Significantly improved results in the third quarter of 2020
as NFI manages through the ongoing COVID-19 pandemic. Performance
as follows:
- In 2020 Q3, NFI delivered 1,317 EUs with total revenue of
$663.9 million, Adjusted EBITDA of
$60.9 million and Free Cash Flow of
$27.4 million, or C$0.58 per Share.
- Net loss of $24.9 million, or
$(0.40) per Share in the quarter
driven by restructuring charges associated with NFI Forward
initiatives and a one-time, non-cash mark-to-market adjustment from
the October 2020 sale of pre-owned
motor coach assets, which generated approximately $19 million of cash.
- Adjusted Net Earnings of $5.7
million, or $0.09 per Share,
normalized for $17.5 million of
non-recurring restructuring charges and $16.8 million of COVID-19 related
charges.
- NFI declared dividends of C$13.3
million in the quarter.
- Quarter ending Backlog position of 8,882 EUs (valued at
$4.5 billion), consisting of both
firm and option orders.
- Quarter ending liquidity position of $414 million. NFI remains focused on deleveraging
balance sheet and is working closely with banking partners on an
extended covenant relief package providing additional flexibility
in 2021.
- Management reiterates Fiscal 2020 Adjusted EBITDA guidance
of $145 million to $155 million. NFI Investor Day scheduled for
January 11, 2021 to present business
updates, NFI's industry leading zero-emission bus roadmap and
provide the Company's financial outlook.
All figures quoted in US dollars unless otherwise noted:
WINNIPEG, MB, Nov. 11, 2020 /PRNewswire/ - (TSX:NFI) NFI
Group Inc. ("NFI" or the "Company"), one of the world's
leading independent bus manufacturers, today announced its
financial results for 2020 Q3.
2020 Q3 Key financial metrics are highlighted below:
|
|
|
|
|
(unaudited, in
millions except per Share amounts)
|
2020
Q3
|
Change(3)
|
2020 Q3
LTM
|
Change(3)
|
|
|
|
|
|
Deliveries
(EUs) (1)
|
1,317
|
(75)
|
4,986
|
390
|
|
|
|
|
|
IFRS
Measures
|
|
|
|
|
Revenue
|
$663.9
|
$(61.5)
|
$2,625.3
|
$(12.3)
|
Net earnings
(loss)
|
(24.9)
|
(23.9)
|
(132.1)
|
(198.5)
|
Net earnings (loss)
per Share
|
(0.40)
|
(0.38)
|
(2.11)
|
(3.18)
|
|
|
|
|
|
Non-IFRS
Measures(2)
|
|
|
|
|
Adjusted
EBITDA
|
$60.9
|
$(16.0)
|
$196.6
|
$(101.6)
|
Adjusted Net Earnings
(Loss)
|
5.7
|
(9.3)
|
(24.5)
|
(140.2)
|
Adjusted Net Earnings
(Loss) per Share
|
0.09
|
(0.15)
|
(0.39)
|
(2.26)
|
Free Cash
Flow
|
27.4
|
(10.2)
|
47.5
|
(106.3)
|
Liquidity
|
$414.5
|
327.9
|
$414.5
|
327.9
|
(1)
|
EUs One equivalent
unit (or "EU") represents one production slot, being one 30-foot,
35-foot, 40-foot, 45-foot heavy-duty transit bus, one double deck
bus, one medium-duty bus, one cutaway bus or one motor coach,
whereas one articulated transit bus represents two equivalent
units
|
(2)
|
Adjusted EBITDA,
Adjusted Net Earnings (Loss), Adjusted Net Earnings (Loss) per
Share and Free Cash Flow are not recognized earnings measures and
do not have standardized meanings prescribed by IFRS. Therefore,
they may not be comparable to similar measures presented by other
issuers. See "Non-IFRS Measures" and detailed reconciliations of
IFRS Measures to Non-IFRS Measures in the Appendix of this press
release.
|
(3)
|
Results noted herein
are for the 13-week period ("2020 Q3") and the 52-week period
("2020 Q3 LTM") ended September 28, 2020. The comparisons reported
in this press release compare 2020 Q3 and 2020 Q3 LTM to the
13-week period ("2019 Q3") and the 52-week period ended September
29, 2019 ("2019 Q3 LTM"). Comparisons and comments are also made to
the 13-week period ("2019 Q4") ended December 29, 2019 and the
13-week period ended June 28, 2020 ("2020 Q2"). Readers are advised
to view the unaudited interim condensed consolidated financial
statements (the "Financial Statements") and the related
Management's Discussion and Analysis (the "MD&A") that are
available at the Company's website at:
https://www.nfigroup.com/investor-relations/performance-reports/
and under the Company's profile on www.sedar.com
|
Manufacturing segment revenue for 2020 Q3 decreased
by $49.9 million, or 8.1%, compared
to 2019 Q3, but increased by 127.8% from 2020 Q2. The
year-over-year decrease is primarily driven by the impact of lower
production and deliveries of transit buses and motor coaches all
attributable to the economic impacts of the COVID-19 pandemic. 2020
Q3 Manufacturing Adjusted EBITDA decreased by $16.9 million, or 27.5%, compared to 2019 Q3 as
the Company successfully lowered its variable production costs, but
results were impacted by reduced fixed cost absorption due to lower
sales. Manufacturing Adjusted EBITDA was up by $77.0 million from 2020 Q2.
At the end of 2020 Q3, the Company's total backlog (firm and
options) was 8,882 EUs (valued at $4.5
billion) a decrease compared to 10,004 EUs (valued at
$4.9 billion) at the end of 2020
Q2. The decrease was driven by deliveries in the quarter,
delays in new awards within North American and UK transit
operations, offset by some new orders.
Aftermarket segment revenue for 2020 Q3 decreased by
$11.6 million, or 10.6%, compared to
2019 Q3, but increased by 15.3% from 2020 Q2. The year-over-year
decline in revenue was primarily driven by lower parts sales for
both the NFI Parts and the ADL Parts businesses. 2020 Q3
Aftermarket adjusted EBITDA increased by $0.3 million compared to 2019 Q3, or 1.8%, with
lower volumes offset by lower operating costs at ADL. Aftermarket
Adjusted EBITDA was up by $4.6
million from 2020 Q2.
