NFI Group Inc.

Paul Soubry - President & CEO Glenn Asham - CFO

Mark Neville - Scotiabank Chris Murray - AltaCorp Capital Cameron Doerksen - National Bank Financial Kevin Chang - CIBC Jonathan Lammers - BMO Capital Markets Stephen Harris - GMP Securities Daryl Young - TD Securities

Thank you, Lisa, and good afternoon, ladies and gentlemen. Welcome to the 2018 First 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 of our 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. I'll start off this morning with an overview of our quarter.

Glenn will speak to the financial results and some metrics, and then I'll finish up with some market insights and a little bit of our outlook. Following that, we'll open up the call to your questions and if our voices are a little raspy this morning, forgive us.

We were up late watching the Jets [ph] win Game 7. So with that, I'll hand it over to Glenn.

Sorry, let me give you an update first. Yes, I apologize.

So, overall, our markets remain healthy and we continue to be confident in our market position, our strategy and our business plan. We had another strong quarter of deliveries with 993 equivalent units of new busses, coaches and cutaways in Q1 2018 compared to 892 equivalent units in the first quarter of last year.

This is the first full quarter to include ARBOC bus deliveries. New awards received in the quarter totaled 736 equivalent units or 5,858 equivalent units for the last 12 months.

And at the end of the quarter, our total backlog was 11,548 units, of which 3,997 were firm and 7,971 are options. Now, that equals $5.75 billion of backlog or approximately 2.7x our current annual production rate.

A further 904 units were in award pending where we've been notified by our customer that we're the successful bidder, but we have not yet received formal documentation and therefore, we cannot yet add into our backlog. We'd do so as soon as we receive those contract documents.

Overall, our adjusted EBITDA on the quarter was up over last year's Q1 and as Glenn will explain a little more detail, we had a very strong manufacturing quarter and parts were down, but something that we're not overly concerned with. We'll continue to remind investors that our business is lumpy and mix has significant impact on both our manufacturing and parts businesses.

We continue to invest in areas of our company including product development, facility upgrades, part fabrication capabilities, IT harmonization. And for 2018, again, Glenn will give you some details, but we've increased our level of capital investment.

We continue to focus on OpEx and synergy efforts at our recently-acquired fiberglass businesses or fiberglass reinforced plastic or what we call FRP in order to optimize that portion of our business. So the combination of what was Frank Fair and Carfair, Sintex-Wausaukee Composites now all branded as Carfair will provide us with a much better control of our cost, time and quality of virtually all of our FRP needs, which is a very delicate and yet critical portion of our material supply stream.

In addition it also has helped us with our U.S. content requirements that are now part of the increase by America as a result of the 2015 tax act.

And as you may remember, those levels went from 60% to 65% at the end of 2017 and a further 5% is required by the end of Q4 2019. We also launched OpEx efforts with our recent acquisition of ARBOC, low-floor cutaway bus manufacturer and the original efforts are focusing on plant layout and production slope.

Our parts business leadership team continues to involve its business to address the needs of its very diverse, the bus and coach customer base. This newly integrated organization is now branded as NFI Parts and it will maintain its focus on supporting original equipment manufacturer business, as well as targeting new opportunities.

Also in the quarter on January 31, we hosted an Investor Day at our Anniston Alabama facility and we showcased our production facility and our new vehicle innovation center or VIC, which is a state-of-the-art lab with virtual learning spaces, driving simulators and other interactive exhibits that will help us and the market evolve an electric, autonomous and telematics technologies for buses. In the quarter, we also came to an agreement -- a milestone agreement on a new collective bargaining agreement with our New Flyer Transit Bus Manufacturing workforce at the Winnipeg plant.

This contract is a five-year deal and that's the first time ever that we've been able to get an agreement for this site longer than three years. With that agreement there was a retroactive adjustment to the pension plan which resulted in charge in this quarter's earnings related to past service cost, which Glenn will talk about.

We're actively working on two other CBAs that are currently in negotiation. Glenn will now take you through the highlights of our financial results for the first quarter of 2018 and following that, as I said before, we'll give you bit of an outlook and then open the call for questions.

Now, I can hand it over to Glenn.

Thank you, Paul, and good morning, everyone. I will be highlighting certain 2018 first quarter results and provide comparison to the same period last year and focus my commentary on key financial insights.

I would like to direct you to the Company's full first quarter financial statements and management discussion analysis of financial statements, which are available on CEDAR or the company's website. I do want to remind you that our 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.

Organizational changes to better align business functions with operating segments were made last year and implemented in two phases. In 2017, the over-the-counter parts sales removed from the coach operations to aftermarket operations.

In 2018, the service function provides a technical service, management and customer training which was previously managed by the aftermarket operations of MCI only would boost the coach manufacturing operations. To improve comparability between periods, the related prior year segment information has been restated to reflect these changes.

The company generated consolidated revenue of $578.7 million for the first quarter 2018, an increase of 1.2% compared to $572.1 million during 2017 first quarter. Revenues from manufacturing operations increased by 0.6% for 2018 first quarter compared to the first quarter of 2017.

The increase in first quarter 2018 revenue primarily resulted from 11.3% increase in new transit bus, coach and highway deliveries compared to 2017 Q1 deliveries as well as the inclusion of revenues to a third party of fiberglass component operations. Volume increased as a result of higher transit bus deliveries and the inclusion of ARBOC deliveries offset by reduction in motor coach deliveries.

Motor coach deliveries are seasonal and comparably strong in the fourth quarter and softer in the first quarters. However, in 2017 first quarter, deliveries were stronger as a result of recovering New Jersey Transit deliveries, following a contract deferral in 2016.

Additionally, management believes that tax changes in the U.S. relate to accelerated depreciation, resulted in seasonally stronger 2017 Q4 sales followed by a weaker 2018 Q1.

The decrease in average selling price for the quarter is the result of combining normal volatility in the transit bus and motor coach sales mix and now the inclusion of ARBOC units which have a substantially lower average selling price. Aftermarket revenue increased 4.1%, primarily as a result of seasonality and sales mix.

