Mr. Paul Soubry reports

NFI ANNOUNCES THIRD QUARTER 2023 RESULTS

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

Highlights (all figures are quoted in U.S. dollars unless otherwise noted):

• Q3 2023 revenue of $710-million, with 1,051 equivalent units (EUs) delivered, up 34 per cent from Q3 2022, with 23 per cent of deliveries being battery-electric and fuel-cell-electric buses (ZEBs);
• Net loss of $40-million; net loss per share of 42 cents and adjusted net loss per share of 41 cents; Q3 2023 adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) of $11-million;
• Ending liquidity position of $170-million;
• Ending total backlog position (both firm and options) of 9,556 EUs (valued at $6.6-billion); ZEB backlog now at 3,456 EUs, or 36 per cent of total backlog;
• Active North American public total bid universe ended at 10,361 EUs, up 3 per cent year over year; ZEBs now represent 52 per cent of the total bid universe;
• Updated financial guidance for fiscal 2023 for revenue of $2.7-billion to $2.8-billion and adjusted EBITDA of $45-million to $65-million; other elements remain unchanged;
• Completed NFI's comprehensive refinancing plan in August, 2023.

Key financial metrics of the quarter and for the last 12 months are highlighted in an attached table.

"The completion of our comprehensive refinancing plan has set the stage for NFI's recovery, and we look forward to displaying our resiliency as we work to ramp up our manufacturing production through 2024, capitalize on aftermarket outperformance, and deliver revenue, gross margin and profitable growth," said Paul Soubry, president and chief executive officer of NFI. "The third quarter saw new order growth and improvements in both vehicle deliveries and margin performance, with the aftermarket segment delivering its third consecutive quarter of record adjusted EBITDA. Customer demand remains at record levels with a heightened bidding environment and backlog of $6.6-billion, with over 36 per cent of backlog being zero-emission buses and coaches. In addition, we had over 1,800 EUs of pending awards that will help drive additional backlog growth.

"New contract pricing was another positive, with the average sale price in NFI's backlog up 20 per cent year over year. We plan to complete and deliver the majority of the remaining inflation-impacted legacy contracts in 2023, although a small percentage of impacted units will carry into the first half of 2024. While supply chains have not returned to prepandemic performance, there has been significant improvement, allowing us to increase new vehicle production rates through the third quarter, which is expected to continue in the fourth quarter of 2023 and into 2024.

"We expect to see temporary inefficiencies as we ramp up our production, and we are also continuing efforts to lower work-in-process inventory and accelerate customer acceptance programs. Due to the timing of these efforts, we may see impacts to margins and overall working capital cash inflows in the near term. Looking forward, 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."

Refinancing plan and liquidity

NFI's completed refinancing plan generated total gross proceeds of $444-million, extended the maturity of the company's senior credit facilities to April, 2026, and resulted in covenant relief under the company's senior credit facilities in 2023, 2024 and 2025 to support NFI's operational recovery.

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 $50-million), was $170-million as at the end of Q3 2023, up $88-million from the end of Q2 2023. The liquidity position reflects the contributions from the refinancing plan plus the impact of a $250-million reduction in capacity under NFI's senior credit facilities. In addition to the continued focus on reducing work-in-process buses awaiting parts and buses delivered but not yet accepted, NFI continues to carry higher inventory balances of raw materials to assist in preventing future supply shortages.

NFI remains focused on cash management and efforts to address heightened inventory and accelerate collections of receivable balances. The working capital benefits from these efforts will be somewhat offset by investments in additional working capital to support manufacturing production ramp-up and to mitigate supply chain risks.

Segment results

Manufacturing segment revenue for Q3 2023 increased by $171-million, or 43 per cent, compared with Q3 2022, driven by higher new vehicle deliveries across all NFI product lines. While quarterly deliveries have seen improvement both year over year and sequentially from Q2 2023, they have been impacted by supply chain challenges and related production inefficiencies. These challenges are largely the result of suppliers recovering from the impacts of the COVID-19 pandemic.