Net Earnings and Adjusted Net Earnings
The third quarter of 2020 saw a net loss of $24.9 million, a decrease of $23.9 million from 2019 Q3, driven by lower
revenues combined with higher general and administration
("SG&A") costs due to one-time restructuring charges, which
were offset somewhat by income tax recoveries and unrealized
foreign exchange gains. The net loss also included a one-time,
non-cash $20.4 million charge related
to an impairment of pre-owned motor coaches reflecting the value of
the transaction whereby MCI sold its pre-owned coach pool to a
third party subsequent to quarter-end for proceeds of approximately
$19 million. Losses from operations
were partially offset by government grants of $14.8 million received through the Canadian
Emergency Wage Subsidy ("CEWS") and the UK Job Retention ("UK
Furlough") program.
2020 Q3 Adjusted Net Earnings of $5.7
million was adjusted for $17.5
million in severance and restructuring costs, $16.1 million in inventory impairment, including
the previously mentioned sale of pre-owned coach inventory and
$0.8 million in other one-time costs
relating to COVID-19. Full reconciliation of net earnings to
Adjusted Net Earnings (Loss) is available in the accompanying
tables of this press release.
Liquidity
NFI's liquidity position as at September
28, 2020 was $414.5 million
which is an increase of $327.8
million from the same period in 2019. The improvement
primarily relates to the Company entering into two new credit
facilities during 2020 Q2: a $250
million unsecured, one-year sidecar credit facility,
available for general corporate purposes as required; and a
strategic £50 million unsecured facility to be used for ADL's
international operations.
The Company had a covenant waiver in place for its Total
Leverage Ratio ("TLR") (which measures total leverage against
Adjusted EBITDA on a trailing four quarter basis) on all of its
facilities until September 28, 2020,
with covenants resuming at more relaxed levels based on a pro-rated
calculation that excluded 2020 Q2 results. The Company now expects
that the combination of lower trailing Adjusted EBITDA in 2020
combined with the Company's current debt profile and the ongoing
uncertainty created by the COVID-19 pandemic, may impact compliance
with the TLR covenant starting in the first quarter of 2021.
Management is currently in detailed negotiations with its banking
partners to obtain covenant relief into 2021. Management believes
the Company's forecasted cash position and credit capacity under
its existing credit facilities is currently sufficient to fund
operations, meet financial obligations as they come due and provide
the necessary funds for capital expenditures, dividend payments and
other operational needs. Management continues to expect that it
will not need to utilize the sidecar. Full details on covenant
calculations can be found in the Company's MD&A.
Outlook
The third quarter of 2020 saw significant improvement over the
second quarter, as the Company was able to resume production and
delivery of buses and coaches in North
America and international markets. While results improved in
2020 Q3, management expects the ongoing COVID-19 pandemic will
impact NFI's results through 2021. Rising COVID-19 case rates
combined with ongoing work from home mandates, decline in travel
and delayed stimulus funds has continued to slow the announcement
of new vehicle awards and delayed or deferred purchases.
In August 2020 NFI responded to
the impacts of COVID-19 by launching a transformative cost
reduction initiative entitled "NFI Forward", to significantly
reduce manufacturing overhead and SG&A from 2019 levels.
In addition to numerous cost savings projects aimed at
reducing fixed costs, the Company also lowered weekly production
rates to match firm backlog, expected option conversion and
anticipated new awards for the remainder of 2020 and 2021.
Year-to-date, the NFI Forward initiative has achieved approximately
$13.5 million in savings. These
savings appear in NFI's gross margins and Adjusted EBITDA, as a
reduction to manufacturing overhead and direct material costs, and
SG&A.
NFI's overall end markets recovery from COVID-19 are expected to
be dependent on several factors, including government support,
COVID-19 case rates and the length of the pandemic, and economic
reopening activity. These factors will differ by product line and
geography. The majority of NFI's vehicles are used for public
transit, which remains a critical method of transportation for
millions of users and is an economic enabler in cities around the
world. Demand levels are expected to return, although the duration
of the COVID-19 pandemic may delay new vehicles awards and delivery
timing. Recent positive announcements on potential COVID-19
vaccines are encouraging as are the stated priorities of US
President-elect Biden's infrastructure plan on investment in
environmentally friendly public transit.
Financial Outlook
With deliveries and financial results for the fourth quarter of
2020 continuing to be impacted by the pandemic, NFI results during
that period will be lower than the same period in 2019. Management,
however, reiterates its Adjusted EBITDA guidance of $145 million to $155
million for Fiscal 2020, suggesting $52M - $62M of
Adjusted EBITDA in the fourth quarter of 2020.
Evaluating current market conditions and expected future demand,
management expects that 2021 financial results will see significant
improvement over fiscal 2020, but currently projects a transition
period with the impacts of the COVID-19 pandemic. Management has
certain visibility on components of its expected 2021 results,
driven by its firm backlog, expected option conversion and
anticipated new awards, but delays in public awards, stagnant
private sector demand and uncertainty surrounding the timing and
magnitude of government stimulus create risk to full year 2021
results. Management plans to release NFI's financial outlook in
January 2021 at the Company's Virtual
Investor Day.
Management Remarks
"The strength of our third quarter demonstrates NFI's
resiliency, strong backlog position and ability to respond to the
ongoing economic realities of the COVID-19 pandemic. During the
quarter, our facilities successfully resumed production, with
strong health and safety processes in place to protect employees,
we delivered for our customers, and we made significant progress
with our NFI Forward cost reduction initiatives," said Paul Soubry, President and CEO of NFI. "While
our results were below pre-pandemic levels, we saw significant
improvement from the historic lows of the second quarter of
2020."
"The full market recovery will take time as our customers manage
through the challenges of COVID-19, with continued restrictions on
travel and transportation and lower ridership levels," Soubry
added. "There is no doubt, however, that buses and coaches are
critical infrastructure in major cities around the world and play a
key role in moving people and connecting communities. We are
focused on supporting our customers during these difficult times
while also preparing our business to capitalize on the expected
economic recovery by right-sizing our operations and driving
innovations and leading the evolution to zero-emission buses.