Total adjusted EBITDA for the quarter totals $73.8 million which represents an increase of 3.4% compared to $71.4 million in the corresponding period in 2017. Manufacturing operations adjusted EBITDA increased 11.1%, primarily as a result of increased deliveries, improved margin and the inclusion of ARBOC's operations.

Contributors to the increase in the margin included favorable sales mix and continued cost reductions to pick up these OpEx initiatives. Aftermarket operations' adjusted EBITDA decreased 13.1% due to sales mix and cost involvement consolidating New Flyer and MCI parts business.

Net earnings decreased by 24.7% and earnings per share decreased by $0.13, primarily as a result of our $3.9 million past service cost adjustment net-off tax related to collective bargaining agreement which commenced on April 1, 2018 and a $2.8 million net-off tax unrealized foreign exchange loss on current lingerie items. The impact of these two events to net earnings was $0.11 per share.

The liquidity position of $204.1 million at April 1, 2018 decreased as compared to the liquidity of $222.3 million at December 31, 2017. The decrease on the liquidity relates to change in non-cash working capital.

Changes in non-cash working capital are primarily a result of seasonality and are expected to be timing temporary in nature. The company generated free cash flow of $52.4 million CAD during the first quarter 2018, a decrease of 2.4% compared to $53.7 million CAD in the first quarter of 2017, primarily as a result of increased cash capital expenditures offset by a decrease in current income tax expense.

The company declared dividends of $20.5 million CAD in the first quarter 2018, which increased compared to $14.7 million CAD in the first quarter of 2017. Proxy plant and equipment cash expenditures in the first quarter of 2018 increased by 84.4% compared to 2017 Q1, primarily as a result of investments in field facilities, increased part fabrication in the new Shepherdsville, Kentucky facility and as a result of insourcing and continues to improve in the programs.

Management believes that ROIC is an important ratio and metric that can be used to assess investments against the related earnings and capital utilization. Growth for the last 12 months ended April 1, 2018 was 15.4% compared to 14.6% during the last 12 months ended April 2, 2017, improving primarily as a result of a decrease in effective tax rate under U.S.

tax reform effective December 22, 2017 as well as the improved net offering results. With that, I'll turn it back to Paul.

Thanks, Glen. Yesterday in Toronto, we've held our annual general meeting and pleased to report that we had our highest attendance ever at one of these meetings for us.

At the meeting, our shareholders approved the name change of our publicly traded company from New Flower Industries Inc. to NFI Group Inc.

We asked to make this change to better-reflect the multi-platform nature of our business that now includes transit buses built by new flyer, motor coaches built by MCI, cutaway shuttles and medium duty buses built by ARBOC and aftermarket parts and component parts fabrication under the brand of NFI parts. So we'll now be working on launching an identity and a brand for NFI Group, but make no mistake, we want our focus to remain on our bus and parts brands directly with our customers.

At the AGM, I explained to our group how pleased we are with our strategy, our execution and our business and we remained committed to maintaining and profitably growing our leading market positions in bus manufacturing and aftermarket parts through enhanced competitiveness with a laser focus on quality, customer satisfaction or operational efficiency. Looking back, almost 10 years ago in 2009, we charted a course to optimize, defend, diversify and grow our business.

Optimize our facilities, processes and products, defend our market-leading positions, diversify our business and grow our revenue, our EBITDA and our cash flow, all with the mission of delivering consistent and increasing total shareholder returns and we're very proud of our last number of year's performance. We're also watching our business migrate from just being a bus builder to a solution provider and the why of our businesses evolved providing solutions or leading solutions to move groups of people safely, efficiently, responsibly and in style.

In 2017, our market shares were as follows: ne flyers, transit buses, 43%, MCI motor coach is 43% which is up from 37% at the acquisition in 2015 and approximately 64% of low-floor cutaway buses sold. Make no mistake though, while we want to grow share, we're not interested in chasing volume for its own sake.

Profitable return and customer satisfaction have guided us. We've lost some bids in the last 12 months where we felt pricing was unrealistic and not sustainable.

New flyer launched the charged version of our excel sheet of transit bus on a proven 35 and 40-foot and 65-foot platforms, in response has been fantastic. E-bus orders while increasing a little, continued to be proof-of-concept or trial programs for the most part but I'm really pleased with where we're at on our electrification and fuel cell agenda.

Overall, our markets continue to be fairly robust and healthy. On March 23, 2018, the U.S.

Congress passed the 2018 fiscal year budget which included appropriations for public transportation of $13.5 billion. APTA or the American Public Transit Association which we're very involved with has recently indicated that the federal budget is a big win for public transit.

According to APTA, the total appropriations of $13.5 billion is the largest amount appropriated for public transportation in an annual spending bill and the largest-ever one-year increase with more than $1 billion over last year we think assigned as health supporting replacement of fleet and upgrades. Based on an ageing fleet, overall economic conditions expected and customer fleet were replacement plans, an act of anticipated procurements, we continue to believe and expect procurement activity through categorized states will remain stable through 2018.

On the MCI front two days ago, we announced that New Jersey transit had issued a purchase order for year three of its six-year contract to manufacture and deliver an additional 182 commuter coaches for an approximate value of nearly $100 million. MCI expects to have completed all year two deliveries of that contract by the end of May and we'll begin production of the year three coaches starting in September of this year.

In our private markets, the U.S. tax reform as Glenn indicated did have an impact on our Q4 2017 orders which then had a flow through impact on Q1 2018.

And given MCI volumes are roughly on average two-thirds private and one-third public, MCI continues to adjust the production line rates accordingly of the Model D and Model J buses. MCI also continues to develop the plan and expand it's product portfolio.

The new D45CRTLER or what we call the Vestibule Coach which really is a game-changer from mobility perspective with revolutionary improvements of how to support people, loading and unloading, has undergone its testing at the bus facility in Beltuna [ph] and is currently performing very well, so therefore once it passes, we'll qualify it as a vehicle eligible for purchase using FDA funding. MCI is also in a process of detailed and heavy testing of certification of its 35-foot or J3500 MCI coach and MCI is also in the process of now completing its first prototype of J Model electric coach where the bus is actually in itself driving and now starting advanced testing phases.

Now, production capability MCI to support the new models of coaches continues and will be in place after the Summer shut down so that we can start production on second half of 2018 with deliveries of some of those programs early in 2019. As population ages and ease of access and mobility becomes more of a focus.

