awaiting award.

The total number of active EUs at the end of the 2015 Q3 decreased as a result of significant number of contract awards during the quarter. New Flyer's 2015 Q3 LTM book-to-bill ratio, which we defined as the new firm and option orders divided by deliveries, was a 162%, which has exceeded a 100% for 10 of the last 11 quarters.

A ratio above 100% implies that more orders are received than filled, which indicates increasing demand for New Flyer products. At the end of the 2015 Q3, New Flyer's total backlog, both firm and options, was 7,290 equivalents units, which is valued at US$3.59 billion, compared to 7,011 EUs, valued at $3.49 billion at the end of 2015 Q2.

We're specifically pleased to see the gradual improvement in the firm portion of our backlog. Now as we disclosed in our October 15, 2015, orders and backlog press release there were new firm and option orders of 1,169 EUs that were pending from customers, where approval of the award has been made by the customers board, council, or commission, as applicable, but purchase documentation had not yet been received by the company.

These orders were not included in our September 27, 2015 backlog. But since then we have received awards for about 725 of these EUs, all of which will go in our Q4 backlog calculation.

From a funding perspective, on July 31of this year, President Obama signed a bill to temporarily fund and insure the solvency of the highway trust fund through to October 29, 2015. And shortly before that deadline the House and the Senate passed a three week extension to November 20, 2015.

It is our understanding that this is the 35th short-term transportation bill extension since 2009. And as you likely know, the draft multiyear surface transportation authorization bills in the US continue to be hotly debated by both the House and Senate committees.

Given the uncertainty around the final completion of a multiyear sustainable funding mechanism, we would not be surprised to see additional short-term extensions to the MAP 21, or Moving Ahead for Progress for the 21st Century Authorization Bill. We also continue to closely monitor the various by America proposals and approaches and specifically the US content rules that are hotly being debated in both the House and the Senate separately, and are actively evaluating the possible impact of any change on our industry, and our supply chain and on New Flyer.

In Canada, a liberal majority government was recently elected and sworn in this week. The Liberals had transportation infrastructure as a priority of their election platform, but it is too early to tell what impact this may have directly on our industry.

On the surface though it seems encouraging news for our industry. Now we assume that you have all had a chance to see our recent press release regarding New Flyer's Winnipeg manufacturing facility being selected as one of the 20 finalists in IndustryWeek magazine’s 2015 Best Plants in North America competition.

The finalists were chosen out of hundreds of applicants because they have demonstrated admirable manufacturing performance metrics, as well as practices and programs that exhibited a comprehensive focus on continuous improvement in customer satisfaction. In our view, it is not the award that is that important.

It is about going through the process to benchmark our business against the best of the best in manufacturing regardless of their industry. We think this reinforces that New Flyer is focused on the right manufacturing fundamentals for the long-term and sustainable success, and I am really proud of our team and our progress.

New Flyer was the only Canadian plant to make to the finalist list this year. On the same theme, New Flyer celebrated our 85th anniversary that crossed our company this summer at every one of our locations.

Over 4500 visitors, employees and their families attended these celebrations. We continue to focus on transition of production of the NABI business models from the Anniston, Alabama facility, to the New Flyer Xcelsior platform.

This transition is on target and will be completed – finished completely by the end of this year. In fact, we held our board meetings this week in Anniston, almost two years to the day when the board first visited this facility.

The transition should allow for enhanced competitiveness by leveraging combined bus volumes, production and purchasing for greater efficiencies, and we are seeing the synergies that we expected and more. As for the market and competitive environment, we continue to believe that pricing overall has normalized.

We will not stop enhancing our Opex program and the pursuit of cost and overhead savings in every aspect of our daily operations. This includes our partnership with suppliers, as our robust team are now [standing up] a dedicated supplier quality team as an extension of our own Opex program.

As for our production outlook, our master production schedule combined with our current backlog and orders, anticipated to be awarded under the new procurements has expected us to enable us to continue to operate at an average line entry rate of approximately 50 EUs per available production week for the remainder of 2015 and through 2016. We continue to remind you that production rates vary quarter-to-quarter due to sales mix and in this year specifically the phased introduction of the Xcelsior platform into the Anniston facility.

