Nfi Group Inc Stock

Good morning, and thank you for standing by. Welcome to the NFI 2026 Second Quarter Fiscal Results Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded.

I would now like to turn the conference over to Stephen King. Please go ahead.

Thank you, Lisa. Good morning, everyone, and welcome to our Q2 conference call. Joining me today are John Sapp, President and Chief Executive Officer; and Brian Dewsnup, Chief Financial Officer. On today's call, we will recap the quarter, which included continued operational recovery, strong year-over-year earnings growth, margin expansion, meaningful cash generation and further progress in our deleveraging strategy. John will provide an overview of business performance, demand, strategic priorities and our outlook, including an increase to our 2026 guidance ranges. Brian will walk us through financial results, cash flow, liquidity and capital structure updates. This call is being recorded, and a replay will be made available shortly. We will be referring to a presentation that can be found in the Financials and Filings section of the NFI Group website. As we move through the slides via the webcast link, we will call out the slide number.

On Slide 2, we provide our cautionary or forward-looking statements and note that certain financial measures referenced today are not recognized earnings measures and do not have standardized meanings prescribed by International Financial Reporting Standards, or IFRS. We advise listeners to view our press releases and other public filings on SEDAR for more details. A reminder that NFI's statements are presented in U.S. dollars, the company's reporting currency, and all amounts referred to are in U.S. dollars unless otherwise noted.

Slide 3 to 5 provide a brief overview of our company. A quick reminder for new listeners is that NFI is a bus and motor coach manufacturer and total mobility solutions provider. We offer a wide range of buses and coaches on proven platforms and are North America's largest bus and coach provider. We hold market-leading positions and offer the industry's strongest aftermarket network.

I will now pass it over to John.

Good morning, everyone, and thank you for joining us today. I'm picking up on Slide 7. The second quarter represented another important step forward for NFI and showcased the strength of our backlog and aftermarket business, which delivered a record quarter. During the quarter, we delivered 1,232 equivalent units, a 14.5% year-over-year increase. Revenue increased 18.6% to approximately $1.03 billion and adjusted EBITDA increased 47% to $104 million. Also significant to highlight that net earnings were $17.4 million compared to a net loss of $160.8 million in the prior year.

A couple of key themes to what drove our strong second quarter. First, we saw continued improvement in our unit economics from the conversion of backlog supported by higher overhead absorption as we increased production rates. Another bright spot was our aftermarket business that holds strategic value by supporting customers throughout the full life cycle of their fleet. Aftermarket's offering of parts, training, service, field support remains a key differentiator for NFI.

Operating performance translated into improved liquidity, ending at $520 million and a reduction in leverage to 2.8x. Brian will get into details, but working capital was a big contributor in the quarter as we were able to unwind some inventory carried over from Q1 of '26 and also saw strong receivable collections. This improvement came even as we had some extended receivable balances associated with tariff recovery and that we had cash outflows of $7.2 million associated with the battery recall campaign. We completed full battery replacements on 37 buses in the quarter, bringing the total up to 49 since the launch of the campaign.

Moving to Slide 8, we highlight the quarterly and LTM deliveries by product lines. Transit bus deliveries increased 22% in the quarter to 911 EUs, primarily driven by higher North American production in sales and somewhat offset by lower U.K. deliveries. On an LTM basis, transit deliveries increased by 4% to 3,099 EUs. Motor coach deliveries increased 7.6% to 142 EUs, supported by higher public motor coach volumes. On an LTM basis, motor coach deliveries increased 11.1% to 682 EUs, reflecting higher public and private motor coach deliveries over the period.

Medium-duty and low-floor cutaway deliveries were 179 EUs, a decrease of 9.1% compared to the prior year quarter following several quarters of elevated demand and record level activity. The LTM number reflects this outperformance with an increase of 13.6%.

I'll now pass it over to Brian to go through the second quarter results before we get into a detailed look at our outlook.

Thanks, John. As John covered some of the key performance metrics, I'll focus on segment details. Turning to Slide 9. Manufacturing gross margin increased to $98.2 million or 11.5% of revenue compared to $75.2 million or 10.6% last year. The improvement was driven primarily by improved sales mix as we converted a stronger backlog, combined with higher deliveries and better fixed cost absorption. Gross margin was down slightly from Q1 2026, primarily due to the impacts of high overheads as we unwound work in process inventory. Aftermarket gross margin increased to $55.3 million or 31.4% of revenue compared to 26.4% in the prior year. The improvement reflected sales mix, benefits of higher volume from the FIFA World Cup, pricing and tariff management. Overall, gross margins of $153.5 million were up 32% from the second quarter of 2025. Margins as a percentage of revenue was 14.9%, an improvement of 150 basis points from last year.

On Slide 10, gross margin performance helped drive a 47% increase in overall adjusted EBITDA. Manufacturing adjusted EBITDA was $70.7 million, and on an LTM basis, the segment is up to $276 million, which is a record result. This was driven by the same items that benefited gross margin and the carryforward of some units originally planned for delivery in the first quarter of 2026. Reflecting the items that supported gross margin improvement, aftermarket adjusted EBITDA increased to $42.3 million, up 38.6%. On an LTM basis, aftermarket adjusted EBITDA was up 4% to $136 million.

On Slide 11, operating cash flow and free cash flow were both positive in the quarter. Net cash generated by operating activities was $159.1 million compared to cash used in operating activities of $69.6 million in Q2 2025. Free cash flow was $20.7 million compared to $15.7 million last year. Cash flow improvement reflected stronger results from operations, lower cash interest payments and favorable working capital movements. As mentioned, we did get a boost here from the unwind of work-in-process inventory and receivable collections. We do expect that we will have to make investments in working capital in the third quarter as we build up inventory for a seasonably busier fourth quarter.

On Slide 12, we walk through the adjustments to achieve adjusted net earnings with all amounts shown net of taxes. Most significant item to highlight is the restructuring charges taken at Alexander Dennis. This reflects the previously announced charges to Scottish manufacturing operations as we match our capacity and cost structure with current demand.

On Slide 13, we summarize total leverage, liquidity and return on invested capital. Total leverage, which includes all debt instruments, was at 2.81x. The benefits of outperformance in the quarter and working capital improvements did help drive a significant reduction. As we do expect investment in working capital in the third quarter, we will likely keep leverage around these levels, but we are still very well positioned to achieve our leverage target of 1.5x to 2.5x as we head into 2027.

Liquidity was up approximately $193 million year-over-year, reflecting the strength of our cash position. Return on invested capital continued its strong trajectory ending Q2 at 13.6%, a 130 basis point improvement from the first quarter of 2026, driven by positive cash generation and lower average invested capital.

On Slide 14, I'll just walk through 2 important financing actions that we completed after quarter end. First, we amended and extended our first lien facility by 1 year to July 2030. Second, we completed a private placement of CAD 350 million senior unsecured notes due July 2033 with an interest rate of 6.625%. We used the proceeds of the notes to repay the existing CAD 50 million Manitoba loan, which carried an interest rate of 7%, and we also made repayments on our first lien facility. We expect to redraw under the first lien facility in January 2027 to repay outstanding principal amount of the convertible debentures, which is currently CAD 338 million. These events improved our overall debt maturity profile and position us well to address the January 2027 maturity. They also continued our journey toward an unsecured debt structure.

I'll now turn the call back to John to discuss our outlook.

Thanks, Brian. Picking up on Slide 16, we summarize the strategic value drivers that helped drive our first half performance and support our expectations for further growth in the second half. Operational excellence continues to support margin expansion with stronger supplier performance contributing to labor efficiency gains. Across NFI, our team remains focused on customer centricity. That means delivering quality and reliability, improving delivery and acceptance processes, supporting customers through the full vehicle life cycle and ensuring our service, field support, training and aftermarket capabilities are aligned to customer needs. These activities are all contributing to profitable growth and sustainable demand.

As Brian mentioned, in July, we took actions to strengthen our balance sheet, and we are well on our way towards our target leverage range. Given our strong first half and expectations for the remainder of the year, we have increased our guidance for 2026. Our new range sees a tighter band on revenue and adjusted EBITDA increasing to $385 million to $415 million, reflecting growth of 15% to 24% from 2025. We've also increased our expected cash CapEx range to $55 million to $65 million, reflecting investments we're making in new products and facilities to support future growth and our customer-centric approach. As we look ahead to the balance of fiscal 2026, we expect year-over-year improvements in our third quarter results, although it is important to note that Q3 is typically a seasonally slower period due to summer vacation shutdowns at our manufacturing facilities and slower customer acceptance activity during the holiday season. This, combined with our strong second quarter performance, leads to expectations for a modest sequential decline in deliveries and revenue.

The fourth quarter is traditionally our strongest period of the year, driven by higher delivery activity in both private coach and international transit markets, and we expect that to be the case again this year. Just a reminder that in the fourth quarter of 2025, we had heightened activity as some units shifted into that period due to supply disruption, which is not a factor as we've seen and expect -- which is not a factor we've seen or expect to see this year given our improved production and delivery linearity.

Slide 17 to 20 provide the latest updates on market conditions, order demand and our backlog. I won't go through them in detail, but I will mention a few key points. We continue to see support from public funding environments in the U.S., Canada and the U.K. In the U.S., the Infrastructure Investment and Job Act matures in September 2026, although funds will continue to be spent well into 2028. Work continues on the next surface transportation funding bill and significant progress has been made through the proposed Build America 250 Act. While the goal is to finalize prior to the end of the year, there are still numerous steps required prior to full approval. Historically, if the next bill isn't complete as the existing funding bill expires, there will be an extension, although that must also go through a government approval process.

In Canada, funding support remains strong, and our all Canadian build facility has been very busy meeting demands from customers across the country. In the U.K., overall government support and market demand remains elevated, although foreign competition makes for a more challenging market. We've taken the right steps to normalize our cost structure and recent government changes are encouraging for the potential to see increased focus on domestic manufacturing through franchising models.

On Slide 18, we highlight that the demand environment remains healthy. At quarter end, active bids in our North American public bid universe were 6,195 EUs, a 6% increase from the same time last year. And the 5-year forecasted customer demand was 26,000 EUs. These demand indicators provide continued visibility for new orders and future production activity. On Slide 19, our total backlog was 14,483 EUs with a value of approximately $12.5 billion. We saw a small decrease in backlog as we increased our second quarter deliveries and had slower quarterly new orders, which we feel reflects customer timing rather than changes in the demand environment.

Firm backlog orders were 6,271 EUs and options were 8,212 EUs. This backlog provides multiyear visibility and supports our confidence in continued production and earnings growth. Average prices also remained strong in both transit and motor coach.

Before we close, I want to provide the latest views on the macro tariff environment. On Slide 21, we have identified the major tariffs that are present and applicable to our industry. While tariff structures continue to evolve, we've continued to actively engage with customers to discuss pricing impacts and have been negotiating and updating pricing to reflect tariff costs where applicable. Our view remains that tariff exposure is manageable, supported by our localized manufacturing footprint, contractual structures, pricing actions and aftermarket distribution capabilities. Our guidance includes the impact of current and known U.S. and Canadian tariffs, including the proposed Section 338 tariffs announced in July, but does not reflect potential future tariff or trade policy changes.

With respect to IEEPA and refunds, this remains a developing situation. We're actively monitoring it and working with advisers and government partners. Our intent is to do what is right for customers and to meet any contractual obligations required within respect to refunds. Wrapping up on Slide 22, a few final comments.

First, Q2 was a strong quarter with revenue and adjusted EBITDA growth, positive net earnings and strong cash generation. Second, manufacturing recovery continues, supported by higher North American production, improved vehicle economics, stronger backlog conversion and better overhead absorption. Third, aftermarket delivered a record quarter and continues to demonstrate the value of NFI's life cycle support model. First half performance was supported by FIFA World Cup activity and creates a tougher second half comparison.

Fourth, our balance sheet is stronger. Liquidity ended at $520 million, leverage improved materially and the recent financing actions position us well ahead of the January 2027 convertible debenture maturity. Finally, we increased our 2026 guidance. We now expect revenue of $4 billion to $4.2 billion and adjusted EBITDA of $385 million to $415 million.

With that, I will now open the line for questions. Operator, please provide instructions to the callers.

[Operator Instructions] First question will be coming from the line of Chris Murray of ATB Cormark Capital Market.

Maybe starting with the guidance and just maybe unpacking this a little bit. So certainly, a very good quarter. Maybe you can comment on whether or not actually it was better than you expected when you originally set your guidance. So, just trying to get a couple of pieces of this. One, in the guidance and how you're thinking about kind of the quality of the margin that will be coming out of manufacturing. But also, if you could maybe make some comments, I just want to make sure that on aftermarket, it feels like this is kind of a onetime event, particularly with that margin impact. But if you just want to maybe clarify how to think about this on a go forward and how it fits into at least your view on the balance of the year.

Yes. Thanks, Chris. I appreciate the question. The first part of your question there relative to what we anticipated for Q2 and how the quarter played through for us and relative to our overall expectations for the year. Look, our expectations certainly are high for the year in terms of the guidance there that we've set coming into the year at -- in terms of the range that was there. And certainly, it was reflective of what we anticipated to do in Q1, which was certainly a resetting of key operations and also ensuring supply chain health as we were going to continue to see volumes ramp up as we came into the second quarter. And that certainly has played through for us. As you look at the transit volumes, those numbers were very strong, especially on the North America front, we're very pleased with what we've been able to do in terms of generating the growth. And so overall, we were very pleased with the execution that we had from an operational standpoint that really supported what we saw in terms of Q2.

An important part also of that was clearing through some of the old seating issue, which really put behind us and that also allowed for us to then clear through some additional WIP in the quarter, which was certainly a lift. And we may have been able to clear through that WIP a little bit faster in the year than we may have anticipated. So, we saw a little bit of lift then in Q2 as a result of that.

Relative to the World Cup, we were very -- in the aftermarket specifics of your question, we were obviously prepared as we came into the year that there could be some lift, but we weren't sure exactly how that would play through in terms of the transit agencies. And the end result was obviously something that was that was favorable for us in terms of Q2. I think the -- relative to the full year, then the -- what will be close watch for us is to see how that plays through because our expectation, of course, is that key transit agencies that had that World Cup impact, we may see some reduction in terms of their needs in the second half as they bought ahead, if you will.

Relative to the manufacturing, your question there around what we're seeing in terms of margins, we continue to see improvement in terms of our manufacturing margins. We see the health of our backlog as that's continued to improve over the years, and we got -- have moved away from some of the very steep inflationary pressures, and we've seen the backlog continue to improve. But also as the volumes have gone up, obviously, that's going to give us some of the benefit that we see relative to absorption, et cetera.

So, overall, I think it's a great quarter. I think relative to the guidance, there's a few things for us to be cautious about here in terms of the second half that we noted relative to the aftermarket piece, I think some of the pull ahead that was noted, I think how quickly we were able to work through some of our extended WIP. And frankly, Q2 is the longest quarter that we have in terms of manufacturing days as well. So, all of those play through. We're pleased with what we're able to do here from a guidance standpoint, and we've got a lot of work to do here yet in the second half.

That's helpful. My second question, just turning maybe to the balance sheet. Congratulations on getting the new piece of financing in. It looks like it's a pretty attractive number. I think you actually made the comment that it's actually less expensive than your first lien, which is interesting. So, as we think about kind of the evolution and next steps, you're kind of within striking distance of, call it, rolling off some weaker quarters to that leverage target. Can you walk us through how to think about the next steps? I think you talked about the converts. You've got the funding in place now to redeem those at maturity. But just sort of curious about how you're thinking about the trade-offs around perhaps retiring some of the second lien and if you can retire that in pieces and how capital allocation priorities, what kind of opportunities you see once you get into that kind of, call it, normalized leverage range with adequate liquidity, how to think about that into '27?

Yes. Great question. So, we're really pleased that our positioning now. We're really happy that we're able to get that deal done and be prepared for Q1 and the repayment of the convertible debentures. So, our real focus has been on deleveraging, and we're going to continue that throughout the balance of the year. As we mentioned in the discussion, we do expect some fluctuations in working capital. And so we'll always try to minimize working capital, but we do expect that we may see some increases in Q3 as we prepare for the Q4 seasonality.

With respect to kind of next year and beyond, our main focus is to get within that 1.5 to 2.5 range. And then once we get into that range, obviously, it opens up some options for us. And so we'll address that when we get there. But our main focus is to generate cash flow in the second half of the year, get some stability within our working capital. And then, of course, we're well positioned to address the converts in early next year. And then thinking about our high yield, we have some options. We'll see where the market is next summer when we enter into a call period for U.S. high yield, and we'll take appropriate steps when we get there. It's hard to speculate on what rates will be and how the math works when we get there.

And our next question is coming from the line of Ty Collin of CIBC.

Congrats on a strong quarter. Maybe just wanted to return to the guidance and ask the question a little differently. So, I mean, just given the updated range, I'm curious how you would sort of frame the high end and the low end and what you would highlight as kind of the biggest risk factors in the second half of the year and maybe where the areas of opportunity might be as well?

Yes. Great question, Ty. Thanks. Yes, absolutely. So, let me talk a bit on the -- relative to the low-end framing. There are still risks, of course, that are out there that we're facing into in the back half of the year. We've done a lot in terms of our operational execution that has allowed for us to derisk that bottom half. I think the work that we've done within our supplier management group to include rate readiness activities to include our risk assessments of the supply base have us in a very healthy place certainly and gave us confidence in terms of lifting that bottom half. But supply risk is out there, right? As we -- as these buses come together, the amount of material requirements that we have always poses that potential. And so that would be one area that would be a caution for us certainly as we head into the second half.

Certainly, there is the potential impact of other unforeseen issues that could emerge. But overall, it's really around continued execution within that supply base from an operational standpoint. We're also very closely watching Coach, the coach space to ensure that we see the private orders come through that we are anticipating. And there is, of course, some risk in terms of the total value that we may see from that or a range, I should say. And so depending on where those come through, that could have some effect for us, and that is then reflected with the lower end. But again, we feel obviously confidence building, and that's allowed for us to bring that lower end up.

On the higher end, what I would note is, we've been really pleased. I would probably use some of those same points relative to the work that we've been able to do on our operational execution. It was an outstanding quarter. We talked about it during the last call, the need for us to do some key things to really drive the efficiency within our shops to ensure work was happening on station, material availability that has built. And so as a result, we had a strong quarter that allowed for us also to work through some of that age group as well that was able to play through. And all of those give us confidence in terms of the process shifts that we've made, the support we've applied to our supply chain team. And as that continues to build, then that gives us some confidence to the point where we may -- that we see the upper range of that bumping up like we did.