We are confident that demand for buses and coaches will rebound as
the global economy recovers and view recent announcements related
to a potential vaccine as a positive step in that
recovery."
"NFI was built on a foundation of market leading brands with
over 450 years of combined bus and coach design and manufacturing
experience. Our Company's core is innovation and advanced
technology. We were the first to introduce low-floor and
articulated buses in North
America, led the introduction of natural gas, hybrid,
electric and fuel cell propulsion systems, and most recently,
expanded our offering to include full mobility solutions with the
associated telematics and charging infrastructure. We continue to
be market leaders with new products and services that will drive
the transition to a zero-emission future with safer, cleaner and
reliable vehicles. NFI has delivered the most zero-emission buses
in North America and delivered
more ZEBs than any UK competitor. We have also invested in
extensive capacity to build zero-emission vehicles in nearly every
facility. NFI supports the largest installed fleet of transit buses
and motor coaches in numerous markets, and we have more than
105,000 vehicles currently in operation. We are extremely well
positioned to play a key role in transitioning these vehicles from
traditional propulsion systems to battery-electric and hydrogen
fuel cell-electric," Soubry explained.
"In addition to advancing new products and services, we are also
removing costs from our operations. The various NFI Forward
initiatives will consolidate business units and are expected to
reduce our footprint, maximize production capacity, streamline our
administrative functions and reduce working capital. Overall, NFI
Forward will assist us in deleveraging our balance sheet while
delivering value over the long-term as NFI will have a
significantly lower fixed cost base when markets recover. We look
forward to talking about these initiatives and NFI's leadership in
the transition to a zero-emission future at our Investor Day in
January," Soubry concluded.
Corporate Social Responsibility
NFI's vision is to enable the future of mobility with innovative
and sustainable solutions through the design and delivery of
exceptional transportation solutions that are safe, accessible,
efficient and reliable. NFI's end products are a key driver
to enable cities to lower emissions, decrease congestion and drive
economic opportunity for less-fortunate members of various
communities. NFI is committed to employees, customers and
shareholders, while also being responsible to the environment and
the communities in which we live and work by focusing on using
renewable power, reducing waste, purchasing supplies from
disadvantaged business enterprises, promoting diversity, and
adhering to our detailed governance structure.
In March 2020, New Flyer of
America ("New Flyer") launched a Community Benefits Framework
("CBF") in partnership with the Transportation Diversity Council.
The CBF creates the foundation for New Flyer's approach to employee
engagement, effective management of a safe and respectful
workplace, execution of leading health and safety practices,
commitments to disadvantaged business enterprises, industry
advocacy, and support for workforce development and inclusion. In
September 2020, New Flyer launched
the first local program under its CBF through the Anniston
Workforce Development Program.
NFI's 2019 Environmental Social Governance Report and details on
the CBF can be accessed on the Company's website.
Third Quarter Results Conference Call
A conference call for analysts and interested listeners will be
held on Wednesday, November 11, 2020
at 8:30 a.m. Eastern Time (ET). The
call-in number for listeners is 888-231-8191 or 647-427-7450. An
accompanying results presentation will be available prior to the
call at www.nfigroup.com/investor-relations.
A live audio feed of the call will also be available at:
https://produceredition.webcasts.com/starthere.jsp?ei=1382239&tp_key=ccf744a7cd
A replay of the call will be available from 11:00 a.m. (ET) on November 11, 2020 until 11:59 p.m. (ET) on December 11, 2020. To access the replay, call
855-859-2056 or 416-849-0833 and then enter pass code number
4369358. The replay will also be available on NFI's web site at
www.nfigroup.com.
Virtual Investor Day 2021
NFI will host a virtual Investor Day on Monday, January 11, 2021 from 8:30a.m. ET to 11:30 am ET. During the event,
members of the executive leadership team will provide an update on
NFI's markets and businesses; strategic transformational initiative
NFI Forward, the Company's zero-emission bus roadmap; environmental
social governance performance; and future financial outlook.
To confirm your attendance for the event please RSVP by emailing
investor@nfigroup.com. A link to the webcast along with the agenda
for the event will be emailed to all participants and will also be
posted on NFI Group's website closer to the event.
About NFI Group
With more than 8,000 team members operating from 50 facilities
across ten countries, NFI is a leading independent global bus
manufacturer providing a comprehensive suite of mass transportation
solutions under brands: New Flyer® (heavy-duty transit buses),
Alexander Dennis Limited (single and double-deck buses), Plaxton
(motor coaches), MCI® (motor coaches), ARBOC® (low-floor
cutaway and medium-duty buses), and NFI Parts™. NFI vehicles
incorporate the widest range of drive systems available including:
clean diesel, natural gas, diesel-electric hybrid, and
zero-emission electric (trolley, battery, and fuel cell). In
total, NFI now supports over 105,000 buses and coaches currently in
service around the world.
NFI common shares are traded on the Toronto Stock Exchange under
the symbol NFI. Further information is available at:
www.nfigroup.com, www.newflyer.com, www.mcicoach.com, www.arbocsv.com, www.nfi.parts, www.alexander-dennis.com,
and www.carfaircomposites.com.
Appendix - Reconciliation Tables
Reconciliation of Net Earnings to Adjusted
EBITDA
Management believes that Adjusted EBITDA is an important measure
in evaluating the historical operating performance of the Company.
However, Adjusted EBITDA is not a recognized earnings measure under
IFRS and does not have a standardized meaning prescribed by IFRS.
Accordingly, Adjusted EBITDA may not be comparable to similar
measures presented by other issuers. Readers of this press release
are cautioned that Adjusted EBITDA should not be construed as an
alternative to net earnings or loss determined in accordance with
IFRS as indicators of the Company's performance, or cash flows from
operating activities determined in accordance with IFRS as a
measure of liquidity and cash flow. See Non-IFRS measures for the
definition of Adjusted EBITDA. The following table reconciles net
earnings to Adjusted EBITDA based on the historical Financial
Statements of the Company for the periods indicated.