The number of production slots that we have built for 2016 is about 20% better than it was at this time last year. We currently have no plans for a production rate increase, but rather we seek to achieve an even increased backlog, more stability of all functions from program management through engineering, supply and manufacturing, to enhance quality customer satisfaction, and most importantly financial performance.

Now Glenn previously talked to the results of our aftermarket saving, and I'm really pleased to see this continued performance. We are actively engaged in a strategic review of this business unit, just like we did in the bus business to identify synergies through the business and system synchronization between New Flyer and NABI parts businesses, something we call project convergence, and this has now started in earnest and is expected to be completed by mid-2016.

This effort is now possible after successful completion of our oracle systems conversion or upgrade from Version 11i to r12 earlier this year. After nearly 10 months and engagement of hundreds of our team members, we flipped the switch on the Labor Day weekend, and with the exception of a few minor issues the conversion was an outstanding success.

So a big shout out to our IT team as we have all heard horror stories of major IT implementations or conversions that bring companies to their knees. Clearly not the case at New Flyer.

So in summary, we are encouraged by our improved market opportunities, our backlog recovery, especially the firm backlog increasing and our improved book-to-bill performance. We are very pleased with our operational and financial performance, which further adds stability to our balance sheet.

We remain focused on Opex initiatives and are encouraged by the transition to building only Xcelsior buses now in the Anniston facility, and in fact NABI buses are all offline and only 15 buses remain to be sold and delivered. New Flyer remains poised to continue as the leading provider of heavy duty transit buses and leading provider of aftermarket parts and support in Canada and the United States.

We're proud of our history and excited about our future. Thanks for listening today.

With that, I would like to turn it back to our operator and invite your questions.

Hi. Good morning Paul.

Good morning Glenn.

Hi Bert.

Good morning.

So, I just want to, the obvious question in the quarter is obviously the continued strength in the EBITDA per bus, and your commentary has always been expect higher margins this year after, working through some of the lower margin stuff that you booked during the global financial crisis, and offsetting IT fees, but I would say for sure the numbers have been better than we expected, and I think probably generally better than most people expected. And so I'm just wondering if you can give us a little bit more of a sense of how sustainable it is at these levels.

I know your commentary is always look at it on a year basis, but being at a level that we have seen for the last few quarters seems to suggest that maybe this is sustainable at a higher level than in the past, and maybe you can offer some thoughts or guidance around what is the real level to think about going forward?

I appreciate your kind words and Bert, your observations are absolutely right and look at the end of the day, our perspective is this, we had low priced work flowing through kind of ’13, ’14 and a part of ’15 that we were very transparent about. That stuff has now for the most part has worked its way through the system.

We continued to work on cost reductions, which whether it is overhead or whether it is labor efficiency, or whether it is material supply and so forth, we have done some lucrative make versus buy things to bring our costs down and so forth. So we are thrilled to see the margin enhancement both from price recovery and normal work, as well as our cost reductions.

We do have, kind of a new normal, a new environment, in terms of bidding, we call it normalization, but we did go as you highlightedeither could through a period of kind of ’12, ’13 and part of ’14 where it was still very, very aggressive pricing, and so we are pleased to see that recovery. We are really pleased with our enhanced competitiveness as we brought NABI and New Flyer together, and so our ability to compete pretty well on every bus competition that is out there, we do have an advantageous mix right now based on some unique offerings of Flyer in terms of supporting customers and so forth that we think we can continue to build on and enhance in the future.

So, without getting too detailed about specific contracts and which were very sensitive to do, and don't want to give guidance, we feel pretty good about where we are at, where we have come from and the ability to sustain that. The world always changes.

We have new competitive entrants now in the electric bus front. They are not winning competitions of hundreds of thousands of buses at a time, but those kinds of things are adding to the competitive intensity.

So, it is – we are thrilled to see where we are at but we are not taking our foot of the gas pedal. Glenn, I don't know if you want to add any color on that.

So, I guess, if you go back a couple of quarters, this question was asked on margins as is every quarter, we said at that time, right, we thought we could get to EBITDA per bus just to through our cost savings to the high 20s, maybe 30,000. But beyond that we need to see some price improvement in the market.

Clearly we have seen as we said we thought we would. We have seen some improved pricing in the market.

Obviously the competitive nature of our business always creates some question as to how sustainable that is, but currently right now the pricing environment is good as it had been for long.