Okay. Great. That's super helpful color. And then maybe just digging a little deeper on the implied margin specifically. So, if I take the, the midpoint of the revised guidance ranges, it looks like it implies a second half EBITDA margin kind of in the mid-9s versus you were running in the low 10s in the first half of the year and even north of that in the second half of last year. So, is there any kind of structural or seasonal reasons that we should expect margins to step down maybe aftermarket is part of that? Or is that kind of just baking in some conservatism as you just mentioned, from a margin standpoint?

I think certainly, the aftermarket effect would be mixed in there as aftermarket is typically a higher margin. We also have in Q4, we'll see a greater mix of private coach as well as Alexander Dennis units, and those will come in at a little bit lower margin than North America. So that mix would affect it as well.

Okay. Great. And if I could just sneak in one more. John, I'd be curious to -- and I appreciate the comments around the funding picture earlier in the call, but I'd be curious to get your sort of just high-level view on what you're seeing out of the Bill 250 bill, how you're viewing that? And also based on your conversations with your customers, how they're sort of thinking about that and responding to it so far?

Yes. No, it's a great question, Ty. It's certainly something that we're highly focused on. Look, it's obviously a lengthy process. We've had high engagement with industry, industry partners and also with various government folks to continue to learn and to share our thoughts in terms of where things are projected to go. So, those have all been very positive dialogue, and we're frankly very optimistic in terms of where things are at relative to the process and for a number of reasons. One is the overall funding bill, I believe, has very strong bipartisan support. It's going to take time for it to continue to be negotiated through. So, we're obviously watching that closely. And depending on whether or not it's able to complete funding before September, whether or not there will need to be some level of extension or a bridge, I think, is certainly a watch item for us. But I think what gives overall confidence is, again, that bipartisan support overall around the necessity, these fleets are aging. And the agencies are, I think, are and other industry players are obviously going to be vocal relative to the need for their recapitalization and the support that they depend on in terms of this federal funding. And I think that is a big piece of why we see overall broad support in terms of the need for continued funding.

We've been pleased with, as we've seen some of the draft language around the different elements that could be included with it. And so all of that considered, we'll be anxious to see how it continues to play through, heavily engaged certainly to support providing our view of how we can best support what they're trying to get accomplished with the funding bill, and we'll be anxious to see how it plays through here in the second half.

Our next question is coming from the line of Cameron Doerksen of National Bank.

Just wanted to maybe follow up on the transit funding question. Obviously, the backlog is down sequentially. Just wondering if maybe some of the uncertainty around the longer-term funding is having an impact on your transit agency customers' willingness to commit to new orders. Just what are you hearing from the transit agencies as far as the funding outlook? Because obviously, that would be good to have a longer-term visibility on that from their perspective. And then we've got some shorter-term funding proposals here, which, in some cases, are looking to slash public transit funding. So just thoughts about what the impact has been on the orders activity for you.

Yes. Thanks, Cameron. Overall, obviously, from a -- just touching on the backlog quickly, we feel very high confidence in terms of the backlog overall, sitting at that $12.5 billion level. And really what -- where we're at relative to our firm orders and the -- and from a slotting standpoint, right, the funding bill itself is going to continue to support deliveries all the way out into the 2028 slots with the current. So, that is -- obviously gives us -- affords us time, right, as this is going to continue to play through.

Relative to your questions around agencies and uncertainty, we're not seeing any broad-based pause in customer activity. As I noted earlier, the fleet age is a critical factor for these agencies as they consider the need to get their fleets recapitalized. And with roughly 40% of the fleet now over the anticipated life for the buses themselves, that is driving the need for continued pursuit of new buses. And so when you couple those 2 together, we feel certainly confident. But we have not seen, to answer your question very specifically, a broad-based pause in terms of the customer activity.

Okay. Got it. That's good to hear. Just second question, I guess, on the U.K. and the ADL. Obviously, there was some restructuring that occurred there. Have we seen, I guess, the positive impact on margins from that in your numbers at this point? And I guess, how are you feeling about the potential changes maybe in government policy there that might improve the competitive positioning?

Yes. Great question, Cameron. Thanks. The -- first off, we've done a lot, as noted here in the first half of the year around really repositioning our Alexander Dennis business from a cost standpoint. And those adjustments are going to continue to play through. So, it's going to take some time for us to see that benefit. So specific to your question, we are certainly seeing some impact, but we'll see that impact continue to develop here over the course of the year. Those changes were key for us. It was really a reset around this competitive environment to ensure that we position Alexander Dennis for being able to deliver successfully the profit levels that we expect of the business within that competitive environment, as you noted.

And so when you couple that with great product and terrific service experience from our customers and being able to price and win accordingly, we do expect to see that business really start to -- from a profitability standpoint, delivering to the expectations that we have of it. The -- we also have done that work and that reset with the ability and the flexibility for us to increase that production and have some agility in terms of some of the decisions and how we've executed in some of that reframing. So, we are -- and as you noted, right, very closely watching what's happening from a political standpoint to see whether or not there could be some policy shifts there that could give us some tailwind. We haven't built this plan based on that meeting those tailwinds. We built it within the current competitive dynamics. But if they -- if we did see some benefit relative to that policy, we've positioned the business to be able to scale back up to the levels needed to be able to address a great opportunity of additional volumes if they were to pursue a path of more localization.

Our next question is coming from the line of Mark Neville of Canaccord.

Congrats on the quarter. Maybe just first question, just around the free cash and the working capital. Just there's still a sizable inventory position as usual, and then there's still some WIP or quite a bit of WIP. I appreciate you'll need to build some inventory in Q3. But I'm just curious sort of structurally and longer term, is there more opportunity to reduce sort of WIP or bring down inventory? Or are you sort of at the position that you need to be?

Yes, that's great question. So that's something that we always take a look at balancing, making sure that we have enough inventory to support our customers, particularly in the aftermarket business. We do believe that there is opportunity and I talked a little bit earlier about continuing to work on cash generation. That's really what I was referring to. Our inventory balances have grown significantly over the past couple of years, and that's something that we'll look to work down. It is a balance as we need to make sure a lot of private motor coach sales can be very transactional if you have inventory. So we want to make sure that we have enough inventory to take advantage of those opportunities. But we do see opportunities over half 2 and beyond to continue to reduce inventory and generate cash through that.

I think I'd say too with the supplier performance getting better, that's hopefully going to be another tailwind on -- we don't have to have as much safety stock extra supply. So, hopefully, we'll continue to see that benefit the inventory number as well.

Great. Maybe just to go back on the guidance, sorry to keep asking questions about this. But if I look at the second half guide, I think the sales -- at the midpoint, sales would be up, I think, 17% or revenues would be up like roughly 17% year-over-year. EBITDA is closer to 4%. Again, I appreciate sort of all the different moving parts around aftermarket and maybe some of the mix issues. But is there any sort of incremental pressures within the business that we should be thinking about into 2027? Or is it really some of the more of the stuff you talked about?

Yes. Well, I think certainly, it's quite a -- and Mark, thanks for the question. I think it's -- certainly it's quite a few of the things that we had mentioned earlier. I think it's also worth reemphasizing the point that second half last year, as you talk about those year-over-year comps, it benefited from Q4, which was our largest quarter ever. And frankly, it was a result of a lot that had built up over the course of the year with some of the operational challenges that had occurred. And so it does create a tougher comp in the second half when you consider that Q4. And I think that's a big contributor.

Certainly, for us, as we consider where we're at relative with the items that I mentioned earlier in terms of the volumes, where we see those volume the increases from where we're at in Q1 into Q2, we expect to see strong volumes, especially in the North America transit space here in the second half. But there is that tough comp that goes to that Q4 of last year.

Got it. And if I could just ask one more question. John, you've been in the position or in the CEO role now, I guess, 6, 7, 8 months. It's great to see some of these improvements flowing through. I'm just sort of curious sort of if you were to categorize sort of where you're at in terms of implementing these changes and just sort of bigger picture sort of how you see things evolving over the next year or 2, 3, whatever. But just in terms of the changes you're making and your vision for where you want to take things.

Yes, absolutely. Thanks, Mark. Thanks for the question. It's been a busy certainly first 7 months here for myself in terms of coming into the role. The focus certainly for the first half here has really been around just driving our operational execution, delivering terrific product and service excellence, culture and team just in terms of our push towards an overall customer experience being really foundational to what we're trying to drive towards. And so those are our 4 strategic pillars that we talk about as a group. The ops piece has been a high focus item, right, ensuring early on in terms of Q1 that we were doing some of the needed things around our supply base and resetting our operations to be -- to really deliver what we anticipated was going to be a very strong Q2 and beyond relative to the volumes. That's taking, but we've still got quite a bit of work that we need to go do. And that's going to be a continued focus.

Operational excellence here is going to be an intense focus for us over the coming months and well into -- I mean, frankly, for the near term. The -- we've talked a lot as a group around driving customer experience, ensuring that our customers view our products as being best-in-class in terms of the service, the support, the quality that they see coming out the door. And so that has been an area, a high focus of how do we talk about the full life -- the customer experience from the initial -- from the commercial experience to the initial delivery to what they see in terms of service and quality. So that is a high area of emphasis for myself. And we're also now very focused around our strategy as a team. So, as we look and we look further out, ensuring that we're taking the actions from a strategic standpoint that are going to be critical for us.

What I will say is our focus within that remains very much around our operations and our execution as being an area of high focus. How do we ensure that we deliver on the volumes that we deliver on the backlog, that we deliver the highest quality product that we can to our customers and that we see as a result of that strong op leverage and incremental margins then flow through as we see those numbers evolve. So that's been the first half. It's going to continue to be where I focus here going forward, but it's been a great first 7 months, and I'm excited about what we have in front of us.

And the next question is coming from the line of Tim James of TD Cowen.

Just a question looking at the guidance change for the year. The indication, and I'm thinking about adjusted EBITDA guidance here, the increase due to improvements in overall gross margins as backlog is converted and the benefits from increased overhead absorption. Should we interpret that to mean really the improvement in adjusted EBITDA is a function of sort of volume -- greater volume than in the previous guidance? Or are there specific things going on as well within kind of the margin profile, whether it's manufacturing efficiencies and what have you that are driving the higher EBITDA guidance?

Yes. I really do think, Tim, that volumes are certainly one of the most significant drivers for us. In the past, we've talked a lot about mix, but the -- and the impacts of ZEB, et cetera. I think you'll see within the material where we're at from a ZEB percentage standpoint. And certainly, what I think it indicates in terms of where those are is that we continue to see profitability improvements, right, relative to our backlog, and that has certainly played through. So, when you couple that with the volumes that we're seeing, I think those are major impacts to us in terms of that EBITDA mentioned.

But Brian?

Yes. I'll just comment on -- as we've seen greater, what I'll call, operational stability, whether it be supply, labor availability and those types of things, we've naturally seen some better efficiencies within our kind of labor per equivalent unit and those types of things. And so, the improvements you're seeing really are both are contributing to that. But volume will always be a very important piece of our business.

Okay. That's helpful. My second question, just bigger picture here, looking at the, I guess, the U.S. market in particular, and you've talked a couple of times about the aging fleet and how that's obviously constructive for new deliveries. I don't want to be devil's advocate here, but I just want to kind of check my thinking. Is there any -- of course, the other way to lower the average fleet age is to retire units more quickly. Is there any indication you're getting from customers that, that might be an option? Is it just given sort of traffic flows and trends and economic conditions that they may just retire more older units and not necessarily replace those? Or do you feel no, they really sort of -- when they're thinking about lowering the fleet age, lowering the operating costs, it's more about they've got to bring in new deliveries at least to replace retirements kind of one for one.

Yes. Tim, it's a great question. I think what we see relative to the agencies and the customer base that they're supporting that they're primarily focused on around the recapitalization and a continuation of that and less around how they may try and look at retirements, et cetera. So, we do anticipate that this will continue as we've historically seen.

Yes. And Tim, I would just say we've seen in the active bids still being above 6,000 units, the 5-year outlook still above 26,000 supports that view that we feel that those vehicles are going to be replaced. I think agencies always when they extend life of vehicles, the operating costs get higher, the parts spend gets higher. So, I think to John's point, that is that drive to get some of those older vehicles replaced. So no, we haven't seen anything, but it is a great question, but we haven't heard that from customers.

Next question is coming from the line of Daryl Young of Stifel.

I just wanted to continue on this funding dynamic and specifically, your backlog is obviously huge. But when you look out to 2027, can you remind us how many of those slots are already scheduled? Or how many of the items in the backlog may be multiple years out? And then secondly, when you've seen an extension be announced in the past for funding, does that lead to sort of a flurry of activity and a immediate increase in order flow to make sure that transit authorities have their orders in the book?

Yes, absolutely. So, thanks very much, Joe. Appreciate the question. First off, on the first half of your question, overall, we feel very strong about what we have in terms of slots. If you look at the firm orders that we have, I think that's a good reflection of it. But overall, in terms of '27, we are very well booked and frankly, extending into 2028 as well. And I'm talking primarily on the North America side with that. But the -- and then relative to the shift that we may see in terms of extension activity, obviously, we've had that firm level sitting there at 43% certainly gives us great confidence. It obviously gives us great support out to 2028 in terms of how those funding dollars can be used until then. And it also affords some time, so should there be a bridge or some level of extension for the U.S. government to work through that and to come to resolution, certainly with us having quite a bit of margin, right, before -- as we look for well into '28 before slots need to start being filled up again.

So overall, we feel good on that. Relative to extension -- sorry, activity as we approach it, I think it's very agency dependent in terms of what they may opt to do as they approach it, looking at what they have in terms of their fleet, depending on their fleet age, they may need to lean in and ensure that they've got the coverage they hate to drop out and then they find themselves delayed in terms -- or having to move back into the queue in terms of their order. And so I would hate to give a broad answer to it other than it's going to be very case by case as they approach it. Overall, we feel great confidence extending out into '28 in terms of what we've got relative to our backlog, our firm orders, et cetera. And certainly, with the bipartisan support, we do expect a bridge or extension will occur, and we'll get the agencies where they need to be as that gets resolved.

Got it. Okay. And then just one more around the aftermarket. You've obviously described FIFA as potentially a pull forward. But as ridership trends continue to increase and get back to sort of pre-COVID levels, would there potentially just be an element here where parts stays stronger for longer as ridership recovers and maybe the FIFA dynamic is exemplary of what full utilization might do to bus issues?

Yes. No, it's a great question, Daryl, especially as we talked about the aging fleet earlier, right? Obviously, that's going to be a -- that is a benefit to our aftermarket business. I think regardless of the FIFA piece, we've seen good growth in terms of our core business and across all of the agencies that we support. We just saw some unusual high around -- related to some of the agencies on the FIFA side. But otherwise, we've still seen good growth from the overall aftermarket as well. We expect that to continue on. And to the question you asked earlier, right, around timing and what some agencies may do, if there is a delay to someone in terms of the procurement, then obviously, based on their aged fleet, that does lend itself to more aftermarkets and parts sales, and we're certainly well positioned to be able to support those fleets as they age also.

Next question is coming from the line of John Gibson of BMO Capital Markets.

Just first one on EBITDA per unit declined slightly Q2 versus Q1. Was this just delivery mix or anything else going on here? And how can we expect this to trend into year-end and maybe '27 based on the order book?

Yes, I think as we look at the second quarter, obviously, volume up, so overall total dollars are up pretty significantly year-over-year. As we think about kind of on a per EU basis, we delivered a fair amount of units in the second quarter that were coming out of inventory or coming out of WIP. And so those naturally bring overheads with them. And because we've had some production disruption, a little bit of higher kind of labor per unit, those types of things dragging through now that we've delivered most of what we've had in kind of offline WIP, we wouldn't expect to see that continue.

And yes, John, I think, as Brian mentioned earlier, as we continue to drive those efficiencies, more volume should continue to see, I think, that stronger improvement in the EBITDA per EU. I always just caution people, make sure you look at the LTM number just to take out some of that kind of quarterly dynamics that can impact it. But I think, yes, as we've seen kind of from '25 to '26, continue to see that kind of EBITDA per EU number improving.

Got it. And just last one for me. Just when you think of the mix of new orders or inquiries for buses, is it trending more towards diesel and away from ZEBs? Or have you seen any further changes here?

Yes. It's a great question, John. So, we have seen some decrease in terms of the overall ZEB percentages. Look, we think overall, the ZEB transition is -- first off, we have high confidence in it in terms of the long term. We think there's likely to be some timing. We're seeing some of that in terms of push to the right. Some of that is based on agencies and their infrastructure, their readiness. You have certain agencies that are certainly going to be continue to -- they're all-in push towards that ZEB transformation, and you have others that will, depending on what's happening from a policy or regulatory requirement, look to delay. Part of the reason, as noted, right, to be able to support infrastructure and investment and timing to ensure that they get that right.

Overall, as mentioned, we have high confidence in terms of the overall ZEB transition, but we do see it moving to the right here slightly, but it's from a percentage drop standpoint, not a major player.

There are no more questions in the queue. I would like to turn the call back to Stephen King for closing remarks. Please go ahead.

Yes. Thanks, Lisa, and thanks, everyone, for joining us this morning. As you heard, really, really strong quarter in Q2 and really pleased with the performance across the team and looking forward to the second half of the year. As always, if you ever have any issues, any questions that you want to bring up, please do reach out to us at any time and looking forward to connecting again with the third quarter results.

This concludes today's program. Thank you so much for joining. You may now disconnect.

[Audio Gap] closure, recording, transfer and use of such personal information from all appropriate persons before your disclosure. [Operator Instructions]. It is now my pleasure to turn today's meeting over to Stephen King, Vice President, Strategy and Investor Relations for NFI Group Inc.

Mr. King, the floor is yours.

Thank you, operator, and thank you. Good morning, everyone. And I would like to welcome you to this Annual and Special Meeting of NFI Group, Inc.'s Annual General Meeting. My name is Stephen King, Vice President, Strategy and Investor Relations for NFI, and I will be your MC for today.

I just want to give a quick thank you to some of our team members for helping organize today, Michael Kanish up here in the front, Kyra Fanning in the back and Crystal, who you might have met on the way in. So joining me today is NFI Board Chair, Colin Robertson; President and CEO, John Sapp; Chief Financial Officer, Brian Dewsnup. We're also pleased to have other members of the Board here in attendance who are here in the front, and we encourage you to chat with them after the meeting.

Turning to Slide 3. We will start today's meeting by delivering a territorial acknowledgment. I acknowledge that the land on which we are meeting today is the traditional territory of many nations, including the Mississaugas of the Credit, the Anishinaabe, the Chippewa, the Haudenosaunee, and the Wendat peoples and is now home to many diverse First Nations -- sorry, Inuit and Métis peoples. We also acknowledge that Toronto is covered by Treaty 13 with the Mississaugas of the Credit.

We respect and give honor to the indigenous people's history on this land and recognize First Nations, Métis and Intuit people's ongoing contributions in our neighborhoods and communities today. We proudly acknowledge our role in the many relationships that make up our home and commit to a spirit of reconciliation for the future.