We also believe the demand for low-fork cutaway and medium duty buses with greater accessibility will grow from its current level of only approximately 5% of the total cutaway market. We're really pleased with the acquisition we completed last year of ARBOC and we estimate that ARBOC delivered 64% of all low-fork [ph] cutaway buses in 2017.

The other attraction we had to ARBOC was it's new launch of a medium-duty bus that they title Spirit of Equis [ph], and that bus is currently completing its testing at the FDA facility at Beltuna. We're really, really pleased with customer response of the technical specs of the bus, but also the price point compared to other available medium duty bus as some built domestically or one imported from China and we anticipate deliveries to start in the second half of 2018.

Overall, our master production schedule, combined with our current backlog and orders anticipate to be awarded under new procurements is expected as to maintain our guidance to deliver approximately 4,350 units during fiscal 2018. Production rates always vary quarter-to-quarter due to production mix and timing.

So with our production schedule, our low-leverage solved liquidity, we continue to focus on PPE investment and as Glenn mentioned, we estimate that to be in the range of -- we estimated it to be in the range of $63 million to $73 million. Now that's about $8 million higher than we originally disclosed in our forecast as the revised range now includes what was carried over from 2017 and not completed, but also money to be spent on PPE investments in our newly acquired composite business.

And although our parts, sales and margins remain difficult to forecast, we expect the parts market to maintain to be relatively stable in fiscal 2018. We're encouraged by the increase in gross parts already received in the quarter, but reality is quarter-to-quarter volatility is normal and typical for this business segment.

Our parts teams launched a new website, offering state-of-the-art online sales primarily focused on private markets and it also has new distribution features, freight options and so forth. And while adjusted EBITDA for parts was low in the quarter, we're not worried about that segment of our business.

We make a good return on parts sales, but customer satisfaction is key especially during a phase of combining our businesses so that when our customers go to buy another bus, we're first in line. We continue to be focused on an established customer base to provide best value and support and we also continue to investigate another incremental business programs in the parts world specifically a number of vendor-managed inventory contracts that we expect to be in place later this year.

We previously announced the closure of one of our redundant parts distribution centers that's located in Hebron Kentucky. We are doing that in July of 2018 and we'll continue to assess further opportunities for cost reduction and consolidation once the New Flyer MCI parts business are fully harmonized with a common IT system, which we expect to complete later this year.

Actually on Monday, I was in the Kentucky. I visited the Louisville parts distribution center and nearly 50% of the parts from Hebron are now successfully moved and stocked in Louisville.

So we're will on our way to making that July date. Finally, with our current overall NFI Group business performance, a healthy backlog, we continue to investigate M&A opportunities for additional long-term growth and diversification.

We've actively evaluated both domestic and international opportunities within the definition of a bus business as well as within our supply chain and our aftermarket. We've looked at Target, so we continue to do so.

But as I have in the past, any investments or acquisition we make will be strategic, prudent, measured and appropriate. Finally, as was mentioned, NFI Group Board approved yesterday an increase to our annual dividend to $1.50 CAD a share which is up 15.4% and reflects the confidence we have in this business.

Ladies and gentlemen, thank you for listening today. We're proud of our history.

We're excited about our future and we continue to be poised to be North America's leading provider of buses. With that, we'll invite your questions and I'll hand it over to Lisa where you can please provide instructions to our callers.

Anyway, just EBITDA for EU on the bus side. Some backing out ARBOC, I'm getting about $58,000 to $59,000 per bus, it's a healthy number but it looks like it's sort of a little dip down from the last couple of quarters and it feels like new ones for whatever reason, typically the seasonally weakest.

I mean, is there a reason for that or is there anything in the mix that you can speak to in the quarter?

I'll let Paul jump in that after my couple of comments. For sure, it's always both sides, quarter-by-quarter.

The one impact -- because we include all our SG&A with corporate within the bus manufacturing operations, you do when you have a seasonally low period like we did this quarter. Obviously you have less expense leverage.

That's part of it, but we do have some volatility and variation in our mix just quarter-by-quarter.

There's knocking systems [ph] in there, Mark, I would say there's movement or changes in mix that's not normal in the variation.

No. The SG&A explanation helps a bit.

On the New Jersey contract you just mentioned, the gap from June to September, did you also have that last year just so we avoid maybe some dip in Q2?

The New Jersey contract goes back in 2016 -- it's ancient [ph] memory now. The contract was deferred, we had the whole number -- and we continue to build because we felt that this contract would ultimately get built.

Virtually, New Jersey got their funding, straightened out the contract, put back into place and we began to ship and trying to catch up all the backlog. Our bus that we had built out, we did not catch up everything and we had some buses that fell into Q1.

So if Q1 '17 is when we finished the catch up of the buses that built up.

Going forward though, Mark, your question about year-over-year, MCI and New Flyer has different approaches to -- let's call them, summer shutdowns and New Flyer has a smaller kind of shutdown window and MCI has always had a number of weeks in the summer. So what we do is in the public world where you don't have model years, we basically will adjust to try and have a level flow and after the shut down on the private side, we start to build model 19 year coaches.

Until yet that happens every year.

Okay. I guess my question, there's not going to be a small dip in Q2 because of the New Jersey contract you saw something similar last year, hopefully?

No. No difference in terms of the quarter-over-quarter I think.

Okay. On the aftermarket, it's been two or three quarters with some good year-over-year momentum but you're still calling or talking about a flat market, so I'm just curious if it's maybe you just being a bit conservative or you think you're gaining some market share or it's just too difficult to call the market?

It's really hard and we've talked about this on other calls and on our Investor Day and so forth. The visibility of the total spend on parts is impossible to get our heads around because like silly examples of the windshield wiper, you can buy it from me, you can buy it from competitor, you can probably buy it from a broker, you can buy it on the internet; and so it's impossible to know -- and we do our best to try and go back into the transit agencies and look at their maintenance spends and the year-over-year budgets and so forth but so hard.

