NFI Group Inc T.NFI

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ORIGINAL: NFI provides market and supply chain update with revisions to full year guidance

 

2022-04-29 08:19 ET - News Release

 

• Shortages of critical microprocessor modules expected to result in lower-than-planned deliveries in the second and third quarters of 2022.
• Lowering financial guidance for Fiscal 2022¹ with expected Adjusted EBITDA² range of $15 million to $45 million primarily due to supply chain challenges.
• Potential for an up to $200 million temporary increase in work-in-process inventory from bus delivery delays.
• Current liquidity³ of over $600 million to navigate near-term challenges.
• Negotiations with banking partners on credit relief continue to progress with amendments expected to be finalized in the second quarter.
• Strong demand environment with year-over-year order growth of 45% in 2022 Q1⁴, increasing bid activity, and the release of record government funding grants for zero-emission vehicles in the United States.

WINNIPEG, Manitoba, April 29, 2022 (GLOBE NEWSWIRE) -- (TSX: NFI, OTC: NFYEF, TSX: NFI.DB) NFI Group Inc. ("NFI" or the "Company"), a leading independent bus and coach manufacturer and a leader in electric mass mobility solutions, today announced an update on market conditions and supply chain disruptions resulting in revised full year guidance for Fiscal 2022. All amounts shown in this press release are in United States dollars unless otherwise indicated.

"Across NFI we continue to see strong demand for our market leading products and services, driven by record investments in public transit and the transition to zero-emission vehicles. In addition, our Aftermarket business has continued to provide a steady foundation and strong cash generation. Offsetting these positives are the continued challenges of supply chain disruption and heightened inflation impacting our manufacturing businesses. Our people are doing everything they can to address these issues by going multiple levels down into our supply chains, using alternative components, and working directly with customers on delivery schedules and pricing adjustments," said Paul Soubry, President and Chief Executive Officer, NFI.

"A vehicle can only be shipped when it is 100% complete, and we were recently notified by our supplier that we will see shortages of critical microprocessor control modules for our North American transit buses during the second and third quarters of 2022. This disruption will require that we build and hold some vehicles in inventory that will not have these control modules installed. We have been advised by our supplier that it will start shipping the affected control modules in August. Once received, the modules will be installed on the waiting vehicles for expedited delivery," said Chris Stoddart, President, North American Bus and Coach, NFI.

NFI will provide more details regarding the matters referred to in this press release in its 2022 Q1 Management's Discussion & Analysis which will be released on May 5, 2022.

^{______________________________
1} Fiscal 2022 refers to the period from January 3, 2022, to January 1, 2023.
² This is a non-IFRS financial measure. See Appendix A.
³ This is a non-IFRS measure. See Appendix A. As of April 28, 2022.
⁴ 2022 Q1 refers to the 13-week period ended April 2, 2022.

Supply Chain Disruption

Global supply chains remain disrupted, with a shortage of microprocessors being a primary driver, impacting manufacturers around the world. NFI's production rates in 2021 and year-to-date in 2022 have been significantly impacted by these macro challenges. NFI was recently notified by the Company's primary North American multiplexing control module supplier that it will be unable to provide consistent module supply in the second and third quarters of 2022 due to microprocessor shortages. The control module is a critical component for vehicle operations, and this shortage will impair NFI's production of North American transit buses. NFI is working with alternative suppliers and other microprocessor sources to address this disruption and assist in production recovery plans. The Company has seen some success from those efforts but anticipates that it will need to lower production at select facilities and build and hold a number of vehicles in inventory in the second and third quarters. This is expected to grow inventory by as much as $200 million on a temporary basis until modules can be installed and vehicles can be safely delivered to customers.

This module disruption will not impact NFI's North American aftermarket parts businesses or its international operations.

Market Demand

During the first quarter of 2022, NFI continued to see strong demand for its products and services driven by record investments in public transit in Canada, the United States, and the United Kingdom. Highlights include:

• NFI received new firm and option orders of 1,407 EUs in the quarter and had an ending total backlog of 8,908 EUs, representing 4% year-over-year growth.
• 4,919 EUs of new firm and option orders in the last twelve months ending April 2, 2022, an increase of 45% when compared to the same four quarter period ending March 28, 2021.
• North American bid universe¹ at 26,371 EUs, up 12% year-over-year, with 5,562 EUs coming from active procurements; active bids up 18% year-over-year; active bids up 18% year-over-year.
• The Federal Transit Administration in the United States launched the $1.1 billion Low or No Emission competitive grant program for low and zero-emission buses for 2022, a 495% increase from the 2021 grant program.