Moving to Slide 4, a few quick housekeeping items. We will be advancing slides on the screen during today's meeting. The accompanying slides will be made available on the NFI website after the conclusion of the meeting. As the meeting is a joint in-person and virtual meeting, it is necessary to set out guidelines for the orderly conduct.

Following the formal part of the meeting, there will be a management presentation. Questions will generally only be addressed at that time. So if you have a general question for management, if you could please hold it until after John's presentation, happy to answer any investor questions or any other questions we have in the room.

To the extent there are questions regarding procedural matters or directly related to the motions before the meeting, those may be addressed during the formal portion of the meeting. That's when Colin Robertson will be up here presenting. That's the formal portion. Questions will be read out aloud before being addressed. Questions from persons attending the meeting virtually can be submitted using the instant messaging service of the virtual meeting interface. In order to ask a question, please click the Q&A icon and type your question to management.

Usually, and this year is no exception, the majority of shareholders submit their proxies or voting instructions in advance of the meeting. So a lot of people have already voted prior to today. Since we are hosting a joint in-person and virtual meeting, voting during the meeting will take place both by a show of hands for those here today in the room and by electronic ballot for those attending virtually. So we encourage people to raise your hands during the voting.

Registered shareholders or duly appointed proxy holders who wish to vote in person at the meeting are required to register in advance of the meeting. Registered shareholders or duly appointed proxy holders who wish to vote electronically and who have properly logged in on their control number or invite code as applicable, will be able to see on their screen all motions being brought forth at this meeting. These can be voted at any time up to the closing of the polls.

Voting will be open throughout the formal portion of the meeting. Registered shareholders who have voted in advance of the meeting and do not wish to revoke their previously submitted proxies do not need to vote during the meeting. Please note that only registered shareholders or duly appointed proxy holders are entitled to vote. Beneficial shareholders, who have not duly appointed themselves or any other proxy holder as proxy holders will not be able to vote at this meeting. However, all shareholders and duly appointed proxy holders may ask questions either in person here or using the instant messaging application of the virtual meeting interface.

I hope that's all clear. Moving to Slide 5. I would like to now introduce Mr. Colin Robertson, Chair of the Board of Directors of NFI. Mr. Robertson has served on NFI's Board since 2020 and is Chair of the Board since April 2025. Colin will provide a welcome to today's meeting and then take us through the formal portion of the meeting. Over to you, Colin.

Thank you, Stephen. On behalf of the NFI Group Board of Directors, let me welcome everyone to today's shareholder meeting. NFI delivered strong results in 2025, achieving multiple financial performance records throughout the year, even as the company faced several onetime events that impacted production, field service teams and our aftermarket businesses. We achieved several major milestones, including record revenue and adjusted EBITDA.

In addition, our low-floor cutaway business had its strongest year ever with record deliveries and the New Flyer business converted stronger backlog into results. The overall backlog remains a position of strength at more than $13 billion, providing longer-term visibility for NFI's continued growth and success.

These accomplishments were made as the team had to navigate challenging macroeconomic conditions, a rapidly evolving tariff environment alongside a battery recall, which impacted various financials in the second half of the year and an increasingly competitive U.K. market.

I will let John recap 2025 in more detail later in his presentation. NFI is well positioned for the long term, where it aims to benefit from investment in public transport across all of its core markets, expanded product offerings in North America, including the relaunched double-deck bus product line and the medium-duty Equess and strong underlying contributions from its market-leading aftermarket business.

Our Board continues to play an active role in overseeing the company's growth and supporting the continued delivery of NFI's pledge to deliver a better product, a better workplace and a better world. During 2025 and to start 2026, the Board remained focused on executing a detailed multiyear Board renewal strategy. With the retirement of 2 long-serving Board members. Similar to 2025, this strategy has seen new additions in '26 that bring new skills that reflect our current trajectory.

Turning to Slide 6. We provide an update on this Board transition. Today, upon completion of the shareholder meeting, Larry Edwards and Katherine Winter will retire. Larry was a Board member -- Board Director for 18 years and held numerous positions on the Board, including -- including -- sorry, most recently as Vice Chair and Lead Independent Director.

In addition, Larry was previously Chair of the Human Resources, Compensation and Corporate Governance Committee. Larry has been a tremendous value to NFI's Board, cannot be -- just cannot be overstated. And his governance as a company grew into North America's leading provider of transit buses, the largest coach manufacturer in North America and expansion internationally.

I personally want to go on record and thank Larry for all of his support as I stepped into the role of Chair, and I had the great pleasure of working closely with Larry over the past year as we executed on the Board renewal initiative and the CEO transition.

Katherine Winter served on the Board for 7 years, having originally joined in 2019. Kathy played a significant role in providing technological insights for the NFI team as they invested in new products and expanded the product portfolio. Kathy was also a member of our Operations and Technology Committee and brought a wealth of knowledge from her long career in the mobility sector.

Both Larry and Kathy were valued directors. And on behalf of the Board and management, I would like to thank them for their contributions, dedication and leadership and wish them both continued success in all of their future endeavors.

Going to Slide 7. As a component of our Board renewal strategy, Daniel Barclay and John Scannell were appointed to the Board in 2026 and have been nominated to continue to serve as independent directors. Dan brings us 33 years of capital markets experience to NFI's Board, which will be extremely valuable as we continue to focus on capital structure and capital allocation in the years ahead. Dan was most recently CEO of BMO's Capital Markets business, where he was responsible for the bank's interactions with corporate, government and institutional clients, investment, corporate banking and global trading needs.

John Scannell brings decades of complex manufacturing experience to NFI's Board. Having worked with Moog Corporation since 1990, he helped to champion their growth into a global designer of precision motion control, fluid controls and other control systems for the aerospace, defense and medical industries. John held numerous positions with increasing responsibility at Moog, ultimately retiring as the CEO in 2023, a position he held since 2014. We are very excited to have both Dan and John on our Board of Directors. They bring specific expertise that makes our Board stronger and will help management as NFI continues to deliver upon its strategy and growth plans.

Turning to Slide 8. We will now proceed with the formal portion of today's meeting. On behalf of the Board, I wish to express thanks to those shareholders, who have submitted their proxies in advance. Only shareholders or their proxies are entitled to vote electronically or in person at this meeting. To make best use of our time, I will move and second the proposals, which are called for in the notice of the meeting.

The meeting will now come to order. I shall ask Mr. Colin Pewarchuk, Executive Vice President, General Counsel and Corporate Secretary of the corporation to act as Secretary of the meeting; and Lesley Anne Alano of Computershare Investor Services, Inc., the transfer agent of the corporation's common shares, to act as scrutineer.

Notice calling the meeting was mailed to shareholders on April 2, 2026, and we have received confirmation from the corporation's transfer agent as to its mailing. Just prior to the start of the meeting, I received a copy of the preliminary scrutineers' report on attendance. There are at least 2 shareholders holding 67,492,099 common shares represented in person or by proxy at this meeting. This represents approximately 57% of our outstanding common shares as of the record date.

I have been advised by the scrutineer that a quorum of shareholders is present. I now declare that the meeting is regularly called and properly constituted for the transaction of business. The first item of business is the presentation of the consolidated financial statements of NFI Group Inc. for the fiscal year ended December 28, 2025, and the auditor's report therein.

A copy of the financial statements, together with management's discussion and analysis of operating results and auditor's report were included in the corporation's annual report, which has been mailed to shareholders, who requested copies and is available on the NFI Group's website. NFI's consolidated financial statements and auditor's report are hereby tabled for purposes of this meeting and no further action is required.

We will now proceed to the appointment of auditors and the authorization of the directors to fix their remuneration. I move and second that Deloitte LLP be appointed auditors of the corporation to hold office until the next Annual Meeting of Shareholders and that the directors be authorized to fix their remuneration. You have all heard the motion. All in favor, please raise your hands.

[Voting]

Contrary, if any?

[Voting]

Thank you. The next item of business is the election of directors. 10 directors are to be elected and information regarding the proposed nominees is set out in the information circular prepared in connection with the meeting.

I have pleasure of nominating Aziz Aghili, Daniel Barclay, Adam Gray, Paulo Nunes, Anne-Marie O'Donovan, Colin Robertson, Maryse Saint-Laurent, John Sapp, John Scannell and Janet Walker-Ford, as directors of the corporation to hold office until the next meeting of shareholders or until their successors are duly elected and appointed.

The corporation's amended and restated advanced notice bylaws provide that nominations of directors by shareholders must be received by the corporation at least 30 days in advance of the meeting in order to be valid. As no such nominations were received by the corporation prior to the deadline, the nominations are closed.

In accordance with the corporation's majority voting policy, for a nominee to be elected and remain as a director, they must receive no less than a majority of the votes cast in favor of their election. Based on the number of votes cast by proxy in advance of the meeting in respect of each nominee, I can report that all of the nominees have received a majority of votes cast for their election and therefore, I now declare that they have been duly elected directors of the corporation to hold office until the next Annual Meeting of Shareholders or until their successors are duly elected or appointed.

The next item of business is to consider and if deemed appropriate, to pass an ordinary resolution in the form set out in Exhibit A to the management information circular to continue, amend or restate the fourth amended and restated shareholder rights plan agreement dated May 4, 2023, between the corporation and Computershare Investor Services, Inc. as rights agent.

The rights plan is designed to provide the Board of Directors with additional time to assess an unsolicited takeover bid for the corporation and where appropriate, to give the Board additional time to pursue alternatives for maximizing shareholder value. The rights plan is also designed to encourage fair treatment of all shareholders and to encourage a potential acquirer to proceed by way of a permitted bid, which requires the takeover bid to satisfy specified minimum standards designed to promote fairness.

The rights plan was not adopted in response to any specific proposal to acquire control of the corporation, nor is the Board currently aware of any pending or threatened takeover bid for the corporation. To be effective, the resolution must be approved by a majority of votes cast by shareholders represented today and entitled to vote at the meeting. If the resolution is approved, the corporation and Computershare Investor Services, Inc. as rights agent will enter into the fifth amended and restated shareholder rights plan agreement to take effect today.

I move and second that the resolution with respect to the continuation, amendment and restatement of the fourth amended and restated shareholder rights plan agreement of NFI Group Inc. in the forum set out in Exhibit A to the management information circular be passed as an ordinary resolution of the corporation. You have all heard the motion. All in favor, please raise your hands.

[Voting]

Thank you. Contrary, if any?

[Voting]

Thank you. The last item of business is the approval on an advisory basis of the corporation's approach to executive compensation. I move and second to approve on an advisory basis and not to diminish the role and responsibilities of the directors that the shareholders accept their approach to executive compensation disclosed in the management information circular. You have all heard the motion. All in favor, please raise your hands.

[Voting]

Thank you. Contrary, if any? Just a bit late in raising your hand or you a contrarian?

[Voting]

Thank you. Unless there are any questions, we will now allow for some time for voting by those shareholders and proxy holders who are attending the meeting virtually. As I mentioned earlier, voting in the virtual meeting will be conducted by electronic ballot. Polls are open and registered shareholders and duly appointed proxy holders who have properly logged in with their control number or invite code as applicable and wish to vote will be able to see on the screen all motions being brought forth at this meeting.

Please register your votes. We will provide approximately 1 minute to complete the electronic ballots. Once the electronic balloting closes, the voting page will disappear and your votes will be automatically be submitted.

[Voting]

Thank you for casting your votes on these matters. The polls are now closed. I have been advised by the scrutineers that based on the ballots and proxies deposited for the meeting and the preliminary results of voting, all motions have been voted in favor, and thus, I declare all motions carried.

The final voting results will be available after the meeting and posted on SEDAR. The formal meeting -- the formal items of business as set out in the notice of this meeting have now been dealt with. As there is no further business to be brought before the meeting, I move and second that the meeting now terminate. I now declare the meeting terminated.

Now that the formal part of the meeting is concluded, I will turn things over to Stephen King, who will start the management presentation. Thank you.

All right. Well, thank you, Colin, for that, and thanks, everyone, for voting online and in person. So a reminder to all participants that we do want to take your questions and we appreciate you coming in attendance and being here live and being here virtually.

So for those that are in the room, if you have a question after John's presentation, please just raise your hand, and we have a microphone that we'll walk around and provide to various folks. And online, at the end of the presentation, please note virtual questions can be submitted using the instant messaging service of the virtual meeting interface. In order to ask a question, please click on the Q&A icon and type your question to management. We will read the questions all here in the room and respond following John's presentation.

We will continue moving the slides via the webcast link, and we'll also call out the accompanying slide numbers as we progress. So John Sapp, our President and CEO; and a new Winnipeger very recently, will now give us management's presentation. And then like I said, we will take your questions after the conclusion of the presentation.

Thank you, Stephen, and thanks, Colin. I've had the pleasure of meeting many of you here that are present in the room beforehand and several here just this morning. I look forward to shaking some more hands here after the meeting. But I have to first start with the cautionary statement. I would encourage everyone to have a look at this. It's included in the materials just to ensure you understand the context of the information that we're going to share.

So if you flip to the next page, I want to talk a little bit about where we're at overall as a group. And I want to first express just how much I appreciate being here now in the seat. It is a true privilege to become the new CEO of the NFI Group and to take the baton from Paul Soubry and to help with this great management team to lead this business to what will be a terrific growth year as we go forward.

That growth is going to be based on a long legacy of high-quality production and buses that we have put out into the market for decades. And that's true across our entire portfolio. We have 100,000 units as an installed base. And when you consider what that means in terms of customers, their dependence on us, the safety that we provide in terms of enabling safe connections of their customers, our role in the community and as we go forward is and will continue to be very significant.

And you can see that stretches across 13 countries. We have 44 facilities globally and over 9,000 employees. And so if you flip to the next page, that takes us, I believe, to #19 for online for Stephen's just a direction there. I want to talk a little bit more then about our product types. And so we are what we consider to call propulsion agnostic, meaning that we use and can -- as a strategy, we can install just about every type -- actually every type of propulsion type that is out there.

So whether or not that's your legacy diesel type product all the way up to the latest EV variant, we have the ability in turn to meet just about every customer's expectation as it relates to propulsion solutions. And so that has been certainly a great enabler for us. It also means that we've got a number of different products, over 60 plus. And you can see that, that 100,000 installed base has translated to a whole lot of mileage as well. But the revenue by group, you can also see predominantly North America is where most of our work is done, 15%, however, in the U.K. and then a small percentage as well in Asia Pac.

And then across the products where we do everything from the coach, those high-end coaches that you ride to the transit buses all the way down to the ARBOC solutions that a couple of shareholders were asking me about earlier, which are more in the short and medium-duty cycle bus.

So if you flip to the next page, you can tell we're invested in a whole lot of things. And the areas that I would focus on are certainly as we continue to see the evolution of new propulsion types that are out there in the market and continuing to ensure that from a product standpoint that we really are leading edge.

We've leaned heavily into that space. I think most recently -- our most recent additions to that family of products would be within the Alexander Dennis portfolio, primarily out of the U.K., but also does have a presence internationally to include here in North America, where they released the Enviro100 EV, the 200 EV, 400 EV, all of that done here in the last couple of 2 years. And we're going to continue to see more of those products emerge.

We're also continuing to make, of course, product evolution inputs into the current fleet of product lines that we have. And that has led to us with over a $13 billion backlog across our organization. So when you consider that, what we do every year, it means we have a whole lot of buses and products that we need to go deliver going forward.

We're going to do that by flipping to the next page and continuing to find ways to expand our footprint. So we've achieved new milestones here in '25 and frankly, stretching into '26, but most of those have been around rate readiness and continuing to position our manufacturing footprint to be able to meet the long-term demands.

And you can see Paul Soubry there with Prime Minister Carney as he was touring the facilities last fall. And then most recently here with our All-Canada, which I'll talk more in a second, we actually had the ribbon cutting for it in the top right. And so a lot of excitement in terms of what's happening there as well as other facilities.

If I flip to the next page, we have obviously some leadership changes. As I expressed earlier, I'm extremely pleased to be here in the seat and have the very big shoes to fill in Paul Soubry, who is leading this company for 17 years, give or take a month and obviously did a terrific job in terms of growing NFI to what it is today. And I look forward to working with our great management team and Board to continue on that progress.

We also recently named Rob Marion as our new President of the MCI business that was shared to you earlier today, a terrific leader with operational background. And so all of those adds as we continue to build and ensure that our succession and leadership ranks are ready for the long term and future. So if you flip to the next page then, the -- All-Canada Build opening, here's a few images of that.

This is really important for us. It has increased our capacity to 5 -- where it will be an additional 5 units per week coming out of that facility. And when we talk about units per week, that's a really important measure for us in terms of how we're doing around our capacity increases, of course, but also delivering on that backlog. And at 5 units per week, all of those units will go to Canada as the customer. It was an upgrade to the facility done in Winnipeg, and it was in close partnership with the local and federal government.

If you go to the next page, then you'll see our Las Vegas expansion. So this is another one that is very exciting for us as we really increase the double-decker presence in North America with the Alexander Dennis product line. This has seen -- and for those that have used the transit system around here, of course, you would see them driving around in the Toronto area, but also in the United States, where you continue to see more presence from it. And so that was a big -- an important investment for us, and we expect to see north of 50 units at a minimum per year coming out of that facility.

So if you flip to the next page, we're also very proud of what we do in terms of our leadership and being an employer of choice. And so leadership development, employee recognition and ensuring that as an employer that we are ones that our employee base is very appreciative of and therefore, wants to continue to grow their careers with us at NFI.

And so when you get named the Manitoba Top Employer in '25 and in Alabama, we were the Employer of the Year for the state of Alabama for its leadership and accessibility and inclusive hiring. Those are great measures for us. And then certainly, those are very competitive areas for us to win such an award.

And we also win in the market. So if you go to the next page, you'll see some of the recent big wins that we've had. Every one of those agencies that you see listed at the bottom are really big and important customers for us. Every customer is important for us. But these are the ones that carry with them orders of 100 to 200 buses, coaches, transits. And so it's really important that we continue to win and serve those.

And for us, it's around making sure that those customers recognize we develop the best product, we deliver the highest quality, and we give them the best service, and that is incredibly important for us in terms of how we go forward.

If you go forward to Page 27, a few things to note here. We talked a little bit here around some of the impact that we had in terms of 2025 and some of the work that the team has done relative to our debt structure and otherwise and our capital structure overall. So last year, we actually had our first ever high U.S. yield. That was very important for us. We've seen impressive demand overall going back into '25, and that's continued to carry over here in terms of '26. And we continue to strengthen our balance sheet overall as a result.

And then the final page on 28 is really around how we're focused going forward, my priorities for 2026. First and foremost, it's around our continued focus on operational excellence, making sure that we continue to increase the volumes that are needed to be able to support and deliver on the backlog and then as we increase those volumes out the door, making sure that we're seeing the incremental margins that we see that profitability continue to flow through those expanded numbers that you would expect. And so driving profitable growth through the process.

