NFI Group Inc.

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

Mark Neville - Deutsche Bank Kevin Chiang - CIBC Chris Murray - AltaCorp Capital Stephen Harris - GMP Securities

Thank you, Jessa, and good morning ladies and gentlemen. Welcome to the 2017 first quarter results conference call for New Flyer Industries.

Joining me on the call today is Glenn Asham, our Chief Financial Officer. For your information, this call is being recorded and a replay will be 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 of these uncertainties materialize or should the underlying assumptions prove incorrect, actual results may vary significantly from those expected.

You are advised to review the risk factors found in the company’s press releases and other public filings with the securities administrators for more details. Let’s start today by giving you a bit of an update.

We were very pleased with our performance in 2016 and again in the first quarter of 2017, and we remain encouraged with the overall transit bus and motorcoach market and our business plan. Q1 2017 features excellent operational performance combined with prudent expense management and a solid mix of customer builds.

We continue to be organized into two reporting segments: an OEM segment which includes both New Flyer transit bus and MCI motorcoach, and an aftermarket parts business which includes New Flyer, MCI parts, training and our publications business. However, to start this year we announced the next phase in the evolution of our organization structure and we created business units that we believe provide for even more accountability and customer focus at the right level of our company while at the same time allowing us to focus on opportunities to grow and diversify.

In the OEM segment, Wayne Joseph, previously our Executive Vice President of Transit Bus and a 40-year industry veteran, became President of the Transit Bus business, and Ian Smart, previously the Executive Vice President of the New Flyer Aftermarket business, became the President of MCI. Brian Dewsnup, previously the VP and GM of MCI Aftermarket business and originally the CFO and then general manager of NABI, became the President of Aftermarket Parts business.

We also formalized what we call internally the NFI group, which provides central support to the business units and to manage the external relations of our public company. New Flyer Group includes central finance, tax, legal, audit, risk management, human resources, strategic sourcing, vendor development, and will manage in conjunction with the business presidents through a matrix approach.

After a year of working at both New Flyer and MCI, David White became the Executive Vice President of Supply Management, responsible for both global sourcing and supplier development functions across our entire company, both New Flyer and MCI, reflecting the importance of our combined annual purchases of some $1.8 billion. It sure is gratifying to see that we’re able to make these appointments internally, which we feel reflects on the work we’ve done over the past 10 years in leadership development and succession planning.

As discussed a number of times, New Flyer developed a capital allocation framework which has developed and provided a structure for a healthy discussion with our board of directors as part of our strategic business plan development. We’ve been very clear that we have three priorities: first, a prudent use of leverage with an essential balancing flexibility going forward; second, the intent to invest internally in operational excellence and lean manufacturing initiatives and to make appropriate make-buy and in-sourcing investments and strategic M&A to grow and diversify our business; and finally, a focus to provide investors with a consistent and growing total shareholder return.

Since our IPO in 2005, New Flyer has continuously paid dividends without interruption, and that’s something we’re very proud of. In fact, in the past two years, we’ve increased our dividend rate three times, first in 2015 by 6%, then twice in 2016 by 12.9% and 35.7%, and with very strong Q1 2017 results, we’re now increasing our annual dividend by 36.8% to CAD$1.30 per share, effective for dividends declared subsequent to May 10, 2017.

With that, I’ll turn it over to Glenn and he’ll take you through the highlights of our financial results, and following that I’ll provide some insight into our outlook including an update on our delivery guidance, and then we’ll open up the call to your questions. Over to you, Glenn.

Thank you, Paul, and good morning everyone. I will be highlighting certain 2017 Q1 results and provide comparisons to the same period last year.

I will focus my commentary on this call to providing key financial insights that will then allow more time and attention on our market business and strategic efforts. I would like to direct you to the company’s full first quarter financial statements and management’s discussion and analysis of financial statements, which are available on SEDAR or the company’s website.

I do want to remind you that New Flyer’s interim unaudited 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. Year-over-year comparisons reported compare the first quarter 2017, a 13-week period, to 2016 Q1, a 14-week period.

The first quarter of 2016 was the first full fiscal quarter that included both New Flyer and MCI financial performance. In addition, effective January 2, 2017, New Flyer made the organizational changes that Paul described earlier with the appointment of three divisional operating presidents.