And is that – I know your biggest competitor is Nova and there were some changes there. Has that been – is that really what is accounting for more discipline in price in the market, or have they been distracted with other things, and you have been able to show a better value proposition and once they turn their attention back, I'm just trying to figure out what you know or what any dialog or behavior patterns you are seeing out of them would indicate any change in the prospects for what happens in the pricing side of things?

Yes, I think you have articulated correctly Bert. Absolutely, our arch rival, if you will, on the larger fleets, is Nova Bus, which is owned by Volvo Truck and Bus, and we know that and see activity in the market place of the combination of the Nova transit business being combined with the Prevost Coach business, and they have taken on some very aggressive contracts over the last couple of years and some are what we think to be pricing that surely doesn’t reflect the value that is provided and offered to the customers.

I can't comment what that may happen going forward, but there has been a window of time that New Flyer's delivery performance, New Flyer's quality has carried the day at pricing that we didn’t offer that we thought was irresponsible. I mean, we have in fact and a number of customers held very firm on our pricing to ensure that we get paid to the value we provide and we won competitions against Nova at a higher price.

And so what they do going forward Volvo Truck and Bus is a global business, very competitive. We expect them to continue to, work on that business, but we are really pleased with our competitive position [Indiscernible] today from a product perspective, delivery performance, quality, delivery and quality in service, the supportability from the aftermarket, and we think that bodes well for the value that we offer.

Okay, and just last question on Marcopolo, and on the Brazilian market after the currency’s toss, any sense of what they're thinking these days with respect to – I bet they are happy to have the Canadian dollar dividend, but how they are thinking about their own financial situation relative to their investment in New Flyer?

I can't really comment on their situation, specifically. We now, as you know, do have on our board of directors, Mr.

[Indiscernible] strategic activity that we have done – they are very, very supportive of what we are doing with our business. We continue to have an MOU with them to talk about individual projects and initiatives, and cost-saving ideas and products.

I guess many speculate that given their own challenges, would they consider selling, liquidating, whatever the position in Flyer, we don't believe that is on to table. They seem to be and report back very, very pleased with what we are doing and are pleased to watch and be part of our growth going forward.

Okay, that is great. Thanks Paul and Glenn.

Thanks Bert.

Thanks guys, good morning.

Hi Chris.

Can you guys talk a little bit about project conversion in the aftermarket business, so just so we are clear, you mentioned that you had actually had all the folks on the new platform, on the new IT platform at Labor Day, so does that include both kind of call it the legacy NFI parts business, the NABI parts business and what you guys bought from [Orion]?

So, the conversion to Oracle r12 now means the entire bus business is on the New Flyer platform and we are building New Flyer buses. So that is A.

B, on the parts business, when we originally bought the [Orion] platform, remember we bought assets and contracts and IT. So we literally ported that stuff over to the New Flyer systems immediately.

And while I make it – it may have sounded simplistic, it was a lot of work, but it wasn’t a conversion or a system issue. It was more of an integration issue.

Then what we did is now that we are on the same – now that we have moved to Oracle r12, the New Flyer parts business is on r12 in a separate organization. And so convergence now means we migrate the NABI parts business onto the New Flyer parts business in Oracle.

So that is really what that system is, which then means, synchronization of all the ultimate parts list, the IT systems for bidding, coding, reporting, delivering and so forth. So when we wake up Chris, kind of, let us call it, June 30 of 2016, the legacy NABI platforms that are on the [bond] systems are effectively unplugged, and then we are 100% on bus – Oracle for bus and Oracle for our combined parts.

Okay, and I just want to – because just from your commentary you made it sound like it moved everybody, like including the entire aftermarket business, because I always thought it was sort of a Q1 ’16 target to kind of have everybody kind of in the same place. So the aftermarket it is – so just to be clear, the aftermarket business that process is still in kind of an integration type of transition phase right now?

Yes, correctly Chris. Sorry if I missed.

No, no problem I just wanted to clarify. So I guess but even returning to that it was kind of interesting in your recent investor day that you guys released, you started talking for the first time about return on invested capital and that was kind of a neat graph that you guys showed, first time I think it's been over kind of 10% the way you calculated in quite some time probably five or six years and certainly one of the things I know that we have been talking about.

Was in that framework if I think about what convergence might do and you kind of indicated that the savings from project united which was putting [indiscernible] with New Flyer that those savings are up a little bit. Any idea on either the working capital side or the margin enhancement side what you think you can do once you get convergence sort of finished?