(U.S. dollars in
thousands)
|
2020
Q3
|
|
2019
Q3
|
|
39-Weeks
Ended
September
27, 2020
|
|
39-Weeks
Ended
September
29, 2019
|
|
52-Weeks
Ended
September
27, 2020
|
|
52-Weeks
Ended
September
29, 2019
|
Net earnings
(loss)
|
$
|
(24,912)
|
|
$
|
(1,085)
|
|
$
|
(166,201)
|
|
23,571
|
|
$
|
(132,072)
|
|
$
|
66,386
|
Addback(1)
|
|
|
|
|
|
|
|
|
|
|
|
Income
taxes
|
(3,014)
|
|
2,355
|
|
(11,343)
|
|
15,879
|
|
14,775
|
|
23,812
|
Interest
expense
|
15,273
|
|
19,030
|
|
69,298
|
|
62,055
|
|
80,598
|
|
72,711
|
Amortization
|
26,374
|
|
32,055
|
|
84,660
|
|
73,435
|
|
115,795
|
|
91,452
|
Loss (gain) on
disposition of property, plant and equipment
|
(191)
|
|
(93)
|
|
201
|
|
(98)
|
|
253
|
|
(106)
|
Fair value adjustment
for total return swap(11)
|
7
|
|
1,432
|
|
1,702
|
|
676
|
|
1,975
|
|
6,305
|
Unrealized foreign
exchange loss (gain) on non-current monetary items and forward
foreign exchange contracts
|
(3,609)
|
|
4,993
|
|
(5,815)
|
|
1,700
|
|
(7,455)
|
|
3,011
|
Costs associated with
assessing strategic and corporate
initiatives(8)
|
—
|
|
342
|
|
1,231
|
|
13,685
|
|
615
|
|
13,685
|
Past service
costs(13) and other pension costs
(recovery)
|
—
|
|
(1,671)
|
|
(415)
|
|
(1,671)
|
|
(345)
|
|
(1,671)
|
Non-recurring costs
(recoveries) relating to business acquisition
|
—
|
|
—
|
|
—
|
|
—
|
|
360
|
|
—
|
Fair value adjustment
to acquired subsidiary company's inventory and deferred
revenue(10)
|
—
|
|
20,158
|
|
—
|
|
28,848
|
|
2,156
|
|
28,848
|
Proportion of the
total return swap realized(12)
|
303
|
|
(800)
|
|
(1,166)
|
|
(424)
|
|
(1,369)
|
|
(4,805)
|
Equity settled
stock-based compensation
|
597
|
|
152
|
|
1,162
|
|
1,129
|
|
1,599
|
|
1,163
|
Recovery on currency
transactions(15)
|
—
|
|
—
|
|
—
|
|
(4,287)
|
|
—
|
|
(4,287)
|
Prior year sales tax
provision (16)
|
233
|
|
—
|
|
147
|
|
3,794
|
|
447
|
|
3,794
|
Release of provisions
related to purchase accounting(14)
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
(2,138)
|
COVID-19
costs(17)
|
24,392
|
|
—
|
|
41,949
|
|
—
|
|
41,949
|
|
—
|
Impairment loss on
goodwill(18)
|
—
|
|
—
|
|
50,790
|
|
—
|
|
50,790
|
|
—
|
Non-recurring
restructuring costs(9)
|
25,429
|
|
—
|
|
26,527
|
|
—
|
|
26,527
|
|
—
|
Adjusted
EBITDA(1)
|
$
|
60,885
|
|
$
|
76,868
|
|
$
|
92,727
|
|
$
|
218,292
|
|
$
|
196,598
|
|
$
|
298,160
|
Adjusted EBITDA is
comprised of:
|
|
|
|
|
|
|
|
|
|
|
|
Manufacturing
|
$
|
44,615
|
|
$
|
61,460
|
|
47,702
|
|
170,382
|
|
$
|
133,413
|
|
$
|
243,199
|
Aftermarket
|
16,650
|
|
16,374
|
|
49,646
|
|
56,159
|
|
68,059
|
|
73,498
|
Corporate
|
(380)
|
|
(966)
|
|
(4,618)
|
|
(8,249)
|
|
(4,871)
|
|
(18,537)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See footnotes on page 6 and 7.
(1)
|
Adjusted EBITDA is
not a recognized earnings measure and does not have standardized
meaning prescribed by IFRS. Therefore, Adjusted EBITDA may not be
comparable to similar measures presented by other issuers. See
"Definitions of Adjusted EBITDA, ROIC, Free Cash Flow, Adjusted Net
Earnings and Adjusted Net Earnings per Share" in Appendix A.
Management believes that Adjusted EBITDA is a useful supplemental
measure in evaluating performance of the Company.
|
|
|
(2)
|
Free Cash Flow is not
a recognized measure under IFRS and does not have a standardized
meaning prescribed by IFRS. Therefore, Free Cash Flow may not be
comparable to similar measures presented by other issuers. See
Appendix A for "Definitions of Adjusted EBITDA, ROIC, Free Cash
Flow, Adjusted Net Earnings and Adjusted Earnings per
Share".
|
|
|
(3)
|
U.S. exchange rate
(C$ per US$) is the weighted average exchange rate applicable to
dividends declared for the period.
|
|
|
(4)
|
Changes in non-cash
working capital are excluded from the calculation of Free Cash Flow
as these temporary fluctuations are managed through the credit
facilities which are available to fund general corporate
requirements, including working capital requirements, subject to
borrowing capacity restrictions. Changes in non-cash working
capital are presented on the consolidated statements of cash flows
net of interest and incomes taxes paid.
|
|
|
(5)
|
The cash effect of
the difference between the defined benefit expense and funding is
included in the determination of cash from operating activities.