The most notable change investors should be aware of is the service function, which was previously managed as part of the aftermarket operations, is now the responsibility of the transit bus and coach manufacturing, or OEM operations. To improve the comparability, the related prior segment information has been restated to reflect these changes.

Now a brief summary of the first quarter of 2017 results. The company generated consolidated revenue of $572.1 million for the first quarter of 2017, an increase of 3.4% compared to $553.2 million during 2016 Q1.

Revenues from new transit bus and coach manufacturing operations increased 8.2% for the 2017 Q1 period compared to the first quarter of 2016. The increase was primarily the result of a 7.6% increase in total new transit bus and coach deliveries and a half percent increase in the average selling price related to those deliveries.

Aftermarket revenue decreased 9.2% primarily as a result of an extra week in the first quarter of 2016 as compared to the first quarter of 2017. As well, 2016 Q1 sales volumes were exceptionally high due to timing of some large customer programs.

Transit bus and coach manufacturing operations adjusted EBITDA increased 8.6% primarily due to increased deliveries and improved margins. Contributors to the increase in margin in the period is a favorable sales mix, cost savings synergies related to the MCI acquisition, continued cost reductions achieved through the company’s operational excellence initiatives, and the integration of MCI and the full impact from the New Flyer and NABI product rationalization.

Aftermarket operations adjusted EBITDA increased 3.7% as a result of one less week of operations during the first quarter 2017; however, the adjusted EBITDA as a percentage of aftermarket revenue during the first quarter 2017 increased by 1.2% when compared to the first quarter of 2016, primarily as a result of reduced cost and a focus on higher margin opportunities. Net earnings increased by 67.8% and earnings per share increased 52.5%.

The company reported net earnings of $37.9 million in 2017 Q1, representing an improvement compared to net earnings of $22.6 million in 2016 Q1, primarily as a result of improved earnings from operations and reduced interest expense offset by the increase in income tax expense. This resulted in net earnings per share in 2017 Q1 of $0.61 compared to $0.40 per share generated during 2016 Q1.

During 2017 Q1, the company increased its liquidity position by $72.1 million primarily as a result of increased cash flows generated from operations. The company generated free cash flow of CAD$53.7 million during 2017 Q1, a decrease of 12.7% compared to CAD$61.5 million in the first quarter 2016.

This is primarily a result of the increased cash capital expenditure and timing of current income tax expense when comparing the two periods. The company declared dividends of CAD$14.7 million in the first quarter of 2017, which increased compared to CAD$10.4 million in 2016 Q1.

Property, plant and equipment cash expenditures in 2017 Q1 have increased by 120% compared to 2016 Q1 primarily as a result of investments in facilities as a result of our lean principle implementation at MCI, in-sourcing, and continuous improvement programs. Finally, we believe return in invested capital, or ROIC, is an important ratio that can be used to assess possible investments against related earnings and capital utilization.

New Flyer’s ROIC during the first quarter of 2017 on a trailing 12-month basis was 14.5% as compared to 13% during the last 12 months ended April 3, 2016. With that, I’ll turn it back to Paul.

Thanks Glenn. Our 2017 annual operating plan continues to have us focused on enhancing our competitiveness and to maintain and grow our market share and our market leading position in both heavy duty transit bus and motorcoach, as well as the aftermarket parts distribution.

From a New Flyer transit bus perspective, we continued with operational excellence and continuous improvement programs, in addition to strategic in-sourcing to streamline process, improve quality, and improve margins. Earlier this year, we opened a new component manufacturing assembly facility in Jamestown, which is located in the western part of New York State, to build certain components for our Excelsior bus.

New Flyer has a longstanding relationship with New York Transit and having more than 2,200 New Flyer transit buses delivered over the past two decades or on order today. We’re looking to expand our presence in the U.S.

and specifically the State of New York to enhance our state content. As you will have noted in our Q1 2017 earnings release, we also announced an increase to our annual new bus and coach production guidance to approximately 3,750 equivalent units during fiscal 2017.

