NFI Group Inc.

Paul Soubry – President and CEO Glenn Asham – EVP and CFO

Chris Murray – AltaCorp Capital Kevin Chiang – CIBC World Markets Stephen Harris – GMP Securities Jonathan Lamers - BMO Capital Markets

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

Joining me on the call today is our Chief Financial Officer, Glenn Asham. 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 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’re advised to review the risk factors found in the company’s press releases and other public filings with the security administrators for more details. To start off it's safe to say that we are once again pleased with another very solid quarter and with our year-to-date 2017 performance.

The overall market outlook remains healthy and as a result we continue be confident in our market position, our strategy, and our business plan. With another quarter of very solid deliveries in Q3 2017 with 877 new buses and coaches delivered compared to 777 EUs last year.

New awards received in the quarter totaled 1634 EUs or 4822 EUs LTM with our annual deliveries targeted at 3800 EUs. At the end of Q3 our total backlog was 10,537 EUs equaling $5.39 billion or approximately 2.8 times our current annual production rate.

A further 1969 EUs were an award pending where we've been notified by customers that we are successful there but we await formal documentation before they could be added to our backlog. And subsequent to the quarter we also received some very exciting awards such as a few that I'd like to bring your attention to.

The first was two awards from L.A. Metro, one for up to 100 Xcelsior battery-electric 60 foot buses and the second contract for up to 300 Xcelsior CNG 60 foot busses.

And finally the most recent award from Phoenix for up to 396 Xcelsior natural gas 40 foot buses, very exciting progress from these customers. We continue to prudently invest in many areas of our company ranging from MCI facility upgrades to bus and coach part fabrication capability to IT harmonization both at the OEM of MCI and the parts business.

2017 no doubt will be a record year for capital investments at our company. In June we acquired Carlson Composites with locations in Winnipeg, St.

Cloud, Minnesota and Anniston, Alabama and then again in September we acquired the assets of Sintex-Wausaukee Composites which was a supplier to both New Flyer, MCI as well as our parts business. The result of those acquisitions allows us now to take control of an optimized majority of our fiberglass reinforced polymer part fabrication needs.

And combining those businesses with Frank Fair Industries which is the Winnipeg based FRP business owned by MCI since 1990s now provides us with a control of cost, time, and quality of virtually all of our FRP needs which is a critical material supply for our company. In addition it also gives us more U.S.

content to continue to meet the increased Buy America requirements of the 1995 FAST Act. Our parts leadership team continues to evolve its business strategy to address the needs of a diverse bus and coach market space and a changing market.

This new integrated organization has now been branded nfi.parts which will maintain focus on supporting our two OEM businesses, New Flyer and MCI as well as targeting new market opportunities. For the first time New Flyer, MCI, and nfi.parts participated in the same trade show stand at the triennial trade show of the Association of Public Transit Authorities or APTA in Atlanta, Georgia.

The response was tremendous and I can't tell you how proud it was to be part of this truly industry leading team. At APTA we launched the New Flyer Xcelsior charge bus which is an extended battery bus and we also introduced MCIs next generation D model which something internally we call Project Light Speed which is a revolutionary second door vestibule coach that has low entry for elderly persons or persons with disabilities, very much like a transit bus, truly a game changer.

The new style D coach built on the Model J chassis was very well received at the market and is currently undergoing extensive testing and customer demonstrations. We expect to be production ready for early 2018.

Other product progress at MCI includes a 35 foot J Model that's in development and a battery-electric motor coach for both public and private operations. Finally the model year 2018 product enhancements by New Flyer -- sorry, by MCI and their Model J are now in production and has been met with very, very positive customer response.

Our other recent announcement was on October 12th where we opened the doors of a 30,000 square foot vehicle innovation center in Anniston, Alabama. In fact that's where we're hosting our Board this week.