This cash effect is excluded in the determination of Free Cash Flow
as management believes that the defined benefit expense amount
provides a more appropriate measure, as the defined benefit funding
can be impacted by special payments to reduce the unfunded pension
liability.
|
|
|
(6)
|
Foreign exchange loss
on cash held in foreign currency is excluded in the determination
of cash from operating activities under IFRS; however, because it
is a cash item, management believes it should be included in the
calculation of Free Cash Flow.
|
|
|
(7)
|
Per Share
calculations for Free Cash Flow (C$) are determined by dividing
Free Cash Flow by the total number of all issued and outstanding
Shares using the weighted average over the period. The weighted
average number of Shares outstanding for 2020 Q3 was 62,511,734 and
62,391,178 for 2019 Q3. The weighted average number of Shares
outstanding for 2020 Q3 YTD and 2019 Q3 YTD are 62,505,778 and
61,601,132, respectively. The weighted average number of Shares
outstanding for the 52-weeks ended September 27, 2020 and September
29, 2019 are 62,487,963 and 61,749,622, respectively. Per Share
calculations for declared dividends (C$) are determined by dividing
the amount of declared dividends by the number of outstanding
Shares at the respective period end date.
|
|
|
(8)
|
Normalized to exclude
non-recurring expenses related to the costs of assessing strategic
and corporate initiatives.
|
|
|
(9)
|
Normalized to exclude
non-recurring restructuring costs. Free Cash Flow reconciling item
is net of right-of-use asset impairments. Third quarter costs
relate to production reductions and the NFI Forward initiative and
include severance costs of $18.3 million, right-of-use asset
impairments of $3.0 million, inventory impairments of $1.8 million
and property, plant and equipment impairments of $1.7
million.
|
|
|
(10)
|
The revaluation of
ADL's inventory included an adjustment of $31.0 million in Fiscal
2019. These revaluation adjustments relate to purchase
accounting as a result of the related acquisition.
|
|
|
(11)
|
The fair value
adjustment of the total return swap is a non-cash (gain) loss that
is deducted from the definition of Adjusted EBITDA.
|
|
|
(12)
|
A portion of the fair
value adjustment of the total return swap is added to Adjusted
EBITDA and Free Cash Flow to match the equivalent portion of the
related deferred compensation expense recognized.
|
|
|
(13)
|
In 2019 Q3, the
Company received $1.6 million recovery related to the closing of
one of its pension plans. An additional amount of $0.5 million was
received in 2020 Q1.
|
|
|
(14)
|
During the fourth
quarter of 2018, purchase accounting provisions recorded in respect
of the acquisition of MCI were deemed to be no longer needed and
were released resulting in an increase to net earnings. The
amounts released have been deducted in the calculation of Free Cash
Flow.
|
|
|
(15)
|
Recovery of prior
period banking fees related to foreign exchange
transactions.
|
|
|
(16)
|
Provision for sales
taxes as a result of an ongoing state tax review.
|
|
|
(17)
|
Normalized to
exclude non-recurring COVID-19 related costs. COVID-19 costs
include asset impairments of $23.3 million in 2020 Q3 (2020 Q3 YTD
- $39.0 million). These write downs include but are not limited to
the write down of accounts receivable and the write down of
inventory. Also included are other operating costs of $1.1
million 2020 Q3 and $2.9 million 2020 Q3 YTD that include but are
not limited to the purchase of personal protective equipment and
plant sanitation activities. Management will continue to
assess the costs for COVID-19 and will make an assessment of
whether they are deemed in fact to be one time and
non-recurring. As more information becomes available,
management may change its assessment.
|
|
|
(18)
|
Impairment charge
with respect to MCI's goodwill.
|
Reconciliation of Net Earnings to Adjusted Net
Earnings
Adjusted Net Earnings and Adjusted Earnings per Share are not
recognized measures under IFRS and do not have a standardized
meaning prescribed by IFRS. Accordingly, Adjusted Net Earnings and
Adjusted Earnings per Share may not be comparable to similar
measures presented by other issuers. Readers of this press release
are cautioned that Adjusted Net Earnings and Adjusted Earnings per
Share should not be construed as an alternative to net earnings, or
net earnings per Share, determined in accordance with IFRS as
indicators of the Company's performance. See Non-IFRS Measures for
the definition of Adjusted Net Earnings and Adjusted Earnings per
Share. The following tables reconcile net earnings to
Adjusted Net Earnings based on the historical Financial Statements
of the Company for the periods indicated.
(U.S. dollars in
thousands, except per Share figures)
|
2020
Q3
|
|
2019
Q3
|
|
39-Weeks
Ended
September
27, 2020
|
|
39-Weeks
Ended
September
29, 2019
|
|
52-Weeks
Ended
September
27, 2020
|
|
52-Weeks
Ended
September
29, 2019
|
Net earnings
(loss)
|
(24,912)
|
|
(1,085)
|
|
(166,201)
|
|
23,571
|
|
(132,074)
|
|
66,386
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments, net of
tax (1) (8)
|
|
|
|
|
|
|
|
|
|
|
|
Fair value adjustments
of total return swap(5)
|
4
|
|
892
|
|
1,174
|
|
404
|
|
1,319
|
|
4,678
|
Unrealized foreign
exchange (gain) loss
|
(2,489)
|
|
3,143
|
|
(4,012)
|
|
1,016
|
|
(4,993)
|
|
2,011
|
Unrealized loss on
interest rate swap
|
(1,902)
|
|
1,571
|
|
14,476
|
|
15,836
|
|
11,361
|
|
17,518
|
Impairment loss on
goodwill(12)
|
—
|
|
—
|
|
50,790
|
|
—
|
|
50,790
|
|
—
|
Portion of the total
return swap realized(6)
|
209
|
|
(496)
|
|
(805)
|
|
(253)
|
|
(914)
|
|
(3,578)
|
Costs associated with
assessing strategic and corporate
initiatives(2)
|
—
|
|
342
|
|
1,231
|
|
13,685
|
|
615
|
|
13,685
|
Fair value adjustment
to acquired subsidiary company's inventory and deferred
revenue(4)
|
—
|
|
11,624
|
|
—
|
|
17,236
|
|
707
|
|
17,236
|
Equity settled
stock-based compensation
|
412
|
|
44
|
|
802
|
|
675
|
|
1,033
|
|
701
|
Gain on disposition of
property, plant and equipment
|
(131)
|
|
(56)
|
|
139
|
|
(59)
|
|
171
|
|
(65)
|
Past service
costs(7) and other pension costs (recovery)