We're going to make sure that we deliver the best customer experience, as noted, ensuring that our vehicles are viewed as best-in-class safety, best-in-class quality, terrific customer support. And then finally, resilient solutions is around the resiliency of our business, as noted earlier, around our debt structure, the work that the team has done there, but also in terms of sustainability and its impact from an environmental standpoint, and we obviously play a major role inherently to the type of product that we deliver, but also because of the very focused sustainable solutions that we deliver to the market as well.

So our guidance remains that from a revenue standpoint, you can see as listed, $3.9 billion to $4.2 billion from an adjusted EBITDA standpoint, $370 million to $410 million and from a cash CapEx standpoint, between $50 million to $60 million. And as we shared on the earnings call earlier today, our confidence in delivering on these guidance numbers continues to improve as we continue to see improvements in terms of operations, improvements in terms of our supply chain and rate readiness.

Overall, our confidence here is high. So with that, that brings to a close the management presentation that I wanted to share, but we're going to open it up to see any questions that you all may have in the room or as Stephen noted through the online. Any questions? Yes, sir, in the back.

First, did I hear correctly that there's a shareholder that owns 65% of the shares?

Yes. So the question is if there's a shareholder that owns 65% of the shares. Stephen, do you want to expand on that? There is not, but I will let Stephen talk through some of the details of that question.

Yes, sure. That's really just the proxy process and the proxy process that happens. Our largest shareholder is Coliseum Capital. They're a 21% shareholder. And our second largest is Marcopolo at 8.1%. But that's really just how it gets treated kind of for the voting process through the formal part of the management meeting. So they get consolidated into that 65% and is represented by the proxy process. Does that help answer your question?

[indiscernible].

No, no, no. Sorry, yes. So it definitely does matter how you vote. That's just how we consolidate it for proxy purposes for the actual voting process that we go through. The largest shareholder, again, would have 21% of the votes that are outstanding. But your vote definitely does count. And so hopefully, you're able to vote before the meeting online or through the mail.

Okay. [indiscernible].

Okay. That's a great question. I'll take first at it unless you want to answer it, Colin. Well, what I would say a couple of things here. First off, thanks for that. And for those online that couldn't hear the question, there was a concern over the compensation overall from an executive standpoint in terms of where that sits with the company. And is it reflective of -- and I'm paraphrasing sir, so I think I'll capture it, but is it reflective of what the business has generated relative to profits for the company as we've gone forward and then also a concern around unemployment rates.

What I would say first on the first point is certainly -- and I'll talk within Canada because I'll assume, sir, that's where the messages from relative to unemployment. We certainly are a very proud Canadian employer, and I think that reference to us being an Employer of the Year in '25 in Manitoba is reflective of what we're doing not only in the community, but also to ensure that we are being good stewards relative to employment and ensure that we do all that we can to grow and to continue to grow. And so our focus is on that for sure.

Earlier today, we shared where we're at in terms of the quarter. And I want to reflect on your point around earnings and how we've done with that. I would say as you go back really over the last 12 months and you look at our last 12 months trailing, you'll see that we've generated a considerable amount of EBITDA to the business -- or sorry, to the company. And subsequently here this quarter in terms of year-over-year, we saw a 37% increase from a profitability standpoint.

So we are, without question, extremely focused on driving the profitability point that you raised and to ensure that, that's delivering. And so I can't speak to your experiences in the past, but I will tell you this is a high area of focus for us as we go forward. And then relative to executive compensation, of course, this -- the executive team's comp is very much tied to actually generating exactly what you said, which is profit.

And when that doesn't come through, then, of course, our team does not then benefit from that. But the other thing I would note, too, of course, is that we also want to ensure that we go outside to evaluate the compensation of this company and ensure that it is actually based on what are the practices that are outside in the market.

Thank you for your question. From a Board Chair and from a Board standpoint, sir, I would just like to make it clear that executive compensation is a matter for the Board, and it is important for us that we can attract and retain top talent. In order to do that, we make sure that we work. We have an outstanding HR Compensation and Corporate Governance Board Committee that also takes input from specific excellent consultants that are subject matter experts in that compensation world.

And everything in terms of reward and remuneration is underpinned by alignment is underpinned by our team delivering profitable growth for our company and ensuring that they steward our company to be a company that provides better products for our markets, better place for our employees to work as well.

So these guys don't mark their own homework. We have a very, very structured framework to make sure that we take best-in-class compensation from -- information from consultants. We review it as a Board and then put into place the appropriate compensation plans for management.

[indiscernible].

So there can be no doubt that over particularly the COVID years, there can be no doubt that COVID was, I'll call it, a pickle [ mistress ]. Some businesses did incredibly well. Through COVID and subsequent supply chain-related times, NFI Group, any business in the transportation world was severely impacted.

And over the last 3 years, stewarding this company through very choppy seas at a time when many of our competitors ceased to exist today and at a time where we invested in products to underpin a $13 billion backlog, profitable backlog in our bus business and to continue to grow every other segment. You won't always get the top of the tops all of the time.

John has spoken about year-on-year revenue growth and underlying profitability growth and our sense of confidence and expectation for the years ahead. So I hope that answers your question.

Any other questions?

[indiscernible].

Yes, that's, again, a great question. Thank you for that. Certainly, in terms of the U.K., Alexander Dennis in terms of growth, we actually expect to see more volume here this year. We have done some things around our capacity to ensure that it is rightsized for the long term. And so that would have been some of what you've seen. But certainly, we continue to see Alexander Dennis overall as a business continuing to benefit from the position it has, albeit in a highly competitive market there in the U.K.

On the U.S. front, it's really exciting to see where those different metro areas are that are interested in double-decker. It is a different solution than -- sorry, not U.S. I mean North America, right, in North America. You obviously see a high degree of introduction of, I think, yesterday, I was over at the Metrolink site and looking to see what they're doing relative to all the repair work. And I think they're on order of 250, I think, that are roughly speaking, that are driving around in this -- the greater Toronto area, which is pretty great.

And so we're building those out of Las Vegas currently. We are drawing from a supply base that goes all across North America to be able to support it. And of course, we are looking for opportunities, not only for those to be sold into the U.S., but also in Canada. And so the -- we have a very integrated overall supply chain. So within North America, between Canada and the U.S., and we would really leverage it, I think, to the most we can possibly get from it. So -- yes, great question. Any others? Okay. Thank you all. Anything, Stephen, do you want to close?

Yes. So, look, thanks, John, for that, and thanks, everybody, for your questions. We really do appreciate them. Any time, please don't hesitate to reach out to us. Our contact information is on our website, so you can get it at [email protected]. Thank you again for attending, and we do encourage you to mingle and mix with the management team and the directors that are here in attendance before you leave today. So thanks again, and that concludes our meeting.

And thanks. No questions online. I guess, okay, I should have checked out earlier. No questions online. So now we're completely done. So thanks, everybody, for coming. Thanks.

Good day, and thank you for standing by. Welcome to NFI 2026 First Quarter Financial Results Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to turn the conference over to your speaker for today, Stephen King. Please go ahead.

Thank you, Lisa, and good morning, everyone. Joining me today are John Sapp, President and Chief Executive Officer; and Brian Dewsnup, Chief Financial Officer. On today's call, we will recap the quarter, which included a clear continuation of our operational recovery, strong margin expansion and earnings growth driven by improved manufacturing margins and our backlog conversion. John will also provide the latest details on our outlook and our reaffirmed 2026 guidance. This call is being recorded, and a replay will be made available shortly.

We will be referring to a presentation that can be found in the Financials and Filings section of our website. As we move through the slides via the webcast link, we will call out the slide. On Slide 2, we provide our cautionary or forward-looking statements and note that certain financial measures referenced today are not recognized earnings measures and do not have standardized meanings prescribed by International Financial Reporting Standards, or IFRS. We advise listeners to view our press releases and other public filings on SEDAR for more details. In the appendix of this presentation, we have provided a list of key terms and definitions that will be used on today's call.

A reminder that NFI's statements are presented in U.S. dollars, the company's reporting currency, and all amounts referred to are in U.S. dollars unless otherwise noted. Slides 3 and 4 provide a brief overview of our company. NFI is a bus and coach manufacturer and total mobility solutions provider. We offer a wide range of buses and coaches on proven platforms and are North America's largest bus and coach provider. We hold market-leading positions and offer the industry's strongest aftermarket network. Slide 5 provides a brief insight into NFI's product and geographic mix and a few other milestones.

I'll now pass the call over to John.

Good morning, everyone, and thank you for joining us today. I'll be picking up on Slide 7. The first quarter saw a solid performance with 978 EUs delivered $842 million in revenue and adjusted EBITDA of $86.1 million. This was a 37% increase from the first quarter of 2025. Our performance was primarily driven by gross margin improvement of 450 basis points to a total 15.7% as we continue to convert our strong backlog into results and improve production efficiencies. This performance supported earnings per share of $0.10 or $0.18 on an adjusted basis with both significant improvements from last year. The demand environment remains strong as we reported 109% book-to-bill ratio on an LTM basis and an 80% option conversion rate. The North American bid universe remains at impressive levels with 32,000 -- roughly 32,500 EUs in total and total backlog of $13 billion, with 43% coming from firm orders and 57% in options. Liquidity saw a decrease from fourth quarter.

This was primarily driven by seasonal investments in work-in-process inventory following significant deliveries in the fourth quarter of '25. We also had some extended receivable balances associated with tariff recovery plus a few other timing items. During the quarter, we successfully launched the Battery Recall campaign, completing full battery replacements on 12 buses, leading to cash outflows of $2.5 million. Our team has a detailed plan for the campaign that will leverage our service center network. We anticipate that quarterly replacements will be larger as we move through 2026.

Moving to Slide 8. We highlight the quarterly and LTM deliveries by product lines. Transit bus deliveries were down 12% in the quarter and 7% for the LTM period. This was primarily due to lower U.K. deliveries. However, average sale prices or ASPs of heavy-duty transit buses increased by 10.5% year-over-year, reflecting the conversion of stronger backlog to results, geographic and propulsion sales mix. Motorcoach deliveries saw a 2% increase on both a quarterly and LTM basis. This was largely driven by higher public deliveries, offset by lower private deliveries. The ASP in this segment also saw growth up 4.6%. Low floor cutaway and medium-duty remains a bright spot with deliveries up 20% in the quarter and 24% on an LTM basis. With 794 total deliveries, this was another record performance from our ARBOC team.

I'll now pass it over to Brian to go through the fourth quarter results before we get into a detailed look at our outlook.

Thanks, John. As John covered some of the key performance metrics, I'll highlight a few segment details. Turning to Slide 9. Manufacturing continued to drive gross margin performance with significant year-over-year improvement. Margins were down sequentially, reflecting seasonality and strong sales mix in the fourth quarter of 2025. Aftermarket remained stable with a nearly 29% gross margin. On Slide 10, this margin performance helped drive a 75% increase in manufacturing adjusted EBITDA hitting $58 million. That's the highest first quarter in that segment since 2018. On an LTM basis, the segment is up to $258 million, representing 72% of our total EBITDA. On Slide 11, quarterly free cash flow was another positive at $17.5 million. This is up $13.1 million from last year with operational performance improvements offset by higher cash CapEx and investments in intangible assets, primarily supporting new product development.

We invested approximately $68 million in working capital in the quarter, primarily increasing overall inventory balances following the busier fourth quarter. In addition, we recorded the battery cell inventory received through the battery settlement into raw materials and had some tariff-related accounts receivable balances. On Slide 12, we'll walk through the adjustments to achieve adjusted net earnings with all amounts shown net of taxes. We commenced restructuring activities at Alexander Dennis Scottish facilities to better match our capacity and cost structure with current demand. We also had some minor adjustments related to the battery settlement and removed the gain from our JV investment in GR Seating.

I'm now on Slide 13, where we'll summarize total leverage, liquidity and return on invested capital. Total leverage, which includes all debt instruments was at 3.46x. Liquidity was up approximately $247 million year-over-year, reflecting the impacts of our refinancing activities in 2025. ROIC continued its strong trajectory ending Q1 at 12.3%, a 100 basis point improvement from the fourth quarter, reflecting positive cash generation and lower average invested capital.

I'll now turn the call back to John to discuss our outlook.

Thanks, Brian. Our first quarter performance positions us well for the remainder of the year and gives us increased confidence in our 2026 guidance. On Slide 15, we recap the strategic value drivers that will support our continued performance this year and beyond. Operational excellence initiatives will expand margins. Our focus on product and market leadership will deliver a consistent high-quality customer experience. And these activities, combined with the conversion of our backlog and growing aftermarket business will drive profitable growth as we continue activities to delever and strengthen our balance sheet. During the quarter, we continued to drive improvements in overall supply chain performance and rate readiness. This included activities at American Seating, where the first quarter improvements further supported our expectations that those issues will be fully behind us in the second quarter.

While we are monitoring macro impacts of global conflicts, nothing material to report, we have factored in assumptions for higher freight and shipping costs into our guidance. With a focus on cost management, we took actions to improve Alexander Dennis' cost structure to improve our competitive position and to rightsize production capacity to their order book. We continue to make strides in improving the overall customer experience and want to provide sustained outperformance to customers through our delivery and acceptance processes. Rob Marion's recent appointment as President of MCI will help continue those activities in the Motorcoach space. Rob is a long-term NFI employee who help drive manufacturing performance and operational excellence at both New Flyer and our internal fabrication businesses.

While we were also thrilled to be recognized as a top Manitoba employer in March 2026, this award showcases that our actions to be an employer of choice are paying dividends. And as Brian mentioned, leverage improved slightly, now down to 3.46x with expectations for more significant deleveraging throughout '26 and into '27. We're also advancing our work to evaluate options for refinancing the convertible debentures that mature in January with plans to provide more details during our Q2 update. Our first quarter delivered on our drive for profitable growth as we maintained momentum from Q4 '25 and had year-over-year improvements to gross margin and our total unit economics.

We remain on track to achieve our 2026 guidance range with expectations for adjusted EBITDA between $370 million and $410 million. Slide 16 to 18 provide the latest updates on our order demand and our backlog, and I won't go through them in detail, but I will mention a few key points. The demand environment is very strong with over 5,600 EUs in bids submitted, which will help drive order activity in 2026. The longer-term outlook is also strong with 26,000 EUs in the expected 5-year procurement plan, reflecting fleet age and customer expected vehicle replacement plans. Our backlog remains stable at 15,228 EUs and $13 billion. I'll point out that a significant portion of our backlog is funded into 2027, and we anticipate that option conversion into firm orders will remain strong this year as customers look to confirm funding under the Infrastructure Investment and Jobs Act.

The IIJA expires in September 2026, but funds can be spent in '27 and 2028. While ZEB as a percentage of backlog declined in the quarter, they remain an important part of our overall platform. We expect ZEBs will make up a meaningful percentage of our deliveries, but our overall goal is to ensure we serve customers' broad needs and our facilities are fully set up for all propulsion types. Average sale price of new income orders was $824,000 per EU, continuing a solid trend of price improvements in transit and coach segments even with lower ZEB orders. Before we close, I also want to provide the latest views on the macro tariff environment. On Slide 19, we have identified the major tariffs that are present and applicable to our industry.

While tariff structures continue to evolve, we believe our exposure is manageable. During the quarter, there were some changes to the overall structure of 232 steel, copper and aluminum derivative tariffs, but those are not expected to have a material impact on NFI's operations. Our U.S.-based manufacturing footprint and higher domestic content position us favorably relative to some of other manufacturing peers, which is helping mitigate the impact of cross-border trade measures. We are also continuing to work on IEEPA refunds with advisers and government departments. We will do what's right for our customers there and to meet our contractual obligations.

Overall, we maintain the view that tariffs are largely a pass-through cost to customers through contractual obligations and through general price increases. For clarity, our guidance includes the current known impacts of tariffs as of today's date. It does not reflect any material changes that the tariff environment could have on demand, pricing or costs in the future. And so wrapping up on Slide 20, a few final comments. We delivered strong earnings growth in the first quarter, driven by improved execution, backlog conversion and margin expansion, leading to a 37% year-over-year adjusted EBITDA growth. Demand remains robust, supported by a large backlog and active bidding environment. We're making steady progress on deleveraging while maintaining flexibility in our capital structure. So across NFI, the team is looking forward to our continued progression as we deliver on our strategic objectives to drive operational excellence, enhance the customer experience and deliver profitable growth.

With that, I will now open up the line for questions. Operator, please provide instructions to our callers.

[Operator Instructions]

Our first question is coming from the line of Chris Murray of ATB Cormark Capital Markets.

The first question is on manufacturing margins. We saw that the revenue in the U.K. was down pretty significantly. But what we're trying to understand a little bit is what do the manufacturing margins look like on a core basis in the North American operations? I'm kind of assuming that there's limited impact from the U.K. that it's either breakeven or a little bit underwater. But any thoughts that you can share with us about how to think about the North American transit and North American Coach business in terms of margin progression would be helpful.

Yes. Thanks, Chris, and thanks for the question. So first off, I will say, overall, as you've noted here, I think relative to the performance in the quarter that we're continuing to see strong per [indiscernible] economics. And as a result, I think it's reflective of what we see around an improving backlog and as over the past few years as this team has been able to navigate certainly through some of the critical cost pressure, and we now see some of the benefits of that improved backlog starting to come through. It is starting to flow through in terms of different areas. I will note that in terms of our U.K. volume, the U.K. volume this quarter was down slightly versus -- as a comparison in terms of year-over-year. And from -- relative to the North America side, we do continue to see benefit in terms of that margin improvement that we're able to generate.

But Brian, I'll look to you, too, to share a few insights relative to the manufacturing margin question.

Yes. Thanks, John. And Chris, I think we've been pretty consistent over the years just talking about the dynamics of North America relative to the more competitive environment in the U.K. And so you're picking up on that, and that's coming through in the financials relative to the mix, as you noted.

Yes. And Chris, the only thing I'd say, obviously, fourth quarter is our busiest period, Q1 is slower. So we tend to tell people to focus on an LTM number when you're thinking about either gross margin percentage or gross margin per unit, EBITDA per unit, just to help kind of normalize what a full year expectation.

Okay. I guess the next question, and maybe this is more for John. But John, now that you've had some time to kind of get settled and have a look at the business, some of the strategic directions. One of the questions I've been getting a lot, and it kind of goes a little bit to the first question, but is about the U.K. business.

Certainly, the restructuring program has started, I think, before you even got there, but lots of questions I've had now about the utility of even maintaining the U.K. business, if it's not better held maybe in someone else's hands. We've seen some other political changes even overnight in the U.K. right now. So just trying to think about positioning and any thoughts you may have about the strategy around that business or anything else that you may have kind of picked up on in your early days as President and CEO.

