NFI Group Inc.

Paul Soubry - President and CEO Glenn Asham - CFO

Mark Neville - Scotiabank Chris Murray - AltaCorp Trevor Johnson - National Bank Stephen Harris - GMP Securities Kristine Owram - CIBC

Thank you, Sally, and good morning, ladies and gentlemen or good afternoon, I guess. Welcome to the 2016 fourth quarter results conference call for New Flyer Industries.

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 conference call, certain information provided today may be forward-looking and based on assumptions and anticipated results that are subject to uncertainties.

Should any one or more uncertainties materialize or should the underlying assumptions prove incorrect, actual results may vary significantly from those expected. You’re advised to review the risk factors found in the Company’s press release and other public filings with security administrators for more details.

Joining me on the call today is Glenn Asham, our Chief Financial Officer. And I’d like to offer a special shout out to Glenn who today is celebrating his 25th anniversary at New Flyer.

Glenn has been a critical player on our team through good times and bad, through ownership changes, capital structure changes, refinancing, acquisitions, companywide cultural transformation. Congratulations and thank you Glenn for all you’ve contributed to our success.

In a moment, Glenn will take you through the highlights of our financial results for the fourth quarter of 2016 and following that, I’ll provide some insights into our outlook, areas of focus and then, we’ll open up the call to your questions. 2016 was another fantastic year for our Company.

It’s gratifying that the hard work of nearly 5,000 team members, our investment in people, facilities, product development and our commitment to operational excellence and Quality-at-the-Source combined with the vibrant market place has resulted in another year of improved performance for all areas of our business. From 2012 to 2016, we experienced the five-year compound annual growth rates of 27% for revenue, 47% for adjusted EBITDA and 68% for free cash flow.

In 2016, we saw both the transit bus and motor coach market grow by 4.7%, and we increased our deliveries at both New Flyer and MCI, maintaining our transit bus share and increasing our motor coach share. We cautiously choose to operate our facilities, not just for market share gain but rather with a laser like focus on customer satisfaction, quality and margin performance.

We were able to weather the New Jersey funding suspension situation for the MCI contract and get back on track quickly. We also added significantly to our total backlog of both firm orders and options which is now over 10,000 equipment units or approximately three years at our current volumes.

We have been able to remain committed to our vision and our operating philosophy and our strategy that have been fundamental to achieve the growth and diversification of New Flyer over the past eight years. We continued our focus on optimizing operations and continuous improvement.

In 2016, we achieved $12.5 million of our annual cost saving synergy targets related to the acquisition and integration of MCI which exceeded our initial estimate of $10 million. We achieved higher adjusted EBITDA per equivalent units due to continued improvements in material and freight costs, labor efficiencies, overhead cost management and a full year inclusion of the sales mix of MCI.

Both our St. Cloud, Minnesota and our Winnipeg, Manitoba facilities were selected as finalist for IndustryWeek magazine’s 26th award for the best plants in North America.

Our bus team deserves a tremendous amount of credit as this is the second year in a row for our Winnipeg facility. We don’t enter these evaluations with the simple objective of winning a trophy or banner, but rather to continuously benchmark all elements of our business against the best of the best in many industries, we call it free consulting.

We also continue to defend our market-leading position in transit bus and motor coach manufacturing and aftermarket parts distribution by evolving what we offer and not just selling busses and coaches but providing solutions. We are committed to delivering lowest total cost of ownership for our customers.

As the year progressed, we took time to evaluate MCI and assess a number of scenarios before determining further strategic actions to pursue long-term synergies and improve competitiveness. But the customized nature of the public transit market and increased American content required in the U.S.

regulations for the FTA funded procurements, significant synergies resulting from sourcing were not easily obtained. Material sourcing changes take into consideration the evaluation of several perspectives, supplier, -- the current supply agreements, customer supplied components, timelines for integration, validation of major component changes to ensure bus reliability and performance not to mention an aftermarket service ability and spare part implications.

So, as a result, at the end of last year, effective January 1, 2017, we appointed presidents of our operating businesses. Wayne Joseph became President of Transit Bus; Ian Smart became President of Motor Coach and Brian Dewsnup became President of our combined Aftermarket Parts Business.