Manufacturing adjusted EBITDA increased by $23-million, or 61 per cent, compared with Q3 2022. The increase was driven by higher deliveries, favourable sales mix and a lower number of legacy inflation-impacted contracts. Manufacturing adjusted EBITDA as a percentage of revenue showed continued improvement, increasing from negative 9.3 per cent in Q3 2022 to negative 2.5 per cent in Q3 2023.

At the end of Q3 2023, the company's total backlog (firm and options) of 9,556 EUs decreased from 9,803 units as of the end of Q2 2023 but was up over 1,000 EUs from Q3 2022. The decrease was primarily driven by higher deliveries, somewhat offset by awards in the quarter and fewer cancellations/expiries. The third quarter is generally a slower period due to transit agency approval processes. Award timing also impacted backlog as NFI's bid award pending, where approval of the award to NFI had been made but purchase documentation had not yet been received and therefore not yet included in the backlog, was 1,834 EUs (firm and option orders), up from 719 as of the end of Q2 2023. These pending awards are expected to drive additional backlog growth in the fourth quarter of 2023.

Backlog for Q3 2023 has a total dollar value of $6.6-billion, and the average price of an EU in backlog is now $690,000, a 20-per-cent increase from Q3 2022.

Aftermarket segment revenue for Q3 2023 of $143-million increased by $25-million, or 21 per cent, compared with Q3 2022, driven by increased volume in North America in both the public and private markets and the impacts of inflation on pricing. In Q3 2023, aftermarket adjusted EBITDA was $32-million, an increase of $14-million, or 74 per cent, year over year, stemming from improved sales volume and product mix. Aftermarket adjusted EBITDA as a percentage of revenue was also very strong at 22.2 per cent, compared with 15.4 per cent for the same period in 2022.

Net loss, adjusted net loss and return on invested capital

In Q3 2023, the net loss of $40-million was essentially flat with Q3 2022, improving by 1 per cent, with improvements in vehicle deliveries, revenue, adjusted EBITDA and favourable sales mix, offset somewhat by higher interest and financing costs on elevated debt levels and higher interest rates. In addition, the company also had fair market value losses on the adjustment to the company's interest rate swaps and cash conversion option on the company's convertible debentures.

Adjusted net loss for Q3 2023 of $38-million improved from Q3 2022 adjusted net loss of $46-million, driven by the same items that impacted adjusted EBITDA and net loss, adjusted for fair market losses and gains related to the company's interest rate swaps and refinancing plan, plus other normalization adjustments, including non-recurring restructuring and equity swap settlement fees.

LTM (last 12 months) Q3 2023 return on invested capital (ROIC) increased by 1 per cent from LTM Q2 2023, primarily due to the increase in adjusted EBITDA and a slight decrease in the invested capital base. The decrease in invested capital is primarily due to a decrease in long-term debt, offset by increases in cash and shareholder equity as a result of the completion of the refinancing plan. Also contributing to the decrease in invested capital was the sale of the company's interest rate swaps.

Outlook

NFI anticipates positive improvements to revenue, gross profit, adjusted EBITDA and free cash flow, a shift to net profit, and improvement in ROIC in the medium term to longer term as it delivers on its backlog and benefits from record government investments in public transportation and growing demand for its buses, coaches, aftermarket parts, and infrastructure solutions services.

Market demand is evident through the high volume of active bus and motorcoach procurements in both North America and international markets. As of Q3 2023, the company's North American public active bids, which includes bids in process plus those submitted to customers, remained high at 10,361 EUs. This bid activity is expected to drive additional backlog growth in the fourth quarter of 2023 and throughout 2024. The current five-year forecasted demand within the company's North American bid universe is also strong at 21,321 EUs and, when combined with active bids, provides a record total bid universe of 31,682 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 pilots or trials of ZEBs 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 supporting state, provincial and municipal ZEB adoption targets. In Q3 2023, NFI also saw an increase in orders for ARBOC and MCI vehicles, up 93 per cent and 47 per cent year over year, respectively. NFI was especially encouraged by the growth in MCI demand within the private sector.

