Mr. Paul Soubry reports

NFI ANNOUNCES SECOND QUARTER 2023 RESULTS AND UPDATE ON COMPREHENSIVE REFINANCING PLAN

NFI Group Inc. has released its unaudited consolidated financial results for the second quarter of 2023.

All figures are quoted in United States dollars unless otherwise noted.

Highlights:

• Q2 2023 revenue of $660-million. Delivered 931 equivalent units (EUs), with 25 per cent being battery and fuel-cell electric buses (ZEBs).
• Q2 2023 adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) of $12-million. Net loss of $48-million. Net loss per share of 62 cents and adjusted net loss per share of 46 cents.
• Ending liquidity position of $82-million, with a minimum liquidity requirement of $25-million. Ending total backlog position (both firm and options) of 9,803 EUs (valued at a record $6.7-billion). ZEB backlog now 3,491 EUs, or 36 per cent, of total backlog.
• Active North American public bid universe ended at 10,054 EUs, up 33 per cent year-over-year. ZEBs now represent 53 per cent of the total bid universe.
• Updated financial guidance for fiscal 2023 for revenue of $2.6-billion to $2.8-billion and adjusted EBITDA of $40-million to $60-million, other elements remain unchanged.
• Significantly advanced NFI's comprehensive refinancing plan, including entering into an additional $50.5-million (Canadian) (approximately $38.1-million) equity private placement of common shares of NFI with a leading global asset manager. Expect to complete all mutually conditional elements of the refinancing plan at the same time, prior to Aug. 31, 2023.

Key financial metrics of the quarter and for the last 12 months (LTM) are highlighted in the associated table.

"In the second quarter of 2023, we continued to see significant improvements in supply-chain performance, bus and coach deliveries, gross margins, and adjusted EBITDA. The aftermarket segment delivered another period of outperformance, with record quarterly adjusted EBITDA, and overall market demand remained very strong. During the quarter, we submitted our highest number of bids ever, and our quarter-end backlog reached a record $6.7-billion, with 36 per cent of backlog being zero-emission buses and coaches, up from just 20 per cent in the second quarter of last year.

"New contract pricing continues to improve, with the average sale price in our backlog up 20 per cent year-over-year, and we expect to complete and deliver nearly all remaining inflation-impacted legacy contracts before the end of 2023. We maintain our plan to significantly increase new vehicle production rates in the second half of the year, a process that started in earnest towards the end of the second quarter. As we ramp up production, we anticipate some temporary inefficiencies, but we see a path for significant margin growth in 2024 and 2025 from a combination of pricing improvements, higher delivery volumes, sales mix and enhanced operational performance.

"Our comprehensive refinancing plan is nearing completion, and we are pleased to announce an additional equity private placement of shares for approximately $38-million, which brings our total expected gross proceeds from all transactions of the plan to $443-million. When complete, this plan will help improve our liquidity and financial flexibility, improve our leverage profile, and provide appropriate covenants to support our recovery as we drive towards our goal of $400-million of adjusted EBITDA in 2025," said Paul Soubry, president and chief executive officer, NFI.

Refinancing plan and liquidity

The company continues to advance its comprehensive refinancing plan, and today announced that, as part of that plan, it has entered into subscription agreements with a leading global asset manager, whereby certain funds managed and/or advised by the investor have agreed to subscribe for and purchase from the company an aggregate of five million shares, on a private placement basis, at a subscription price of $10.10 per share for aggregate gross proceeds to NFI of $50.5-million (Canadian) (approximately $38,113,000).

The net proceeds from the August private placement will be used by the company to repay outstanding indebtedness under NFI's existing credit facilities, and for working capital and general corporate purposes. The shares to be issued in the August private placement will be subject to a four-month hold period in accordance with applicable securities law rules. Completion of the August private placement is subject to customary conditions, approval by the Toronto Stock Exchange and is conditional upon the concurrent completion of the other elements of the refinancing plan.