|
—
|
|
(998)
|
|
(286)
|
|
(998)
|
|
(215)
|
|
(998)
|
Gain on release of
provision related to purchase accounting (9)
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
(1,623)
|
Recovery on currency
transactions(10)
|
—
|
|
207
|
|
—
|
|
(2,561)
|
|
80
|
|
(2,561)
|
Prior year sales tax
provision (11)
|
160
|
|
(183)
|
|
101
|
|
2,267
|
|
203
|
|
2,267
|
COVID-19 costs
(13)
|
16,831
|
|
—
|
|
28,945
|
|
—
|
|
28,945
|
|
—
|
Non-recurring
restructuring costs (3)
|
17,546
|
|
—
|
|
18,303
|
|
—
|
|
18,514
|
|
—
|
Adjusted Net Earnings
(Loss)
|
$
|
5,728
|
|
15,005
|
|
(55,343)
|
|
70,819
|
|
$
|
(24,458)
|
|
115,657
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (Loss) per
Share (basic)
|
$
|
(0.40)
|
|
$
|
(0.02)
|
|
$
|
(2.66)
|
|
$
|
0.38
|
|
$
|
(2.11)
|
|
$
|
1.08
|
Earnings (Loss) per
Share (fully diluted)
|
$
|
(0.40)
|
|
$
|
(0.02)
|
|
$
|
(2.66)
|
|
$
|
0.38
|
|
$
|
(2.11)
|
|
$
|
1.07
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted Earnings
(Loss) per Share (basic)
|
$
|
0.09
|
|
$
|
0.24
|
|
$
|
(0.89)
|
|
$
|
1.15
|
|
$
|
(0.39)
|
|
$
|
1.87
|
Adjusted Earnings
(Loss) per Share (fully diluted)
|
$
|
0.09
|
|
$
|
0.24
|
|
$
|
(0.89)
|
|
$
|
1.15
|
|
$
|
(0.39)
|
|
$
|
1.87
|
|
|
|
|
|
|
|
|
|
|
|
|
- Addback items are derived from the historical Financial
Statements of the Company.
- Normalized to exclude non-recurring expenses related to the
costs of assessing strategic and corporate initiatives.
- Normalized to exclude non-recurring restructuring costs. Third
quarter costs relate to production reductions and the NFI Forward
initiative and include severance costs of $12.6 million, right-of-use asset impairments of
$2.1 million, inventory impairments
of $1.2 million and property, plant
and equipment impairments of $1.2
million.
- The revaluation of ADL's inventory included an adjustment of
$31.0 million in Fiscal 2019. The
after-tax value of the adjustment was $17.9
million. These revaluation adjustments relate to
purchase accounting as a result of the related acquisition.
- The fair value adjustment of the total return swap is a
non-cash (gain) loss that is excluded from the definition of
Adjusted Net Earnings (Loss).
- A portion of the fair value adjustment of the total return swap
is excluded from Adjusted Net Earnings (Loss) to match the
equivalent portion of the related deferred compensation expense
recognized.
- In 2019 Q3, the Company received $1.0
million recovery related to the closing of one of its
pension plans. An additional amount of $0.3
million was received in 2020 Q1.
- In 2020 Q3, the Company has utilized a rate of 31% to tax
effect the adjustments.
- During 2018 Q4 purchase accounting provisions recorded in
respect of the acquisition of MCI were deemed to be no longer
needed and were released resulting in an increase to net
earnings. The amounts released have been excluded from the
calculation of Adjusted Net Earnings (Loss).
- Recovery of prior period banking fees related to foreign
exchange transactions.
- Provision for sales taxes as a result of an ongoing state tax
review.
- Impairment charge with respect to MCI's goodwill.
- Normalized to exclude non-recurring COVID-19 related costs.
COVID-19 costs include asset impairments of $16.1 million in 2020 Q3 (2020 Q3 YTD -
$26.8 million). These write downs
include but are not limited to the write down of accounts
receivable and the write down of inventory. Also included are
other operating costs of $0.8 million
2020 Q3 and $2.0 million 2020 Q3 YTD
that include but are not limited to the purchase of personal
protective equipment and plant sanitation activities. Management
will continue to assess the costs for COVID-19 and will make an
assessment of whether they are deemed in fact to be one time and
non-recurring. As more information becomes available,
management may change its assessment.
Appendix - Non-IFRS Measures
References to "Adjusted EBITDA" are to earnings before interest,
income taxes, depreciation and amortization after adjusting for the
effects of certain non-recurring and/or non-operations related
items that do not reflect the current ongoing cash operations of
the Company. These adjustments include gains or losses on disposal
of property, plant and equipment, fair value adjustment for total
return swap, unrealized foreign exchange losses or gains on
non-current monetary items and forward foreign exchange contracts,
costs associated with assessing strategic and corporate
initiatives, past service costs and other pension costs,
non-recurring restructuring costs, fair value adjustment to
acquired subsidiary company's inventory and deferred revenue,
proportion of the total return swap realized, equity settled
stock-based compensation, recovery of currency transactions, prior
year sales tax provision, impairment loss on goodwill, and release
of provision related to purchase accounting.
"Free Cash Flow" means net cash generated by operating
activities adjusted for changes in non-cash working capital items,
interest paid, interest expense, income taxes paid, current income
tax expense, principal portion of finance lease payments, cash
capital expenditures, proceeds from disposition of property, plant
and equipment, costs associated with assessing strategic and
corporate initiatives, fair value adjustment to acquired subsidiary
company's inventory and deferred revenue, defined benefit funding,
defined benefit expense, past service costs, proportion of total
return swap, recovery on currency transactions, prior year sales
tax provision, non-recurring restructuring costs, gain on release
of provision related to purchase accounting, foreign exchange gain
(loss) on cash held in foreign currency.
References to "ROIC" are to net operating profit after taxes
(calculated as Adjusted EBITDA less depreciation of plant and
equipment, depreciation of right-of-use assets and income taxes at
a rate of 31%) divided by average invested capital for the last
twelve month period (calculated as to shareholders' equity plus
long-term debt, obligations under leases, other long-term
liabilities and derivative financial instrument liabilities less
cash).
