New Flyer Announces 2014 Second Quarter Results

Summary (U.S. Dollars except as noted):

• Revenue of $346.5 million increased by 30.0% compared to 2013 Q2 primarily due to a 19.0% increase in deliveries and a 57.1% increase in aftermarket revenue due to significant contribution from the 2013 business acquisitions.
  
• Consolidated Adjusted EBITDA of $27.0 million increased by 49.3% compared to 2013 Q2.
  
• Net earnings were $3.6 million in 2014 Q2 compared to $1.7 million in 2013 Q2 and earnings per share of $0.06 increased from $0.03 in 2013 Q2.
  
• Work in process at the end of 2014 Q2, which now includes 15 MiDi^® buses, increased by 60 EUs over the work in process at the end of 2014 Q1. These 60 EUs that were not delivered as a result of delayed customer inspection and acceptance, however management expects to recover deliveries on these contracts by year end.
  
• Free Cash Flow was C$15.9 million and declared dividends were C$8.1 million.  The current dividend rate is expected to be maintained.

WINNIPEG, Aug. 5, 2014 /CNW/ - New Flyer Industries Inc. (TSX:NFI) (TSX:NFI.DB.U), ("New Flyer", or the "Company"), the leading manufacturer of heavy-duty transit buses in Canada and the United States, today announced its results for the 13-week period ended June 29, 2014 ("2014 Q2"). Full financial statements and Management's Discussion and Analysis (the "MD&A") are available at the Company's web site at: www.newflyer.com/index/financialreport. Unless otherwise indicated all monetary amounts in this press release are expressed in U.S. dollars.

Operating Results

Bus Deliveries	2014	2013		2014	2013
(U.S. dollars in thousands)	Q2	Q2	change	YTD	YTD	change
Number of equivalent units ("EUs") delivered	582	489	19.0%	1,136	979	16.0%
Average EU selling price	$456.8	$440.1	3.8%	$454.9	$432.1	5.3%

The number of EUs delivered in 2014 Q2 was negatively impacted as a result of delayed customer bus inspection and final acceptance with respect to a few of the low margin contracts.  Management expects to recover these deliveries by year-end. As a result, finished goods inventory at the end of 2014 Q2 included an additional 60 EUs.

Consolidated Revenue	2014	2013		2014	2013
(U.S. dollars in millions)	Q2	Q2	change	YTD	YTD	change
Bus	$265.8	$215.2	23.5%	$516.7	$423.0	22.1%
Aftermarket	80.7	51.3	57.1%	153.6	88.7	73.2%
Total Revenue	$346.5	$266.6	30.0%	$670.3	$511.7	31.0%

• The increase in 2014 Q2 bus revenue primarily resulted from a 19.0% increase in total bus deliveries and a 3.8% increase in average selling price.  The increased deliveries were primarily a result of the inclusion of the NABI Bus deliveries after the acquisition on June 21, 2013.  The increase in average selling price is the result of changes in the product sales mix, which included more sales of hybrid buses and fewer articulated buses. The average selling price can be volatile when comparing two fiscal quarters as a result of sales mix.
  
• Revenue from bus manufacturing operations for the 26-week period ended June 29, 2014 ("2014 YTD") also increased 22.1% compared to the 26-week period ended June 30, 2013 ("2013 YTD").
  
• The increase in revenue from aftermarket operations of 57.1% is primarily a result of increased volumes, incremental revenue from the Chicago Transit Authority ("CTA") midlife overhaul program, and the acquisitions of the Orion parts business and the NABI Parts business.

Consolidated Adjusted EBITDA	2014	2013		2014	2013
(U.S. dollars in millions)	Q2	Q2	change	YTD	YTD	change
Bus	$13.9	$10.6	31.6%	$21.6	$20.5	5.8%
Aftermarket	13.1	7.5	74.1%	25.0	13.0	92.5%
Total Adjusted EBITDA	$27.0	$18.1	49.3%	$46.6	$33.4	39.5%

• 2014 Q2 and 2014 YTD bus manufacturing operations Adjusted EBITDA increased primarily as a result of increased bus deliveries, as compared to 2013 respective periods.
  