Well, I won’t give you percentage increases because candidly I don't know. We are literally in [indiscernible] teams are deep, deep, deep right now trying to figure out what that might look like in going through a number of simulations on both the cost side and the working capital side.

But I really feel strongly that on a common platform with all the options as lined up and a synchronization of the way we buy and the way bid that we are going to see a synergy potential and we are going to see working capital efficiency. And again, if we pre-mature I think we will do the same thing of convergence that we did on United is once we have that inside of what synergies on both balance sheet and income statement look like we will provide color and little bit of guidance on that.

I should say in just comment a little bit on return on invested capital comment. When we made the decision back in I guess, it was 2011 and 2012 to convert to a -- from an income deposit security to a common share and focused on that.

Clearly everything about the business change in terms of the beyond -- no longer with payout ratio but it really became balance sheet utilization in the generation of earnings and cash flow. So, we migrated the way the exact get compensated and in fact we are up now to a several hundred people in the company that are actually part of the incentive program that all have a balance sheet element to it.

So, all of our reporting to our boards, all of our managers reporting have P&L balance sheet cash flow tied into it which I think is really good business fundamentals both from us learning and operating the economic engine but also ensuring that we are focused on the right thing for shareholder return. So that's been a really positive thing internally and the good news has been marching to the top rate so very good for us in that perspective.

Great. And just thinking about where that's going I think it's fair to think as you continue to see margin expansion year-over-year and you start lapping some weaker comps, is it fair to think and I know if you guys done that before casting at, but is it fair to think you will ultimately be there and I guess along that line is there any sort of target that you guys may have now that you have sort of got those calculations is there a particular range that you think that you want to end up in or you think can end up in?

Yes, but I am not going to answer your question. Look this is part of our budgeting and business process with the board.

We had a wonderful meeting here this weekend with the board of exactly those things. We presented our family plans for next year.

We are now building a three year plan. We are working inside ranges and targets of what our -- as well as including stretch that to meet the board's objective and so again we are really pleased with where we have come from but we think there is still room to grow and to both.

In the earnings that come up with the business and the cash flow but also again the utilization of the balance sheets. So we are not going to give you and be public around targets but we want to continue to march north for sure.

Okay great. Just moving back maybe to United and the NABI integration with Xcelsior, so I guess a couple of questions around that.

One, is that project now complete like I guess if I take your comments from your script that the NABI today or the Anniston plant maybe better way to phrase is completely producing nothing but the Xcelsior platform?

Yes. So, we are right on target actually.

We are now currently at nine New Flyer a week I think we are headed to ten in the next week or two and then by January we are up to full 12 units a week that are in the New Flyer which effectively year ago we were 12 NABI buses a week. The last NABI buses are off the line.

And as I said, I think there is 15 that are literally in the final stages of tweaking and completion and then will ultimately be delivered to the customers so that's been good. The people integration getting up to speed on New Flyer systems we did plan enhanced [whip] or increased whip to go through this transition in the period where we don't induct the same level of buses and so Wayne Joseph and his team have done magnificent job of phasing that in and so we are right on schedule.

So from an internal reporting and management perspective at the end of calendar 2015, we will close the chapter on United. We have done a final score sheet so far with what the return looks like, the synergies and so forth.

There are still a number of projects from a continuous improvement perspective that we are looking at. There is still some make buy activities that we might want to fabricate source or locally sourced.

There are some issues around enhancing the [weld] efficiency. There are some least facilities and bunch of other stuff that we are looking at that we think can enhance our margins and our performance going forward.

Okay right and then just it’s a little unclear, but the 2015 remaining kind of legacy NABI buses those aren't white shells. Those are actually destined for customers correct?

Yes it's a situation where there were two customers as we made -- when we made the decision to transition from NABI to Xcelsior buses. There were two customers that we prematurely line entered.

The one customer all those buses are through and now have been delivered. This customer is still in the process where we got to complete the paperwork.

So it fits in with. There’s some completion activity that needs to be done both from contractual perspective as well as from a physical completion of the buses.

We are not sure whether those buses are going to get delivered in the calendar 15 or early in January of 16, but at this point in time I am confident we won’t have risk if you will around what we have in the past with Chicago around white shells.