These are proven leaders with extensive experience from both inside our business as well as our industry, which I think reflects positive in our culture and the bench strength of management that we’ve created. These changes align our strategic organizational structure and our capital deployment plans for further to create the best environment for customer support, enhance competitiveness and growth.

The combination of MCI and New Flyer aftermarket parts business into one now solidifies this as the largest transit bus, motor coach parts supplier in North America by a considerable amount. Finally, we continue to pursue our -- we continue our pursuit of diversification in growth.

We delivered 213 zero-emission buses which equates to 84% of all zero-emission buses EU’s [ph] delivered in U.S. and Canada in 2016.

We developed North America’s first 60-foot articulate battery-electric bus with a hydrogen fuel cell range extender. We opened a new part fabrication facility in New York State.

We commenced investment in MCI’s facilities and information technology to harmonize them with New Flyer along with a company-wide transformation to enhance MCI’s quality of source and production culture. And further investments in fiscal 2017 are planned with respect to service centers, with the new one being launched in the San Francisco Bay area at the end of Q3 2017.

And our support infrastructure and facilities in new generation of product development such as battery-electric and 35-foot coach, both on our proven MCI model J platform, and both projects are well underway. New Flyer remains committed to our stakeholder model by maintaining a focus on the needs of our shareholders, our employees and our customers.

We have great people and a great team, and we have a great strategy. October shareholder return for 2016 was 47%, building on a TSR of a 150% in 2015.

I think it’s amazing to think that $100 invested in New Flyer in January 1, 2012 would be worth $960 on January 1, 2017, assuming all dividends were annually reinvested. It’s also rewarding to see shareholders continue demonstrating confidence in New Flyer common shares with recently trading at new highs.

We’re very proud that we continue to be paid dividends since our IPO in August of 2015. And in 2016 -- sorry, August 2005.

In 2016, we increased our annual dividend rate twice for cumulative increase of 53%. We really feel comfortable with where we’re at and where we’re going.

With that, I’ll turn things over to Glenn to talk to you through 2016 Q4 and full year results.

Thank you, Paul, and good morning, everyone. I’ll be highlighting certain 2016 fourth quarter results and provide comparisons to the same period last year.

I will focus my commentary on this call to providing key financial insights, then will allow for more time and attention on our market, business and strategic efforts. I would like to direct you to the Company’s full financial statements and management’s 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. As well it’s worth noting that our 2015 fourth quarter and fiscal 2015 operating results included the acquisition of Motor Coach Industries for only the 9-day period from December 18, 2015 to December 27, 2015.

So, with respect to 2016, revenues from transit bus and coach manufacturing operations increased 53.1% for the fourth of quarter of 2016 8compared to the fourth quarter of 2015. The increase is a result of a 44.1% increase in total bus and coach deliveries and a 4.4% increase in the average selling price.

Aftermarket -- 2016 fourth quarter aftermarket revenues increased 27% compared to 2015 fourth quarter, primarily as a result of aftermarket revenues generated by motor coach. However, the core after market revenue in 2016 fourth quarter decreased 7.3% compared to the pro forma aftermarket business revenue for the fourth quarter of 2015, which includes MCI but excludes the revenue from the Chicago Transit Authority mid-life overhaul program, which was completed in 2015.

Adjusted EBITDA from transit bus and coach manufacturing operations in the fourth quarter of 2016 increased 88.5%. the increase in fourth quarter 2016 bus and coach manufacturing operations adjusted EBITDA compared to 2015 Q4, primarily a result of increased unit deliveries and improved margins.

Contributors to the increase in margin in the period include the full impact of the New Flyer and NABI product rationalization, a favorable sales mix, cost savings synergies relate to the MCI acquisition, continued cost reductions achieved to the Company’s operational excellence initiatives and integration of MCI. 2016 fourth quarter aftermarket operations adjusted EBITDA increased 34.3% compared to the 2015 fourth quarter, as a result of adjusted EBITDA generated from the MCI’s aftermarket business.

The aftermarket adjusted EBITDA as a percentage of revenue for 2016 Q4 has increased 1.2% as compared to 2015. 2016 fourth quarter net earnings increased by $27.4 million, primarily as a result of improved earnings from operations, offset by the increase in income tax expense.

The Company’s net earnings per common share in the fourth quarter 2016 was $0.68, an increase from net earnings per share of $0.25 generated during the fourth quarter of 2015. In 2016 Q4, the Company generated free cash flow of C$45.1 million Canadian while declaring dividends of C$14.9 million.