This increase of 6.8% from fiscal 2016 is based on a strong backlog of firm orders and options, a healthy bid universe, specifically the number of active competitions in place today, and our believe that the transit bus and motorcoach procurement activity by public transit agencies through Canada and the United States should remain robust in coming years. Investors will remember that we’ve always said we will not increase capacity unless we believe it’s sustainable.

Investors may have also seen our recent announcement to terminate New Flyer’s 2012 joint venture with U.K.’ s Alexander Dennis Limited, or ADL on 30 and 35-foot medium duty local transit buses.

During the fourth quarter of 2017, the manufacturing of this medium duty bus will be transitioned from our St. Cloud, Minnesota plant to Alexander Dennis’ facility in Nappanee, Indiana.

The decision to do this was mutual, allowing ADL to combine manufacturing of this class bus with its double-deck series, exactly as they do in Scotland today, and for New Flyer to expand the production capacity and capability with our industry-leading Excelsior transit bus. Since 2014 when we commenced production, only 200 of these medium duty buses had been sold.

We’re also aggressively continuing with our zero emissions bus, or ZEB, electrification agenda that leads the industry with numerous programs current in process. We’ll be announcing the launch of a new innovation technology and training center for zero emission buses and coaches later this year.

As we look back on our acquisition in December of 2015 of MCI, we are more than ever convinced that it was absolutely the right and the next logical step to grow and diversify our company. We’ve been aggressive at investing in culture, work environment, 5S programs and facility upgrades that will continue to bring MCI back to world-class standards.

We’ve launched two teams, one on the OEM business and one in the aftermarket, that are in the process of analyzing, defining and scoping the process to harmonize MCI IT systems with New Flyer. Let’s be clear, though - this is no trivial task, and as we’ve experienced with the integration of NABI a few years earlier, we will invest but we will not rush it just to capture short-term synergies.

We’re going to do it right. We also announced in MCI J-model product enhancements with a variety of features to be introduced later this year with our model 18 year new production, and that MCI is developing two new products - a 35-foot J-model coach and a 45-foot Badger electric coach with the support of the New Flyer team, which is in addition to the opening of a new service center for MCI customers in Hayward, California, just outside San Francisco.

As for aftermarket parts, our team is undertaking to bring New Flyer and MCI parts entities together over time, recognizing much of the integration will be driven by our plan for common IT systems. This combination will allow us to better focus on parts, customer service, best practice deployment, sales growth, and working capital utilization.

The MCI parts team continues to progress and just last month launched a brand new web store for MCI parts as 40% of the MCI spare parts are sold online today. As Glenn mentioned earlier, revenue from aftermarket operations in the first quarter of this year decreased by 9.2% compared to last year, and largely as a result of that extra week in 2016.

As well, Q1 sales volumes were exceptionally high due to the timing of some large customer programs. We continue to work on developing tools and models for part size and market definition.

We remain poised to continue as a leading provider of heavy duty transit buses and motor coaches and a leading provider of aftermarket parts and supports in North America. We continue to be proud of our history and we’re very excited about our future.

We remain focused on our overall competitiveness and we continue to make investments in New Flyer, MCI, and the aftermarket. As I noted earlier, we’re very pleased with our performance that has consistently delivered improved earnings and cash flow, which has allowed us to once again increase that annual dividend rate now to $1.30 a share.

Ladies and gentlemen, thanks for listening today. With that, I’ll turn it back to Jessa who will invite your questions.

Jessa, please provide call instructions to our callers.

Hey, good morning guys.

Hi Mark.

I guess I’m just curious a bit on the guidance increase. Historically you’ve said you’ve only done this when you felt comfortable it was sustainable.

Q1 bookings, they were a little light of recent trends, so I guess I’m just curious maybe why now and what’s behind it, and I guess more specifically is it more industry or just market share gains, or maybe a bit of both, I guess?

Yes, good questions, Mark. I mean, you’re absolutely right - we’ve been very calculated and prudent to try and say, given that for every job that we have from an assembly or a part fabrication perspective, there’s five or six in the supply chain, and the fact that we have a high degree of customization, jacking up or reducing volumes very quickly can have a real dramatic impact on that stability of the supply chain, so we’ve been very cautious.