We're trying to stay in signal, we don't see any structural changes to the business in terms of the way people are buying parts and it is so volatile quarter-over-quarter; if we're selling a bunch of stuff that is low dollar, that has no margin on the thing in the quarter and there's a batch buy so where that can influence every single quarter differently. And so -- but again, we're trying to signal we don't see any changes in the market, we had a quarter where we had actual volume uplift, but we had a high mix of low-margin stuff, but it's not like it's fundamentally changing our business.

Okay. And maybe just on the closure, the Kentucky, again you've talked with that before, but can you put an estimate on sort of cost savings you might expect to see through the business from closing that?

Yes. I guess just in terms of facility cost.

That is probably in the neighborhood of $1 million and then the question becomes when we consolidate all the labor, is there some supervisory that we have duplications, we don't really have a feel for that yet when I get the thing up and running and then we'll assess.

There's also some cost in there to shut it down. We made a deal with a bunch of employees.

We gave them several months' notice, we've put in some [indiscernible] packages to stick around and help us transition and so forth, so savings will be offset at least in the quarter to some extent by cost going out to transition those people.

Yes. Maybe just one last one.

I guess there were some industry press on the design of electric buses, replacement of batteries, what makes the most sense. I'm just curious to get your thoughts or your opinion if you wish to share them?

It's a really good question, Mark. Our approach has been open and continues to be.

We've been building heavy duty transit buses for eight years. We've chosen the structure and when we introduced low-fork buses in North America in the early 90s, we've chosen the structure where traditionally you have an engine in the back, but you also have load on top of the buses whether it be CNG tanks or fuel cell or trolley stuff and so forth; and we've tested the hell out of that bus.

So our strategy when we first started electrification was to try and use the exactly same weight profile and distribution. So we put depending on the size and the quantity of the batteries, we put them in the edgy compartment.

In some cases we've had them under the seats and some cases on top of the roof and so forth. So the center of gravity, if you will, and the weight distribution on the bus has been consistent across all of our models.

We have competitors that have buses in the floor and much like a Tesla car does and their strategy and approach is to build a composite structure, put them in the floor, and when you had a 150-kilowatt battery that was fine, now we're getting in the range of 400 to 500-kilowatts, we have weight challenges on those buses in terms of total weight, but also axel and weight distribution. And I was [indiscernible] one solution that is best.

We're really feeling comfortable with our solution and what we've done. We had an incident with one bus where we had a driver that was recklessly driving the bus and it flipped on to it's [indiscernible] flipped at it but it has nothing to do with the safety, the design, the performance, the efficiency of our buses and we're very confident with where we're at.

Thanks, guys. Good morning.

If we can go back to Q1 manufacturing numbers because I think there's a little bit of confusion we're trying to straighten out. I've got a lot of parts to this question, so maybe we'll try to take in one at a time.

First of all, can you tell us how many of the ARBOC buses were actually delivered in Q1 that made up part of this mix?

That was around 130. India, I'm just trying to find.

135.

So as we started walking through here and I guess part of where I understand where the numbers are going to go, with ARBOC in there, you've got a lot of different mix items. I guess I just want to walk through the revenue pile a little bit.

First of all, you've also now got the FRP program bringing in revenue. Still small at this point.

I guess two questions on that. One, $4 million a quarter, is that the run rate we should be thinking about?

And what margin does that actually come in at?

Couple of things. Number one, we bought this FRP business primarily for ourselves and it did have some external customers.

Our focus is not on trying to generate external revenue from this. We're out to support our products and in fact in some of it and a portion of this business, in order to start dealing with some of our added volume requirements, we have had to turn some of that external revenue away.

It's always going to be a small amount. In terms of revenue, I think it was $3 million or something for the quarter.

I wouldn't see it growing much from that and well there be some margin, you got to remember, we bought this business or the part of this, we bought towards an asset sale distress business. It was not making a whole lot of money on its external sales and so we're in the process of lowering the cost that [indiscernible] improve.

But again, a very low profitability.

Okay. So basically think that like used or pre on coach marginal or zero type of profitability at this point?

Is that the way to think about it?

Absolutely, Chris.

Okay, great. All right.

When we go back to look at the numbers, you said about 135 units, I know you talked about 500 units for ARBOC this year. That is a bit of a step up from what you saw at Q4, even the run rate through '17.

Should we assume that you're still aiming at that 500 number? Or should we be thinking of a slightly higher number at this point?

No. At this point, we're still forecasting.

We haven't changed our full-year forecast, Chris. And the number that we've got in the NDA and in the course are quarterly releases and so forth.

[Indiscernible] we'll just change that number quarter-over-quarter. It is not like New Flyer, it's probably more like MCI where it's transactional in nature not as much contractual in nature; and much, much shorter lead time, so it's not like we're able to fill out a year of productions for us.

That numbers just going forward, we'll obviously change that guidance.

And should we be thinking -- like is there any particular seasonality like a shutdown or something like that we should be thinking about something like -- you'll normalize to the 500 with a dropout of a couple weeks in Q3, is that the way to think about it?

Yes.

So just looking at that -- and then, we're trying to go back -- maybe even to mark your earlier question; so trying to understand the core manufacturing margin. If I think about transit and the coach buses, the margin did look a little bit down; so you're basically thinking a part of that is due to volume and mix in a weaker Q1, is that the way to think about it?

Absolutely, and -- again, every quarter or however many orders we deliver in that quarter 30 or 40 or 50, every one of them is going to have a very different volume and different margin associated with it, and so we've had lots of quarters where everybody is all excited about fantastic margins and this one is not as great but systemically nothing is different.

I mean the other thing that has us a little concerned is your ROIC number; I know you talked about like Q1 of last year but I think the one that we're looking at is sort of the most recent print which was 15.8 and now you're 15.4; so despite some of the noise in manufacturing we're trying to understand why the ROIC is actually going backwards?

So a couple of things there. Number one, we did have some heavy investment in working capital, so the investor capital is higher.

We think that is related to seasonality and temporary and looking to reduce it. Secondly, obviously we have $100 million of capital related to our box.

We block that business on base on it's growth potential. So as a result, it's return-on-invested capital is not at the same level as the rest of business today.

However, we believe we can whereby continue to grow that business and we'll get rich under scaffold heading back towards the same direction.