Following completion of the refinancing plan, NFI expects that it will have 118.9 million shares outstanding. NFI expects to close all elements of the refinancing plan concurrently, prior to Aug. 31, 2023.

Based on the expected proceeds from the August private placement, NFI intends to lower the gross proceeds from its proposed second lien debt financing from $200-million to approximately $180-million. This is expected to generate annual interest savings of up to $2.9-million per annum.

Upon close of the refinancing plan, the company will permanently reduce capacity under its secured facilities by $250-million, and receive additional liquidity of approximately $135-million to $140-million, as the company will lower carrying balances on its revolving credit facilities and increase cash on hand. A summary of the expected gross proceeds is provided in the associated table.

The company's liquidity position, which combines cash on hand plus available capacity under its credit facilities, without consideration given to the minimum liquidity requirement of $25-million, was $82-million as at the end of Q2 2023, down $43-million from the end of Q1 2023. The decrease in liquidity is primarily due to increased requirements for letters of credit (LOC) and increased debt drawings to support increased worked capital levels.

While NFI finalizes its refinancing plan, which is expected to significantly improve NFI's liquidity position, the company is focused on cash management, with expectations that working capital levels will be reduced in the second half of 2023 as the company lowers inventory levels, collects on receivable balances, and pursues advance payments and deposits from customers, wherever possible. The company's current focus on simultaneously reducing work in progress and ramping up production puts additional stress on liquidity.

To further support liquidity, subsequent to quarter-end, NFI received approval under its senior credit facilities to lower the minimum liquidity requirement from $25-million to $5-million, effective as of July 31, 2023, to Aug. 31, 2023. Postcompletion of the refinancing plan, the minimum liquidity requirement under the senior facilities will increase to $50-million. If the refinancing plan is not completed by Aug. 31, 2023, the company will require relief from the lenders under its senior secured facilities and potentially additional liquidity support. There can be no assurance that such relief or support will be available.

Segment results

Manufacturing segment revenue for Q2 2023 increased by $238-million, or 84 per cent, compared with Q2 2022. The increase was driven by higher new vehicle and preowned coach deliveries. NFI experienced significant improvement in supplier performance and on-time production during the quarter, supporting a 66-per-cent year-over-year increase in bus and coach deliveries. While there was improvement, quarterly and LTM deliveries are down relative to pre-COVID-19 levels, due to global supply chain challenges and related production inefficiencies.

Manufacturing adjusted EBITDA increased by $26-million, or 63 per cent, compared with Q2 2022. The increase was driven by higher overall deliveries, favourable sales mix and a lower number of legacy inflation-impacted contracts.

Aftermarket segment revenue for Q2 2023 of $138-million increased by $23-million, or 20 per cent, compared with Q2 2022, driven by increased volume in the North America region. Q2 2023 aftermarket adjusted EBITDA was $30-million, a $7-million, or 33-per-cent, year-over-year increase, stemming from improved sales volume and product mix.

Net loss, adjusted net loss and return on invested capital (ROIC)

Q2 2023 net loss of $48-million decreased by $8-million from Q2 2022, primarily due to higher overall deliveries, favourable sales mix and a lower number of legacy inflation-impacted contracts, offset by higher interest expense from higher carrying balances on the company's facilities and higher interest rates.

Q2 2023 adjusted net loss of $35-million compared with Q2 2022 adjusted net loss of $48-million. The decrease in adjusted net loss was driven by the same items that impacted adjusted EBITDA and net loss, with several one-time costs in 2022 related to insurance, pension and restructuring that did not repeat in 2023.

LTM Q2 2023 ROIC increased by 1 per cent from LTM 2023 Q1, due to the increase in adjusted EBITDA and by a lower invested capital base. The decrease in invested capital is primarily due to a decrease in shareholders equity, partially offset by increases in long-term debt.

Outlook

NFI anticipates positive improvements to revenue, gross profit, adjusted EBITDA and free cash flow, reduction in net loss, and improvement in ROIC as it delivers on its backlog, and benefits from record government investments in public transportation, and growing demand for its buses, coaches, parts and Infrastructure Solutions services.