Yes. Thanks, Chris. I appreciate the question. Look, Alexander Dennis, we have a terrific product offering, certainly for our customers over there, one that has been built on decades of that business, really doing exceptional work for the end-use customers. And so we certainly have high confidence in terms of the products, the quality that we deliver and therefore, our ability to go -- to continue to compete and win in this space. However, as noted, it is a much more competitive environment that has evolved in a different way over the past few years with certainly larger penetration from foreign competitors into the space. And so it's important for us to react.

And in answer to your question, how we're talking about it as a leadership team and certainly how I'm viewing it through my lens here. First and foremost is to ensure that this business is positioned to win and continue to win in the current environment. That means making some very difficult decisions. And as you would have noted here over the past couple of months and as Brian shared earlier, we had to make some difficult choices around redundancy and really getting some actions underway relative to rightsizing and some tough footprint decisions there as a result. So those are going to continue to play through, and they are important for us in terms of ensuring the business is, as noted, positioned to win in the current environment.

Also, we want to ensure that there's optionality in those decisions, too, because this is a market that has a lot of conversation around it within the U.K. government and between our teams as well as regulators, et cetera, in that market. that could allow for some future tailwinds. And we want to ensure that anything we do from a decision standpoint also allows for us to bring capacity back in quickly. And so the actions that we've taken position us to do just that.

And relative to your question there, the portion of your question around the portfolio, I will say it's -- this is a question that I will always ask and evaluate all of our portfolio on a regular basis to ensure it's one that is built for us and for the long term over the next 3 to 5 years. And so whether or not it's Alexander Dennis or any other portion of our portfolio, that will be a constant part of our responsibility here as a team, we're going to continue to do so. And so relative to Alexander Dennis specifically, this is something that the team, as we evaluate our strategy across the entire portfolio is really starting to dig into now as we look at what positions us for long-term growth. We'll do that here over the coming months. But right now, we're very much focused on just ensuring AD is ready to win and compete in the current environment.

And our next question is coming from the line of Cameron Doerksen of National Bank.

I just want to ask a question about the cadence of bus deliveries, particularly in the Transit segment just over the next few quarters. Obviously, obviously fairly low in Q1 and down year-over-year. But I just want to understand how it looks for Q2 and into the second half of the year.

Yes, Cameron, great question. Appreciate it. And look, there's several things to note here as we're through the first quarter and we position ourselves here in terms of the back half, and I think your question is primarily focused on within the transit bus space. I will say that for Q1, there were some important steps and actions that we've taken overall as a team to really position us for what we anticipate will be continued volume growth here as we get into the back half of the year, and it's common for us to see that from a seasonality standpoint. And we've taken, I think, some important measures in terms of our supply chain readiness. I think what you'll note from our commentary early on is some of the longer-term systemic issues in terms of our supply chain, significant action that have worked through to address those.

We've also done some key things within our 4 walls just to ensure that we're driving to the most efficient flow that we can have, limiting any elements of out of station work, et cetera, that can slow us down, and it really positions us well in terms of our EU volume increases here that we're anticipating as we get into Q2 and beyond. What I'll say is also that we're off to a very strong April. And so we continue to have continued confidence in terms of what we've shared relative to guidance and our ability to bring forth the needed EU volume increases here from Q2. Brian, anything you'd add?

I think you captured it well in terms of the seasonality and growing Q2 volume -- sorry, growing volume from Q1 throughout the year to support our guidance.

Okay. No, that's helpful. And I guess sort of related, if I look at the average selling price for transit buses in Q1, up very nicely year-over-year over 10%. I know that mix can have a fairly significant impact on that number. Just wondering what you kind of expect for average selling price in the Transit segment kind of for the remainder of the year. Is the mix going to be similar? Just any thoughts on that.

Yes. Look, from a mix standpoint, we obviously continue to watch it closely as well. And certainly, from a backlog standpoint, you can see in the data that we've shared where things sit relative to ZEBs versus our ICE solutions. Overall, from a -- what you'll also note is the -- or the continued EU economics improve even while we may have seen a slight drop in terms of ZEB output in actually Q1, I think, which continues to demonstrate the improvement and the improving economics of our backlog overall. Our strategy around being a propulsion-agnostic player and being able to drive the level of profitability that we all expect regardless of those platforms is key to us.

And I think Q1 continues to demonstrate that and especially as our improved backlog continues to play through. So we certainly look at it. We may see some movements here of a couple of percent relative to ZEB participation in terms of our outputs overall. But generally, we have confidence certainly in the guidance that we've shared. and confidence that the mix is going to be supportive of what we need to go deliver on the year. Brian, anything to add?

I'd just like to remind, obviously, we have geographical mix, but I'd also just remind everybody that there's a pretty big difference between an ARBOC cutaway relative to New Flyer vehicle or an MCI Motorcoach. And so mix can be a big factor in this, and I really wouldn't read too much into that.

[Operator Instructions]

Our next question is coming from the line of Daryl Young of Stifel.

Just wanted to ask around the All-Canadian Build Facility up and running now, but it doesn't sound like it's going to achieve full capacity until later this year. So I'm just wondering if there's a drag on margins to start the year related to this or if it's material at all? And just given you've actually had very strong EBITDA per EU, so this would potentially be upside to that.

Yes. Thanks, Daryl. Great question. And what I would say is that we are exactly where we intended to be, if not a little bit ahead in terms of what we're seeing in terms of EU output out of the [indiscernible] Canada build. We're obviously really pleased with that facility, what it's going to mean for us in terms of additional volume growth, which is obviously critical to the investment that we made towards it. And it is, overall, I would say, slightly ahead of schedule from a volume standpoint in terms of what we're doing from the facility overall.

And the only thing I'd add, Daryl, obviously, we opened it in Q4, and then it's been ramping to John's point, on plan through Q1. So it would have a little bit of impact, I think, of working capital as it's kind of ramping up and increasing the volume production. But I think that's helpful for the rest of the year because now, as John mentioned, it's kind of exceeding plan. And so for Q2, Q3, Q4, that will be supportive as we get the higher deliveries out of that facility.

Got it. Okay. And then second question is around ARBOC continues to be very, very strong. Obviously, it's a smaller part of your business. But just wondering if you can give us a bit of color on whether that's a function of pent-up demand or if you have some unique products that might be new to the market that are taking share? Or any views on how big that business can get in the next 2 years?

Yes. Thanks, Daryl. Great question. And we're certainly very proud of the performance that we continue to see from the ARBOC team. And frankly, we do believe that we've got a very high demand product in a specific area with a low floor cutaway that our customers find particularly valuable and beneficial to the customers that they serve. And so as a result, the ARBOC volumes that we saw last year and that we anticipate here as that business continues to improve for us continues to look very strong. And so the -- we would see that demand profile continue to play through as you see just recap type investments that their customers are making.

And I think also as the performance of the product itself and those -- that unique customer base that it's able to serve continues to be made more aware of from a market standpoint, I would expect that we'll continue to see good growth and progress with it. We would also note, too, that in terms of the medium-duty bus, the Equess bus that is launching here that's really relaunched here this year. It's a terrific product. We are seeing good interest and demand from these customers for that. And obviously, that is going to continue to bring continued growth for our ARBOC business as well.

Our next question is coming from the line of Jonathan Goldman of Scotiabank.

Maybe just looking at the adjusted EBITDA, it looks like there was a benefit from an add-back of restructuring costs, $7.5 million, maybe, call it, $8 million that benefited margins. How should we think about that in terms of go forward? Is that onetime? Or could we also think about maybe a payback on that restructuring charge that could flow through margins in the subsequent quarters?

Yes. So in the quarter, we saw some benefit from the gain from the GR Seating acquisition that we did. That would -- we would view that to be a onetime thing. I wouldn't anticipate that we would see that. Again, it was really valuation of our assets relative to even relative to the purchase price there. And we wouldn't expect that to be -- have any effect on a go-forward basis. We did recognize some restructuring costs in Q1, reflective of the work that we're doing in Alexander Dennis, and we do believe we'll have some more of that in the balance of the year in Q2.

Brian, I think it's fair to say that the overall expectation is that restructuring will generate savings in that business help improve competitive position and margin over the longer term, but you're right, there'll be some more restructuring this year.

Yes, we would see some more costs this year. And of course, that will play out in terms of better efficiencies. And as we mentioned on the call, rightsizing our capacity to the demand in that marketplace now, which will put us in a better cost structure position, as John mentioned, we need to make sure that, that business is prepared to thrive in the environment that exists today.

Okay. And is it fair to say after the kind of cost actions you've taken, the restructuring, U.K. margins are immediately better today than they were maybe a quarter ago?

Yes. I think what we would say is as we go forward post restructuring, without question, this is about driving improved margin performance out of the U.K. business for sure. And so these are the right restructuring decisions. Certainly, they are going to take certainly a few months here for it to continue to play through, but we do anticipate then as a result, the margin improvement that will come from it.

Okay. That makes sense. And then, John, you talked about you may give more color on the convert coming up in the next quarter and your thoughts there. But with the visibility that you guys have, the results you just put up, the guidance, how would you characterize your flexibility of options to deal with the convert?

Yes. No, it's a great question. I'll lead it off and then Brian may share a few thoughts here as well. But overall, I think the -- what we're anticipating here as we prepare towards the strategy and the decisions there that we want to make relative to the converts. And really, as we consider overall where we're at relative to our overall leverage position, we do believe we've got some good options here that are going to emerge for us overall as a business. And that's really driven by the continued improved performance of the business overall. So I generally feel very positive about our ability to make a great decision and execute on a great strategy for us as NFI going forward.

Yes. And we -- we've met and continue to meet with a lot of our banks and lending partners -- and relative to a couple of years ago, we're in a much better position. We have a lot more options today than we had a couple of years ago. And so as John mentioned, we're really looking at positioning ourselves for the medium to long term with regards to our capital structure.

Okay. And maybe just one more for me. You guys kept the guidance maintained. If I'm just looking at LTM numbers, $360 million of EBITDA, things are accelerating, getting better, both seasonally and operationally. Q1 was up $24 million EBITDA year-on-year. Can you give us some thoughts on why you maintain the guidance range? And what is the risk to the $370 million given that you're kind of tracking well ahead of that?

Yes. It's a great question. Certainly, we feel continued building confidence in terms of the guidance that we've put out, but it is also -- we've just cleared April. We continue to see strong momentum. I think Q1 was obviously a great momentum for us in terms of the year. And as you noted, from an LTM basis, we continue to see improvement as an overall business and relative to it. That said, there are still risks that are out there that we need to ensure that we are ready and that we execute against.

We -- as noted earlier, we've got a big backlog that we need to go deliver on, continued operational growth and expansion here is a key part of us seeing that through. We've done a lot of outstanding work this year in terms of the supply chain and really ensuring that from a rate readiness standpoint, our supply bases are with us that we've addressed the seating issue and that we bring that to full closure. So those are some of the risks certainly that have -- that we worked here towards mitigate. There's probably still some that potentially extend in a much reduced way here as we go forward, and that's why our confidence is continuing to improve.

We also still have some work to do relative to orders as we consider the back half of the year, not necessarily in terms of our North America space but overseas. So we've got to make sure that we're -- that we have accounted for those risks properly. And so overall, there are certainly some that are out there that from a risk standpoint that we've shared with you all before, nothing new that's emerging to us that would be worthy of highlighting all things that we would consider that we need to go manage. Our confidence is building, but we still have some work to do here, and it's early in the year.

And our next question is coming from the line of Ty Collin of CIBC.

Maybe just to start, you mentioned that some of your customers are deferring their decisions and their orders on ZEBs. Are those customers switching their options to diesel? Or are they just kind of deferring altogether? And does that dynamic impact your production scheduling at all for the year?

I'd share a couple of things. First off, from a -- on the last part of your question in terms of our production and scheduling, we do a really good job of being able to manage through and execute. And really from an orders in terms of our master planning through the rest of this year, we feel really good. We may see a little bit of movement here and there, but nothing significant that would give us concern. And certainly, we think we have a well-understood mix as we go forward overall. Relative to your question in terms of conversion, there's been some examples of it. The first thing I would note, though, is that relative to overall order book conversion that we do continue to see, especially as we approach towards the end of 2026 time frame that we're seeing a lot more orders that are being firmed up. Relative to the specific question on propulsion type, there is the potential certainly for us to entertain a customer making a switch from a ZEB to an ICE propulsion platform, but it's fairly minimal when we're seeing those occurrences.

And really, what we see relative to the push to the right tends to be more around infrastructure establishment, other things that customers need to have in place, and they're not quite ready yet for us to be able to go receive that. So look, there are several things in there for sure. What I would say, overall, we feel good about the ZEB mix that we have going forward through '26. We feel really good about what we see in terms of ZEB mix in the out years. And all of it is certainly from a -- in terms of our performance here for this year is definitely manageable within the guidance that we've provided.

The other thing, too, I would note is when we're able, from a production standpoint and there is less touch labor that is required for us to be able to get an internal combustion through the shop than a ZEB. And so when we do see a conversion, that does create that path for us to increase rates, obviously, slightly, right, when you're talking about more buses, but we can get more ICE through the shop than ZEB. So overall, from an EBITDA standpoint, that is another reason that we're able to manage any kind of impact to us, and that's really by driving more volume.

Okay. Great. And then just on transit deliveries in Q1. Obviously, the U.K. and ADL dragged that down year-on-year. Can you maybe just comment on the year-over-year change in North American transit deliveries and how we should think about that within Q1?

Yes. I mean the U.K. was certainly was the big driver, as noted. I think we saw a little bit of an impact in terms of North America, and it would go back to a couple of things. One is we were continuing to execute and navigate through the seating challenge to some degree in terms of the quarter, although we have seen that improve significantly such that it really is something that we expect to not be talking about here in the very near future. And second, there were a couple of other things that I noted around just ensuring from an efficiency standpoint that we took a couple of necessary steps within our operational and manufacturing facilities to ensure that we were getting to that efficient state of flow that really positions us strong for Q2 and beyond.

Out of-station work can be very inefficient when it starts to propagate seeds had been previously a driver for that. Now that we've seen that issue resolved, it's really allowing for us to see those volumes come back strong. And what I would note is that we've had a really strong April. It's exactly as we anticipated based on some of those decisions made, which may have affected a little bit in terms of our Q1 outputs. But what I would really highlight is we're positioning what we anticipate to be strong EU expansion and growth here as we get to Q2.

Our next question is coming from the line of Tim James of TD Cowen.

I just want to explore one question here. Can you talk about the aftermarket as you look out over the next 2 years and just kind of review some of the moving parts there in terms of volumes that you expect to see kind of driving revenues and any sort of influences on margins? I know there's some different kind of services that end up hitting that aftermarket revenue line. I'm just curious as to kind of the moving parts that we should think about over the next kind of 1 to 2 years.

Yes. Great. There's 3 things that I'll talk about on this question, Tim, it's a great question overall. Certainly, we see -- continue to see very good growth relative to our core business in the aftermarket space. And so as you see volumes, installed base, all of those things that are beneficial in terms of spare parts volume and kind of your core business, those continue to strengthen. And we continue to see certainly good action from the team relative to the needed pricing to reflect the economics and what our end-use customers need from a material standpoint. Overall, those are good tailwinds that are going to continue to support the core portion of the business.

Where you do see some mix relative to profitability in the aftermarket space can be what we call within our programs. Those will be where we're working with an end-use customer around a specific reset in terms of their platform or where they need to put a new product on. And so when we do that, the programs, they can be a little bit lumpy as you would expect, as you may have a large municipality that's going to have a program for a retrofit that comes through and then you can see that shift or where that program comes off, you got to go find that next one. Overall, the team has done a fantastic job in terms of building up that pipeline of programs to ensure that we continue to see good growth here for the next couple of years.

The third thing I would note, too, is that we are, at least in some regions, also feeling some tailwind here relative to FIFA and the World Cup, especially in the North America area. We would expect to see that continue slightly here in the second quarter. And what I would also note too is that we're doing some things across our overall organization to ensure from an aftermarket standpoint, that we evaluate the full NFI approach and how we can ensure that we're maximizing what we do as an overall group in the aftermarket space around and drive more growth.

And there are no more questions in the queue. I would like to turn the call back over to Stephen for closing remarks. Please go ahead, Stephen.

Yes. Thanks a lot, Lisa, and thanks, everybody, for joining us today to get our Q1 recap. As always, please don't ever hesitate to reach out to our IR team, and we'll obviously have materials posted on our website. Thanks a lot, and have a great day.

This concludes today's program. Thank you so much for joining. You may now disconnect.

Good day, and thank you for standing by. Welcome to the NFI Fourth Quarter 2025 Financial Results Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded.

I would now like to hand the conference over to your speaker today, Stephen King, Vice President, Strategy and Investor Relations. Please go ahead.

Thank you, Shannon. Good morning, everyone, and welcome to our conference call. Joining me today are John Sapp, President and Chief Executive Officer; and Brian Dewsnup, Chief Financial Officer.

On today's call, we will give you an update on our annual and quarterly results, highlighting a record year in 2025 for NFI. You'll also hear from John on his first few months as CEO and his top priorities coming into the year. This call is being recorded, and a replay will be made available shortly. We will be referring to a presentation that could be found in the Financials and Filings section of the NFI Group website. As we move through the slides via the webcast link, we will call out the slide number.

On Slide 2, we provide our cautionary or forward-looking statements and note that certain financial measures referenced today are not recognized earnings measures and do not have standardized meanings prescribed by International Financial Reporting Standards, or IFRS. We advise listeners to view our press releases and other public filings on SEDAR for more details.

In the appendix of this presentation, we have provided a list of key terms and definitions that will be used on today's call. A reminder that NFI's statements are presented in U.S. dollars, the company's reporting currency, and all amounts referred to are in U.S. dollars unless otherwise noted.

Slides 3 and 4 provide a brief overview of our company. NFI is a global independent bus and motor coach manufacturer and total mobility solutions provider. We offer a wide range of buses and coaches on proven platforms, and we hold leading positions in transit and coach markets with the strongest aftermarket network in North America and the U.K. More detailed information is available on the NFI Group website.

Slide 5 provides some brief insight into NFI's product and geographic mix and other milestones. I'll now pass the call over to John.

Thanks, Stephen, and good morning, everyone, and thank you for joining us today. I'm going to pick up on Slide 7. It's been just over 2 months, since I started with NFI. And in that time, I've had the opportunity to see firsthand what makes this organization a leader in the markets we serve. I visited numerous facilities across our network in the U.S., Canada and the U.K., and I've had the opportunity to work closely with the leadership team to get alignment on our priorities for the year.

What drew me to NFI was the critical role that the company plays in driving cities, economic activity, environmental progress and enabling connections. NFI's purpose is to move people, and I've seen our team's commitment to that mission every single day, since I've arrived. Whether it's mobilizing actions to support customer deliveries, executing field service activities, providing aftermarket parts, completing complex engineering or fabricating components for buses, the team at NFI remain focused on the end goal of supporting customers to ensure they can keep their passengers and riders moving safely.