Just kind of a question about sort of your outlook on the market; you used the term -- you know see offers this year being stable which is a bit of a change from a previous terminal Gen; I don't want to read too much into it about of being robust. Is that a way that you guys are trying to give us an indication that you think this called supernormal book-to-bill rate that you've been enjoying is going to slow down and maybe normalize more around kind of replacement?

I wouldn't suggest we change the words to signal anything different other than we're fueling based on the funding environment, the orders we've got, the competitions we're seeing, there's nothing changing in the space and if we had a tragedy like 9/11 that was fundamentally change a whole bunch of staff force, we had a real systemic shift on funding that changed like there's nothing different today in the health of our business of any materiality that we had last quarter or the quarter before. There is always things that change in terms of the tax issue changed last year, some of the commercial buyers of motor coaches pulled stuff in December to take advantage of the full year tax, accelerated tax depreciation which impacted maybe some overall or bring in the first quarter.

But in the grand scheme of things it's not material to the overall total business.

And then last question, something that came up with the exam [ph] yesterday was kind of interesting; there is some commentary that you have around maybe testing out some Marco Polo product for use in North America. Can you give us a bit more of an explanation about what you're actually doing there and is this sort of a trial to see if you can do some development work through ARBOC?

Yes. I mean, we have a press release because at this point we're evaluating; so the story goes as follows -- Marco Polo made an investment in 2013, it was a cash investment as well as some strategic MOU type stuff, let's look and compare supply chains, let's look at product portfolios in overall -- remember we had first right of refusal on their products and so forth but because New Flyer and then MCI -- we never had any experience with cut-away or body on chassis type buses, we really didn't have an opportunity to demo, to assess Marco Polo products in North America.

So when the ARBOC opportunity came along and now that we're learning a lot from Don Roberts and this team about how to build a cutaway, how to build a much lower cost medium duty process, how a dealer network works in terms of selling and trade-ins and stockings, and those things; we went back in partnership with our friends at Marco Polo and said, 'What have you got in that class that we might want to consider?' So we've brought two Marco Polo, let's call them kind of small-to-medium duty shuttle buses, one is a low floor, one is a high floor and we brought them to North America, and we're marching people through the buses to say what do you think of the styling.

What do you think of the design, what do you think of the technical specs, what do you think about -- if it's for a public world you have to buy American compliance, if it's for a private world you wouldn't, price points and all those things.

Is this is kind of thing that -- I mean you alluded to public market versus private, but this is a kind of thing where you basically take distributor right and use the ARBOC network or is it something that you actually start thinking about to build yourself?

I guess Chris I don't have an answer for you yet but you could think about the entire spectrum. In theory, we could import buses, the other end of the spectrum is we could license the designs and built them completely in America, and anything in between; but we're still first trying to determine whether the products -- the two buses we've bought they are very different, the two buses that we've brought to North America or whether there is -- whether people -- the market thinks that there is an opportunity to sell this product.

And then there is the whole issue like our wonderful learning experience with Alexander Denisova [ph] Americanizing in international product is not trivial.

A question on the electric -- all electric motor coach, you've put out a press release last night and it sounded like some good progress there; I'm just wondering if you can maybe describe -- are you actually seeing a good pull from customers for that type of product? And who are the potential customers of an all-electric coach; is it more transit agencies or is it private operators?

That's a really good question Cam and of course, we have the benefit of the learning that we've had over the last -- well, since the 70's here at New Flyer dealing with buses that have electric motors and batteries, and then when the last couple of years, pure battery electric and then fuel cell electric, and so forth. The pull comes primarily from two places; what is public transit agencies that are following the same theme that you have in transit buses around emissions and clean and green and so on and so forth; so there is absolutely some of the transit agencies that want this.

Now, there is not a lot of transit agencies that operate coaches and most of them are New York, New Jersey, and others where you're shuttling people into the cities; and so in those scenarios you've got to really think about capacity and range and charging strategies and so forth. The primary drop and pull so far is coming from Silicon Valley, and so we talked and we did it in our Investor Day a little bit but in Silicon Valley it has gone from kind of zero employee shuttles to something like 680 buses or motor coaches that are shuttling people to Apple and Facebook and Google and so forth all day long.

So these buses are operating for a couple of hours in the morning, they are operating for a couple hours at night, so the people that get on are professionals, and only have a briefcase, they don't have luggage and the range is very well known, the capacity is known and so forth. And so as we opened up a service center in the Bay Area, as we've been able to sell more diesel coaches, as we've looked at our product line up there, the ability to electrify a coach -- to be able to do that range in a green type approach really has a lot of those operators and those companies specifically are very interested in it.

And so this is not rocket science or inventing things from a New Flyer's inside perspective, it's more of applied engineering based on learning's that we have. So we're really excited, they like our bus, they like the design, they like the labels, they like the efficiency and so forth, and if we can add one more opportunity for propulsion choice we're pretty pleased with it.

Just a follow-up; I mean, I guess where are your competitors on an all-electric coach? Have you got a decent lead on them in the building something?

So we a Chinese competitor that has an electric coach and they've been demoing it, and we have another one that is -- we're hearing inclining to come to North America and start building here with an electric platform. If the transit world is in really early phases of demoing and trials and charging strategies and so forth; the motor coach world is behind it, it's really early stage evaluation.

And really just one final one for me to just staying with the electric theme here; maybe you can just update us on the progress of -- I guess, electrical infrastructure standardization. I know there is some trials going on right now, that's a big sort of sticking point for potential customers is having some standardization across all-electric neo-buses; maybe you can just talk a bit about that?

Yes, that's a really good point too Cam. We've been talking quite openly for the last time -- I'm going to say year and a half or two years trying to really get together FTA and the U.S.

operators, and the competitors and so forth to be able to come to a standard definition. And so we think by the end of this year or even in the '19 we'll have a consensus on what those standards are.

Europe's ahead of us where they already have agreed to certain standards and what we're proposing and where we're at seem to be pretty close if not identical which would be fantastic. The other dynamic around adoption of electric buses -- well, you know some people in the industry keep talking about they should be all tomorrow and so forth, not only the price of the electric buses, I'm sure they've come down but there is a premium to diesel or to natural gas.