The VIC as we're calling it, is North America's first Innovation Lab dedicated to advancement of bus and coach technology. It has state of the art manufacturing lab, virtual reality learning spaces, driving simulators, and other interactive exhibits all with featured R&D capability that will evolve electric, autonomous, and telematic technologies for buses.

In fact at the opening we had FTA's Acting Administrator, Jane Williams along with several elected officials and industry leaders here to cut the ribbon. Our partners in this VIC include major players such as Siemens, ABB, XALT Energy, A123 Systems, Parker/Vansco, Valeo (Spheros), Vapor Bus, Powerex, Ballard Power Systems, Hydrogenics, ChargePoint, Thermo King and so forth.

Really, really exciting kickoff to this program. Glenn will now take you through the highlights of our financial results for the third quarter 2017, following that I'll provide a little bit insight into our outlook including an update on some of the product development issues and then we'll open the floor to questions.

With that I'll turn it over to Glenn.

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

I'll focus my commentary on this call to provide key financial insights that will then allow more time and attention on our market businesses and strategic efforts as Paul noted. I would like to direct you to the company's full third quarter financial statements and management discussion and analysis of financial statements which are available on the SEDAR or the company's website.

I do want to remind you that New Flyers income 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. I would also note that affective January 2, 2017 the service function which was previously managed as part of the aftermarket operations is now the responsibility of the transit and coach manufacturing operations.

To improve comparability the related prior year segment information has been restated to reflect these changes. The company generated consolidated revenue of 541.7 million in third quarter 2017 an increase of 5.9% compared to 511.5 million during the third quarter 2016.

Revenues for a new transit bus and coach manufacturing operations increased 8.4% for the third quarter of 2017 compared to third quarter of 2016. The increase is primarily a result of a 12.9% increase in total transit bus and coach service offset by 3.9% decrease in average selling price related to those deliveries.

Aftermarket revenue decreased to 5.1% primarily as a result of customers inventory reduction, budgetary constraints, and fleet modernization impacts. While they continued strong deliveries of new busses and coaches in the industry there has been some softening in the current parts market.

Management believes that some other factors causing the decrease in volume are a decline in the installed base of certain acquired brands no longer in production such as Orion and NABI, a decrease in the average age of fleets and an improved quality of the Xcelsior and MCI coaches compared to prior models. Adjusted EBITDA for Q3 2017 totaled $71 million which represents an increase of 11.3% compared to adjusted EBITDA of 63.8 million in the corresponding periods in 2016.

Transit bus and coach manufacturing operations adjusted EBITDA increased 22.6% primarily due to increased deliveries and improved margins. Contributors to the increase in margin carries a favorable sales mix, cost saving synergies related to the MCI acquisition, continued cost reductions achieved through the operational excellence initiatives, and the integration of MCI.

Aftermarket operations adjusted EBITDA decreased 5.1% primarily as a result of lower sales and a related 2.3% decrease in adjusted EBITDA as a percentage of aftermarket leverage. The 2.3% decrease is primarily a result of the selling, general, and administrative expenses being applied against lower aftermarket revenue when comparing the two periods.

During the planning and execution of the integration of New Flyers and MCIs aftermarket business, the aftermarket SG&A is anticipated to remain flat compared to prior years. Net earnings increased by 33% and earnings per share increased 27.9%.

The company recorded net earnings of 34.6 million in the third quarter 2017 representing an improvement compared to total net earnings of 26 million in the third quarter of 2016. Primarily as a result of improved earnings from operations and non-cash gains offset by the increase in interest of finance cost and income tax expense.

This resulted in net earnings per share in the third quarter 2017 of $0.55 compared to $0.43 per share generated in the third quarter of 2016. October 1, 2017 liquidity position of 349.6 million is comprised of available cash of 15.4 million and 334.2 million available under the revolving portion of company's credit facility, increases compared to the liquidity position of 268.1 one million at the start of the year.