Okay cool and just one last clarification. Have you had a chance, the U.S.

house yesterday passed a multiyear transit bill to reconcile with the senate and certainly there’s some question around like how the long-term funding tend to go. Have you had a chance to look at that legislation or either through APTA or some of your other folks and is there anything in there that you have noticed that could be concerning?

Well, Chris it’s a good point because this morning we literally read the headlines. Our team hasn’t had a chance to digest the details of it and as you said the senate has still got to get through it and the President has got to go look at it and you’re right the long-term funding mechanism is still up in the air.

We have been really close on this. We have been continuing to try and understand the implications for our customers and then specifically any implications from a buy America or U.S.

content issue. And that’s why we put some notes on our script today.

We continue to look at and simulate the implications if any on our business, our industry and our suppliers. So what I will beg-off here as the chances as to continue to watch this thing if we see anything that is material in terms of the impact to our business in the short-term, we will come out and give our advice on that if it’s really no major impact look to continue to update our views on this every quarter.

All right thanks guys, I’ll get back in the queue.

Thanks Chris.

Good morning guys. First question is just going back to EBITDA per EU.

So is there anything in the quarter maybe the last couple of quarters that would suggest that the numbers are unusually high?

So I’ll take a shot at that. We definitely have some favorable mix going on in the first half and some of that continues on for some time in the future, but there’s obviously an opportunity for a change in the mix that as we go forward.

So that has influenced the business positively. Then what now that business is going to continue as I said so is that unusual.

Yes, I will leave that for you to determine. For sure, I think we are seeing in our earnings now almost the full benefit in this quarter of the convergence to excels here.

So almost like a full 100% visible but a cleanup and some added benefit will get but for the most part we have seen the full benefit this quarter versus last quarter we didn't have the full benefit. So I guess the long answer to your question [Audio Gap]

-- structure. Any thoughts on investments whether it's vertical integration or moving into other markets and where all that stands?

Yes. First and foremost the comfort around our dividend we are really pleased with the payout ratio as you know last quarter we increased it and we really now put in place what we think to be a robust set of guidelines for discussion with the board around the right dividend level, the right performance and operating metrics.

We will continue to review it quarterly and probably look at that annually from a formalization perspective that's one. Two, we have done three acquisitions in the last six years.

A small fabrication capacity in [indiscernible] TCB which is now five or six times the size of what it was when we bought it, in parts business that was really a complete implementation to our business and of course the NABI which was rationalization of two businesses into one. We do have a number of projects on the table but we continue to look at growth from a supply chain, from an aftermarket, from an alternate product perspective and we will continue to do that.

I think what we have demonstrated is that we are not going to go too far to bus world that we are going to be very disciplined in terms of what we paid for the business that we know and have some insights into how we work with our current business. And so, those projects are always on the goal and we are now pleased with our balance sheet that if we find the right thing we have got the right leverage we have got the right debt capacity, we have got the right solid foundation of the business that we are able to integrate it if we are successful on some of those projects.

So if and when that happens absolutely we will be very transparent with the investor base on that.

Thank you. That's helpful call and just on the dividend you said you have a framework.

I am not sure if you have said anything on that before I don’t recall. Is there a target tail ratio or something like that we should be thinking about?

Absolutely it’s on, with the board again we built kind of a framework that is now been in place we proposed at the last meeting. We went through it again this week or this period.

We are still refining it. At this point, we haven’t made it public of what our payout ratio targets are, what our leverage targets are, what our return of invested capital targets are.

I am not sure candidly where we are going to put those on the board, but we are now got a framework that is allowing for a very candid and fulsome conversation with the board. And again, this goes back to the previous question that if we find an opportunity that the table to allow us to work inside those parameters and there is ranges and we are really pleased and had wonderful conversation yesterday rather than just talking about one metric but talking about opportunities in the context of a whole series of metrics.

So in summary, I am not sure we are going to put that in the public domain, but rest from an investor and an analyst perspective we are pleased that we have now got something that we can kind of talk inside internally about and make decisions around.

Just a comment I would suggest you make it public and I cover a lot of companies that have adopted these things publicly ROICs etcetera payout ratios and it is very positively received generally by investors and analysts. So that’s just my view.

Okay thanks Dave, we will take that into consideration.

Just last question the midi market I think you won an award recently. Can you just give us a bit of a sense of how things are unfolding there?