References to "Adjusted Net Earnings (Loss)" are to net earnings
after adjusting for the after tax effects of certain non-recurring
and/or non-operational related items that do not reflect the
current ongoing cash operations of the Company including: fair
value adjustments of total return swap, unrealized foreign exchange
loss or gain, unrealized gain or loss on the interest rate swap,
portion of the total return swap realized, costs associated with
assessing strategic and corporate initiatives, fair value
adjustment to acquired subsidiary company's inventory and deferred
revenue, equity settled stock-based compensation, gain or loss on
disposal of property, plant and equipment, past service costs and
other pension costs, gain on release of provision related to
purchase accounting, recovery on currency transactions, prior year
sales tax provision, and non-recurring restructuring costs .
References to "Adjusted Earnings (Loss) per Share" are to
Adjusted Net Earnings divided by the average number of Shares
outstanding.
Management believes Adjusted EBITDA, ROIC, Free Cash Flow,
Adjusted Net Earnings (Loss) and Adjusted Earnings (Loss) per Share
are useful measures in evaluating the performance of the Company.
However, Adjusted EBITDA, ROIC, Free Cash Flow, Adjusted Net
Earnings (Loss) and Adjusted Earnings (Loss) per Share are not
recognized earnings measures under IFRS and do not have
standardized meanings prescribed by IFRS. Readers of this MD&A
are cautioned that ROIC, Adjusted Net Earnings (Loss) and Adjusted
EBITDA should not be construed as an alternative to net earnings or
loss or cash flows from operating activities determined in
accordance with IFRS as an indicator of NFI's performance, and Free
Cash Flow should not be construed as an alternative to cash flows
from operating, investing and financing activities determined in
accordance with IFRS as a measure of liquidity and cash flows. A
reconciliation of net earnings to Adjusted EBITDA, based on the
Financial Statements, has been provided under the headings
"Reconciliation of Net Earnings to Adjusted EBITDA". A
reconciliation of Free Cash Flow to cash flows from operations is
provided under the heading "Summary of Free Cash Flow". A
reconciliation of net earnings to Adjusted Net Earnings (Loss) is
provided under the heading "Reconciliation of Net Earnings to
Adjusted Net Earnings (Loss)".
NFI's method of calculating Adjusted EBITDA, ROIC, Free Cash
Flow, Adjusted Net Earnings (Loss) and Adjusted Earnings per Share
may differ materially from the methods used by other issuers and,
accordingly, may not be comparable to similarly titled measures
used by other issuers. Dividends paid from Free Cash Flow are not
assured, and the actual amount of dividends received by holders of
Shares will depend on, among other things, the Company's financial
performance, debt covenants and obligations, working capital
requirements and future capital requirements, all of which are
susceptible to a number of risks, as described in NFI's public
filings available on SEDAR at www.sedar.com.
Forward-Looking Statements
Certain statements in this press release are "forward-looking
statements", which reflect the expectations of management regarding
the Company's future growth, liquidity, financial performance and
results of operations and the Company's plans, business prospects
and opportunities. The words "believes", "anticipates", "plans",
"expects", "intends", "projects", "forecasts", "estimates", "may",
"will" and similar expressions are intended to identify forward
looking statements. These forward-looking statements reflect
management's current expectations regarding future events
(including the return of the Company's markets) and the Company's
financial and operating performance and speak only as of the date
of this press release. Forward-looking statements involve
significant risks and uncertainties, should not be read as
guarantees of future events, performance or results, and will not
necessarily be accurate indications of whether or not or the times
at or by which such performance or results will be achieved. Actual
results may differ materially and adversely from management
expectations set forth in forward-looking statements for a variety
of reasons and due to a number of factors, including, but not
limited to those described below.
With respect to forward-looking statements relating to the
Company's "NFI Forward" initiative, including the costs savings,
cash flow improvement, reduction in working capital, deleveraging
of the Company's balance sheet, reduction in the number of the
Company's facilities, maximizing production capacity and the other
benefits expected to be achieved and the costs and resources
expected to be expended in implementing the initiative, such
factors include: the Company's ability to successfully execute the
initiative and to generate the planned savings in the expected time
frame or at all; management may have overestimated the amount of
savings and production efficiencies that can be generated or may
have underestimated the amount of costs to be expended; the
implementation of the initiative may take longer than planned to
achieve the expected savings; further restructuring and
cost-cutting may be required in order to achieve the objectives of
the initiative; the estimated amount of savings generated under the
initiative may not be sufficient to achieve the planned benefits;
combining business units and/or reducing the number of production
or parts facilities may not achieve the efficiencies anticipated;
and the impact of the continuing global COVID-19 pandemic. There
can be no assurance that the Company will be able to achieve the
anticipated financial and operational benefits, cost savings or
other benefits of the initiative.
With respect to all forward-looking statements, such factors
relating to the global COVID-19 pandemic include: the magnitude and
length of the global, national and regional economic and social
disruption being caused as a result of the pandemic; the impact of
national, regional and local governmental laws, regulations and
"shelter in place" or similar orders relating to the pandemic which
may materially adversely impact the Company's ability to continue
operations; partial or complete closures of one, more or all of the
Company's facilities and work locations or the reduction of
production rates (including to protect the health and safety of the
Company's employees or as a result of employees being unable to
come to work due to COVID-19 infections with respect to them or
their family members); production rates may be further decreased as
a result of the pandemic; supply delays and shortages of parts and
components and disruption to labour supply as a result of the
pandemic; the pandemic will likely adversely affect operations of
customers and reduce and delay, for an unknown period, customers'
purchases of the Company's products; the anticipated return of the
Company's markets at some future date may be delayed or increase in
demand may be lower than expected as a result of the continuing
effects of the pandemic; the Company's ability to obtain access to
additional capital; the Company's financial performance and
condition, obligations, cash flow and liquidity and its ability to
maintain compliance with the covenants under its credit facilities,
which may also negatively impact the ability of the Company to fund
dividends. There can be no assurance that the Company will be able
to maintain sufficient liquidity for an extended period, obtain
satisfactory covenant relief under its credit facilities or access
to additional capital or access to government financial support or
as to when production operations will return to previous production
rates. There is also no assurance that governments will
provide stimulus funding after the pandemic for public transit
agencies to purchase transit vehicles or that public or private
demand for the Company's vehicles will return to pre-pandemic
levels in the anticipated period of time. The Company
cautions that due to the dynamic, fluid and highly unpredictable
nature of the pandemic and its impact on global and local
economies, businesses and individuals, it is impossible to predict
the severity of the impact on the Company's business, operating
performance and financial condition and any material adverse
effects could very well be rapid, unexpected and may continue for
an extended and unknown period of time.