• Bus manufacturing operations Adjusted EBITDA for 2014 YTD was 4.2% of bus revenue, a decrease compared to 4.8% of bus revenue during 2013 YTD. Management has continued its efforts to recover margins during 2014 YTD through cost reductions, improved labour efficiency and beneficial price change orders with customers. Profit margins can vary significantly between orders due to factors such as pricing, order size and product type and components specified by the customer.  Adjusted EBITDA from bus manufacturing operations per EU can be volatile on a quarterly basis and therefore, management believes that a longer term view should be taken when comparing bus manufacturing operations margins. However, management had anticipated and previously provided guidance that on average, margins on orders planned for production throughout Fiscal 2014 will be lower than the average margins achieved during Fiscal 2013.
  
• 2014 Q2 and 2014 YTD aftermarket operations Adjusted EBITDA increased compared to the 2013 respective periods, primarily due to the additional Adjusted EBITDA generated by the CTA midlife overhaul program and the acquisition of NABI Parts and the Orion parts businesses. Profit margins have improved during 2014 Q2 and 2014 YTD primarily as a result of improved market fundamentals and the benefits to the product mix that has resulted from a far broader portfolio of services and parts offerings to customers.

Net earnings	2014	2013	$	2014	2013	$
(U.S. dollars in millions)	Q2	Q2	change	YTD	YTD	change
Earnings from operations	$15.7	$6.8	8.9	$26.1	$13.3	12.8
Non-cash charges	(2.9)	(1.9)	-1.0	(3.3)	(2.1)	-1.2
Interest expense	(4.4)	(4.4)	0.0	(7.7)	(7.5)	-0.2
Income tax (expense) recovered	(4.8)	1.2	-6.0	(6.1)	1.5	-7.6
Net earnings	3.6	1.7	1.9	9.0	5.2	3.8

The Company reported net earnings of $3.6 million in 2014 Q2 representing an improvement compared to net earnings of $1.7 million in 2013 Q2, primarily as a result of improved earnings from operations offset by the increase in income tax expense and a $3.9 million impairment charge related to product rationalization of the NABI bus platform. The Company's net earnings per share in 2014 Q2 were $0.06, a 100.0% increase from net earnings per share of $0.03 generated during 2013 Q2.

Net earnings per share in 2014 YTD of $0.16 also improved compared to $0.11 generated during 2013 YTD.

Liquidity

Free Cash Flow	2014	2013		2014	2013
(CAD dollars in millions)	Q2	Q2	change	YTD	YTD	change
Free Cash Flow	15.9	9.2	73.2%	26.5	16.2	63.2%
Declared dividends	8.1	7.5	-8.0%	16.2	14.5	-12.0%

Management believes that sufficient Free Cash Flow will be generated to maintain the current annual dividend rate of $0.585 per common share.

Liquidity Position	June 29	March 30	$
(U.S. dollars in millions)	2014	2014	change
Cash	4.3	14.2	-9.9
Available funds from revolving credit facility	63.1	62.7	0.4
Total liquidity position	67.4	76.9	-9.5

As at June 29, 2014, there were $30.0 million of direct borrowings and $21.9 million of outstanding letters of credit related to the $115.0 million revolving credit facility. 

During 2014 Q2, the Company decreased its liquidity position primarily as a result of increased investment in non-cash working capital items, such as increased inventories and decreased accounts payables partially offset by decreased accounts receivables. Inventory temporarily increased by 60 EUs over the work in process amount at the end of March 30, 2014.

Backlog, Market Indicators and U.S. Funding

The number of EUs in the total bid universe at the end of 2014 Q2 was 19,728 EUs, an increase compared to 18,097 EUs at the end of 2013 Q2. However, the number of Active EUs (defined as request for proposals ("RFPs") received and in process of review by New Flyer, and bids or proposals submitted by New Flyer awaiting customer action) at the end of 2014 Q2 decreased by 3,791 EUs compared to 2013 Q2.