This compares to C$47.4 million of free cash flow and declared dividends of C$8.6 in the fourth quarter of 2015. The increase in dividend -- declared dividend during 2016 Q4 primarily as a result of the conversion of the 6.25% convertible unsecured subordinated debentures of the Company by the holders to common shares of the Company and the 53% cumulative increase in the annual dividend rates during fiscal 2016.

There were 5.6 million shares issued as a result of the debenture conversions during fiscal 2016. As at January 1, 2017, approximately 88% of the original $65 million principal of debentures issues has been converted to shares at a conversion price of $10 per share.

The remaining debentures will mature on June 30, 2017. The Company’s total leverage ratio, which we define as net indebtedness excluding debentures divided by adjusted EBITDA of 1.94 at January 1, 2017 improved from the pro forma ratio of 2.91 at December 27, 2015.

The pro forma adjustment represented MCI’s full-year adjusted EBITDA for fiscal 2015. As at January 1, 2017, the Company was in compliance with its covenants that required the total leverage ratio to be less than 4 to 1.

We have funded the MCI acquisition through 100% debt financing which increased the pro forma leverage to 2.91, as I noted; and our business case has us reducing leverage back to 2 times over approximately two years. As you have seen from our results release last night, we have successfully delevered the business at a faster rate than originally anticipated and achieved the targeted delevering over a one-year period.

Finally, I want to remind you that Company’s financial performance for the first quarter of 2017 will be based on the 13 weeks compared to the first quarter of fiscal 2016, which included 14 weeks. The extra week in fiscal 2016 was a result of the Company’s floating year-end where the extra week occurred during the last week of December 2015.

Also a reminder that first quarter deliveries have historically been lower compared to the fourth quarter deliveries. With that, I’ll turn it back to Paul.

Thanks, Glenn. For 2017, our operating plan continues to be focused on maintaining our market-leading position in heavy-duty transit bus, motor coach markets and aftermarket parts distribution and support.

As we’ve grown both organically and by acquisition, we continue enhance our strategy and business plan deployment approach and methodology. Our world is evolving.

in addition to continual commitment to enhance our competitiveness, we’re spending considerable time identifying where we’re venerable and where we could be disruptive longer-term. We’ve had a fantastic response from MCI employees and customers since the marriage of New Flyer and MCI some 15 months ago.

We’re being recognized as bus people that want to be in the bus and that is sending is very strong message to these operators. We’re building on the quality of source and efforts at MCI, adapting, investing and updating in transformation of systems, equipment, physical work space and culture.

MCI’s market share increased 1% in 2016 is symbolic. We’ve turned the corner.

As the competitors said to one of our execs at our recent trade show, I don’t know exactly what’s going on over MCI, but we’re sure feeling it. In 2017, we expect to deliver approximately 3,650 EUs of new transit buses and motor coaches, an increase of 4% from fiscal 2016.

We’re increasing our output at both New Flyer and MCI based on healthy order book backlog, stable bid universes and our belief that procurement activity of public transit agencies through Canada and United States for both transit buses and motor car coaches should remain robust. With an overall aftermarket industry size and while overall aftermarket industry size and growth is difficult to calculate, we anticipate it to remain stable.

We continue our focus on enhancing customer service levels, growing our aftermarket share and improving efficiency, profitability and working capital utilization. Like any industry, our competition is definitely not sitting still.

One is expanding or relocating a facility; one is selling smaller buses in a niche market; a few are very aggressive with electric buses and their promises of range of performance, unfortunately, not are all profitable. These are niches however that we won’t chase until done, [ph] but rather we will focus where we can provide sustainable and profitable growth.

Sure, I want us to go faster with change, but we will not put our business, our people, our profitability nor know our customer satisfaction at risk. We’re going to earn our share and we’re going to do it profitably.

We’re continued to commit to the electrification roadmap, which is providing to be evolutionary, not revolutionary. Let’s be clear.

There is no magic or silver bullet to electrification; and for sure, one size does not fit all. Every root, every geography, every local political environment and every customer specification is different.

What is becoming clear however is that the bus reliability and the ability to deliver to the unique customer requirements beyond the propulsion system is proving to be as important to our customers as it has always been and it isn’t just the propulsion system. And we’re leading that market today with the excellence.