The reason we’ve decided to do it now is a couple of things. You can’t just look at one quarter from an orders perspective or an options perspective.

You really need to look at an LTM basis and you also need to look at the size of the actual backlog relative to history and the number of firm as well as the total number of options. It’s our view now that with the Midi leaving our production facility that we have the ability not only to transform the facility to be able to do a few more buses, some of that in online tack time issues, some of it is shift patterns and so forth to be able to increase the rate.

We felt very comfortable - it’s largely on the transit bus side where we’re seeing that incremental increase.

Okay, that’s very helpful. On the aftermarket, I noticed there was no guidance given there, and I think previously you were saying zero to 2% growth.

I believe that was an industry number but not specific to yourselves, and I’m just curious if that’s still your thinking for the year.

Well yes, you’ll remember last year we went through this whole situation of trying to clarify and correct any guidance that we had around our market growth as well as our individual company growth. I think we’ve really tried to wrestle that to ground and be very clear that it’s very, very difficult to calculate the total market size, let alone our market share, given that it’s a fragmented industry and that there’s also alternate source of supply, such as distributors, truck dealers and so on and so forth.

So when we started the year, we basically tried to give you our best estimate of the market size growth. We said roughly zero to 2%.

We did not give guidance in the parts growth, and going forward we don’t expect to do that specifically around our business.

Okay, that’s helpful. Just on EBITDA per EU, you settled into a pretty healthy range here, but Q1 did step down a bit from the annual 2016 number, so I’m just curious just maybe how you might want to characterize the mix in the quarter, just anything that maybe helps explain a bit the variability.

I know it’s not a large move, but just curious on that.

Good mix, you know, relatively healthy and balanced mix in the quarter. Don’t discount what Glenn talked about in terms of what we did to the start of 2017 when we moved the service function and all those costs from the aftermarket into the OEM business.

It has a bit of an impact on the EBITDA per EU in that quarter, so you may want to go back and look at that. But you know what?

We’re very pleased with what we’ve delivered of the mix in the quarter, as well as what’s in the backlog and what’s in our current order book for delivery for the rest of 2017 from a margin perspective. LTM is really the way to look at it.

Okay. I guess just in moving the service to the manufacturing, wouldn’t that have normally just a natural lifting effect on EBITDA per EU, or no?

Am I thinking about that wrong?

No, because you take basically a pretty good sized cost base from the aftermarket and you move it into the OEM business. There’s not really revenue associated with service, it’s the cost base.

It’s running the service centers, it’s running the warranty teams, it’s running the call centers and all those things that are cost bases.

Yes, but I guess maybe lower--yes, I guess I was just thinking it’s just extra EBITDA on top of the same EU base; but again, maybe I’m just over-simplifying that. That’s fine.

Then for Q2 ’16, just curious - I noticed a loss in the service business. I don’t know if that’s a typical seasonal thing or was there something specific?

I guess it was a year ago, but what happened there?

So the biggest piece of it was just the fact that we had 13 weeks of shipments versus 14 weeks a year ago. Just a little clarification on some of the large customer orders we had - one part of the issue we had in ’16 is we had a customer going through a system conversion which delayed some of their orders in the fourth quarter of ’15 and then they got caught up in ’16, so it’s sort of nothing [indiscernible] to the business.

Sorry, maybe I wasn’t clear. In your disclosure for--I think you were kind of--unsegmented, you gave some color on the service business last year, but Q2 ’16, there was a loss, the rest of the year was pretty good numbers.

I don’t know, again, if there was something in that Q2 number. Maybe we can take it offline.

Yes, sure.

All right, thanks guys.

Thank you.

Hi, thanks for taking my question. Just trying to this of this from a modeling perspective, thanks for the clarification on how we should be thinking about the increase in deliveries.

But as you roll over the Midi buses in 2018 plus with the lift in, I guess, Excelsior production overall, should that have a structural positive impact on margins, especially as you replace, I suspect, lower margin Midi buses with higher profit margin Excelsior buses?

You’re exactly right, Kevin. I mean, the Midi program at New Flyer actually was a drag on EBITDA for the period we had it.

I mean, not very close to breakeven, but if you look at it, it was a slight negative to the business, so removing that business will be additive.