I'm honored to be following Paul Soubry in this role. The legacy of his outstanding 17-year tenure will forever be a part of the NFI Group. While we wish him all the best in his retirement, I'm also pleased that he will remain available to us and myself as an adviser going forward. As incoming President and CEO, my focus has not changed for the sake of change, while I also want to make it clear that status quo is not the plan.

While we are well positioned for success with a strong $13 billion backlog, a very positive demand outlook and foundational aftermarket business, I'd also want to bring new perspectives and fresh ideas to the business and our longer-term plan. The leadership team and the Board have developed a multiyear financial plan that will see NFI continue to grow, and I'm committed to making sure that we deliver and execute to our expectations.

I'll now pass it over to Brian to go through the fourth quarter results before we get into a detailed look at our outlook.

Thanks, John. Turning to Slide 8. Q4 was a record quarter for NFI with the largest revenue and adjusted EBITDA in our history. We saw a 22.5% year-over-year increase in revenue and as almost 79% year-over-year increase in adjusted EBITDA. We achieved adjusted net earnings of $59.6 million for the quarter and a 45.7% increase from Q4 2024. Our liquidity increased by $319 million year-over-year, reaching almost $446 million. This reflects a temporary positive increase in the battery settlement.

Total leverage, inclusive of all debt improved to 3.49x, an improvement of 5.3x from 2024 Q4. We continue to make meaningful progress towards our leverage target of 1.5x to 2.5x. The overall improvements were largely driven by the continued strength in manufacturing sales mix as we convert our backlog into results with increased unit economics.

The quarter was also positively impacted by the battery settlement agreement reached in mid-December, which is detailed on Slide 9. For reference, in the third quarter of 2025, NFI recorded a $229.9 million provision as part of the originally announced battery recall. The majority of this provision relates to the expected cost of the recall campaign, while a smaller portion is for potential additional warranty and support costs for other non-recall related battery electric buses in service from the same battery manufacturer.

NFI worked throughout the fourth quarter with the impacted supplier and came to the final settlement agreement in December that included the following items: immediate cash payment received in December, an inventory of battery cells from a leading global provider, which NFI plans to use with a new battery manufacturer starting in late 2027.

Hiring of certain engineering and service employees, who will support the recall and provide oversight on NFI's other electric buses, assumption of software and intellectual property plus facilities for office and engineering labs and the storage of battery cells.

And finally, cash payment in escrow to support transferred employees and the facilities mentioned above. The table on the left showcases the financial statement impacts. On a net basis, we've recorded a $63.9 million loss, which is generally viewed as a conservative approach considering the likelihood that certain warranty claims may or may not come to fruition.

We're also focused on managing the cost of the battery recall campaign to lower cash outflows. Recognition of the battery recall and settlement impacted numerous financial metrics in 2025. Given the nonrecurring nature of this event, we have normalized adjusted EBITDA and adjusted net earnings. To see a full breakdown of the impact, please see our MD&A and financial statements.

Moving to Slide 10. We highlight the quarterly and full year deliveries by product lines. Transit bus deliveries were down 6% in the quarter and 7% for the year, primarily due to lower U.K. deliveries, partially offset by higher North American deliveries. Despite these lower deliveries, the average selling price or ASP of heavy-duty electric -- heavy-duty transit bus increased by 33% year-over-year, reflecting the conversion of stronger backlog to results.

Motor coach saw a significant increase in the quarter with deliveries up 48% from 2024. This was driven by customer demand, acceptance and seasonal timing. The ASP for this segment saw a 3% growth year-over-year. The low-floor cutaway and medium-duty segment saw a record full year delivery of 761 units, an increase of 22% year-over-year and a 12% increase in the quarter. The segment also saw a 15% increase in ASPs.

Turning to Slide 11. Aftermarket gross margin percentage was up significantly from Q3 and up from 2024. This reflects sales mix benefits and updated pricing reflecting the impact of tariffs. In the Manufacturing segment, gross margin was up to 14.8%, an increase of 780 basis points from Q4 2024 and 460 basis points from the previous quarter after adjusting for the impacts of the battery recall. This increase was also driven by conversion of backlog and the positive benefits of geographic mix.

Slides 12 and 13 walk through the year-over-year changes in adjusted EBITDA within our reporting segments. I'll just highlight that manufacturing adjusted EBITDA increased by $59 million or 167% in the quarter and increased by almost $150 million on a full year basis.

On Slide 14, free cash flow for 2025 was positive at $67.8 million with a year-over-year increase of $86 million, driven by operational performance improvements and lower cash interest costs. When we factor in changes in working capital, there was a significant positive impact on cash flows in 2025. This was primarily driven by the battery recall provision somewhat offset by the increase in inventory from the cells received in the battery settlement and higher AR balances reflecting a busy delivery period in December.

Slide 15 showcases a bridge from net loss to adjusted net earnings with all amounts shown net of taxes. There were some large nonrecurring and unusual items driving the adjustments in 2025. These included $25.9 million related to our June 2025 refinancing, $137 million of costs at Alexander Dennis related to impairment and restructuring, a $19 million seat supply adjustment reflecting labor inefficiencies and unprotected -- unproductive overhead and finally, the net impact of the battery recall and settlement of $39.6 million. Adjusted net earnings for 2025 of $85.4 million is an increase of $88.8 million from 2024.

Looking at Slide 16, we summarize total leverage, liquidity and ROIC. Total leverage, which includes all debt instruments, continues its downward trend now under 3.5x. Liquidity was up approximately $333 million year-over-year and ROIC to reach double digits. This reflects our positive cash generation, the impacts from the battery settlement and debt refinancing.

I'll now turn the call back to John to discuss our outlook.

Thanks, Brian. We're incredibly excited for the path ahead at NFI. Coming off record results, 2026 is shaping up to be another strong year as we execute on our backlog, increase production and drive operational initiatives. We'll also need to navigate through some broader macroeconomic conditions that may create headwinds.

On Slide 18, I want to walk through my key strategic priorities that fall under 4 pillars. These are the drivers of our performance in 2026. First on this list is operational excellence. As a manufacturer of complex, highly customized vehicles, it is critical that we maintain our focus on performance. To many who have followed NFI, you'll know that recovering supply chains have impacted our operations. So it should be no surprise that supply chain performance is a key priority for our team in 2026 and beyond.

In tandem with that, we'll be focusing on our cost management to ensure we create efficiencies. We want to make sure that we invest in the right areas and resources to enable our continued innovation, but need to drive production leverage to increase EBITDA and earnings growth. Market leadership is another focal point for the year. This is where we want to enhance our customers' experience by continuing to meet their customized needs and providing the broadest and highest quality products on the market.

We also want to maintain our position as being our industry's employer of choice, where people can successfully expand their careers as this will further drive overall performance for us as a business. These operational and market activities will underpin our profitable growth. A key factor here is ensuring we continue to capitalize on our impressive backlog and convert high-margin units into deliveries.

In the aftermarket segment, we want to continue expanding on growth strategies that provide further penetration into bus and coach parts and service. This includes more targeted focus on specific components and increased use of e-commerce and web store platforms. The U.K. order book is a high priority in 2026 as we seek to expand our deliveries and revenue in that region.

We are laser-focused on our competitive positioning in the U.K. And while we've been happy to see the continued rollout of our new EV products, overall demand is behind our expectations. We are continuing our work with government partners to highlight the importance of domestic manufacturing to the U.K., and we are hopeful that the output of ongoing discussions will deliver a positive outcome.

We've had great support in Scotland, but need to see broader focus on domestic production to drive increased order improvements. Lastly, NFI is driven to be a long-term business, generating value for all our stakeholders. In 2025, we strengthened our balance sheet through our inaugural U.S. bond issuance, and we continued progression towards our target leverage range. It is a critical point for us to continue our deleveraging journey, while completing the execution of the battery recall campaign and focusing on continued development and succession of our leadership team.

With those priorities forming the background and foundation for 2026, we also wanted to provide forward-looking guidance for the year. We anticipate a revenue range of $3.9 billion to $4.2 billion, with adjusted EBITDA between $370 million and $410 million and cash CapEx between $50 million and $60 million. In the box below, you'll see a few of our capital allocation priorities for the year. The top of those being continued progress on our target total leverage.

We expect we'll likely achieve our target in 2027. And as we progress towards that goal, we want to make sure that we continue to invest in the existing business growth and maintenance CapEx. I'll now walk quickly through a few drivers of our guidance expectations.

On Slide 19, you can see the makeup of our backlog of over 15,300 EUs, 41% are Firm orders and 59% are Options. Our backlog continues to provide significant visibility for our production schedule and has helped us fill our 2026 North American public market production slots, and we are now selling well into 2027.

The options offer runway and visibility for our production schedules over the medium and longer term. The black line represents the total value of the backlog, which is now over $13 billion, having grown by $7.3 billion over 3 years. Slide 20 demonstrates the improvement in ASP per EU for firm and option orders. Heavy-duty transit ASPs in dark blue have decreased slightly with changes in propulsion mix. Motor coaches in light blue have seen a significant increase in ASP, driven primarily by public market demand.

The ASP for heavy-duty buses is up by almost 55% since Q4 2021, and motor coaches are up 55% over that same time period. Incoming demand for our buses remain strong in North America, and this is shown in our bid universe on Slide 21. We ended the quarter with active bids of 7,120 EUs. This includes roughly 4,200 EUs -- 4,100 EUs in bids submitted, which is up 12.6% year-over-year. We believe this increasing demand is driven by the funding environment, fleet age and replacement activities happening in several major cities.

The black line on the chart shows New Awards, Firm and Options. The chart illustrates the typical correlation between bids submitted in light blue and contract awards in black with a lag of a few quarters from submission to award. The gray section of the chart shows our 5-year expected public bid universe, which is compiled from customer fleet replacement plans and currently sits at roughly 25,000 EUs.

This is an 8.9% increase from the third quarter and a 14.7% increase year-over-year. We feel this sustained demand is reflective of a longer-term replacement cycle happening in North America as older buses are taken out of service and replaced by newer units.

Slide 22 shows our book-to-bill and option conversion ratios, another important metric for incoming orders. Our option conversion ratio reached 83.4% in 2025, an improvement from 76.3% in '24. This reflects increased order activity, a higher number of exercised options and the improved competitive landscape.

Slide 23 highlights our quarterly production rates and deliveries from '22 to '25. We continue to experience sustained production rate increases through 2025 in North America, but these were offset by lower U.K. production matching lower incoming order demand. Production was also impacted by certain supply chain disruption, and we expect to see line entries continue to increase in '26, driven by our all Canadian build facility, North American double deck ramp-up and medium-duty and public coach contributions.

Slide 24 shows our aftermarket segment's overall performance and important contribution to the NFI Group economic engine. From 2019 to 2025, the business saw a 6.8% CAGR in revenue and an 8.9% CAGR in adjusted EBITDA. While there were some decline in 2025, this is primarily due to lower large-scale program revenue somewhat offset by core parts sales growth.

We continue to prioritize growth initiatives within the aftermarket and feel that while 2026 will likely be in the low single-digit growth range, longer term, that business has the potential for stronger growth. On Slide 25, we recap the guidance ranges for key metrics in 2026. The factors underpinning this guidance are higher production and delivery expectations, continued conversion of our strong backlog into results, improving supply chain performance and readiness, helping to drive improved labor efficiency, all supported by contributions from the aftermarket segment.

In terms of seasonality, typically, the first quarter is our slowest period, while the fourth quarter is our busiest period. We expect 2026 will follow that same pattern and anticipate year-over-year quarterly growth as reflected in our guidance ranges. There are various headwinds impacting the business, including propulsion sales mix, the speed of supply chain improvements, Alexander Dennis U.K. market demand and delays in the timing of U.K. procurements with increased domestic focus.

Finally, we also have to work through macroeconomic factors such as tariffs and trade relationships that we expect will have some impact on results and potential demand within private coach. For clarity, our guidance includes the current known impacts of tariffs as of March 11, 2026. It does not reflect any material changes that the tariff environment could have on demand, pricing or cost in the future.

On Slide 26, we provide our latest views on the macro tariff environment and how they impact NFI today. In each of the boxes, we have identified the major tariffs that are present and applicable to our industry. You'll notice specific color-coated bars that imply the impact to NFI for those tariffs with red being the most significant impact and green being the lowest.

The 2 highest impact areas are Section 232 truck and bus originally launched in November of '25 and the steel and derivative tariffs. We are continuing to work with our partners to ensure we mitigate these costs wherever possible. As of now, we see tariffs having more of an overall impact on private coach market demand as opposed to the public market.

This is largely due to the established manufacturing facilities within the U.S. for public market demand. We continue to view tariffs as largely a pass-through cost to customers through contractual obligations and through general price increases. This does require discussions with customers, and we may not be able to cover all costs, but we've generally had success in being able to find solutions.

Longer term, we will continue to assess our geographic production schedules, while considering tariff exposure. In 2025, we made significant investments in our U.S. operations, increasing staffing in the country by 7%, opened our new Las Vegas production facility, opened a new service center in California and acquired a Michigan-based supplier.

We also invested in the Canadian capabilities, culminating with the recent Ribbon-Cutting of our All-Canadian Build Facility. We continue to monitor the trade landscape and adjust where necessary to ensure we are as competitive as possible.

Wrapping up on Slide 27, just a few final comments. The fourth quarter of 2025 was a record period that helped contribute to NFI's strong fiscal year. We saw increased revenue, converted backlog into results and had solid cash generation supporting debt repayment and deleveraging.

Our total backlog of $13 billion, combined with option conversion rate and book-to-bill ratio reinforces our confidence in our near- and long-term outlook. Our guidance numbers are rooted on our manufacturing operational increases alongside the stable contributions from our aftermarket segment.

Despite various headwinds in 2026, we have not changed our overall view that NFI is on a strong trajectory that should see improvements across operating and financial metrics. We are confident in the strength in our markets and our product offerings and in our team's ability to deliver excellence in 2026.

I'm excited for what's ahead. This is a great team, anxious to continue and build on NFI's strong forward trajectory, poised for great growth and success in 2026 and beyond. With that, I will now open the line for questions. Janet, please provide instructions to our callers.

[Operator Instructions] Our first question comes from the line of Chris Murray with ATB Cormark Capital Markets.

I guess the first question is just maybe turning to the guidance a little bit and trying to understand maybe unpacking this a little bit. So I think you made the comment that you have expectations that, for the most part, most of the slot is sold out for '26.

Just looking at kind of where the numbers end up, let's assume, as I said, aftermarket is relatively flat year-over-year. Can you just kind of walk us through your thoughts around how many shipments you think you're going to see in the year? And just going back to kind of the embedded margin, it just feels like maybe we're missing something in terms of what's there, if there's any particular issues, if there's any buses that are still kind of impaired or anything like that.

Yes. Thanks, Chris. I appreciate the question. And we'll look forward to connecting with you here further certainly. But overall, for us, certainly, we feel really good about what it is that we have in front of us here in terms of 2026. We've got a significant amount of growth that we need to certainly go deliver on. I think we don't share the specifics in terms of EU numbers that we anticipate. But certainly, the growth that we're showing here will have a strong and demonstrated improvement in terms -- or increase relative to the number of EUs that we expect to see.

And when you factor in certainly the growth trajectory that we've been on over the past few years, we -- I think what we're demonstrating here in terms of our growth and based on the guidance, certainly is one that we feel good about. And at the same time, we recognize that there are some potentials of headwinds that could emerge here over the course of the year.

And there's going to be key factors that we expect over this next year that are going to drive the improvements that we need to go deliver on, right? We've got the necessary pieces in place from an operational growth standpoint that include the All-Canadian Build Project. We need to see a larger contribution in terms of some of our Alexander Dennis U.K. business as well as the work out of our North American double deck.

Those are going to be key enablers for us in terms of delivering on the guidance numbers that we've shared. But we do expect continued growth as well within our low floor cutaway business. So the pieces are all in place for us to be able to go deliver on what we've shared. Again, we don't share the number of EUs that are going to be a part of it, but we have high confidence certainly in terms of what we see. We need to be careful in terms of some of the headwinds that could emerge.

I'm going to also ask Brian to share a few thoughts on this as well.

Yes. I'd just like to add to that. Thanks, John. Good response there. I'd just like to add there -- you did mention that we have a lot of slots sold for 2026. While that's true in some of our businesses, we still have some -- a fair amount of volume to win in -- particularly in the private coach business and in the U.K. So we take that as a balance when we've developed our models and our guidance.

Okay. Fair. And then maybe for John, you've had just a few days on the ground and getting a chance to see the organization. Is there anything that you're thinking about in terms of what you've seen so far and kind of initial thoughts? You also made the comment about investing some growth CapEx. Just wanted to maybe understand what that might look like. So any initial thoughts on sort of where you're at as you take over the CEO role? Any thoughts around the strategic direction of the company over the next little while?

Yes. Thanks, Chris. Again, a great question, and I appreciate the chance to share some thoughts on it. First off, yes, it's been 2 months since I've been in seat and I have been incredibly impressed with this company and what we have and really excited about what we have in front of us. That's based on a number of factors that I would expect that many of you all see as well.

First off, an incredible backlog. We've got to go deliver on that. I'll talk more on that here in a moment. We've got a very experienced and motivated team. This is a team that is really geared around the mission that we have of connecting people and doing it and ensuring we connect folks safely. That's an incredible mission that inspires this team and so, it certainly inspires myself.

We've got an established brand and reputation that's built on decades in every one of our business units and how they've touched the market. And we really have, I think, an excellent multiyear plan in terms of how we're going to be able to grow -- drive growth in manufacturing, which speaks a bit to your CapEx question there.

I shared a little bit in terms of what my priorities are going to be. The operational excellence piece, I can't emphasize that one enough. And the first question that you shared, right, around us delivering on this growth, we got a high confidence in terms of what we're going to be able to go do and deliver here certainly within '26 and beyond. And our customers need that of us.

And that operational excellence piece isn't just around our own internal manufacturing, but also ensuring the supply chain readiness and that we bring our suppliers along the way. So we'll be very focused on that as a key priority for myself. That is an area that I've emphasized in the first 2 months to answer your question. We also need to ensure that we're driving profitable growth.

And so as we see our volumes increase, ensuring that we're being very effective in terms of our cost management, we also need to ensure that from a growth standpoint that where we see these very strong areas of high growth that the other -- that we see -- that we're able to drive the necessary growth across all of our business units as well to be able to support the long-term growth expectations for us as a business.

And then the final point is just around driving -- continuing to drive the focus on customer centricity. That certainly has jumped out to me as being so critically important for the people that are part of this business. But it's one that we're going to continue to double down on as our customers -- our end-use customers and their customers rely on our services every single day and the products that we provide. So we're going to continue to ensure that's key for us.