Yes it’s a great question we rolled the whole thing obviously for better reason into our bus business and for any part sales go to our parts business. We really -- off late.

It’s been slow in coming. We had testing to be completed.

We had various customers wanting to feed in service in different customer locations and so forth. Recently we are awarded a contract in the U.S.

and soon one will be announced in Canada that’s of size. The program has been nodded efficient in terms of the manufacturing perspective.

We kind of start and stop, but I think we are very comfortable now that we will be able to get to a consistent kind of roughly three buses a week every week next year in 2016 with consistent customer through point. I will remind you everybody that that business was really the opportunity to learn how to do a joint venture, with the opportunity to introduce a product in a niche space that we couldn’t really reach with our heavy duty buses.

We may have misunderstood or misoverestimated the size of the market but that we really believe it’s a niche in North America that we can ultimately sell 250 to 350 buses a year that satisfies a certain customer niche.

Okay, that's great. Thank you very much.

Thanks David.

Hi, thanks for taking my question. Just a couple of follow-ups most of my questions have been answered here.

But maybe I will just head on the EBITDA for bus because it seems like it's a topic of the day. So when I look at the patrolling 12 months you are up about -- you had about 33,000 per EU and about 10,000 higher than you did for the full year 2014 over that period you have ranged from kind of the 26 to 38.

Are those good parameters to think about when you speak about mix impact and how some of these buses will get delivered through the quarter through the year? Are those good parameters at least to work with in terms of where you are seeing a step up in margins?

Was there anything unique that we should be considering that makes those numbers maybe not a good reference point?

Yes, so as you know we are always very hesitant to answer that question because of volatility quarter by quarter. So first of all, I got to say, don't any sort of views that we give on margins right there can be significant variances in one quarter.

I would say overall if you sort of took a long term record, I think those are fairly good metrics.

Okay. And just a quick, just following up on a previous working capital question I believe, given some of the stuff you are doing here you had a pretty big working capital drag as you have gone through some of your restructuring how much do you think your working capital can improve as you get pass some of these initiatives you are pursuing here and as you started lapping them.

Do you think you would be working capital neutral on annual basis or do you think you will always have small drag as you close out a year?

So, I guess the first comment the contract nature of our business and the differences in our customer always puts some risk in our working capital sort of staking for peers time, but to pick that out I believe that our -- that we do have some opportunity to bring our working capital investment balance continued. I don't think we are ever going to get to the point unless there is a change in the whole industry where we get to a neutral working capital investment.

You may have seen in the past -- there was a time where we had some very significant risk coming in our contract backlog. If we ever got back to that those type of situations yes we could maybe see a neutral working capital investment but sort of the -- it's on the way the industry has done well on the asset side greater than our liability side.

To add to that Kevin, as we burn off and we have done it so far analysis for the working capitals and receivables, the transition onto one platform we should start to see more of a new normal level of working capital as we move into the first quarter of next year when that excess whip for transition was burnt off. But that's absolutely right.

We can find the certain customers that have complexity around their inspection and there is 50 buses in the whip that are backed up for the customers doing it. And then the other dynamic as much as the industry has moved away in the last five or six years from progress statement, given our balance sheet given our profitability that we have been able to enhance Wayne Joseph and his team are working very aggressive towards the customers to try and offer creative solutions around milestone payments and exchange for different types of things.

So that’s a good -- little bit of the question from Chris earlier, we are dead focused on return of invested assets and well aware of the implications of money as is tied in parts and with the delivery on the accounts receivables and that’s a huge, huge focus for the business and apparently good for our business practices.

I would agree with you. Thank you very much and a good quarter.

Thanks Kevin.

Thanks. I just wanted to go, hi guys again, just wanted to go back to the aftermarket this was a good quarter on margins and kind of CTAs ended and I want to go back if I go back to the 07 and 08 and 09 that business granted that was [indiscernible] as well it was generating 22%, 23% EBITDA margin basis.

And I have fully cognizant of your program to prove it but is it likely that without your improvement program that parts of business that stands today after full year CTA moves to 22% range and you can improve it yet again with your focus on convergence or I can't remember exactly what you called it?

Well, look absolutely we will always look at low margin programs of the nature or size or look of CTA for two reasons. If we can find largely the operators that want us to participate with them to extend the life to enhance the operating cost and so for the fleet.