And the 200 sales since 2014, should I just think of that being pretty equal per year, just to get a sense of what that contribution is in 2017 in terms of unit sales?

In terms of unit sales? Yeah, I don’t have the details in front of me.

There would have been more sales in ’16 than there would have been in ’15.

Yes, but roughly over three or four years of build--you know, we only built 200 units, right, so call that 60 plus or minus a year, it wasn’t material. There was a little bit more in ’16.

Okay, that’s helpful. Maybe just returning to one of the comments you made in your prepared remarks about some of the development you’re doing in-house, the 35-foot J-model, the e-coach development.

I’m just wondering, with the increased free cash flow, do you see an opportunity here to maybe accelerate internal product development versus maybe historically you’ve approached that through acquisitions? And then maybe I’m reading too much into this, but you severed your relationship here with Midi, does that suggest maybe an internal product development for a medium-sized bus down the line here?

Well, two very good questions, Kevin. First, the 35, as you’ve watched us and other analysts and investors have seen us, when we got involved with MCI, the private equities before us did a good job, I think, of stabilizing the business, but in terms of investment on new product development, that’s where we thought MCI needed to spend some time.

When you with a business back 15 years ago that had 60 or 70% market share down to 38%, and you saw the creation of that 35-foot segment clearly we relate to the gain, so we’ve got catch-up mode there to do. It’s not an also or a me-too product, it’s more of making sure that we’ve got the right family, a 35 and a 45 depending as our customers grow and their customer mix changes.

The other dynamic around electrification of coaches, we don’t think all coaches in the future will be electric, but we also believe that there are segments where it makes a lot of sense - employee shuttles and the like, and what we’ve been doing at New Flyer in electrification, the ability to work together at Flyer and MCI in how the motors work, the battery management systems, the physical location of the batteries for weight distribution on the bus, and on and on and on, we think we’re in a really good position to do that, so we’re excited to be able to make those investments. From the second part of your question around Midi, look, we had a wonderful relationship with Alexander Dennis.

We both went in eyes wide open, we went based on a chassis and a body that was very successful around the world. A couple of things did come into play.

When you have so many hands in the pie--you know, we had ADL, New Flyer, and then you had dealers, the ability to make that profitable is one issue that concerned us. The product was only a diesel so far, and of course as the market in North America evolves and zero emissions becomes important, and alternate emissions - you know, the investment in that product around adding CNG or electrification was going to be not trivial.

The market clearly has lower price points and it’s halfway between transit buses and fairly inexpensive, or materially cheaper cutaways, so we think that market was a fairly limited one or a niche one. Then you overlay that, not that it was a bad relationship, but you overlay that with really solid market demand and success of the Excelsior and the fact that we think we can do more things inside our facilities to optimize cost-time equalities through part fabrication, it became a very obvious decision for us.

ADL, the same thing - they wanted with their double-deck line that they build, I don’t know, 100 or 200 a year in North America, to be able to combine them, and maybe they’ll be more successful. Having said that, what do we do next?

Do we go back and consider that segment? That’s not to say we won’t in the medium or longer term.

In the short term, we’re laser-focused on the continued electrification agenda at New Flyer and MCI, as well as some of that product enhancement stuff, and of course customer service. So you know, who knows where it will go in the future, but at this point in time there’s no alternate plan.

And just a follow-up on that, MCI had, I think you quoted kind of 50, 60% market share prior to, I guess, PE taking it over. Is the viewpoint here that with these new products being launched, that you could grow faster than the market, you could maybe take some of that market share back, back at that 50%-plus?

Is that a line of sight you have with some of this product development?

Well you know, it’s clearly in our sights to recover share, but our view is much the same as the history we saw at New Flyer. We’re going to invest in our business, our culture, our people, our safety.

We’ve got to invest in our product and we’ve got to invest in the customer service function so that as we deliver product, we’re there to be able to support them. The fundamental difference between transit and motorcoaches, the motorcoach market has changed structurally.