The bigger issue in our perspective around adoption has to do with infrastructure. And so I used an example that our AGM and another meetings in the last couple of days we've put five buses into New York City that go across on a trial basis, that go across Manhattan; these buses go -- I can't remember the width of the island but on an average they are 2.9 miles an hour and they are loaded with people and so forth.

But it took us 9 months and 13 different transit agencies -- 13 different civic agencies to sign-off on our ability just to put two chargers in place. And then you think about it on a bigger scale, the cost of the infrastructure and possible power stations and on and on and on who's going to pay for that and that's one of the dynamics that is easy to talk about just -- the bus makes but it's the economics of the system and the funding that's going to really pace adoption.

Hopefully that color is helpful.

It's great, I appreciate it. Thanks very much.

Maybe just on the EBITDA per year -- not to beat a dead horse but in your disclosure you noted -- I guess from an apples-to-apples pro forma comparison though your margins were up roughly 2,500 year-over-year in the first quarter; and I'm just wondering is that the kind of lift we should expect through the year as we account for -- even as we account for mix or should that accelerate because you had a more challenging mix scenario in the first quarter of this year or maybe you get accelerated costs savings as we get to the back half of the year? I'm just trying to level set the 2,500 versus how we should think of the remainder of the year?

I think the things we're talking about are things that the fringe like; for example, the SG&A, right -- we'll get better leverage out of those SG&A as we get to higher volume quarters; so that will provide for a little bit better. The mix is always questionable whether it's going up or down, as we continue to focus on OpEx initiatives and just going back to Chris Murray's question or the other question, I might forgot to mention, our capital expenditures that we've been booking over the last couple of quarters, we anticipate to get earnings, our margin has been all of that right, so that has deteriorated upfront, the road, for example, but we would see that as now be a contributor to our overall margin enhancements strategy that we've been on for the last few years.

So I think what we get to see is some marginal improvements as we continue to step forward but nothing dramatic other than mix, right, I mean, the mix is going to be evolved [ph].

And when I look at -- I guess over the past three years you have seen a slippage in your market share within the heavy duty transit market but obviously your deliveries are increasing here; and I guess it just seems like the individual that's picking share from both you and some of the other players is Nova. And I'm just wondering, are you seeing them do anything differently from a competitive perspective or maybe just the overall competitive dynamics -- is there anything changing here given on how healthy the market seems to be and given how the funding environment is shaping up here over the next couple of years?

Well, I think you've nailed it. We have an increasing market albeit not drastic but the whole market has gone up.

The competitive intensity has grown and so you know, where for example, Nova's increased their volume, Gilly [ph] has increased their volume, El Dorado has increased their volume and we've tried to make conscious trade-offs about volume versus customer sets and profitability. But I can point to three or four competitions in the last year where we've lost by $75,000 to $100,000 a bus by somebody bidding for that -- I don't know how you make any money and how you sustain your business.

But so -- if that's what it takes to maintain share we'll pass on that and we're going to focus on our core customers and our core performance and the profitability of our business. How you bid $75,000 to $100,000 less than us is incredible, especially on volumes in some cases that are 300 to 400 bus orders.

Now whether that's a change in the industry, I'm not so sure, some of our competitors have been doing that for years on certain orders and I guess that's their prerogative. But you know, the competitive intensity let's say overall, is more intense today than it was three or four years ago when Navik [ph] became part of us and when Orion [ph] went away.

And then of course, the next chapter in our lives with the electrification -- we do have new competitors but their ability to ramp up to volumes and so forth is something we haven't yet seen. So we'll watch it but at the end of day, I maintain we're about performances of the business, quality products, about profitability and returns so we can invent in new products, not about just chasing some of that crazy volume.

Are you finding that a lot of those ex-increased pricing competition is happening -- it sounds like it's of your core customer base suggesting that maybe your core customers pricing is maybe at the low -- is lower down on the list of things that decide whether they place an order with you or not; is that a fair comment?

I mean there is some of our core longstanding customers that just came back to say that they have a price that's $90,000 less than your bus; sorry guys, I can't justify that to my taxpayers and I get it. So some of these bids that we've lost are to some core customers; in contrast though, we've won some customers that were competitors of other people which is why we've been able to kind of hover on our market share but dramatically improve our profitability.

And just last one for me; when I think of uses of excess capital -- I think you've talked about M&A and the pipeline there and how you looked at that, you've raised your dividends, you're under-levered versus your target and your willingness to go above the top end of the target on the right deal you've made, well known. If we think of 2019, CapEx rolls over, let's say M&A is still pretty quiet; how should I think of excess capital?

Is it primarily through the dividend and maybe accelerate that or does the buyback become more relevant post this elevated CapEx spend, if M&A doesn't show up in the next 12 to 18 months?

Well, you've must be sitting in our Board meeting yesterday because that's exactly the conversation we have. First and foremost, we're going to continue to invest in our business and we've demonstrated that and we've been very transparent about product enhancements or facility optimization or part fabrication, and that's why our CapEx is up.

We're going to continue to try and live in that world of 2 to 2.5 from a flexibility -- from a leverage perspective, but it's going to be volatile based on where we're at in the cycle. The M&A is absolutely on our radar and we've been fairly transparent but we're not going to just overpay for assets that we like and I go back to -- it took us 3 years to buy Navi [ph], it took us a year and a bit to get MCI, and so we're going to take our time to do it right.

And the dividend we believe to be an important part of our strategy. And then, the other which is why we increased it little bit and then the other dynamic is we continue to have deep conversations about it and the appropriate miss of an MCIB with our Board and so I've told the shareholders for a couple years we didn't want to do that because we didn't think we're in a position relative to liquidity and the size of our business that made any sense.

And now we're getting to the territory where the conversations around MCIB are very deep on the Board agenda and trying to see whether that's prudent. Having said that, we want to continue to grow into and diversify business and so we're spending time and effort on appropriate M&A for the future of our company.

With the significant changes to the MCID model being made this year, will your D-line be taking more downtime this summer than it did last year?

No, not more, Jonathan. The changes that we're making to the new D, it's hard to articulate without -- it's kind of a flow chart to that thing but think of it this way; the D and the J are two completely different lines; the new D is going to be built on the J line, the old D doesn't go away until we're finished building the current contracts, the one primarily that's in front of us is New Jersey which worse case can go to 2022.