On the CapEx front, we've made a number of investments to include what we shared recently around the All-Canadian Build. We're going to continue to make the right CapEx decisions that ensure we've got the footprint in place to be able to deliver on the long-term projections. For '26, we feel good about everything that we've done relative to CapEx that enables us in terms of this year. But we're going to continue to make the right decisions around where that CapEx investment goes and how we're building for the future. So thanks for the question there, Chris.

Our next question comes from the line of Ty Collin with CIBC.

John, great to hear from you on the call this morning. Maybe just for my first one on the seating supply situation. Maybe I missed it in the published materials, but have you made progress clearing out that backlog of complete buses waiting for seating? And is the expectation still that the overall seating issue is going to largely be normalized sometime after Q1?

Yes. Thanks, Ty. It's a great question. And let me share a little bit around seating and certainly what we're doing in terms of our overall supply chain here as we drive growth. We're very pleased with where we're at relative to the progress that the team has made, since the end of last year around seating.

Obviously, it's well known in terms of what we've done to really secure that. I think the JV partnership that we've established, one is one that we feel -- we not just feel, but we've been really pleased with the results that our collective team has been able to generate. That has been focused on driving the necessary governance within the supplier, establishing the processes around material planning, bringing the facilities, where they need to be to ensure that they can meet our -- and prepare for our long-term growth.

And our partners have been with us certainly along the way. We have seen the needed changes and been next to the team there within that -- the JV supplier to ensure that it's progressing in the way that we would expect. What we've seen in terms of the improvements, we haven't published those for -- just because we are seeing the progress, frankly, that we need to.

We're going to see it continue to linger a little bit into Q2. But what I would say is, overall, the improvement has been remarkable in terms of the number of buses awaiting seats, et cetera. So we do anticipate that in the early Q2 time frame that we will see this fully resolved and that we will be positioned relative to the JV for long-term success in terms of the seating.

Okay. That's great color. And then I'm wondering if I could just get your thoughts on potential impacts of the current and unfolding Middle East conflict here. Are there any sort of red lights blinking within your supply chain, which aspects of the supply chain would you consider to be most vulnerable? And are you taking any sort of proactive action at this point in response to rapidly unfolding events?

Yes. Thanks, Ty. Of course, we're watching these events very closely. What I would say for us is that generally, our supply chain is not affected by the region. We have a couple of suppliers that we watch, but very minimal in terms of the amount of material that we see come in through that region. We are watching it closely.

We are ensuring that, one, our -- obviously, our first and foremost is concern for anyone that may be affected. But second is ensuring that where necessary, if we need to have alternative plans that we very quickly work through. The good news for us is we've got a very broad supply chain. We can draw on our supply base from all over the globe.

And we have certainly many redundancies that exist out there for us to be able to -- or suppliers, right, that can create that resiliency and redundancy where we need it. So overall, we generally, from a supply standpoint, feel good about where we're at to be able to navigate the current geopolitical environment there in the Middle East.

Our next question comes from the line of Cameron Doerksen with National Bank.

I wanted to ask about average selling price, the way you obviously reported it's heavily impacted by, I guess, the mix of bus types. I'm just wondering, if we could sort of look at the like-for-like pricing like a diesel versus a diesel last year. Are you still, I guess, seeing selling price increases as you're coming in with new orders? Just trying to understand, I guess, the margin impact of still positive pricing.

Yes. Thanks, Cameron. Great question. What I'll say at a very high level is that we continue to see the benefit of pricing that has played through. Obviously, there's been some impact in terms of over the several years going back, right, that has seen this, that it has taken time for some of the pricing benefits to play through and you're starting to -- and we have been certainly seeing that here over the past 12 to 24 months.

So generally speaking, yes, we're going to -- we see that positivity relative to the pricing piece. But I'm going to ask Brian to expand on that a little bit.

Yes. Thanks, John. So yes, this -- we've seen and we've talked about this over the past couple of years where we've won a lot of backlog, and you're seeing that backlog migrate from backlog into the actuals and so pushing up our ASPs. But additionally, in 2025, we've had some tariff impact come into that as well as we sought to pass those through on kind of like a cost-neutral basis, but it has improved or driven up the ASPs.

And then, of course, the geographical mix has also had an effect where buses, generally speaking, in North America are a little bit more expensive than in the U.K. So that mix effect is in there as well.

Okay. That's helpful. And just on the motor coach market, Obviously, a very strong number of deliveries in the fourth quarter. You sounded pretty positive, I guess, on the public market demand for motor coaches, but a little bit of uncertainty perhaps given the tariff impact here on the private market.

I'm just wondering what you're seeing maybe so far in the private motor coach market. Are you seeing an impact on demand? Just trying to sort of gauge overall in motor coaches, if we should expect that continue to have a strong delivery number in 2026 like we saw in 2025.

Yes. I think the underlying demand for motor coaches is still there and the kind of fundamental aspects of kind of North American travel and the economy and whatnot. The demand is still there. The recent kind of November increase in tariff, that's beginning to flow through the cost base of all of the OEMs. There's no domestic manufacturer of motor coaches today for the private market.

And so what we're really seeing is the beginning of those tariffs in the private market and how that's going to play out in terms of how much of that is shared with the customer base. But we're bullish on the market. All the fundamentals from a demand side are still there. So it's really just a matter of how do we manage through the tariffs and how much we perhaps absorb there versus how much we share with our customers.

Yes. And Cameron, the only thing I'd add, we continue to be the only Buy America-compliant manufacturer of coaches for the public market. So that continues to be kind of a good positive for us as we look at that market going forward.

Our next question comes from the line of Daryl Young with Stifel.

I wanted to just get some thoughts around preliminary budgets or expectations for transit funding from the expiration of the IIJA. Is there any details or any kind of inner workings that you can share with us around maybe what the magnitude of the next funding cycle might look like?

Yes. Thanks very much, Daryl. Great question. We're obviously watching this close. We're very engaged where we can be in terms of ensuring that our voice certainly is being heard and at the same time, making sure that we're really getting a good feel in terms of where the sentiments are.

I would say, generally speaking, we've been encouraged by some of the commentary that's out there in terms of where the funding bill looks to be. We've had a lot of discussion on this. I think there's good reason for continued optimism on it. To be honest, the fleets are -- it's clear, right? There's a lot of recapitalization effort that the bus operators are needing.

Their voice is certainly being heard. And so as a result, I would expect that, that will continue to play through as this next funding cycle and the authorization cycle gets set up. So we're -- I would say that the other note that I would make is that those decisions that are being now, of course, are going to continue to build off the current year appropriation.

So we are in good shape in terms of the amount of backlog, right, that will continue to carry forward this year into '27 and beyond as different transit authorities take advantage of the current funding sources that are there.

Yes. The only thing I'll add, Daryl, is I think we saw a strong option conversion in 2025. So to John's point, I think that's folks trying to get the last of the IIJA in 2026. And to John's comment, that spending, while it matures in 2026, the act, it could be spent in '27, '28, '29. So that will drive deliveries during that period as well.

Got it. Okay. And then just to go back to the supply chain. You spoke to obviously, steel and aluminum and price pass-through, and that's great. But I'm just curious if you're seeing any availability issues of steel in the U.S. and maybe how many weeks of production you might have in terms of your steel inventory today?

Well, we haven't. Overall, from a steel standpoint, we feel good about where we're at from a supply chain standpoint. So we haven't focused on the weeks in production for that reason. We're generally good. What I will say is that from a supply chain rate readiness standpoint is that we're very focused on -- from a growth standpoint of ensuring that whether or not it's steel or anything else that's a part of our growth story from a supply chain that we really are ensuring that we are looking far enough ahead to ensure that we've got the readiness to be able to support that growth.

So there's been a significant amount of effort here in the first 2 months of the year to really ensure from a readiness standpoint that all of our suppliers are coming along to be able to meet that growth with us. The team has made an incredible amount of progress in that regard. I've been very pleased with what I've seen year-to-date on it.

We've got some continued work certainly to do. But what that helps us to do is identify, where there are potentials for us to be able to go in and support those suppliers much earlier than it being in a reactive mode, right? So we're being extremely proactive around ensuring our supply base. Specific to the steel piece, we generally feel good about that. We don't have any emerging issues.

Our next question comes from the line of Abe Landa with Bank of America.

It's Shaun on for Abe. The first one I wanted to ask was, can you outline the 2026 free cash flow bridge, including cash interest, cash taxes, working capital and clarify which items sit below EBITDA versus within EBITDA cash costs or add-backs?

Yes, that we've obviously put our guidance out for the first time. We've not gotten to that level of guidance. I would say, just generally speaking, that we would expect kind of cash interest to be more in line in 2026 than in 2025. So cash interest and cash and interest expense to be more in line there. So we had some timing differences because of the new high yield in 2025.

Regarding working capital and some of the other aspects there, we would -- we came into the year a little heavy from a working capital standpoint with some of the seating affected buses. So we would expect that to normalize in 2026 and to be mostly offset with additional volume growth. So we wouldn't expect to see a significant up or down number from a working capital standpoint. We'll get more efficient and we'll burn through some of those vehicles and some of that work in process, but we also have volume increases to offset that.

So I think those are kind of the primary comments, and we did give guidance on CapEx. We expect most of that to be cash-based CapEx and the leases year-over-year, we would expect to be relatively flat. So I hope that helps in terms of putting together the model, but we really haven't given any more kind of guidance around that for 2026.

I appreciate that. Can you outline the expected uses of the free cash flow?

Yes. I think we've talked earlier that we're pretty singularly focused on reducing our leverage ratio. We do expect to get near the end of the year, we expect to get down into that 1.5x to 2.5x range. So probably be more closer to the upper end of that range. And then we'll begin to have productive conversations internally about capital allocation and things like that.

But we're really focused on debt paydown at this point, and I think you'll see that as a recurring thing throughout 2026. And then as we turn towards '27 and beyond, we'll start opening up the aperture on other uses there.

I mean given the $267 million drawn on the revolver and $338 million of convertible debentures due January 2027 and bonds callable in 2027 and 2028, are there debt instruments that you're prioritizing for repayment? And how do you plan to address the remainder over the near to medium term?

Yes. So you outlined the debt stack fairly well there. I think as we look at that, we do have the convertible debentures that come due in January of 2027. So that's kind of top of mind in terms of how do we deal with that. And that's something that we'll look at -- we're looking at now, and we'll come up with a plan in the next few months on that.

Beyond that, in terms of debt paydown, the revolver would be our first priority. That's the easiest one to do. There is some -- there are some prepayment penalties, if you will, with the high yield. And so we're not really looking at that one at that point in time or at least right now, we've got the revolver to be able to pay down. And of course, we've got the convertible debentures to deal with as well. So those are the 2 components we'll probably focus on more.

And then can you update us on tariffs and aluminum inflation exposure, including pass-through pricing, mechanics, customer discussions, aluminum as a percentage of sales, direct, indirect and any potential margin impact?

Yes. I think the question, like I didn't get the whole thing. I think it was around tariffs. And could you just repeat that, please?

Yes. We're just curious about tariff and aluminum inflation exposure, like whether or not that's pricing that's passed through, customer discussion on aluminum as a percentage of sales, like market impact?

Yes. Okay. Yes. Thanks, Sean. Overall, for us, in terms of tariff, we have a really good execution plan that we continue to leverage from '25. We'll continue carrying that forward in terms of '26. It's a very holistic approach in terms of how we manage and execute through tariffs.

All of that, of course, is factored into the guidance that we've shared and that we're going to be able to continue to execute on that. What's out there and available, certainly, we have contractual protections from a tariff standpoint that ensure our ability to collect. And then also, we have additional things we can do from a pricing standpoint and others that ensure that where we see those cost increases that we're able to manage through it and obviously commit to the guidance that we've provided based on the tariffs that we know of here as of March 11.

Last one, sorry.

Shaun, I think we're just to go to the next we can. A bunch of others.

Our next question comes from the line of Tim James with TD Cowen.

My first question is just looking at the U.K. market and Alexander Dennis. I'm just wondering, if you could talk a little bit about -- I know it's been a challenging market there, a lot of competition. You've had some new product launches. How do you see the products that you've got in that market now aligned with what customers are actually ordering?

And I'm wondering maybe about some of the orders that have gone away from you. Any sense you can provide for what is maybe the key point there, why those orders are going away?

Yes. Thanks, Tim. It's a great question. Let me talk first about our products. I had the chance to go visit the team over there, see the products firsthand and have been extremely impressed with what it is our Alexander team -- Alexander Dennis team does every single day to deliver a great product to the customer. And that includes some of these new releases that you've seen.

I've been really certainly impressed with also how those releases are continuing to be accept or recognized by the customer in terms of what they've done. It certainly is a competitive environment, as you know, and that's something that we've highlighted here previously, different than what we experienced in terms of North America, which has certainly requirements around localization, et cetera.

The U.K. is still evolving in that sense or evolving or developing potential new pathways for that. And so we're going to -- we're very engaged from a -- with the appropriate folks in the U.K. We've had great support in terms of that engagement certainly from Scottish authorities to be able to support the conversations there. So we're -- we'll continue to ensure that we stay very focused with it. But it is, as noted, a competitive environment.

What I would also say is that team is doing a terrific job in terms of really ensuring that it manages the situation appropriately and watches very closely. But we are seeing the wins. We see ourselves being able to compete from an AD standpoint, but it is more competitive, and that forces us to -- or sorry, forces the business to really push hard to ensure that we're getting the EU volumes that we would expect. But as noted, competitive environment, a lot of tailwinds certainly that we have from a product standpoint, but a high area of focus for us here in '26.

Okay. Great. My second question, just looking at the receivables increase in the fourth quarter. You noted it was quite significant. I believe there was a reference to sort of volume that went out in December. Was this a particularly sort of December heavy delivery fourth quarter? Is that why it increased so significantly? Is there any other kind of color you can provide around the receivables and the increase in the fourth quarter?

Yes. And I highlight the note earlier that we shared around some of the seasonality, if you will, around how our deliveries occur. Certainly, Q4, I think, historically has been that way, certainly was in '25. And so that did create that receivable impact. But I'll ask Brian to expand a little further on that.

Yes. So good question, certainly something that we're -- that we noted as well. We did have a little bit heavier kind of December in '25 than we would have in '24. And then, of course, the increase in ASP also drove higher receivables as well. So both of those things contributed. We have -- we are pleased with the collection of that as we've started through Q1 as well. So we think that will normalize as we get into the first quarter, and we're happy with how that's gone.

Our next question comes from the line of Jonathan Goldman with Scotiabank.

Maybe we can just circle back on the pricing conversation. A lot of puts and takes there. You talked about mix and tariffs potentially being headwinds. But do you expect net pricing to be accretive to EBITDA margin in 2026?

Yes. So great question. And if you've kind of followed the discussion from kind of the hyperinflation days of kind of '23, '24, you know we've been talking a lot about the pricing and margins in the backlog, and we've seen that come in '24 and '25.

We would expect that we will see some continued improvement in 2026. However, I would say the volume story is becoming a bigger story relative to our guidance than pricing is at this point.

Okay. Fair enough. That's good color. And then I know it's early days, John, but have you seen any opportunities to maybe rationalize the number of SKUs and more broadly to optimize the portfolio of the entire business?

Yes. Thanks, Jonathan, and it's a great question. It's certainly our focus right now in mine in the first couple of months has been really around delivering on what's in front of us here in terms of '26 and certainly with the -- what we have in terms of this excellent portfolio of products.

Your question, I think, really goes towards some of the strategic conversations that we will -- that my focus will shift towards here in the coming months. And so I don't have a view in terms of your question yet. But certainly, we'll always be thinking as a leadership team around what do we do in terms of managing and ensuring that we have a portfolio for the long term that's really built for long-term success.

And so that's just a normal course of us as a leadership team and the responsibilities we got there. So not a great answer yet to your question, Jonathan. But certainly, what I will just share is overall that I will always, as I sit in the seat, be thinking about how we ensure for the long term that we've -- that we're adjusting and managing our portfolio appropriately.

No, fair enough. I appreciate it. It's still early days. And maybe just one more housekeeping one for me. The time line for deleveraging to get back to the 1.5x to 2x or 2.5x range. Did you say that was a 2027 event or an exit rate for 2026?

Yes. We think it has end of '26, early '27 time frame. So we're not nailing down exactly when that will occur. But certainly, we expect that here in the next 12 to 24 months.

Our next question comes from the line of Abe Landa with Bank of America.

It's Shaun Maher again on for Abe. We had just 2 more quick ones. Is there any further updates that you can provide on the integration of the American Seating business like performance-wise?

Sorry, the last part, just having a little trouble hearing you there, Shaun. So how the integration is going relative to the AMseCo business?

Yes, we're just curious with the integration into the business.

Yes. Overall, I shared a little bit earlier, right, relative to AMseCo, I'd say we're very pleased with the progress that the JV has made. It has been an excellent partnership with us and our JV partners. We're very aligned in terms of where it needs to go and very proactively working through to ensure the process improvements, the material execution, all of that and getting the future of that business set up and established.

So what I would say is, currently, we feel really good about it, the trajectory it's on in terms of the very near-term recovery and frankly, being able to support us in the long term. So I think that's where things are at really with the AMseCo business right now.

Yes. And the only thing I'd add, Shaun, is, yes, we definitely view it as an investment. So we're actually not integrating it into our operations. As John mentioned, we've got this joint venture structure that oversees AMseCo and their production. And our focus is on getting that business stable, getting it healthy.

And then obviously, then we'll look at what the longer-term future is for AMseCo. But we definitely look at that as an investment. That's why we treat it that way on our financials. But as John mentioned, very pleased with what we've seen so far and very pleased with how the JV has been working.

Okay. And the last one, can you give us an update on the expected timing of battery recall cash outlays across 2026, 2027 and beyond?

Yes. I think in the Q3, I don't think we included in the deck, but in the Q3 deck, we included a time line of expected cash expenditures and nothing has materially changed from that. Obviously, we have -- as disclosed in the financials, we've received some cash in. We do -- we are on the time line to have the buses repaired in that 18- to 24-month period that we had originally said.

And then, of course, the battery cell usage would be a little bit trailing after that, but the development that's required in order for us to incorporate those battery cells into future vehicles, that time line is preserved as well. So we don't really have an update to what we disclosed in Q3, but we are on that plan.

And Sean, one thing I would add is that we feel really good about where the campaign is set. Coming in with fresh eyes myself and evaluating the program and the plan for execution. This obviously has been several months that the team has been working through to have us positioned to be able to go execute on this.

It's been well communicated with the customers, well understood there. And frankly, I am really pleased with the leadership and the team that we've got in place to go execute the plan overall and within the time line that Brian just described.

And I'm currently showing no further questions at this time. I'd now like to hand the call back over to Stephen King for closing remarks.