[Ph] As you have seen from our public bid universe data, it remains stable. And since the FAST Act in 2015, we’ve seen a steady growth in the number of active bids.

We’ve been very measured with our volume increases and we will continue on that path, as we always have to ensure it is sustainable, and we minimize adverse risk or impact to our employees, their safety or the supply chain of our partners. As each customer has very customized spec, it’s not just a factory we need to be concerned with but also significant amount of non-recurrent engineering, plus keep in mind that every job in our facility, there is five or six jobs of supply chain that we need to balance.

With the solid balance sheet, substantially reduced leverage and significant debt capacity, we will continue to research opportunities for additional growth and diversification. Will we pursue additional acquisitions?

For sure, both in our current markets and possibly in the adjacent markets. But we want to ensure that any further transactions are good fit and will provide significant accretive value to our shareholders.

We continue to be asked almost daily, it seems, what the new U.S. administration’s impact will be on our business.

It’s still early but our response continues to be neutral to positive. We are well-positioned with more than two thirds of our productive capacity already located in the United States.

We will continue to monitor protection of sentiments, funding mechanisms, economic reactions, tax collections, currency exchange rates and so forth. The bottom-line is we’ll adopt accordingly and will continue to focus in our people and our overall competitiveness.

We remain committed to making all parts of our Company a great place to work and we will continue to investing in safety, training, employee survey, social communities and like to build the same engagement. The results are noticeable with our employee absenteeism, turnover, grievances, safety and all continue to improve.

I am really proud of our team and really proud to be part of this team. Ladies and gentlemen, thank you for joining us today.

Glenn and I look forward to providing you with the first quarter 2017 update at our AGM in Toronto on May 11th. And with that, we will turn it over to Sally to invite your questions and provide instructions.

First question, just on the synergies, the incremental $2.5 million that you’ve identified, is that also just overhead procurements?

Yes. It’s just both in our SG&A and in our procurement.

So, I would say, probably overhead would be related to the procurement piece.

Okay. And then, harmonization of the IT platforms, I just wasn’t sure if that was complete or is that ongoing?

No. That will be on going over the next probably 12 to 18, 24 months.

All right. Okay.

I guess, now that you’ve owned the business for a year, you’ve studied it, you sort of created new organizational structure, I’m just curious to have any guesstimate, maybe as to how high those synergies could go?

Yes, I think your guesstimate is probably a good one. We are very much focused on the continued enhancement of the business, the culture, the physical facilities.

We are not really chasing operational or overhead synergies in the short-term. What we are trying to do is make sure that it’s stable.

And as I outlined, we are very much investing in the production efficiencies that are available; we are launching new products, both on electric coach as well as a 35-footer; we are investing in our service centers and aftermarkets approach -- support and approach. So, all those things are costing moneys in the short-term.

I wouldn’t suggest, we are in a position to talk about continued overhead synergy, say for anytime in the short-term.

And so, all those synergies you just talked about, sort of as they sort of flow through the business, I am just curious, do you update that, the synergy or the cost saving, or is it just again sort of let it flow for the business I guess from here on?

Yes. It’s a good question, Mark.

And I think we are at the point after this first year where we gave that first kind of bold $10 million, let’s call it initial combination synergies, some of which Glenn described as natural or corporate overhead and some of which has been hard earned procurement type synergies. I think what you’ll see us going forward is that we’ll stop talking synergies and start talking about operational improvements, either at MCI or New Flyer or the aftermarket.

Okay. And just on that 12.5, I am just curious how much roughly is flown through the P&L at this point?

I think last quarter, we said we were about 30% of the $7.6 million. So, pretty, what you call, we had a full impact of the $12.5 million in this quarter.

So, if you do the rough math, you would come up with somewhere probably around $5.5 million to $6 million in the 2016 results.

Okay. That’s sort of where we’re landing.

I guess on the aftermarket business, I guess it’s lower second half or tougher second half for comps, you’re still guiding zero to 2% market growth this year. I’m just curious and not just a lot of visibility into the business, but just maybe Q1, how that’s shaping up and I guess should we think about this as tougher comps in the first half and then may be better in the second?

Well, there is two things that play. The continuous analysis of market calculation and size, get our heads around that.