The increase of liquidity relates to improved cash flow from operations during 2017. The company generated free cash flow of Canadian 25.9 million in 2017 third quarter which was a decrease of 47% compared to Canadian 48.9 million in the third quarter of 2016.

This was primarily a result of increased cash capital expenditures. Timing of current income tax expense and the impact of foreign currency translation caused by a stronger Canadian dollar against U.S.

dollar when comparing the two periods. The company declared dividends of Canadian 20.5 million in third quarter 2017 which increased compared to 14.5 million Canadian in the third quarter of 2016.

Property, plant, and equipment cash ventures in the third quarter 2017 are approximately two times the cash expenditures in 2016 third quarter. This is primarily a result of investments to fund a variety of initiatives such as MCIs facility improvements, the company's recently opened Vehicle Innovation Center in Anniston, Alabama, our tax activities, in-sourcing and continuous improvement programs.

Management believes that return on invested capital or ROIC is an important ratio and tool that can be used as best possible investment against their later earnings and capital utilizations. The ROIC during the third quarter 2017 last 12 month period was 15.4% as compared to 14% during the last 12 month period ending October 2, 2016.

With that I will turn it back to Paul.

Thanks Glenn. New Flyers plans remain focused on maintaining and profitably growing our leading market position in heavy transit bus, motor coach, and aftermarket parts primarily focused through enhanced competitiveness, the focus on quality, customer satisfaction, and operational efficiency.

Following two increases in the last year we reiterated our guidance of expecting to deliver approximately 3800 EUs of new buses and coaches in fiscal 2017 which is an increase of 8.2% over fiscal 2016. With a healthy production schedule, low leverage, and solid liquidity we're focused on product development and PPE investment in a range of approximately 55 million to 65 million during fiscal 2017 and fiscal 2018 expenditures are expected to be at the same levels.

We're proud to be able to make those type of investments to improve our future competitiveness. In addition to the targeted insourcing efforts at various manufacturing plants, as Glenn said we are making focused investments and facility upgrades, Vehicle Innovation Center, service center enhancements, and next generation product development such as MCI D coach which I spoke about earlier.

Our business has been around since 1930 and we succeeded due to our commitment to provide market leading, high quality, reliable and affordable busses and support. Today the majority of our busses are powered by either diesel, diesel hybrids, or natural gas.

And unlike some of our competitors we've consciously chosen to offer a multitude -- a multiple propulsion options on our proven common bus platform to allow choice for unique customer requirements and for their environments. There has been much discussion in our industry and the public media regarding the electrification of transit buses and motor coaches to reduce environmental impact.

Currently the market of battery-electric busses in North America is relatively small but we believe the growth of electric buses is a matter of when and not if. We anticipate a portion of battery powered buses will grow given the interest in political support and the declining cost base of batteries and electric motors.

We however characterize the process as evolution or migration to zero emissions fleets not a revolution. We have to keep in mind there is 85,000 transit buses on the road in Canada and United States today and they are not going to go away overnight.

Further significant infrastructure investment is required to operate electric fleet and that is not a trivial investment for communities or transit authorities. The good news is the number of public transit users are now becoming vocal and are setting target dates for adoption of all zero emissions fleets in the future.

We will be ready for it. Our parts business continues to be a market leader but it's dealing as Glenn said with certain headwinds.

The business units should be viewed as a being in transition and as it continues through the combination of New Flyer and MCI parts into one company in addition to the significant task of harmonizing the IT systems. With the current business performance of NFI and a healthy backlog we continue to investigate opportunities for additional long-term growth and diversification.

We would evaluate both domestic and international opportunities within the bus envelope as well as within our supply chain and aftermarket. And as we have in the past any investments or acquisitions will be strategic, prudent, measured and appropriate.

As I described earlier the initiatives to take control of our FRP supply chain is an example of that. Ladies and gentlemen, thanks for listening today.

We're proud of our history and excited about our future. Our company remains poised to continue as North America's leading provider of heavy duty transit buses, motor coaches, and aftermarket parts.