And so we have been spending money at the shutdown at Christmas, we're spending more money at this summer shutdown to continue to put in common fixtures on the J line even when it paid to handle the new D's. So the shutdown won't be any different time duration but that's a lot -- where a lot of a CapEx of MCI is going.

Paul, you made some comments earlier about adjusting the production rates appropriately on the D and the J; could you elaborate on that a little bit more, have you seen some softness in the private sector demand for the J?

Every single year -- no, every single quarter we are tweaking that the D and the J volumes and the production rates; and of course, that has -- it's easy to say but very difficult to do because you have people moving across the plant that today worked here and tomorrow works there and then you have the bumping dynamics and so forth. So we don't make those adjustments likely.

The dynamic of the -- as Glenn and I both discussed earlier of the U.S. tax reform that we felt had an impact on our fourth quarter deliveries that had a rollover impact in the first quarter has had us look at slowing the J down a little bit and increasing the D to handle the purchase order we just got for New Jersey.

The other dynamic that you have to keep in the back of your mind is that we build J models for a certain level for stock and that stock can range from 20 or 30 buses in-stock to 50, 60, 80, 90 depending on the timing and whatever -- how many are on our shelf. And because of that first quarter dynamic, we're going to slow the J a little bit down and we're going to increase the D.

Whether there is softness in commercial private orders that's systemic beyond the first quarter or fourth quarter impact, I'm not so sure we know yet.

So it sounds like you have inventory that support wherever orders are in Q2. You know, albeit, taken down the J line a little bit?

Yes. And also keep in mind, Jonathan, I think -- I think I can't remember if Mark asked this question earlier but the other dynamic is the buses we've built today are a model '18 production year.

The buses that we build after summer shutdown are model '19; so you don't want to build too many '18 models because some people might say that I'll wait for a '19 model which is again why we always adjust the D and the J lines to kind of synchronize with the short-term demand in the market conditions as opposed to a long-term production rate.

Glenn, would you have the contribution to EBITDA from ARBOC for Q1?

No, we haven't disclosed that and we don't intend to disclose that. We did provide last year so you could service the benchmark but that number is not being disclosed.

So, I mean the deliveries are up 55% year-over-year…

I think what we are going to look at it is, I guess you can come up with an estimate of that but often 2017 that would be a proxy and I don't go for it.

So, like no significant changes in ARBOC's earnings, not like first…

No, there may be later on the year as we started introducing and seeing some sales from the medium duty coach but right now it's primarily kind away business and therefore last year's is very representative.

And just to clarify, in the after-market segment, were the after-market SG&A margins up at all or were they maintained flat this quarter and we just saw the gross margin come down?

There were some in the SG&A, not a whole lot, it is primarily on the gross profit side.

And if I could just ask about this funding increase for public transit; did you receive any indication as to how much of the increase is available for buses versus rail and other forms of transit?

I don't have that in front of me here, that's something maybe we can look at providing, at the top of my head I don't know the ratios and whatever. I guess the point we were trying to make is a strong support from the U.S.

government continues both in the Fast Act as well as the funding and appropriations bills but we can try to live up with that.

It sounded quite positive that the funding was up 8%, so just a little surprised to -- but the market was kind of characterized as stable versus robust last quarter, like I would have thought that I could with higher level of orders going forward…

But remember too -- what I'm saying Jonathan is that you get into a scenario that if the funding goes up today it's only lasts -- it takes transit agencies 12 months or 9 months to put a competition together; and so if you're working on a plan for your fleet to do X buses and Y upgrades into X mid-lives and so forth, and there is a little bit more funding coming in, it's not like it increases the volume tomorrow. And again to Chris's point and I guess lesson learned from my end, using the word stable versus robust and so forth -- I guess we're going to have to be a little bit more careful about how people read into that stuff.

I don't think you should read into that, we're comfortable with the funding, we're comfortable with the number of competitions, I'll always -- on the public side, I point back to the big universe which is always very volatile but we've got a really healthy number of competitions going on in active and in what people tell us they're going to buy for the next five years. And with that kind of a funding statement by the government maybe we'll see people starting to say, 'Hey, last time I talked you I think I'm going to buy 100 buses over the next five years, now it's 120.'

That's where it will first transpire is any uptake in the -- what people tell us they think they are going to buy beyond their current budget window.

And one other question if I can; on these capital projects that you're undertaking -- the Alabama facility to be completed in January, the Kentucky parts fabrication facility, I think you said that will be done by the end of 2019. Can you update us on whether those target dates are still accurate and perhaps the returns you expect from these projects whether in terms of paybacks or IRRs relative to your other insourcing projects?

Projects are all on-schedule, in fact the first part said -- starts to come off from the Shepherdsville facility, obviously it will ramp up throughout the year as we put more -- and into next year. So all on-schedule there, the Alabama facility, all on-schedule looking forward to getting that in place, a lot of the equipment you saw is already in place from when we did our investor tour in January; so you've already seen that.

So moving along very well, I don't see any changes in our targets as we sort of said, it will be -- both those projects are going to be contributors to our margins on a go-forward basis. We look at these projects, no different than we look at an M&A target and say that's got to be justified to return-on-investment and payback periods, and I would say that the payback on these projects will be much inline with the other projects we've completed over the past three, four years.

The other dynamic though Jonathan on that stuff is, is it not much offense and defense from our perspective. In sourcing a part that we can make levels align that we can roost the cost as fantastic and we also get margins off it.

The other dynamic as we talked in the question earlier is as competitive intensity wraps up, we've got to keep going after our cost base to compete and so if we've got to give some away on price in the short-term and in the long-term, and so forth that ability to reduce our cost base is absolutely critical. We've faced every single one of our business faces on current volume and soaring pricing of those individual subcomponents.

So you shouldn't expect massive increases in EBITDA, all it takes is a couple of competitions with tough pricing that allows us to compete but we're really pleased with the performance. And as Glenn said, we're absolutely on-schedule for all the major projects that we've got going on.

I just had one quick one and a follow-up on what Chris was talking about deliveries. When I look at your numbers, the $43.50 guidance for the year; quite frankly, I struggled to get our number down to that level.