We’re pleased with where the business is going in the first quarter relative to kind of third and fourth of last year. The other dynamic is we got a little moving pieces, because we’re actively working at combining New Flyer and MCI parts businesses together.

So, there is an overhead in a business combination in addition to start of an effort of IT harmonization. And so, we’ve got good solid returns out of that business; we’ve got great market shares.

We think there is more to become long-term but we’re much focused on the stabilization and the optimization, the combination before we really try to chase volumes.

Okay. And maybe if I can just sneak one more question, just broader.

I’m just curious, the budget that was presented, tabled in the U.S. or put forward in the U.S., I’m just curious if there was anything in there that maybe gives you cause for concern around transit funding?

Talk about when it’s for funding for the FTA for capital investment programs or less funding for TIGER program. I’m just curious if there is anything that may touch transit or may affect your business or nothing you’re potentially concerned about there?

Yes. It’s a really good question, Mark.

And of course, we’ve got lots of people running around trying to find out what it actually means. Here is our current perspective on it.

The size and quality of our order book as we head through 2017 and into 2018 on the public side of our business, so that’s the public side of MCI and effectively all of New Flyer is in very good shape from the back order, or from a backlog prospective. And the stuff that gets into the backlog is funded contracts.

So, we’re feeling pretty good, comfortable that any changes that may happen are a ways away, who knows, it remains to be seen in the details but that’s one prospective. The other reality is as we dig into the initial or primarily discussions around skinny budgets and so forth, our perspective and what we’re hearing from acts in the United States and from a lot of the people in Washington, the vast majority of that stuff is largely affecting very large new start efforts which really point to rail, subway, light rail, ports and those kind of things, as opposed to rolling stock.

The devil is still in the details until we see it, but at this point we’re not overly concerned.

So, just turning to the other question about what to do with the cash flow as you delever. I mean, you talked a little bit about -- I think it was first time we talk all the language, we build vertical but also horizontal acquisitions.

Any thoughts? I know you added some of those slides that you used at the investor day in terms of market.

But, does that mean that you’re also starting to think more internationally? I know we’ve talked a lot about school bus or specialty vehicles bus, like that.

But, where do you think you go from here, if you actually do go to that horizontal model?

As you know Chris as well, we’re going to be careful about too much guidance around specific. But the reality that is the aperture of the business, the position we’re at in terms of cash flow generation, current leverage, the ability to borrow money if we want to for the right transaction has the aperture of what we’re looking at to be much wider.

And so, we’re taking a very measured approach to look both, in market, adjacent markets internationally and so forth. I’m not sure, we are in a position to say that we favor one or the other.

There is lots of attributes that we want to make sure that we understand, things like U.S. dollar currency relative to any other markets, things like the funding mechanisms, the distribution channels; in our case, we’re direct to customer as opposed to the dealers, things like foreign markets and where there is any domestic content requirements and on and on and on.

So, we’re deep in the analysis; we’re excited of having the ability both the composition of our current debt structure and capital structure; the bandwidth now that we’ve got an elevated three very strong people to run the current businesses, allows us to be in enviable position to take the time to just to do it right. But we’re not yet in the position where we’re willing to kind of give direction on which one makes more sense to us.

The cool part is we have the ability to look.

Okay, great. And then, I think you’ve talked previously dividend will probably be up for review when you get to the May quarter.

I just want to confirm kind of that’s what you are thinking about. And any sort of thoughts around payout ratio, either as a percentage of free cash flow, just maybe goalpost to help us think about where that might be going?

And along the same line, any thoughts around anything like an NCIB or buyback?

So, let me start it off and then maybe Glenn can back clean up here. But first and foremost, what we’ve tried to do over the last couple of years is get into a quarterly discussion with our Board and a real good annual review of where the appropriate dividend level is.

We’ve been trying to do that around our AGM in May. So, that would be something that we would look to try and do.

The other times when we’ve increased our dividend was around some transactions. So, if we ever did a transaction, we obviously want to look at where it falls in relative to the current payout.

As far as payout ratio and as you know, we ended the year 20 something percent payout ratio, we’ve got lots of room. We are continuing to spend good solid cash capital on both New Flyer and MCI where we think there is opportunities.