With that Virgil we will invite questions from our speakers. Please provide from our callers -- please provide instructions.

Thanks guys and good morning. Paul maybe can we dive back a little bit into the aftermarket business which you certainly describe as a transition.

I guess as we think into 2018 we've seen some quarters where it's been a little bit slow as recently. Should we expect that to be flattening out or distributed, kind of be thinking that we've got maybe another leg down on earnings for that group and how do we think about your new offerings or any other kind of mitigation strategy you may have?

Well great questions Chris. I mean at the end of the day crystal clear what we are working on right now is the combination of the businesses and that doesn't happen overnight that we talked about everything from the common IT systems to the synchronization of the management teams, and then ultimately looking at the various parts distribution centers and so on and so forth.

Glenn gave you a pretty good list of the things that are causing us to have both sales and some margin -- sales headwinds and margin volatility. And one of the things that can't be underestimated is the quality of the buses that we're delivering these days is materially better than it was 7, 8, 10 years ago and therefore requiring less spare parts after those busses get through their warranty periods.

That has a notable impact on our parts sales. The other dynamic is that it's very lumpy when we get opportunities such as major retrofits or midlife programs that we have with customers.

And we really haven't had any of those in 2017. There is a couple in the pipeline that could help us through 2018 and we're providing kits to some of these customers that are going to do their upgrades.

The thought of future acquisition and diversification, addition to the offerings continues to be part our business development pipeline and looking at opportunities. But we're also very nervous not to want to take on too much until we harmonize those businesses into one.

So at this point I don't think we can expect much difference from the parts business in 2018 that we're seeing in 2017.

Okay, great and this one is maybe a little more theoretical but just thinking about your history with acquisitions and some of the stuff that you've done with internally if you had to call it the legacy New Flyer business, when you think about sustainability and going forward, in fact I mean you just put up a record ROIC, when you think about some of the underlying things be it health and safety, operational excellence, culture, how are you guys finding the transition between what was NFI which transitioned to MCI and how could you apply or transfer that culture and the key drivers that really maybe give us an opportunity to drive that number a little higher?

Well, I think you bring up a great point Chris. And if you go to our Investor Deck and you go through the materials that we used to communicate to our customers to our -- sorry, communicate to our customers, our shareholders, or employees absolutely fundamentally we believe that the culture we operate in, the environment, environmental responsible when it comes to systems inside the business, the sustainability elements of trying to find materials that have recycled sources or have a life strategy, looking at now the propulsion systems that have more and more clean energy type propulsion or zero emissions.

Those things are front and center in our minds and a big part of our culture. And if you look at our investor deck it's crystal clear how important it is.

And I think those kinds of investments we've made at Flyer and we now are making at MCI absolutely help the sustainability of the business but our direct to the bottom line in terms of cost avoidance and I believe avoiding an upfront investment in safety and culture is way cheaper both culturally but also financially when it comes to replications. So I think you're going to see that happen as the MCI facilities continue to look more and more and feel like the transformed New Flyer facilities.

And you're comfortable that you can move that culture or that you've been successful in transferring that culture. I guess I'm thinking about if you -- and you talked a lot about strategic options be it acquisitions, be it maybe adjacent markets, stuff like that, so you guys are feeling pretty comfortable in the exercise that you've gone through in MCI that you have opportunities to drive further gains that you would do to those types of acquisitions?

Very much so and I think our track record speaks for itself, but the kinds of things we are looking for is where we can be active owners and operators not just owners of business. And to us those safety culture elements and environmental responsibility approaches if not optional at our businesses.

And so if we're going to go invest somewhere whether it's a joint venture or whether it's an acquisition, part of my criteria is our assessment of variability to respond to that type of mandatory way we're going to run the business. I'm very confident in that Chris.

Okay, great. Thanks guys.