We have import competitors - you have Van Hool coming from Belgium and Macedonia, you have Temsa from Turkey, who probably have cost advantages in certain parts of their business and so forth, and so we’re going to do exactly the same thing to try and recover share. We’re going to make sure we’ve got the right products - that’s why the 35-foot and electrification and the new product enhancements, and we’re going to make darn sure that when somebody buys a coach from MCI that we absolutely have got world-class quality and that we’re there to support it, which is why for example bringing that service capacity and capability and warranty functions right back into the factory, and where we located it is the guy that actually runs the quality of the factory also owns the quality and service in the field, and so there’s a direct correlation of response as well as improvements.

So I’m not sure, Kev, we’ll get back to 50%. Make no mistake we want to recover share, and we’re going to balance share and parts business with overall profitability.

That’s helpful. Maybe just a last one from me.

As you’ve highlighted in a number of quarters now, you’re generating very strong free cash flow, your leverage ratio is below your targeted range by a decent margin now. Just wondering how acquisitions play a role in your growth strategy, and especially with your zero emission focus, is there a viewpoint maybe internally that you need to bolster maybe internal R&D or acquire some additional expertise, versus maybe your historical game plan where you kind of just purchase that technology from a third party?

Well M&A has clearly been part of our history over the last 10 years as well as organic activity, and so we’re going to continue to look. When you look back at our history, the obvious steps of let’s go learn how to make parts, and that’s what TCB was all about, the departure of Orion and so the aftermarket strategy of grabbing their parts business, and then bolting on NABI and harmonizing it were obvious natural, appropriate moves.

MCI was a very important one because not only did we think we could bring some things to the table, it’s largely in Winnipeg so we have that benefit, but it was a real diversification opportunity. So from an M&A going forward, we’re going to continue to do the following.

We’re continuing to analyze other types of buses, other markets outside of Canada and the U.S., maybe international, but clearly domestically is largely our focus. We’re going to continue to look inside our supply chain, whether it’s things that we can make or things that we may want to add where we can fabricate some of our own parts or control that, both OEM and aftermarket, and then when you look at technology, the irony when you come and look at our new product development teams and so forth, the electrification as well as concepts around autonomous drive, whether it be cruise control type, adaptive cruise control functions or lane departure, and then ultimately the evolution to true autonomous driving, a lot of that stuff is about integration of capability and engineering and expertise as opposed to having to acquire it, and much of it is obviously being pioneered in trucking or in automotive and so forth, and so there’s lots to be able to do.

You know, we don’t believe we need to go buy businesses to be able to add that technology to our business, but we do believe that collaboration is clearly part of our future.

That’s great color, and congrats on a good quarter there.

Thanks Kevin.

Thanks guys, good morning. Just looking at the aftermarket margin, and Glenn, thanks for the disclosure on Page 16, the table in the service stuff.

Even if I go back and I adjust for that, and certainly that lifted the margins in 2016, but that still puts you guys--you know, you put up a 21.8% print on margin. Can you talk a little bit about what’s going on on the margin side there, because it seems to be a little stronger than we would have been expecting.

Yes, I guess a lot of transactional based business in that aftermarket, so it’s really hard to summarize things in buckets; but for sure, the teams have been focusing a little bit on the type of business they’re going after and optimizing margins and maybe focusing on higher margin work a little bit more. I guess we may have given away a little bit in volume as a result.

There’s not really more that I have off [indiscernible]. I mean, obviously one of the issues we’re dealing with these days is putting all the information together from two separate businesses and then trying to analyze it, so I’d have to look a little deeper into that.

I’d also add, though, Chris, if you go back and look at the last 10 quarters or so on the parts business, it’s fairly volatile. The return on sales bumps around a lot, and there will be windows of time where we sell batches or parts or a whole series of driver barriers that have either a better or a worse margin that’s a bump and so forth, so there’s a lot of volatility.

Again, we think just like the OEM business, that kind of LTM number is something that we really track more than individual quarters and worry about individual quarter performance.

Okay. No, I’m just trying to see if there’s something, like some of the cost things that you’ve done and the restructuring stuff you’ve done, if we’re starting to see some of that materialize or not.