Market demand is evident through the high volume of active bus and motor coach procurements in both North America and international markets. As of Q2 2023, the company's North American active bids remained high at 10,054 EUs. This bid activity is expected to drive additional backlog growth in the second half of 2023 and throughout 2024. The current five-year forecasted demand within the company's North American bid universe is also strong at 21,569 EUs, and, when combined with active bids, provides a record total bid universe of 31,623 EUs.

In addition to the increased numbers of bids for ZEBs, the number of EUs per bid has increased, as transit agencies are progressing from pilot or trials, to more active deployment and operation of ZEB fleets. NFI expects active ZEB bids to remain high through the coming years, based on strong government funding levels.

While certain supply chain challenges continue, and have impacted NFI's operating and financial performance, the company has seen signs of significant improvement in the first half of 2023. The number of moderate- and high-risk suppliers within NFI's supply base has decreased, and, when combined with actions taken by NFI, on-time supplier delivery performance has improved, supporting expected increases to 2023 production volumes. Higher production allows NFI to absorb less fixed overhead on a per-unit basis.

NFI is maintaining its plan to increase new vehicle production rates in the second half of 2023, subject to continued and sustained supply performance, and anticipates it will hire approximately 100 additional direct labour team members before the end of 2023. This will be a phased approach, with gradual head count additions throughout the second half of the year, driving improvements to new vehicle starts and deliveries. NFI anticipates that it will experience some temporary production inefficiencies as it ramps up production of new vehicles.

Gross margins and other profitability metrics are expected to improve as NFI increases production rates, delivers more vehicles and completes the remaining inflation-impacted legacy contracts, originally bid in 2020 and 2021, in 2023. The company has experienced signs of inflation easing during the first half of 2023 and anticipates that newer contracts in NFI's backlog now reflect appropriate, inflation-adjusted pricing.

Financial guidance and targets

NFI updates its financial guidance for fiscal 2023, including revenue of $2.6-billion to $2.8-billion (previous: $2.5-billion to $2.8-billion) and adjusted EBITDA of $40-million to $60-million (previous: $30-million to $60-million). Anticipated ZEBs as a percentage of manufacturing sales and cash capital expenditures remain unchanged for 2023. NFI also reaffirms its fiscal 2024 and 2025 targets, as presented on March 1, 2023.

Please review the company's March 1, 2023, press release, and the Q4 2022 and fiscal year MD&A (management's discussion and analysis) for details on the assumptions that drive fiscal 2023 and fiscal 2024 guidance, and 2025 targets, as well as certain applicable risks. Management's expectations regarding financial guidance and targets herein are also subject to the risks and other factors referred to in Appendix B.

The 2023 and 2024 guidance ranges, and the 2025 targets, provided herein are driven by numerous expectations and assumptions, including, but not limited to, the following:

• Revenue: Anticipated revenue growth in 2023, 2024 and 2025 is based on year-to-date results, NFI's firm order backlog, current 2023 and 2024 production schedules, expected backlog option order conversion, and anticipated 2023, 2024 and 2025 new vehicle orders and aftermarket parts sales. Revenue guidance and targets reflect higher volume of ZEB sales and anticipated product mix benefits, plus expected international sales expansion. The guidance ranges also reflect potential variances in delivery volumes from supply disruption, product mix and expected timing of production recovery driving improved efficiency in the second half of 2023, and fiscal 2024 and fiscal 2025.
• Adjusted EBITDA: Adjusted EBITDA performance is driven by 2023 year-to-date results, anticipated recoveries in new vehicle deliveries, changes to product mix, a higher percentage of ZEB deliveries and improved operating margins, especially from the second half of 2023 onward, due to anticipated recovery in supply-chain health. While there will be some impact to margins in 2023 from legacy inflation-impacted contracts, contracts secured in the second half of 2022 and in fiscal 2023 reflect updated pricing and improved margins.
• The ranges for ZEBs as a percentage of manufacturing sales are based on year-to-date results combined with existing firm backlog, active bids and anticipated future orders. Cash capital expenditures are based on investments made in 2023, and expected future maintenance and growth projects.