Glenn and I have been spending a lot of time with both the Board but also with the a variety of different investors and analysts and banks and market comps to understand whether NCIB is a tool that we want to have. We’re not yet there; we haven’t yet decided whether it does or doesn’t make sense but we’re absolutely evaluating whether that makes sense for New Flyer going forward.

Glenn, any color that I haven’t really covered?

I guess the only the other thing I would add on -- we never really give specific goalpost. It’s fair to say that 25% that we have is below sort of what we would say is the targeted value.

I guess, the other thing we would say though is we feel that we have a fairly significant capital spend related to catch-up on MCI over the next year or so. So, until we get a real good handle on how quick, how fast we can get that, we would probably tend to stay near to the bottom end of what we have.

And I haven’t said that we’re below that bottom end. So, we are definitely looking at it and will continue to discuss it with our Board when we meet with them next.

Okay. And along those same lines, capital spend, I mean, initially I think thought that maintenance capital kind of in call it $17 million year range for the combined company, but you talked about the $25 million rough spend for a couple of years.

Is that still the order of magnitude there?

Yes. We talk about sort of 17 to $20 millionish type maintenance spend.

We would be looking at and as we discussed I think 20s -- I think the number is actually $25 million related to all the clean up that we have to do with -- or sort of bring it to the levels that we want to have the business running at over the next couples of years, which also includes the IT. And then, as you know, we’re always spending some money on continuous improvement activities to lower our cost.

So, what that is in any one year, depends on the opportunities we see. So that one is the wildcard in the whole picture.

Okay. Yes, so little higher but…

But that would be sort of in the neighborhood in any one of maybe $5 million.

Okay. So, still relative to the business small?

Yes.

Just curious in terms of the MCI business. How are you doing in terms of making inroads with some of the lost market share and some of those customers maybe turned your backs to the MCI product over the term over the last kind of couple of years or less, I guess longer than that?

Just curious how those conversations are going and if there is any ability to kind of feel back some of that lost market share just on the back of showing but you have changed things or are in the process of changing things?

I think it’s a great question, Trevor. I would change the word from steal back to earn back.

MCI did have a high watermark area of the 16%, 17% market shares a decade ago and kind of lost their way both from a structure perspective and then financial turbulence and ownership changes. We lost good people, and we lost customers.

And we -- effectively MCI slowed down the investment in culture, machine and productivity and so forth. And so I think as I said in my commentary to start the day off, I think the 1% market share gain back while doesn’t seem very big, it’s very symbolic.

I can tell you, I’ve been out to tell dozens and dozens of customers and that chosen [indiscernible] our facilities. And the satisfaction of those customers to see us taking the series and investing in new products, investing in the people and the facilities, enhancing some of the offerings that we’re currently offering, it’s not going to be light switch on the market share, but I think there is really good opportunities over the next two, three, five years to regain good solid market share chunks.

At the end of day, as I said also in my notes, share is one thing, sustainable profitability of the businesses and customer satisfaction is probably the higher measure and higher thing we’re going after. And so far, it’s been really, really positive.

So, very, very good.

And those conversations follow, do you find it having New Flyer as the partner now tie to MCI and the positive efforts that you’ve done there over the last say six, seven years, does that trickle under the conversation, maybe make it a bit easier for them to come back?

I think so, I think there is a couple of issues. As I said in my commentary, the bus people wanting to be in the bus business is help.

I think the fact that Flyer has been able to build a bit of a reputation and the track record adds to the conversation. I think the fact that we as a business understand both what it takes to build the heavy piece of equipment, but also supportive and the fact that we do it direct-to-customers not through third parties like dealers and so forth, adds a fair bit of credibility.

But again, back to what I said a minute ago, we can talk all we want. The doors are open, which is really good but we’ve got to earn it and prove it.

And so far, it’s been very, very positive. And you can see that through the little market share gain, but you can also see it through us being very selective on where we’re winning work and being able to do it profitably.

Yes. Okay.

Still tracking well in terms of hitting the updated Buy America thresholds by year end?

Yes. David White, who I think you met on some of the visits, as you know, we asked David to take responsibility in early 2016 for both procurement activity and sourcing activity both New Flyer and MCI.

So, two things, one was the synergy activity we talked about earlier, and roughly two thirds of that $12.5 million is a procurement-oriented and selective strategic sourcing procurement. The other one is getting ready for the headwinds of 2017 into 2018, so the $0.05 -- 5% more increase to Buy America and then setting the table for two years later having to do the 5% again.