No, we’re actually really early in that. In fact, as I said and as you heard at the annual general meeting yesterday from Brian Dewsnup, the reality is, look, we want to service the hell out of our customers, both in New Flyer and MCI, and we want to be responsive and so forth, and so we’re not going to jerk around with our cost base until we get that IT system optimized and harmonized and allows us to really think holistically about the business.

That goes back to that concept of there could be some short-term synergies, but we’re not interested in that. We’re interested in the long term customer sat and profitability, and we’re going to take our time and do that.

Nothing so far as moving through in terms of cost reduction.

Okay. Then staying with aftermarket, one of the things that’s kind of interesting is that you guys announced a restructuring internally of the aftermarket business, and I guess a couple pieces of that.

I mean, one of the things that you were talking about is, you know, if you maybe want to go into the rationale of how that’s organized and what the goals are there, but you’ve also talked a little bit about the fact that MCI had a very strong digital platform, and I’m just wondering if you can extrapolate that platform into what you were doing at NFI and if there’s other opportunities to move further into the aftermarket and do more logistics work for other guys or anything like that.

Yes, probably early. A couple of elements to your question.

Go back to the discussion with, I think it was Mark earlier, the lesson we learned four, five, six years ago at New Flyer, by putting the field service people, the warranty people directly together with the people that design the products and integrate the products has been life-changing for a lot of us because we learned stuff immediately that can fix the field issues, but to make sure the next bus we build has those improvements and changes and that there’s a sense of urgency and understanding, as opposed to stuff moving through a business and ultimately getting back to the OEM. So that side of it, I think that was largely driven and, quite honestly, we stole that from NABI.

We watched NABI do a really good job of that, and New Flyer then evolved to that and now MCI. On the aftermarket parts side specifically for MCI, as you know, roughly 40% of the business is bought online, and we had two issues.

You have tired, if you will, legacy IT systems in the parts business at MCI, you also had a fairly laborious and painful interface to the customer online. So what Brian and the team did was put up a really new customer, sexy customer interface, quote-unquote Amazon like in terms of how to buy parts, and so absolutely we hope in the future as we harmonize the ERP system behind that, if you will, onto Oracle, we think there could be some benefits for the New Flyer or transit customers, the smaller ones specifically around being able to transact online.

So those are clearly within our sights. It’s not a slam dunk in terms of tomorrow, but within the next 18 to 24 months we think harmonizing the core system behind it and then the customer interface stuff, as well as things like warranty and so forth, clearly we want to lead the industry from that customer interface online type thing, and yet there are still a lot of customers that want to be able to pick up a phone and say, I need a widget or a gadget and I need it right now, and our customer service team will be able to respond.

So this is going to be a bit of a slow process, but we’re very excited about the combination.

Okay. Does it offer you the opportunity--like, I’m thinking with some of these smaller customers, you talk about sort of the Amazon or the one-stop shop to do maybe some third party logistics where you guys don’t make everything on the bus, in fact you don’t make a lot of the stuff on the bus, it’s just you’re able to supply them all kinds of stuff on behalf of the OEMs?

Well, you make a really good point though, Chris. We are clearly started in some of the transit worlds to do vendor managed inventories, but that’s really been spotty and it’s been buckets of parts as opposed to fundamental fulfillment.

You’re absolutely right that we may find ourselves moving into that world. So far it has not been a big driver in the transit or the motorcoach space.

That’s not to say it couldn’t be, and we’re well aware that could be part of our offering going forward.

Okay, great. Thanks guys.

Thanks Chris.

Congratulations guys on a great quarter. I just had one follow-up question.

We talked a little bit about the market that you haven’t been in, this employee shuttle market for coaches and the need to introduce the 35-foot coach. I’m just wondering if you can give us a little color on how big you see that market is and what the opportunities are, what could it mean in incremental units, and maybe a sense of what it costs to bring on a product.

I take it, it’s really just a downsizing of the chassis, it’s not a full new model development. Just give us a little more color on that.

Well yes, two issues. The employee shuttle market is really an interesting phenomenon.

It started and has been driven and grown dramatically in the Bay Area, and so Google and Apple and Facebook and all these other guys that are now shuttling their employees to work, those ones are not really smaller coaches, but there’s an opportunity there where the market has grown so dramatically. We hear numbers like five years ago, there was 10 coaches doing that and now there’s 600 or 700.