Hi, thanks for taking my question and congrats on another set of solid results there. When I think of your internal investment guidance you provided in terms of the CAPEX in 2018 staying where it is currently hovering for this year.

I'm just trying to get a sense of what the read through for the M&A pipeline is, are you seeing fewer opportunities for M&A or is it more the bid ask spread is wider than you're comfortable with and so investing internally here makes sense. I am just trying to get a sense of maybe the runway to continue to invest internally, do you basically get through most of your low hanging fruit projects by the end of next year and then your CAPEX declines to more normalized levels, just trying to get a sense of how the setup looks?

Yeah, I think that's fair comment Kevin. 2017 and 2018 are very -- the record years of CAPEX for us and let me give you an example that we are here today at Anniston, Alabama and in addition to setting up our Vehicle Innovation Center we're literally in the process of expanding the main production facility by somewhere around the 60,000 square feet.

And what that investment is going to do is take a weld factory or facility that we lease down the street and it's going to put it right inside the main plant. So just like in our Winnipeg or in our St.

Cloud facilities we cut steel, we bend and make parts. We weld it together, the frame goes online, we officially build the bus.

If this facility is not there we have to truck the thing down the street, we got to move parts back and forth and so forth it is not a great operating environment. Those kinds of investments we've been doing forever.

The last 7, 8, 9, 10 years to make New Flyer and MCI efficient and there is more builds that are available. I am not sure I would call them low hanging fruit because they're not trivial but they're significant investments.

In this case it's about a $20 million investment to move the weld shop which includes the physical facility, the welding equipment but also the additional investment in part fabrication equipment that gives us better margins or better ability to respond to price pressure in the marketplace and maintain our margins. So we've got a pretty solid roadmap that we started when we acquired MCI and that are still hanging over from the days of New Flyers that we were slowly working our way through that list and that really is what reflects those really elevated capital investments in 2017 and 2018.

We do expect based on our current target list that, that would slowdown in 2019. I think that is a separate and distinct conversations from the whole M&A environment where we've been very measured and very calculated the kinds of things that we want to look at.

And no question as we've mentioned in the past of the prices and the expectations today of multiples for sellers of what we see today or what we're looking around that is different than what we've experienced in the last chapter. I'm not so sure that is a showstopper and the bid ask will work its way out to where it is.

We're going to continue to be very prudent in how much we pay for what assets and how they fit into our business. But I separate the CAPEX investment from the M&A pipeline.

That's very helpful. I'm just wondering and maybe just following on some of the prepared remarks around electrical view, your electric vehicle comments there, I just wonder if that's impacting the competitive environment at all in the sense that when I think of the transit industry has been on the heavy duty side, it's been you three players, yourself, [indiscernible] with more transit agencies issue larger ones looking for an EV option, are more -- is that opening more players to come to the table and is that maybe degrading some of the competitive moats you big three players have had historically, are you seeing any of that play out on some of these bids for EV vehicles?

I'm not so sure to answer your second question first. I'm not sure we can characterize that it inhibited our competitive position whether it's New Flyer or Novo or Gillig and so forth.

No question though we have a different type of competitor and our friends over at Proterra or the approach that -- is taking. Having said that there is still as I mentioned in my prepared remarks, there's still a very, very small number of units that are EV or zero emission type quotes.

And even then the front portion of those are still relatively small. Will it change the game years 2, 3, 5 out, for sure it will which is why we've been so serious and so focused on providing that common platform with propulsion option but also taking industry leadership by putting this vehicle innovation center together.

And I can also continue to reiterate, it's one thing to buy an electric bus but to operate, to charge and maintain that electric bus is massively different than the way a transit agency operates today. And where you locate them and how you are going to charge them and how you shuttle them and all this other stuff has a big, big impact.

So it's not only the desire and political will to say let's get EVs there's a practical reality that's going to take time and funding and infrastructure investment. And which is why we continue to believe it is going to be a nice, slow growth, mature approach to zero emission adoption as opposed to an overnight type approach.