Due to NFI's growing backlog, expected new orders, and continued strong market demand, NFI is well-positioned to achieve significantly improved financial performance in late 2022 and into 2023 as supply chain reliability and components availability are expected to improve. To ensure NFI continues to deliver for its customers and maintains the ability to recover and capitalize on this strong demand, NFI intends to maintain staffing at appropriate levels as it navigates through the near-term supply chain challenges.

Credit Facility Covenant Relief and Focus on Cash Conservation

NFI continues to advance negotiations with its banking partners and expects to obtain covenant amendments on its credit facilities. Discussions have been supportive, and detailed plans are being evaluated that would see new covenant levels appropriate for NFI's updated financial projections.

NFI's liquidity position is currently over $600 million as of April 28, 2022. The need for covenant amendments is primarily being driven by lower trailing Adjusted EBITDA combined with the Company's anticipated financial performance and debt profile making it a calculation issue, rather than a liquidity or cash consumption related challenge.

NFI estimates that its current liquidity is more than adequate to support the Company's operations as it works through the current supply chain disruption, including planned temporary heightened investments in work-in-process inventory for vehicles being built that are awaiting module installation.

Management believes that, with the anticipated covenant relief, the Company's cash position and capacity under its existing credit facilities, combined with anticipated future cash flows and access to capital markets, will be sufficient to fund operations, meet financial obligations as they come due, and provide the funds necessary for capital expenditures, dividend payments and other operational needs. See "Forward-Looking Statements".

2022 Financial Guidance

Reflecting challenging year-to-date results and expected supply chain disruptions through the third quarter, combined with a lower than previously planned increase in production rates in the second half, NFI is lowering its 2022 financial guidance for revenue and Adjusted EBITDA and adjusting the expected seasonality. The adjusted guidance is as follows:

Fiscal 2022 Financial Guidance
Revenue	$2.3 billion to $2.6 billion
ZEB (electric) as a percentage of manufacturing sales	20% to 25% (unchanged)
Adjusted EBITDA5	$15 million to $45 million
Cash Capital Expenditures - including NFI Forward	$25 million to $35 million (unchanged)
Seasonality	Anticipate negative Adjusted EBITDA in the first three quarters with positive Adjusted EBITDA in the fourth quarter

5. Non-IFRS financial measure. See Appendix A.

The above table outlines guidance ranges for selected Fiscal 2022 consolidated financial metrics. These ranges take into consideration management's current outlook combined with year-to-date results and are based on the assumptions set out below. The purpose of the financial guidance is to assist investors, shareholders, and others in understanding management's expectations for the Company's financial performance in Fiscal 2022. The information may not be appropriate for other purposes. Information about guidance, including the various assumptions underlying it, is forward-looking and should be read in conjunction with the section "Forward-Looking Statements" and the related disclosure and information about various assumptions, factors, and risks that may cause actual future financial and operating results to differ from management's current expectations.

The guidance provided above is driven by numerous expectations and assumptions including, but not limited to, the following:

1. Revenue: Anticipated year-over-year revenue growth of up to 11% to be driven by a higher volume of ZEB sales and product mix. Guidance range lowered to reflect changes to planned vehicle production rates and delivery schedules.
    
2. ZEB Sales: Expected growth in the percentage of ZEB sales is based on the Company's backlog and expected new orders driven by increased market demand for zero-emission vehicles.
    
3. Adjusted EBITDA: Adjusted EBITDA is expected to decrease year-over-year, as the Company does not expect to receive any government wage subsidies in 2022 (the Company received $56 million in government wage subsidies in Fiscal 2021). In addition, Adjusted EBITDA is expected to be depressed due to operational inefficiencies resulting from ongoing supply chain disruptions lowering production rates, with more pronounced impact in the first three quarters of 2022. In addition, there are expected to be ongoing inflationary pressures on components and raw materials, and lost time related to the ongoing global pandemic. Finally, NFI now expects that production rates will be lower than originally planned in the second half of 2022 due to ongoing supply chain disruption. Offsetting these items is an expected positive contribution of savings generated through the NFI Forward initiative, which is now generating approximately $63 million of annualized savings.

NFI's revised guidance for 2022 is subject to the risk of extended duration of the current disruptions and the risk of additional supply disruptions affecting other components. In addition, the revised guidance does not reflect potential escalated impact on supply chains or other factors arising directly or indirectly as a result of the Russian invasion of Ukraine, or disruption from lockdowns in China and other jurisdictions. 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 general industry-wide price increases for components and raw materials used in vehicle production, as well as increases in the cost of labor and potential reductions in the supply of labour. See "Forward Looking Statements".

Conference Call

A conference call for analysts and interested listeners will be held on April 29, 2022 at 9:00 a.m. Eastern Time (ET). The call-in number for listeners is 1-833-562-0121 or 1-661-567-1097, passcode number 3581201. A live webcast of the call and presentation will also be available at: https://edge.media-server.com/mmc/p/zebnxs8b