A lag in procurement activity was experienced in the first half of 2014, followed by an increase in new RFPs issued, however, the average number of EUs under each RFP decreased compared to 2013. Management anticipates that the amount of bus procurement activity by public transit agencies throughout the United States and Canada should recover throughout 2014 and 2015 based on expected customer fleet replacement plans.

New Flyer's 2014 Q2 LTM Book-to-Bill ratio (defined as new firm and option orders divided by deliveries) was 162%. This is New Flyer's sixth consecutive quarter with a LTM Book-to-Bill ratio greater than 100%. A ratio above 100% implies that more orders were received than filled, indicating increasing demand for New Flyer products.

The U.S. federal transit program is funded from general revenues of the government and from revenues credited to the Mass Transit Account of the Highway Trust Fund ("HTF").  Each year, new legislation must be passed to appropriate general revenues that will fund transit programs and set an obligation limitation that allows expenditure of funds from the Mass Transit Account for transit programs. The current funding bill, MAP-21, expires on September 30, 2014.

On July 15, 2014, the U.S. House of Representatives ("House") approved a bill to temporarily fund and ensure solvency of the HTF through May 2015.  On July 31, 2014, the U.S. Senate approved the legislation passed by the House. The HTF extension bill must now be approved by U.S. President Barak Obama.

Outlook

On June 24, 2014, the Company announced its decision to focus on a single heavy-duty transit and bus rapid transit ("BRT") bus platform that features its Xcelsior^®. The Company plans to further enhance its BRT styling options for the Xcelsior^® platform by building on NABI's extensive BRT experience and while taking into account customer input.

The decision to rationalize to a common Xcelsior^® platform is expected to allow for improvement in competiveness in the U.S. and Canadian markets by leveraging its combined bus volume, production, and purchasing for greater efficiencies. The plan involves a transition to common information technology infrastructure.

As a result of the product rationalization decision, management carried out a review of the recoverable amount of related assets. The review led to the recognition of an impairment loss of $3.9 million relating to the NABI Bus trade name and related equipment that no longer meet the definition of an asset.

Management continues to pursue cost and overhead savings in daily operations through its Operational Excellence initiatives. Management anticipates that based on the current production schedule for the rest of 2014, which includes a higher mix of articulated buses, the Company will operate at an average combined line entry rate of approximately 51 EUs per production week for Fiscal 2014. The average line entry rate also now reflects the production of MiDi^®. Management has not yet finalized production rates for Fiscal 2015.

Conference Call

A conference call for analysts and interested listeners will be held on Wednesday August 6, 2014 at 9:00 a.m. (ET). The call-in number for listeners is 888-231-8191 or 647-427-7450. A live audio feed of the call will also be available at:

http://www.newswire.ca/en/webcast/detail/1387247/1539025 

A replay of the call will be available from 12:00 p.m. (ET) on August 6, 2014 until 11:59 p.m. (ET) on August 13, 2014.  To access the replay, call 416-849-0833 or 855-859-2056 and then enter pass code number 75700789. The replay will also be available on New Flyer's web site at www.newflyer.com.

Non-IFRS Measures

"Earnings from Operations" refer to earnings before interest, income taxes, impairment loss on equipment and intangible assets and unrealized foreign exchange losses or gains on non-current monetary items. "Adjusted EBITDA" consists of earnings before interest, income taxes, depreciation, amortization and other non-cash charges and certain other non-recurring charges as set out in the MD&A. "Free Cash Flow" means cash flows from operations adjusted for changes in non-cash working capital items, effect of foreign currency rate on cash, defined benefit funding, non-recurring transitional costs relating to business acquisition, costs associated with assessing strategic and corporate initiatives, product rationalization costs and decreased for defined benefit expense, capital expenditures and principal payments on capital leases. Management believes Earnings from Operations, Adjusted EBITDA and Free Cash Flow are useful measures in evaluating the performance of the Company. However, Earnings from Operations, Adjusted EBITDA and Free Cash Flow are not recognized earnings measures and do not have standardized meanings prescribed by International Financial Reporting Standards ("IFRS") and may not be comparable to similarly titled measures used by other issuers. Readers are cautioned that Earnings from Operations, Adjusted EBITDA and Free Cash Flow should not be construed as an alternative to net earnings or loss determined in accordance with IFRS as an indicator of the Company's performance or 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 Adjusted EBITDA and Free Cash Flow to net earnings and cash flow from operations, respectively, is provided in the MD&A.