MCI, quite candidly, missed that market because we didn’t have service capability in the region, and that’s why the service center there and the ability to provide product support immediately to those customers who are moving those shuttles. The other thing that we’re seeing now is that employee shuttle concept is gathering some steam in other places like New York, like Boston, like Seattle, and so we think the ability to have a platform, the right product but also the right service, could allow us to move into that space fairly efficiently.

The 35-footer and the electric coach, let’s take those kind of A and B. The 35-footer, it does sound like you can cut 10 feet out, but it is not quite that simple.

We want to make it as common to the 45-footer as possible - the driver cockpit, the baggage areas, the seating, the interior lighting and on and on. But the reality is it’s a single axle, not a double axel, which requires a significant amount of testing and so forth.

The costs are not zillions - you know, they're in the few millions to get that done, but it’s also not an overnight process, and so we really are in hurry-up offense making that happen and getting our testing teams and so forth in place. The electric coach is a different one because that’s a propulsion change on a proven platform on a 45-footer.

The good news there is that we have the brothers over at New Flyer that have done a lot of that stuff around weight distribution, battery management, the location of the batteries, charging strategies and so forth that are being brought to the table fairly quickly. So they’re not five-year developments but they’re not also two month developments, so we would expect as we move through ’17 and into ’18 that we’ll have those products already tested and then be available for sale in the next year or year and a half or so.

You think that the sales from those can be incremental to your current run rate?

Well, the propulsion one is maybe not incremental today. It may be a customer that has diesel but goes to--or diesel or hybrid but goes to electric, but there could be some growth in an area where we have not been strong.

The 35-footer could be both as well - it could be replacement and it could be incremental. You have to also think of the 35-foot space, what we want to make sure is that if a customer is a largely MCI customer today, they’re going to buy some product that’s smaller because they’re going to want to be able to take smaller groups who want a smaller vehicle and so forth, and so having that common look and feel as well as from a maintenance and operating perspective, a customer perspective, is really, really important.

We see that 35-footer as largely an incremental business as we move into ’18 and ’19.

Great, okay. If I can come back to one question, when you talked about M&A, you had sort of a fairly open list of things that you were considering off of the last call, and I’m not sure if I heard you right, but I thought I heard you saying that your inclination to make an offshore international acquisition was probably less strong versus making something within North America.

Am I taking that the right way, or have you sort of advanced your thinking or do you think that’s--you know, essentially is it unchanged from the last call?

Well first and foremost, hopefully you and everybody leaves this call knowing we are laser-focused on our current business. We think there’s share opportunity, we think there’s margin opportunity, we think there’s customer sat, which gives us a stickiness with those customers going forward.

We know that the investments we’re making in MCI have potential, we know that we’ve got to get those aftermarket businesses together. Having said that, we are developing our capability to really start to think broader from an M&A perspective, and I sure don’t mean to provide any color about a focus of North America versus a focus outside or different types of buses.

The point is we’re now in this wonderful position of a very strong operating business, a strong cash flow business, a very strong balance sheet with lots of liquidity as well as debt capacity, and so our ability to think about opportunities have us doing the work, but we’re not yet landed on what’s the next chapter from a pure M&A perspective. The other thing that you and investors need to realize or think about always is that North America is somewhat unique in that largely our coaches and buses are monocoque, and that meaning that the shell, the body and the chassis are all integral, where internationally the vast majority of the market opportunities are body on chassis, where the big chassis guys, whether it’s Daimler or Volvo or Scania or NEM sell the chassis and somebody puts a body on it.

While they’re both buses, that’s a very different business model than we have today, so that’s just a commentary on how we’re doing the work to try and understand what is the most obvious and the best next chapter. Hopefully our track record shows that we’re very calculated and very transparent on what we’re doing and the pace at which we’re doing it, but I don’t want to leave you with an impression we won’t do offshore or that we’re focused on a very specific market.

We’re doing a lot of research.

Perfect. Thank you.

Thanks Stephen.

Jessa, thank you very much for hosting the call. Ladies and gentlemen, appreciate your continued interest in New Flyer, and we look forward to talking to you next quarter.

Thank you.