A number of other factors that may cause actual results to
differ materially from the results discussed in the forward-looking
statements include: funding may not continue to be available to the
Company's customers at current levels or at all; the Company's
business is affected by economic factors and adverse developments
in economic conditions could have an adverse effect on the for the
Company's products and the results of its operations; currency
fluctuations could adversely affect the Company's financial results
or competitive position; interest rates could change substantially,
materially impacting the Company's revenue and profitability; an
active, liquid trading market for the Shares may cease to exist,
which may limit the ability of shareholders to trade Shares; the
market price for the Shares may be volatile; if securities or
industry analysts do not publish research or reports about the
Company and its business, if they adversely change their
recommendations regarding the Shares or if the Company's results of
operations do not meet their expectations, the Share price and
trading volume could decline; in addition, if securities or
industry analysts publish inaccurate or unfavorable research about
the Company or its business, the Share price and trading volume of
the Shares could decline; competition in the industry and entrance
of new competitors; current requirements under "Buy America"
regulations may change and/or become more onerous or suppliers'
"Buy America" content may change; failure of the Company to comply
with the U.S. Disadvantaged Business Enterprise ("DBE") program
requirements or the failure to have its DBE goals approved by the
U.S. Federal Transit Administration; absence of fixed term customer
contracts, exercise of options and customer suspension or
termination for convenience; local content bidding preferences in
the United States may create a
competitive disadvantage; uncertainty resulting from the exit of
the UK from the European Union; requirements under Canadian content
policies may change and/or become more onerous; operational risk
resulting from inadequate or failed internal processes, people
and/or systems or from external events, including fiduciary
breaches, regulatory compliance failures, legal disputes, business
disruption, pandemics, floods, technology failures, processing
errors, business integration, damage to physical assets, employee
safety and insurance coverage; international operations subject the
Company to additional risks and costs and may cause profitability
to decline; dependence on limited sources or unique sources of
supply; dependence on supply of engines that comply with emission
regulations; a disruption, termination or alteration of the supply
of vehicle chassis or other critical components from third-party
suppliers could materially adversely affect the sales of certain of
the Company's products; the Company's profitability can be
adversely affected by increases in raw material and component
costs; the Company may incur material losses and costs as a result
of product warranty costs, recalls and remediation of transit buses
and motor coaches; production delays may result in liquidated
damages under the Company's contracts with its customers;
catastrophic events may lead to production curtailments or
shutdowns; the Company may not be able to successfully renegotiate
collective bargaining agreements when they expire and may be
adversely affected by labour disruptions and shortages of labour;
the Company's operations are subject to risks and hazards that may
result in monetary losses and liabilities not covered by insurance
or which exceed its insurance coverage; the Company may be
adversely affected by rising insurance costs; the Company may not
be able to maintain performance bonds or letters of credit required
by its contracts or obtain performance bonds and letters of credit
required for new contracts; the Company is subject to litigation in
the ordinary course of business and may incur material losses and
costs as a result of product liability claims; the Company may have
difficulty selling pre-owned coaches and realizing expected resale
values; the Company may incur costs in connection with regulations
relating to axle weight restrictions and vehicle lengths; the
Company may be subject to claims and liabilities under
environmental, health and safety laws; dependence on management
information systems and cyber security risks; the Company's ability
to execute its strategy and conduct operations is dependent upon
its ability to attract, train and retain qualified personnel,
including its ability to retain and attract executives, senior
management and key employees; the Company may be exposed to
liabilities under applicable anti-corruption laws and any
determination that it violated these laws could have a material
adverse effect on its business; the Company's risk management
policies and procedures may not be fully effective in achieving
their intended purposes; internal controls over financial
reporting, no matter how well designed, have inherent limitations;
there are inherent limitations to the effectiveness of any system
of disclosure controls and procedures, including the possibility of
human error and the circumvention or overriding of the controls and
procedures; ability to successfully execute strategic plans and
maintain profitability; development of competitive or disruptive
products, services or technology; development and testing of new
products or model variants; acquisition risk; reliance on
third-party manufacturers; third-Party Distribution/Dealer
Agreements; availability to the Company of future financing; the
Company may not be able to generate the necessary amount of cash to
service its existing debt, which may require the Company to
refinance its debt; the restrictive covenants in the credit
facilities could impact the Company's business and affect its
ability to pursue its business strategies; payment of dividends is
not guaranteed; a significant amount of the Company's cash is
distributed, which may restrict potential growth; the Company is
dependent on its subsidiaries for all cash available for
distributions; future sales or the possibility of future sales of a
substantial number of Shares may impact the price of the Shares and
could result in dilution; if the Company is required to write down
goodwill or other intangible assets, its financial condition and
operating results would be negatively affected; income tax risk due
to the Company's operations being complex and income tax
interpretations, regulations and legislation that pertain to its
activities are subject to continual change; investment eligibility
and Canadian federal income tax risks; certain U.S. tax rules may
limit the ability of NF Holdings and its U.S. subsidiaries (the "NF
Group") to deduct interest expense for U.S. federal income tax
purposes and may increase the NF Group's tax liability and certain
financing transactions could be characterized as "hybrid
transactions" for U.S. tax purposes, which could increase the NF
Group's tax liability.
NFI cautions that the foregoing factors are not exhaustive of
all potential risks. These factors and other risks and
uncertainties are discussed in NFI's press releases, Annual
Information Form and materials filed with the Canadian securities
regulatory authorities which are available on SEDAR at
www.sedar.com. Due to the potential impact of these and other
factors, the Company disclaims any intention or obligation to
update or revise any forward-looking statements, whether as a
result of new information, future events or otherwise, unless
required by applicable law.
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multimedia:http://www.prnewswire.com/news-releases/nfi-group-announces-third-quarter-2020-results-and-schedules-2021-investor-day-301170815.html
SOURCE NFI Group Inc.