At this point in time, we have a very solid plan for the first 5% and already a good outline and framework in the topic areas and commodities of where we are go after for the 2020. So, we are feeling very confident with that.

Great. And then, with the integration of the aftermarkets business over the -- say the next 12 to 18 months, is there any chance you provide some goalpost in terms of what the savings could potentially be or would that be more of just a loose commentary and build slow through it as they materialize?

I think back to my comment, I think the Mark’s question earlier, I think we are past the point of “synergy” and we are now into continuous improvement and optimization of the business. So, at this point, it’ll probably more of the latter of continuous improvement performance as opposed to the showing up the big bang of here so much we think we can save.

But we’ll wait to see how that plays out before we get too public about our intensions and our actual results on that. But, we are really encouraged.

The response from the two teams has been positive. There are a lot of things that we can learn from each other.

For example, freight strategies and how we move material, what’s distributed versus what’s central. MCI does -- has just done a fantastic job of upgrading and relaunching a new web part store.

40% of their customers buy online and New Flyer does not have a buying online or web store tech strategy. So, there is a lot that can be done there that I think our whole bunch of singles and doubles as opposed to big homeruns on synergies that we are going to try earn over the next couple of years.

And then, just last one from me. I gather this is probably not going to be a big impact but the labor budgets with the tax credit with respect to transit passes, I can’t see that impacting you too much.

But just curious on your U.S. markets, is there anything that could be comparable that maybe target us, that maybe catch off guards in terms of potential ridership headwinds?

Yes. The Canadian situation, it’s unfortunate from an individual who uses that mode of transportation in public transit in the personal impact.

But the reality that it’s an essential service in cities and in most cases whether there is 42 people or 40 people on the bus, they are still moving the route. And so we may see things adjust and modify over time.

In the United States, the discussion we had earlier on this call about what the new real federal budgets will look like, the implications for what that means for FTA and so forth. At this point we haven’t yet seen anything that makes us cringe.

And the other good news is that we have got a very solid backlog today that allow us runway that we have to react in certain ways. We have got some times to do it.

Hi, guys. And congratulations, Glenn on 25 years.

That’s an incredible achievement. I just had questions, I want to focus on EBITDA per EU and the seasonal patterns that we see there.

We have talked about this before, and adding MCI to the business was supposed to bring sort of a greater Q4 cyclicality. And if you looked at EBITDA per EU, usually margins kind of fall, volumes as well, so should expect to see Q4 stronger than Q2, stronger than Q3 and the weakest to be Q1.

But if you look at the EBITDA for EU numbers last year, Q2 was by a decent margin strongest. What should we take away from that?

Was that really just a mix thing rather than seasonality and should we extrapolate that pattern in 2017 or would we go back to may be what consider to may be more normal where Q4 would actually be stronger than Q2, in terms of EBITDA per EU?

Yes. Definitely, the Q2 results were really mix related and very favorable mix for the Company.

So, I wouldn’t take that as sort of being regular and recurring. Not too sure yet, haven’t enough experience on sort of the margin level, whether they are going to fall with volumes.

For sure, volumes in the coach business are strongest in the fourth quarter. Probably the weakest two quarters would be Q1 and Q3, and we would expect those continue on.

On the transit business, as we know, there is no real seasonality per se, other than we will shut down over the vacation period and that Christmas holidays for say a week and may or may not have a one week shut down in the summer months which put impact, but very little seasonality on the transit side.

Stephen, in 2016, you also have the dynamic, if you were really watching closely, remember that we had a bunch of New Jersey work that we thought we would deliver in Q2 and Q3 and into Q4, and we got jammed up with the funding. So, we basically were sitting on that stuff and then we were able to deliver it and release most of it in Q4.

That work by definition in a government environment is low margin work than the commercial work. So, you have a mix and adverse mix that impacts a high percentage of deliveries in Q4 as well.

That would be my next question. So, Q2 may have been an externally good quarter in terms of mix, but then Q4 was probably maybe a little lower than normal as well, is that fair?

Well, there is elements to that. The other thing is as you see from our investor deck, we put a chart in there on operating performance to show EBITDA per EU.

And we in addition to the discrete quarters, we added an LTM. And I think Glenn’s been very clear for quite some time.