Our name is in front of the bus and we will take little margin worth to make damn sure that we are part of that to make sure that that we just on properly with authentic parts and so forth. So that's the first thing you will always see us going after some of those things.

From a parts perspective today we have two businesses that both buy separately that both sells separately that both distribute and replace orders separately and so we think those whips there both from a cost perspective, from a market perspective like bring them all together which we think. So those new numbers that kind of the new normal and recovering back to where we were in that periods of 7 and 8 clearly that's our aspirational targets and we are very comfortable with that.

There are things that make our business difficult very quickly when the Canadian dollar moves very quickly a portion of our work on the parts business is contractual and so you have got hits there when we sell the Canadian customers on the spot buy stuff we do our best to respond and reflect the new cost of the parts of the customers as we convert the Canadian dollars. There is push back.

And then there is competitive intensity, so we are very cognizant at the end of the day great service and parts support sales buses and great buses sale parts and so that long term balance of those two is really important to us.

Thanks Paul.

Good morning guys.

Good morning.

Just this relates more to your backlog update but you mentioned some of the state procurements and the municipalities kind of tag you alongside that can you just remind us the dynamic there and what that could mean for your business for the next say 6 or 12 months?

Yes, great question because it's really hard to put your fingers around. But when auctions first start to come in the contracts let’s call it kind of 2004, 2005 and 2006 and so forth what we saw was customers buying fixed amount of firm buses and then the known auctions they were going by and then as we got into kind of 2008, 2009, 2010, 2011, 2012 often what was happening was those customers would put way more auctions inside their contracts than they really needed and then it became a big game for us and our competitors and our customers around auction trends versus assignments and shopping and so forth.

So last year in 2014 the FTA came out with what they call it dear colleague letter to set rules and add clarity around their expectation on auctions and so they really were pushing these consortium buys to have main agencies inside the contract. So if agency A was the lead, B, C, D and E could be able to buy off that.

So with that really added to a little bit of because there is such uncertainty around what these fleets will do and rejuvenation the funding levels and so forth was the advent of state contracts and so we compete with our competitors try and get on that state contract by responding to [indiscernible] allows the operators inside that state or that are named in that procurement to be able to buy off it like a GSA type schedule. So the problem is it doesn't have defined quantities so it's impossible for us to put it in the backlog but it is a sanction vehicle that we can then sell buses.

So you are effectively competing to get on the schedule then you compete to try and actually win the work downstream. The good news is that when we can work with some of these agencies that are count together in state we can really be more surgical at an offering that makes sense for their environment, their climate, their geography, their environment and so forth and so we have been successful with I think three or four or five state schedules now that we actually allowing these guys to buy off it.

And so what we think in the future is that our backlog may not be as high as it was in the past, but we have got a new vehicle by which customers can buy buses. Does that help?

Yes now that’s helpful. So similar to how you have kind of relationships with key cities and municipalities.

Is there a way to kind of leverage that footprint with states as well like are you closer with certain states and other obviously?

Absolutely and like asking our competitors will all have gone back to the history in terms of where we have dominant positions and so forth and some of the trickiest to maintain where we really have solid relationships and try and break in. Now some of these states schedules as you can imagine have multiple vendors listed on the schedule so like as I said before we are competing a second time to try and win that work.

Yes. Okay now that’s helpful so essentially you are going to see backlog potentially decline but I would say the option exercise rate would probably go much higher than you have seen in the last little bit?

Yes correct because the option that are listed on those contracts are really not meant for show up.

Thanks so much guys. Great quarter and I appreciate the commentary.

Okay guys just a question about kind of backlog and thinking about next year. So maybe a different way to think about this whole margin performance.

Is there anything in the backlog today or maybe a better way to phrase it is what’s the embedded margin look like in the backlog with the orders that have been going in as of late. Is it the kind of thing that the new kind of average margin now will probably be where we are kind of running today?

Is that maybe a better way to think about it?

Yes, again without giving specifics will go back to, it sounds a bit like a broken record, but again in 12 and 13 when we were competing with the [Orion] and the NABIs and real low pricing we had stuff embedded in our margin that was not great and it really was isolated to a handful of contracts though those have worked their way through. Some of those have been won or replaced with equivalent margins to the average and some even better.