Guidance and targets herein are conditional on several factors and expectations, including the recovery of supply chain performance, a higher percentage of ZEB sales (which provide a higher revenue and dollar margin benefit), the mitigation of inflationary pressures, end-markets recovering in line with management expectations, international expansion, aftermarket parts sales, continuous improvement initiatives and completion of the refinancing plan. There can be no assurance that the refinancing plan will be completed on the terms disclosed or otherwise.

NFI's guidance and targets are subject to the risk of extended duration of the current supply disruptions and the risk of additional supply disruptions affecting particular key components. In addition, the guidance and targets do not reflect potential escalated impact on supply chains, or other factors arising directly or indirectly as a result of the continuing Russian invasion of Ukraine. Although NFI does not have direct suppliers based in Russia or Ukraine, additional supply delays and possible shortages of critical components may arise as the conflict progresses, and if certain suppliers' operations and/or subcomponent supply from affected countries are disrupted further. In addition, there may also be further general industry-wide price increases for components and raw materials used in vehicle production, as well as further increases in the cost of labour and potential difficulties in sourcing an increase in the supply of labour.

Environmental, social and governance

In May, 2023, NFI released its environmental, social and governance (ESG) report for 2022, which updated key performance indicators, highlights for 2022 and ESG priorities for 2023, as well as some specific projects and initiatives the company undertook in the year. The report focuses on the three main components of NFI's sustainability pledge, first adopted in 2006: "Better product. Better workplace. Better world," which guides the company's daily actions and long-term planning. The ESG report for 2022 can be found at the company's website.

In June, 2023, NFI announced that it had been ranked among Corporate Knights' Best 50 Corporate Citizens in Canada for the second consecutive year. The Best 50 Corporate Citizens in Canada highlights companies that outperform their peers in corporate sustainability leadership.

Second quarter 2023 results conference call and filing

NFI intends to release its second quarter 2023 financial results on Wednesday, Aug. 16, 2023, prior to market open. A conference call for analysts and interested listeners will be held on Aug. 16, 2023, from 8:30 a.m. ET until approximately 9:30 a.m. ET. An accompanying results presentation will be available prior to market open on Aug. 16, 2023, at the company's website.

For attendees who wish to join by webcast, registration is not required: The event can be accessed on-line. NFI encourages attendees to join via webcast, as the results presentation will be presented and users can also submit questions to management through the platform.

Attendees who wish to join by phone must visit preregister on-line. An e-mail will be sent to the user's registered e-mail address, which will provide the call-in details. Due to the possibility of e-mails being held up in spam filters, NFI highly recommends that attendees wishing to join via phone register ahead of time to ensure receipt of their access details.

A replay of the call will be accessible on-line from about 12 p.m. ET on Aug. 16, 2023, until 11:59 p.m. ET on Aug. 15, 2024. The replay will also be available on NFI's website.

About NFI Group Inc.

Leveraging 450 years of combined experience, NFI is leading the electrification of mass mobility around the world. With zero-emission buses and coaches, infrastructure, and technology, NFI meets today's urban demands for scalable smart mobility solutions. Together, NFI is enabling more livable cities through connected, clean and sustainable transportation.

With 7,700 team members in 10 countries, NFI is a leading global bus manufacturer of mass mobility solutions under the brands New Flyer (heavy-duty transit buses), MCI (motor coaches), Alexander Dennis Ltd. (single- and double-deck buses), Plaxton (motor coaches), Arboc (low-floor cutaway and medium-duty buses) and NFI Parts. NFI currently offers the widest range of sustainable drive systems available, including zero-emission electric (trolley, battery and fuel cell), natural gas, electric hybrid and clean diesel. In total, NFI supports its installed base of over 100,000 buses and coaches around the world.

We seek Safe Harbor.