And our position is we're not sitting on the sidelines, we're leading this bloody good conversation and we're driving like hell to continue to maintain our leadership position. We're very pleased of our competitive positioning.

That's great color and then just last one from me, just when I looked at bus margins and when we put it all together, are you seeing a structure and I don't know if mix can play a role here or does play a role here but you have seen strong margin improvement each quarter year-to-date, I'm just trying to get a sense of if I take mix out of it or maybe including it, are you seeing a shift, like a permanent shift in mix and that your client base is looking for more unique products that you're delivering and able to extract the higher margin and then you have obviously gone through some synergies and cost cutting here, just trying to get a sense of how much of the margin lift we've seen year-to-date is permitted and something we can build on as we look out into 2018 and 2019 here?

Sure, so if I look at the mixes I would say a little bit there that is not permanent. We had some unique product that give us a little bit lift, but I would say that's actually relatively small in terms of the overall average that you're seeing.

I really think a good part of the lift that we're seeing is who continue to call than putting into the product and the cost in terms of producing that cost. So the OPEX programs that we've initiated, all the continuous improvement that we're placing -- put in place, the returns coming on all the investments and our capital program, obviously those are the bigger contributors to our margin growth than the pure mix.

And plus we're operating a very healthy market. So I wouldn’t say that mix really but that is somewhat, the market is very buoyant right now.

So that's the volume of some of the left.

So, I would say overall most of it is probably internal to business alright and should be...

Well, that is great color. Thank you very much.

Hi guys, just a couple of follow-up questions on some of the things that have been raised already. On the integration of the two parts businesses, can you give us some color on what you can expect to save in terms of synergies by putting through the IT systems and maybe integrating some facilities and rationalizing staff?

And also along the same lines what's the target date for that, when do you think you'll be through that integration process?

So haven't given any guidance on synergies Stephen. First and foremost is to get that IT systems together that allows us to be able to do that.

We have integrated or combined the teams into kind of one management team although they are operating on two different platforms today which is not very efficient. So it is what it is.

I would think by our current projections are counted by mid-2018 that will be in a position to be operating on one platform. But that is not the stage for looking at facility optimization, parts distribution centers, and so forth.

All of those facilities are leased so there's a dynamic that even if we could rationalize you don't necessarily take out all the cost. And so -- and moving parts businesses that have 10 zillion SKUs is not a simple or trivial task.

So we're about I am going to say six to nine months away from being able to gain any color on what we think the synergy potential will be there.

But I trust you think it's enough to make a material difference to the results we've been seeing so far?

Well, I am not sure I would say it is material. Look at the end of the day, the parts business is a good solid contributor to EBITDA and cash roll of this business.

But let's not kid ourselves, we're selling busses and great parts only helps us to sell more busses. And great responsiveness and so forth.

So we're not interested in just trying to grab a cost synergy on the parts side that may inhibit our execution performance that inhibits our ability to sell spare parts. So we're being extremely conservative in our approach to make damn sure that we're satisfying customers as our first priority and by the way making a good margin off that parts business today.

Okay, great, thank you. And just another maybe point of clarification, you talked about the slow roll out in the adoption of battery-electric buses.

But we have seen I guess the first meaningful contract through the course of this year and I think you've won one and [indiscernible] and Proterra of each one has one as well. When you look at your bid universe and things that you're working on and proposals you have submitted, what sort of proportion of that is for battery-electric and how are you seeing that ramp up, do you do you think it's a two or three years that we will be talking about 20% of the universe or is it more like five years?

No, I think we're on that curve, but I am not sure of the pace of it. But if you look in total we have got about 2000 units in our total zero emission bus universe.

A much, much higher ratio of options to firm. And so if that's about let's call it roughly 10% of our total bid universe today, absolutely, two, three, five years from now that is going to go to 20%, 30%, 40% and so forth.

