National Bank analyst Cameron Doerksen report :Q2 results in line with pre-release NFI Group reported its results for Q2 ended June 30th. Recall that NFI pre-released Q2 revenue, EBITDA and backlog on July 25th. Overall results: highlights (all numbers in USD) • Revenue was $660 million versus both NBF and the consensus at $646 million. Manufacturing revenue was $522 million versus our estimate of $520 million. NFI delivered 931 new bus equivalent units in Q2 versus our forecast for 1,000 EUs (562 in Q2/22). Aftermarket revenue was $138 million versus NBF at $126 million. • Adjusted EBITDA was $12 million versus NBF at $10 million and in line with the pre-released range from July of $10-$12 million. Manufacturing EBITDA margin was -3.0% versus NBF at -2.0%. The Aftermarket margin was 21.5% versus NBF at 21.0%. • Reported adjusted loss per share was $0.46 versus NBF at a loss of $0.50 and the consensus for a loss of $0.49. • Liquidity stands at $82 million versus $124 million at the end of Q1 and NFI’s covenant level of $25 million. Backlog and active bids update • NFI’s backlog sits at 9,803 firm orders and options worth a record $6.7 billion (was 10,071 EUs at $6.7 billion at the end of Q1/23). Backlog average selling price is up 20% y/y. Active bids (submitted or in process) are up 33% y/y at 10,054 EUs. Supply chain update • NFI notes that it has seen an improvement in supply chain performance and is in the process of ramping up bus production rates. The number of its suppliers in the high-risk/severe impact category stood at nine at the end of July, stable versus the end of Q1 and down from 24 at the end of Q4/22. For required disclosures, please refer to the end of the document. 2 | Page Financing update - new private placement • NFI still expects to close its refinancing plan by the end of August. • New today is the announcement of an additional $38 million equity private placement to a single large global asset manager at a price of C$10.10/share, which is above the C$8.25 price for the previously completed private placement with Coliseum Capital and the subscription receipts. • NFI will also lower the size of the second lien loan to $180 million from $200 million which will lower interest costs by $2.9 million (at 14.5% interest rate). Guidance update • NFI has tweaked the lower end of its 2023 guidance up slightly and now expects $40-$60 million in EBITDA (was $30-$60 million) on $2.6-$2.8 billion in revenue (was $2.5-$2.8 billion). We currently forecast 2023 EBITDA of positive $43 million and the current consensus is $47 million. • There are no changes to the company's 2024 and 2025 financial targets. Our initial take: neutral We maintain our Outperform rating and C$15.00 target on NFI Group shares while we review our model. NFI management still needs to execute on its planned production ramp and there remain lingering risks around supply chain improvement (although we are encouraged to see supply chain performance improve in Q2). However, we believe the company is on track to see significantly better earnings and cash flows over the next two to three years supported by very strong end-market fundamentals. The closing of the refinancing plan later this month will provide balance sheet flexibility and should also free management to re-focus on operations. We value the stock by applying a 6.0x EV/EBITDA multiple to our 2025 forecast.