NFI's overall supply base continues to improve, and the company has seen the number of moderate and high-risk suppliers decrease. NFI is working closely with its suppliers to monitor performance and, due to the company's strong order book, has been able to provide longer-term visibility to suppliers well into 2024. The improvement of on-time supplier delivery performance, combined with actions taken by NFI's supply and sourcing teams, supports expected increases to 2023 and 2024 production volumes.

NFI has commenced the increase of new vehicle production rates and is hiring new team members. The company has seen success in these actions and added over 240 direct and indirect team members in the third quarter of 2023, primarily focused in North America. While there has been positive improvement, the labour market within the United States and the United Kingdom remains challenging. NFI intends to continue to ramp up production and add personnel on a phased approach with gradual head count additions throughout 2023 and in 2024 to achieve its targets.

Gross margins and other profitability metrics are expected to improve in line with increases in production rates, increases to bus and coach deliveries, the reduction of work-in-progress vehicle inventory, and the completion of the remaining inflation impacted legacy contracts, originally bid in 2020 and 2021. NFI anticipates that the majority of these legacy contracts will be delivered in 2023 and expects that less than 5 per cent of deliveries in the first half of 2024 will be legacy inflation-impacted contracts. The company has also experienced signs of commodities and material costs easing during the first three quarters of 2023 and anticipates that newer contracts in NFI's backlog now reflect appropriate, inflation-adjusted costing and pricing.

Financial guidance and targets

NFI has updated its financial guidance for fiscal 2023: revenue of $2.7-billion to $2.8-billion (previous: $2.6-billion to $2.8-billion) and adjusted EBITDA of $45-billion to $65-million (previous: $40-billion to $60-million); anticipated ZEBs as a percentage of manufacturing sales and cash capital expenditures remain unchanged for 2023. NFI has also reaffirmed its fiscal 2024 and 2025 targets, as presented on March 1, 2023.

Please review the company's March 1, 2023, press release and the 2022 Q4 and Fiscal Year MD&A 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 above 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 above 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 backlog2, current 2023 and 2024 production schedules, expected backlog2 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, higher average vehicle prices in NFI's backlog2 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 2: 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, aftermarket segment contributions and anticipated improvements in operating margins due to recovery in supply chain health, improved labour efficiency and higher average vehicle sales prices. While there will be some impact to margins in 2023 and H1 2024 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 backlog2, 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 above are conditional on several factors and expectations, including the recovery of supply chain performance, consistent availability of labour, a higher percentage of ZEB sales (which provide a higher revenue and dollar margin benefit), the mitigation of inflationary pressures, end markets recovering inline with management expectations, international expansion, aftermarket parts sales, and continuous improvement initiatives.

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 ongoing conflicts in Ukraine, Russia, Israel and Palestine. Although NFI does not have direct suppliers in these regions, additional supply delays, possible shortages of critical components or increases in raw material costs may arise as the conflicts progress 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. See Appendix B Forward Looking Statements for risks and other factors and the company's filings on SEDAR.

Third Quarter 2023 Results Conference Call and Filing

A conference call for analysts and interested listeners will be held on November 8, 2023, from 8:30 a.m. Eastern Time (ET) until approximately 9:30 a.m. ET. An accompanying results presentation will be available prior to market open on November 8, 2023 at www.nfigroup.com .

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 the following link and pre-register on-line. An email will be sent to the user's registered email address, which will provide the call-in details. Due to the possibility of emails being held up in spam filters, we highly recommend 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 from about 12:00 p.m. ET on November 8, 2023, until 11:59 p.m. ET on November 7, 2024, on-line. The replay will also be available on NFI's website at: www.nfigroup.com .

About NFI Group

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 over 8,200 team members in ten countries, NFI is a leading global bus manufacturer of mass mobility solutions under the brands New Flyer(TM) (heavy-duty transit buses), MCI(TM) (motor coaches), Alexander Dennis Limited (single and double-deck buses), Plaxton (motor coaches), ARBOC(TM) (low-floor cutaway and medium-duty buses), and NFI Parts(TM). 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. NFI's Shares trade on the Toronto Stock Exchange ("TSX") under the symbol NFI, and its Debentures trade on the TSX under the symbol NFI.DB.

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