The ability of cephore [ph] to execute on them isn't just the purchase of a bus and the infrastructure investments are substantial; power stations and charging infrastructures, facility modifications at those transit agencies. And so you're absolutely right, we're excited to see some not just one or two buses but substantial orders starting to make their way but I continue to maintain it's going to be a slow methodical rather than an absolute disruption type environment.

And from where you sit today, I mean one of the things we look at and see that one of the contributors to your success over the last four or five years has been the reduction in the competitive universe from five players down to three which happened back in 2013. Now if you -- there appears that there maybe more players in the battery-electric side than there are in the conventional bus side.

Is it your expectation that will evolve that way or do you think the advantages of incumbency will prove to be overwhelming for some of the guys who are trying to break in?

I don't know, look every one of us that are a legacy competitor New Flyer and Gillig have an electric strategy. Some of us more aggressive and in our case for example that maybe a trailing type perspective or a slow measured approach for example at Gillig or Nova.

And you're absolutely right, we have new stout competitors. We got a battery customers in BUID [ph] and then we've got a, it is not really a start up, that has been around for more than 10 years but Proterra who's trying to sell a very different product, a composite product with batteries located in the floor which has in our opinion some very serious issues when it comes to weight and weight distribution and so forth.

Who knows how the competitive landscape will evolve just like we watch in the auto world but all we control is that our product is absolutely on a proven platform and absolutely now on a proven electric approach. And we're going to continue and we think we're in a great competitive position to be able to be there.

Then we can take that knowledge as we're doing today migrating it to motor coaches for example and maybe in the future other types of busses. In those questions though the competitive dynamic today on the electric stuff is different than the conventional stuff was two or three years ago.

Great, thank you very much.

Good morning. Glenn just following up on the earlier question on the margin in the manufacturing segment this quarter, just to confirm was there any change in the contribution from cost synergies to the results in Q3 versus Q2?

So, we no longer look at it in terms of separate cost Jon. We reported a synergy on MCI that we landed at 12.5 million at the end of last year.

And it is not reporting on synergies at that point. So, that [indiscernible] our continuous improvement program.

And there are changes to our cost every quarter. I mean it is -- we have a number of projects ongoing all the time and we are looking to improve our margins.

So it is just a continuing revision and more of the same. So, yes definitely I can yes there were enhancements and improvements that were put in place this quarter that weren’t there last quarter and I would expect there would be more next quarter.

So, I am not sure I have given you the type of clarification you are looking for but really for us it is just part of running our business and continuing to look for better ways to do things.

Okay, are you able to give us any sense of what inning you may be in, in terms of this sort of synergy program or is it just kind of an ongoing process?

So, it was pretty much the latter. I mean as Glenn said we had a vision when we brought new foreign MCI together, that there were certain levels of corporate cost and procurement cost that we get out of the box that we call synergies.

In terms of the evolution of the business, it is fair to say that New Flyer side, the transit bus side is more advanced in the content that's been insourced and the strategic sourcing initiatives that I am going exercise. Then MCI, the other dynamic is MCIs inhibits us a little bit because the quality of the information and IT systems are not as sophisticated as New Flyer.

So we think New Flyer is ahead of the MCI business but as Glenn said and as I outlined in my comments earlier, we have got continued capital investment and expense investment to streamline processes and optimize the fabrication material that we think will allow us to have margin flexibility as it respond to price pressure or to build or grab more margin going forward.

Okay, thanks. And on the backlog, great growth in the firm backlog this quarter.

What portion of that would be for delivery over the next four quarters?

Well, you have to look at it from what we have been trying to answer your question exactly. We have currently at the end of the quarter 3800 units that are sitting in firm backlog and probably two thirds of that if not more, 75% of it is going to be built in the next year.

Some of it is stuff that this firm we built in the out years.