Your really need to look at an LTM number of that margin as opposed to individual quarters up and down. Because you not only have the element of mix based on good or bad pricing of individual contracts but you also have -- not good or bad, but better or higher pricing.

And then, you have the other reality of some element of seasonality that kicks in. So, I would really guide, look at that LTM rate of an EBITDA per EU as kind of the basis.

Okay, perfect. And then just a technical one for Glenn.

There was a line on the income statement, the fair value, fair market value adjustment on interest rate swap, and that line has been getting rather bigger in the last couple of quarters than it had been in previous quarters. Can you give us a bit of a sense of what’s driving that and how you think we should treat that and how we -- going forward?

We effectively hedged out the rate on our senior term debt. So, this $482 million that we through an interest swap that picks that rate with the increase in market rates that we’ve seen, obviously that derivative is in the mind.

And so we’re starting -- and because we do apply hedge accounting, we mark to market every quarter, so that derivative value has gone up on a quarterly basis as the interest rates have gone up, but the actual rate we place is fixed according to our swap.

Yes. So that number will basically rise and fall with interest rate volatility?

That is correct.

I just want to follow-up just to clarify a couple of comments, Glenn, on a capital spend. So maintenance about 17 to 20 per year, add another 5 just to invest in the business and then over the next two years an incremental 25 spread over two years so -- or maybe 35 million for the next two years in total?

Yes. So, operators we tell you going to get a whole bunch of done this year, and I would see if anything, it’s going to be heavier this year…

Sure. But I guess the numbers are.

I guess but how quickly can we get projects completed.

Okay. But numbers, those numbers made sense?

In that neighborhood. Yes.

Yes, okay. And then just on EBITDA per EU, again, I guess it sort of sounds like you are suggesting LTM I guess it’s 59,000 is a decent base line and then from could add on the synergies that haven’t flown through and anything else we think you may be able to do?

Yes. I guess the one thing it has -- and obviously that LTM number includes that Q2.

Last quarter, I would say that really is offset by the fact that we didn’t have MCI in Q4 of last year, so that’s now gone. We do have the benefit on our average MCI in the 4Q.

So, I would put the range that the LTM [Indiscernible] for that one quarter, probably 55,000 to 60,000 is sort of what we would expect.

Hi. This is Kristine in for Kevin.

I just have a quick question on free cash flow priorities here. Would you would be able to discuss what the priorities are in terms of investing internally in growth, looking for tuck-in acquisitions and returning cash to shareholders?

I can start with the lowest priorities. The lowest priority is debt repayment as we sort of hit the bogey, [ph] we want that.

I think our initial focus is on the work that we need to do around the investment in the MCI business and getting that done. We have as we said, we will always be looking at opportunities to in source and that would be a more near-term.

In terms of sort of other business investment when it comes to business acquisitions, those types of things, I would say well as Paul noted, we’re looking; there is obviously nothing that we are aware of right now and there are no specific targets, so can’t really speak to that. And for sure, dividends have been a part of the New Flyer story since IPO.

And we would plan to continue that story. So, we will look to continue to add to that story as we go forward.

Perfect, thanks. And I know we’ve talked about the U.S.

on the call, but would you be able to comment, if you’ve noticed any changes in buying habits given the political environment in the U.S.?

None whatsoever. We will point to our bid universe which really is as many know, the tool we created to try and get our handle on what is actively in bids today and reminder that 80% of the capital cost comes from the FTA.

It’s a trend that agency wants to put an RFP; they got to go and get the funding secured first. And so, when we look at our active, it’s hovering in the 7,000, 8,000 active units in play.

The sheer number of bids continues to be high and so forth. We haven’t seen anybody issue RFPs and retract them of any specific -- I can’t remember one in the last couple of years that’s happened.

And the other thing is that what they continue to tell us in terms of the next three to five-year fleet replacement plan, we haven’t seen anybody really change their strategies of any significance around how many they think they’re going to replace and at what pace. That has not yet happened I should say yet but has not yet happened in the last little while.

It’s actually gotten more stable than if anything.

Well, thank you ladies and gentlemen for joining our call. As I said, Glenn and I will look forward to giving an update at our first quarter 2017 results that are on May 11, from our Annual General Meeting in Toronto.

Thank you, Sally, and have a great afternoon, everybody.