And I'm just wondering is there anything we're missing, is there any capacity issues or any constraints that you're aware of or would you just characterize your guidance as being -- maybe on the conservative side?

I don't want to say it's too conservative, obviously we're trying to be prudent in the guidance we provide out there because we don't provide EBITDA guidance and so we're trying to be prudent in how we approach that. The other dynamic -- and I think Steve, we saw this when we locked everybody through the Alabama facility; plant capacity is only part of the issue because specifically in the public world every bus is different, non-recurring engineering that we do or with our suppliers is also a limiter, as well as the high variation of the supply chain.

And so we got -- and then ultimately, when we finish the bus or as we build the bus, the other limiter in capacity is inspectors; and we've talked about over the years where we've got -- we can build at a much faster rate but the customer can't inspect nor except an inductile [ph] business at a certain rate. And so we govern our output not only by our productive capacity but all those other variations whether it be as I said, the non-recurring engineering, the supply chain or the customer inspectored acceptance.

But again -- and you saw this, we've been pretty transparent, there is more capacity in our facilities but we're hesitant to jack it up in any quick manner because it's got to be sustainable. And so that's why you've seen us build backlog at the same time as we're increasing production rates.

And when you think about these issues are any of them sort of tangible and affecting your business right now or there are sort of concerns on the radar that you need to be worried about but aren't actually affecting your ability to operate today?

Well, I don't see -- I can't think at the top of my head if anything that is different than it's been last year or the year before but Glenn talked earlier about it, it inflates working capital in the quarter. If you build X-buses for a customer that can't take acceptance of them, you build up receivables; and we're not worried about getting paid, it's just a matter of timing.

You've got other dynamics that have changed with certain customers in the U.S. where 10 years ago they used to give us milestone payments and they paid for the bus as we've built it; now that has gone away with the exception of maybe one or two contracts so we get a dynamic of what's called retainage [ph] with certain customers actually are holding back tens of millions of dollars and drip-feeding it once all the buses are delivered.

But I wouldn't say any of those are massively systemic issues but it in fact every quarter and because every customer is different, not only the spec but how they pay, how they inspect, it's not like a normal tractor manufacturer where they punch off the line and then they are very consistent; this is a building house on an assembly line, highly highly variable, everything about the technical, the inspection, the building, and so forth. But to your point, I can't think of anything that's structurally different today other than maybe those payment terms I things that is -- there was a couple of years ago.

And this is also a dynamic that some of our competitors that are new to our industry are getting their heads around, we don't get to just decide what the bus looks like and build it, we've got to integrate that unique spec and requirements into a very very complex product and then you've got to build it, and then you go through a very sophisticated and detailed inspection process which every customer is different at.

So first question relates to with the rising environment and increased deliveries across the industry, are you guys seeing any input cost inflation or anything that would impact potentially the margins that are actually in the backlog currently because I know in the past you've mentioned the margins in the backlog are kind of consistent with 2017 levels?

I don't think there is anything we can point to other than maybe steel pricing but I'll go back to -- look steel pricing is going up and we were in a period of five, six years or whatever where it was crazy low and then we have the dealing with the dynamics of the tariffs or possible tariffs and so forth. But the -- in the materiality perspective, the cost of rough deal that we buy that puts into a bus is how much Glenn; $10,000 or $15,000.

And so if it goes out 10% or 15% or 20%, yes that has an impact on cost but it's not massively material. And because when we bid that bus, we went back to our supply chain and said sell me an axel, and in that act was that suppliers having to deal with the commodity prices.

So the next bus that we quote, they are going to give us a different price which we're then going to build into our COGS, and then we're going to manage our margin on top of that. But it's not as if I'm buying a whole bunch of commodities or raw material but have a differential -- a massive differential on my current backlog.

So then kind of fair to say that the margin profile this year would look similar to the last 12 months or just kind of what you guys are saying?

Yes, and then that caveat look at -- it's -- everything is different, right, and every customer is different and if it's a trolley bus where two of us are bidding compared with diesel bus where five of us are bidding, sure you're going to have margin differentials but nothing's systemically inside that bucket or that mix.

The next which would be on after-market; some of these new vendor managed industry programs you're talking about, as well as the recent MV transportation contract, are those going to effectively stabilize the revenue profile but at the cost of margins? And then what does that mean when you see lower margins, is that 20% [ph]?

That's absolutely part of that dynamic that's already inside some of our results because we do have some vendor managed inventory contract, so you absolutely trade-off -- let's call it not surety but confidence in volume or a differential margin. But at the same time there is a balance sheet impact because as we can -- we grow our inventory business or our MVMI business, we're now into planning inventories for an appropriate customer in volume rather than guessing who needs what and then having a whole bunch of stuff on the shelf that may or may not turn.

And so the deal with the one you just talked about, we -- you've got a dynamic where we're only selling certain parts of them today, now we've got a broader basket of parts which hopefully can drive up more volume, and yes there may be a margin trade-off. But that so far is a very small part of our business, it may grow.

And then in terms of the electric buses; plant capacity, obviously we said is not an issue but as the ramp-up of electrification happens is there going to be additional CapEx that needs to go into your facilities to convert to a greater proportion of electric vehicles on the production lines?

So we today in two of our three systems let's call it -- [indiscernible] and say cloud, and Aniston [ph] on the New Flyer side; two of the three are already capacitized to build an electric bus right beside a diesel bus or a natural gas bus. We, as part of our capital profile for this year and next, we will continue to make all those plans -- electric bus build or fuel cell bus build capable and those are a million here and a million there, it's not like that's $50 million or big dollars.

MCI exactly does the same thing; so it's all within our current capital extend that we've got planned.

Right, so no real change to the sustaining CapEx profile going forward, perfect. And then fair to say that as the existing capital investments come through, the ROIC heading into 2019 should directionally would kind of trend back upwards?

Yes.

Correct. Obviously, the investment comes first and the benefits later on so.

Great, thank you. Lisa, much appreciated.

Ladies and gentlemen, we really appreciate you calling in and the very detailed questions today. We look forward to speaking you -- speaking with you at the next quarter in August.

Have a great day.