But I think your logic there Chris is that the average margin today in our backlog is better than it was in 15 and 14 and 13. It’s back getting closer to what it was in the late 2008 to 2009s and so forth.

And that’s why we are seeing the margins recovered to those levels. The combination of better pricing and the combination of us taking out cost and optimizing the machine.

Okay. Great.

And then maybe just I will leave with this, but can you give us any thoughts or color around I guess the strategy for the company moving forward. I know we have come through a number of things that convergence from the idea but now we are at kind of unique position where when you look at the fundamentals of the base business they are pretty healthy but I guess the next question is what's the next leg of growth for you guys because the transit bus business is still great business and you have got the dominant market share but I guess what's next is maybe the question?

Well it is a great question and I presented it yesterday to our board. So it's very top of mind when you look at our strategy statements and our work so far, it really hasn't changed.

It was to optimize so we continued to focus on the culture, the machine, the tool, the efficiency, the quality and we will do that regardless of and continue to drive that cost down and improve our competitors. Second we wanted to defend our market leading position and that's not just in the bus space but in the aftermarket and then the service and support elements of it and so that continues to be an area again we would love to continue to increase our aftermarket size.

It's very fragmented as you know in terms of the number of competitors and then of course you have got engine guys and transmission guys and AC guys whoever selling parts into that space but that we want to continue to defend those aftermarkets positions. Clearly growth we have shown growth in the cash flow and the EBITDA the businesses and the sales we still think there is more run way there and then finally diversification, our first attempts of diversification was part fabrication so getting into that vertical integration through TCB and what Wayne inside our facilities we then went after diversification to grab more revenue from the aftermarket.

And now we start to and then of course we did the JV with [indiscernible] to try and diversify into different types of product but also some private customers to learn how the private marketplace works. And now as one of the previous questions is we continue to look at different types of buses in North America and candidly outside of North America to be able to diversify products, market and customer base.

And so that's what spending -- we are spending our time on in addition to the core business and allowing Glenn and I to look at various businesses and packages to see what makes sense for New Flyer for the next chapter. I don't think any of those four words optimize, defend, grow and diversify will change.

The good news that we have now compared to five years ago is that the board allowed us to spend $80 million bucks on this business to make darn sure we get the right AT systems, the right factories, the right training program, safety programs, infrastructure and so forth. So it's very well capitalized.

It's very well invested foundation to be able to define the rate investment opportunity either with the new product or with an acquisition then we can do that.

Okay, great. Thanks guys.

Yes. Just a quick follow-up on the option.

So you have been winning a lot of business and there is large option elements to them. How should we think of those?

Are they more like the before 2008 or are they more like 2008 to 2012 where it's difficult to estimate what's really going to happen with those options?

Yes, I think Trevor’s question was a good one on that and so and then Chris's discussion subsequent. At the end of the day right now we feel that the convergence rate of the options will be higher in 2016, 2017, 2018 than we had in call of 2013.

So yes, 2013, 2014, 2015 kind of thing because of the nature of the FTA getting tighter on how those contractor are defined and how the option gets transferred and so forth. So I think short answer, I think we are back to a scenario where we saw previous to that option shopping and these big huge options that had a low convergence rate.

Okay. So it sounds like it's a little hard to say exactly but certainly better than the period where they seemed to be putting all kinds of options and [indiscernible] or not and necessarily exercising but maybe not back to where they -- one option where essentially from orders waiting to happen?

Yes, look I joined in 2009 David and I think at that time we were like 95% convergence. They were very defined option and then that period you just referenced we kind of saw drop in the 50s and 60s and highly variable and I think we are going to see that back up.

I don't know if we are going back to 95% but it's going to get back up and then Trevor’s question good one commented the addition of state schedule is really something that we never had as a vehicle to sell buses before.

Right, I understand. But that’s outside your firm books.

Yes exactly, but it's encouraging and another vehicle at reasonable margins for sure.

Fully understood.

Just to add, I guess if you look at with this letter for over a year now, definitely the environment is set up to go back to where we were, whether we actually get there, I guess time will tell.

Sure, okay. That's fine.

That's helpful. Thank you.

Thanks David.

Thank you Sharon and ladies and gentlemen, thanks for joining us today. We are very pleased and happy for our team in terms of the performance in the last couple of quarters and we look forward to speaking to you again next quarter.

Thank you.