Okay, and I was a little surprised to see that the -- like so in the production in Q3 obviously reflects the summer shutdowns but if we kind of normalize for the number of weeks in the quarter we saw the weekly line entry rate as being consistent in Q3 versus earlier quarters. So is there anything that gave you any hesitation in increasing the line rate and I guess have you increased the line rate in Q4?

Well the line rate is a variable of a lot of stuff. So the firmness of the backlog Q4, Q1, Q2 of next year are effectively all sold out on the transit side.

So we know what we're going to build. There are always dynamics with customers that even inside window of lead time if you will that is saying hey, can you build me some more busses or can you jerk around the schedule pushing and pulling us over that we do all day long.

The ability to increase line rate and we've talked about this lot in the past, for every job we have there's five or six jobs in supply chain and so we've got to make sure the supply chain can handle that stuff and be sustainable doing it. The last you want to do is hold up a bus waiting for a part the supplier couldn't deliver to us.

The facility -- the factories and the facilities have room to add more capacity, some of them closer to their max capacity on the current shift. Some of them we can jerk around with tax time to optimize and build a little more inside the current envelope of a single or a second shift.

There's a lot of variables and we have been saying for a long, long time that if you see us increase line rate we have extreme confidence in the next one or two years windows that that's sustainable. Because the last thing you want to do is jack up line rates and then have to worry about either making people redundant or disrupting potential equilibrium with that supply chain that is building a certain cadence.

So the fact that we've increased both New Flyer MCI line rates this year and the fact that we have comfort in the schedule for the rest of the year and our full year guidance should give our investors confidence that we are really comfortable in being able to execute that.

Right, and we noticed that there was a very high dollar value per unit for the busses that converted from option orders into the firm backlog this quarter and the price per bus and the firm backlog went up as a result, are you able to give us any color on the mix of busses that went into the firm backlog, I am just trying to get a sense of whether they will provide a higher contribution margin?

As we've said many, many times in the past, average sale price of a bus is completely irrelevant. It means nothing because we take a cost of building materials and we put a targeted dollar margin and then we adjust that to be able to -- we think be competitive in competition.

Two things are going to change the -- well three things I guess are going to change the implications of an average sale price. The first is the propulsion system.

If we sell a diesel bus or we sell a trolley bus you've probably got about $800,000 to $1 million difference in sale price based on those inputs. The other dynamic is the options that are on the busses that we've built, camera systems, voice enunciation systems, counters, electronics, Wi-Fi.

On one they could have very little, in another bus can add 150 in sale price depending on what that customer puts on there. Then the other dynamic is the reality of customers once the busses are online or are in the process of being built when they change their minds and say instead of a left hand widget I want a right hand widget, and then we have to do lot of engineering, we've got to change the price, we have to source materials and so forth.

Those three factors will have a massive impact on the average sale price per bus and quite honestly we don't even really look at it. We really are focused on EBITDA for EU.

But for the buses that are highly customized you would be able to capture some additional margin on all that extra?

That is not true Jon. That's not true because the competitors customize busses just like we do.

There are very few situations, there are some but there are very few situations where we'll be in a full source position because nobody else has that offering. There's a couple of types of buses that have that but every one of our competitors customize busses just like we did.

Right, okay, that makes sense. And one last question, some third party industry data that we look at shows that industry motor coach deliveries to the private sector have declined this year, are you seeing any softness in private sector demand for motor coach?

Not yet, no. The data we have and we track is our number of quotes and the customers who are dealing with what's in the pipeline and so forth.

There's always volatility because the private market will buy at different times of the year based on tax purposes depending on where the big guys are, the lead type operators for motor coaches where they are at the buying cycles and so forth. At this point in time we have not seen from where we fit a slowdown in deliveries.

Okay, that is great. Thank you for your comments.

Great, thank you very much Virgil. Ladies and gentlemen thank you for taking the time to listen to our call and looking at New Flyer Industries.

We look forward to talking to you next quarter. Thank you.