About New Flyer

New Flyer is the leading manufacturer of heavy-duty transit buses in the United States and Canada.  The Company is the industry technology leader and offers the broadest product line of transit buses including drive systems powered by: clean diesel, natural gas, electric trolley, diesel-electric hybrid and now, battery electric.  All buses are supported by an industry-leading comprehensive warranty and support program, and service network.  New Flyer also operates the industry's most sophisticated aftermarket parts organization, sourcing parts from hundreds of different suppliers and providing support for all types of heavy-duty transit buses.

The New Flyer group of companies employ over 3,000 team members with manufacturing, fabrication, parts distribution and service centers in both Canada and the United States.  Further information is available on New Flyer's web site at www.newflyer.com.

The common shares and convertible unsecured subordinated debentures of the Company are traded on the Toronto Stock Exchange under the symbols NFI and NFI.DB.U, respectively.

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, results of operations, performance and business prospects and opportunities. The words "believes", "anticipates", "plans", "expects", "intends", "projects", "forecasts", "estimates" and similar expressions are intended to identify forward‑looking statements. These forward‑looking statements reflect management's current expectations regarding future events 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 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. A number of factors could cause actual results to differ materially from the results discussed in the forward-looking statements. Such differences may be caused by factors which include, but are not limited to, availability of funding to the Company's customers to purchase buses and to exercise options and to purchase parts or services at current levels or at all, aggressive competition and reduced pricing in the industry, material losses and costs may be incurred as a result of product warranty issues, material losses and costs may be incurred as a result of product liability claims, changes in Canadian or United States tax legislation, the absence of fixed term customer contracts and the termination of contracts by customers for convenience, the current U.S. federal "Buy-America" legislation, certain states' U.S. content bidding preferences and certain Canadian content purchasing policies may change and/or become more onerous, production delays may result in liquidated damages under the Company's contracts with its customers, the Company's ability to execute its planned production targets as required for current business and operational needs, currency fluctuations could adversely affect the Company's financial results or competitive position in the industry, the Company may not be able to maintain performance bonds or letters of credit required by its existing contracts or obtain performance bonds and letters of credit required for new contracts, third party debt service obligations may have important consequences to the Company, the covenants contained in the Company's senior credit facility and the indenture governing the Company's convertible debentures could impact the ability of the Company to fund dividends and take certain other actions, interest rates could change substantially and materially impact the Company's profitability, the dependence on limited sources of supply, the timely supply of materials from suppliers, the possibility of fluctuations in the market prices of the pension plan investments and discount rates used in the actuarial calculations will impact pension expense and funding requirements, the Company's profitability and performance can be adversely affected by increases in raw material and component costs, the availability of labour could have an impact on production levels, new products must be tested and proven in operating conditions and there may be no demand for such new products from customers, the ability to successfully complete the product rationalization of the NABI bus platform, on budget and on schedule, the ability of the Company to successfully execute strategic plans and maintain profitability, risks related to acquisitions, joint ventures and other strategic relationships with third parties and the ability to successfully integrate acquired businesses and assets into the Company's existing business and to generate accretive effects to income and cash flow as a result of integrating these acquired businesses and assets. The Company cautions that this list of factors is not exhaustive. These factors and other risks and uncertainties are discussed in its press releases and materials filed with the Canadian securities regulatory authorities and available on SEDAR at www.sedar.com.

Although the forward‑looking statements contained in this press release are based upon what management believes to be reasonable assumptions, investors cannot be assured that actual results will be consistent with these forward‑looking statements, and the differences may be material. These forward‑looking statements are made as of the date of this press release and the Company assumes no obligation to update or revise them to reflect new events or circumstances, except as required by applicable securities laws.

SOURCE: New Flyer Industries Inc.

Jon Koffman, Investor Relations, Tel: [phone], E-mail: [email protected]