Yes. Thanks, everyone. Thanks, Shannon, and thanks, everybody, for joining this morning. Thanks for all the questions. We really appreciate it. And as always, if you need materials on our -- they're all on our Investors section of our website, and we look forward to talking with everybody again in early May.

Yes. Thanks everyone.

This concludes today's conference. Thank you for your participation. You may now disconnect.

Ladies and gentlemen, thank you for standing by. Welcome to NFI 2025 Third Quarter Financial Results Call. [Operator Instructions] Please be advised that today's conference is being recorded.

I would now like to turn the conference over to Stephen King, Vice President, Strategy and Investor Relations. Please go ahead.

Thank you, Michelle. Good morning, everyone, and welcome to our conference call. Joining me today are Paul Soubry, President and Chief Executive Officer; and Brian Dewsnup, Chief Financial Officer.

On today's call, we will give an update on our quarterly results, highlighting the continued improvement in our overall margins and unit economics, as we convert our strong backlog. We'll also provide an update on the nonrecurring battery warranties that impacted the quarter and recap our outlook. This call is being recorded, and a replay will be made available shortly.

We will be referring to a presentation that can be found in the Financials and Filings section of the NFI Group website. As we move through the slides via the webcast link, we will call out the slide number. On Slide 2, we provide our cautionary or forward-looking statements and note that certain financial measures referenced today are not recognized earnings measures and do not have standardized meanings prescribed by International Financial Reporting Standards, or IFRS.

We advise listeners to view our press releases and other public filings on SEDAR for more details. In the appendix of this presentation, we have provided a list of key terms and definitions that will be used on today's call. A reminder that NFI statements are presented in U.S. dollars, the company's reporting currency, and all amounts referred to are in U.S. dollars unless otherwise noted.

Slides 3 and 4 provide a brief overview of our company. NFI is a global independent bus and motor coach mobility solutions provider. We offer a wide range of propulsion-agnostic buses and coaches on proven platforms, and we hold leading market share positions in transit and coach markets. More detailed information is available on our website.

Slide 5 provides a brief insight into NFI's product and geographic mix and other major milestones.

I will now pass it over to Paul to provide an overview of NFI's results for the third quarter.

Thank you, Stephen. Good morning, everyone, and thank you for joining us this morning. I'll dive right into the Q3 results on Slide 7, starting with demand.

Despite the third quarter being seasonally slower, we secured 644 equivalent units in new orders, generating 108.5% LTM book-to-bill ratio and a strong 71.8% option conversion rate. The highlights -- this highlights the continued strength in market demand supported by government funding in both Canada and the United States.

Our total backlog, which includes both the firm and option orders, now totals 15,606 equivalent units worth USD 13.2 billion. In Q3, we delivered a 52% year-over-year increase in adjusted EBITDA and a $12.8 million improvement in free cash flow. Liquidity increased by $240.2 million, reaching $386 million at the end of the quarter. Total leverage, inclusive of all debt, improved to 4.28x, an improvement of 1 full turn since the end of 2024.

These improvements were largely driven by the continued conversion of our strong backlog into operating results with increases in the average revenue and margin per delivered unit. While there were numerous positives, the quarter was negatively impacted by a warranty provision for an ongoing battery recall.

On Slide 8, we provide details of this provision. In September, we announced a recall affecting approximately 700 buses and coaches, primarily New Flyer buses. The recall relates to batteries provided by our U.S.-based supplier, XALT E that was initiated due to the potential of to sell short circuit or cell fault primarily during charging or at full state of charge. For context, we provided an overview of the components of the battery system on this slide, starting with the cell all the way through to the battery enclosure.

As safety is our top priority, immediately after issuing the recall, we implemented operational guidelines and software updates to limit the state of charge and the speed of charging on the affected buses and motor coaches. This allows customers to continue operating their vehicles with the affected batteries still in use.

We've now determined that ultimately, we need to replace the batteries on these buses. The campaign is expected to take 18 to 24 months in total, beginning in the first half or the early part of 2026, and we will use a different battery supplier to replace those batteries. Our plan is for the replacement to be completed in the field, and we intend to leverage our service center network for this work. While we are still finalizing our approach, we do expect this work not to disrupt our production in 2026.

Reflecting the expected replacement along with future potential costs to support other legacy XALT batteries in the field, we booked a $229.9 million warranty provision in the third quarter. This reflects our best and conservative estimate of the total cost of the battery recall and related support. We are comfortable with the tentative term sheet that we entered into with XALT and expect to finalize a definitive agreement for costs associated with the recall as we move into the -- through the fourth quarter.

XALT recently announced its decision to wind down their U.S. battery operations. This announcement does not change our expectation that we will achieve a satisfactory agreement on the recall cost that meets our needs and those of our customers. We do also not expect this wind down to have any impact on New Flyer's production.

We had previously moved most of our electric bus battery supply to an alternate U.S.-based supplier. We will use those different batteries on the buses going forward. We are currently -- we currently use the XALT battery on our fuel cell electric buses, and we expect all of the batteries needed for our 2026 production will be provided by XALT before they wind down operations. The batteries on the fuel cell buses are different than the batteries on the electric buses. Long-term, we'll be moving our fuel cell bus battery supply to an alternate provider.

Recognition of the warranty provision for the battery recall impacted numerous financial metrics in the quarter. And given the nonrecurring nature of this event and the ongoing negotiations on an agreement for related costs, we have normalized adjusted EBITDA and adjusted net earnings calculations. This morning, we will call out a few other areas where the recall had a meaningful impact.

And on Slide 9, we outlined some of these impacts. Without the battery recall, manufacturing segment gross margin would have been 10.2% with a gross profit per equivalent unit of $66,300, a 58% improvement from the third quarter in 2024. Manufacturing net earnings would have been $26.7 million. Reported working capital of $248 million was positively impacted by the provision and would have been $464 million without it.

The graph on the right bridges net loss to adjusted net earnings with the battery recall and the associated tax impact being the largest bridging items. This is our third straight quarter of positive adjusted net earnings.

I'll now turn the call over to Brian Dewsnup, our Chief Financial Officer, to provide a supply chain update and discuss our financial results in more detail. Over to you, Brian.

Thanks, Paul. Picking up on Slide 10, we provide an update on our supplier risk profile. We currently have just 3 companies that we consider high risk/high impact, down from 50 in the peak of 2022. This improvement reflects the ongoing work of our sourcing, procurement and supplier development teams are actively working directly with suppliers to improve delivery performance.

While there's been recent disruption in automotive supply chains, we largely have not seen any significant impact. It's a situation we'll continue to monitor. We don't have much of an overlap with automotive, but there could be cascading effects that may impact our supply base.

Slide 11 highlights our recent strategic investment to strengthen our supply chain through our joint venture assumption of American Seating assets with GILLIG. We expect this partnership will drive financial stability and operational performance at American Seating. This will benefit improved performance for NFI, also the broader industry. Financial terms were not disclosed, but the transaction is not considered material.

While we are now investors in American Seating, it's critical that we maintain a diversified supply base for seats and are continuing to work with other seat suppliers. The number of new Flyer buses built, but yet -- built, but they're still missing seats remained relatively flat since our last update. We did see an increase in August and September, followed by a reduction in October to 50 equivalent units.

This impacted Q3 deliveries, and we remain focused on bringing this number down prior to the end of the year. We have lower production with American Seating in the fourth quarter, which should free up capacity for them to prioritize deliveries for seats on these essentially complete buses.

On Slide 12, we recap quarterly deliveries. Transit deliveries were up 14% year-over-year, driven primarily by the North American business. This increase was achieved despite some zero-emission bus customer acceptance delays and seat-related disruption. Coach deliveries were down in the quarter due to lower private sector deliveries, although we anticipate a strong recovery in the fourth quarter, consistent with the seasonal nature of the business.

Reflecting the strength of our backlog, we achieved 19% year-over-year increase in the average selling price for both heavy-duty transit buses and motor coaches. We also delivered a record 217 low-floor cutaway buses in the quarter. This is up 36% year-over-year, and the average selling price was up by 21%, reflecting continued strong demand.

Turning to Slide 13. Aftermarket gross margin was essentially flat quarter-over-quarter and down year-over-year. This reflects sales mix, reduced program revenue from large midlife projects in North America and the impact of tariffs.

In the Manufacturing segment, gross margin, excluding the impact of the battery recall was 10.2%, consistent with the second quarter. This reflects timing-related impacts in the third quarter and sales mix. The year-over-year improvement in gross margins highlights our improving backlog profile flowing through quarterly results.

Slide 14 walks through year-over-year changes in adjusted EBITDA within our reporting segments. Manufacturing EBITDA was up by $36.1 million, driven by higher deliveries, favorable sales mix and improved pricing. Corporate adjusted EBITDA declined by $2.2 million, primarily due to negative impacts of foreign exchange, including a lower U.S. dollar.

Slide 15 shows LTM adjusted EBITDA performance for both Manufacturing and Aftermarket segments from 2022 to 2025. Our Manufacturing segment continued its strong upward trajectory, achieving $174 million on an LTM basis, which is an increase of $114 million year-over-year.

Slide 16, quarterly free cash flow was positive with a strong increase driven by the higher adjusted EBITDA and lower interest expenses. There was a significant positive impact from working capital in the quarter, but this was largely due to the battery recall increasing provision balances. Excluding those impacts, free cash flow, combined with changes in working capital would have been $35 million. This represents a $68.9 million improvement from the prior third quarter of 2024, reflecting lower inventory balances and our milestone payment structures.

On Slide 17, we look at our total leverage, liquidity and return on invested capital. We continue to execute our deleveraging strategy and reduced total leverage to 4.28x on an LTM basis. Note that this calculation includes first lien, second lien convertible debentures and lease obligations. For banking purposes, which exclude convertible debentures and leases, total leverage was 3.37x.

Liquidity was up approximately $241 million year-over-year and up by $59.3 million from the second quarter. This reflects our positive cash generation and debt repayment. ROIC has continued to trend positively supported by improved adjusted EBITDA and lower total invested cost base.

I'll now turn the call back over to Paul to discuss the outlook.

Thank you, Brian. As you look into the fourth quarter and our plans for 2026, we expect that NFI will continue to grow revenue, gross profit, adjusted EBITDA, free cash flow, return on invested capital and net earnings. I'll walk through the drivers behind this continued momentum and comment on the key risk factors in our operating environment.

So I'm now on Slide 19. You can see the makeup of our backlog over 15,606 equivalent units, 37% of which are firm and 63% are options. Our firm orders provide significant visibility for the fourth quarter of 2025 and have also helped us fill the majority of our 2026 public market production slots. The options offer runway and visibility for our production schedules over the long-term. The black line represents the total dollar value of the backlog, which is now $13.2 billion, having grown $8.3 billion just over the last 3 years.

In the third quarter, we saw higher new orders for internal combustion buses, which is consistent with our experience in the first half of 2025. As a result, the ZEB percentage of our total backlog remained relatively flat. Our improving total backlog and firm auction profile is displayed on Slide 20.

The chart demonstrates the improvement in average sales price or ASP per equivalent unit across our total backlog, including both firm and option orders. Average selling price have increased for both heavy-duty transit buses in the dark blue and motor coaches in the light blue. Year-over-year, ASP for heavy-duty buses was up 1.5% and up a whopping 64% since Q3 of 2021. ASP for motor coaches was up 20% and 52% over that same time period.

Now these pricing improvements are expected to continue flowing through our income statement. We saw this in the first 3 quarters of 2025, and we expect even more improvement going forward. We anticipate further gains in the fourth quarter, supporting our outlook for the highest quarterly adjusted EBITDA quarter in the company's history.

The North American bidding environment remains strong as shown in our bid universe on Slide 21. We ended the quarter with active bids of 7,503 equivalent units. This includes 6,217 EUs and bids submitted, which is up 50% from the second quarter of 2025 alone. This reflects recent submissions on a large multiyear bid related to upcoming major sporting events that are being hosted over the next couple of years in the United States.

The black line in the chart shows new awards. We saw some decrease from the previous quarter, primarily due to timing delays on new orders. The chart illustrates the typical correlation between bids submitted in light blue and contract awards in black with a lag of a few quarters from submission to award.

Over our 5-year expected bid universe, which is compiled from customer fleet replacement plans, remains very strong at nearly 23,000 equivalent units. This sustained demand is driven by increasing fleet age with nearly half of the North American public transit fleet now over 12 years of age and continued strong government funding.

On Slide 22, we show our book-to-bill and option conversion ratios. NFI's option conversion ratio has improved significantly, reaching 71.8% on an LTM basis. This improvement reflects increased order activity, a higher number of exercise options and the improved competitive landscape and our competitiveness. The slight decline in our book-to-bill from the second quarter reflects slower new orders and higher deliveries in Q3.

On Slide 23, it reflects our guidance ranges for key metrics for 2025. Based on our year-to-date performance and our expectations for the remainder of the year, we've tightened up a few certain ranges. We now expect revenues to be between $3.5 billion and $3.7 billion and driving adjusted EBITDA ranging from $320 million to $340 million.

In the fourth quarter, we expect higher deliveries, particularly in private markets and improved sales mix drive and should deliver our highest quarterly adjusted EBITDA ever. This reflects continued improvement in our per unit economics and a strong contribution from the aftermarket business.

Cash CapEx are projected to be lower than initial expectations, even as we have invested into several new facilities, including our all-Canadian New Flyer build project in Winnipeg and the Alexander Dennis plant set up in Las Vegas, Nevada.

For clarity, our guidance includes year-to-date impact of tariffs and some of the smaller potential tariff impacts on fourth quarter results. It does not reflect any material changes that tariff environment could have on demand, pricing or cost going forward. This risk is somewhat offset by the fact that the majority of our remaining 2025 vehicle sales are already produced or will be finalized in November.

On Slide 24, we provide our latest views on the macro tariff environment. We observed some stability in the tariff environment during the third quarter, and we relatively consistent direct tariffs on goods that we import and suppliers that have started to provide additional details on suppliers, sorry, that have started to provide additional details on tariff surcharges that have been included in their pricing. Those are indirect tariffs, ones we pay to suppliers for parts and components used and installed on our vehicles.

On November 1, a new U.S. Section 232 tariff of 10% was applied to all buses and coaches imported into the United States from any jurisdiction. This is expected to lead to increased pricing and tariff surcharges to end users as there is no domestic U.S. production of motor coaches. Prior to November 1, we have moved the majority of our finished goods inventory from Canada into the United States physically.

We continue to view tariffs as a pass-through to cost to customers through contractual obligations and through general price increases and negotiation. This does require negotiation with customers, and we may not be able to cover all of our costs. We have generally had success in being able to find solutions with customers so far.

Longer term, we will continue to assess our geographic production schedules to try and minimize tariff exposure. We've made significant investments in the United States operations, increasing our staffing in the U.S. by 7% since the beginning of 2025. And during the last 10 months, we've opened the Las Vegas, Nevada production facility for Alexander double-deck buses, opened a new service center for MCI in California, and we acquired the Michigan-based seat supplier.

We also recently put our first bus into our all-Canadian build production line that has been commissioned in Winnipeg, Manitoba. Tariff-related costs have been accrued in work in process inventory as we complete customer negotiations. Within the Aftermarket segment, we have experienced some margin pressure, primarily due to the timing between tariff incurrence and the pricing updates. Our ability to adjust pricing models quickly has helped mitigate longer-term impacts.

I'm now on Slide 25, so a few closing comments. The first 3 quarters of 2025 laid a very strong foundation for continued momentum. We increased deliveries, we converted backlog into results, and we've had solid cash generation supporting debt repayment and the deleveraging plan that we set out.

Our total backlog of $13.2 billion, combined with option conversion rates and strong book-to-bill ratios reinforces our confidence in our near-term and our longer-term outlooks. In the U.K., we were pleased to see active engagement and very strong support from the Scottish government and several active procurements have supported growth that we project now for 2026 deliveries by Alexander Dennis.

NFI's aftermarket business is a foundational business unit with steady and recurring revenue streams, a solid margin profile and significant free cash flow generation. Calculating and enforcing tariffs are becoming more established in our operation and as part of our industry. We continue to actively track trade developments, and we will take all actions possible to ensure an appropriate response where required.

While there will be some headwinds and volatility, especially with private motor coach markets, our domestic production, our nimble aftermarket pricing, our extremely strong backlog and contractual provisions lead us feeling well positioned to respond as needed to the dynamic environment.

So despite headwinds related to seat supply, tariffs and now battery replacement programs, we have not changed our overall view that NFI is a very strong trajectory of growth that should see significant investments in operating and financial metrics. We are confident in the strength of our markets, our business, our product offering and our people to deliver outperformance as we head into 2026.

With that, we'll now open the line for questions. Michelle, please provide instructions to our callers. Thank you.

[Operator Instructions] The first question will come from Chris Murray with ATB Capital Markets.

If we can go back to just talk about the battery reserve and maybe some extra color on that. So I guess the first piece of that, can you maybe walk us through your confidence level on what the actual cash cost might look like to NFI and the proportions that might be covered by the suppliers and how to think about that evolution over the next couple of years?

And then if you can also talk about supply chain around batteries because I know at one point, I guess, XALT had been a bit of an issue about even getting batteries, which has led you to look for a second supplier. Now that XALT is exiting the market, do we still have a supply chain issue in batteries? And how do we think about that on a go-forward basis?

Great questions. Thanks, Chris. So let me start with the second one first. We've been dealing with XALT for a decade, and XALT had gone from a private ownership in the United States to being acquired by a very, very large multi-international business who invested dearly in them.

Yes, there's been volatility of supply dynamics over time. And as the percentage of zero-emission buses increased in our backlog, we did it out of not a concern of supply, but of surety and competitive dynamics. So we actively went out and set up a second battery supplier, which took us about 2 years to validate and commission onto our buses, and we've now been delivering buses with those alternate batteries for about 2.5 years now.

So we go to a situation now where, yes, we have a recall we have to deal with, but XALT is leaving the U.S. market and leading the battery business. We have signed a term sheet. Of course, it's nonbinding, but it recognizes both how we would do the recall, the economics associated with it as well as how product support, technical support, field support, warranty support would work going forward.

So that is the process we're in the middle. We signed the term sheet about, I don't know, 3 weeks ago, and we are actively negotiating with XALT and its parent on the economics associated with that. We do not have a definitive agreement, and therefore, we can't provide the details associated with it.

We are confident that the batteries we're going to put on in replace of the XALT batteries are proven and the supplier has assured us that they can handle not only our ongoing manufacturing requirements for the manufacturing demand, but also the surge demand over the next 1.5 years or 2 years, whatever it takes to finish the actual recall.

So I wish I could give you more color on actual dollar cash, the economics, the timing and so forth. We don't have that completed. Therefore, it's not prudent to be able to provide any details or insight into that at this point. Brian, do you want to add some color?

Yes.

Let Brian give you a little bit more color on some of the economics associated.

Yes. Just as we mentioned in the call, we would expect the campaign to be executed over the next 18 to 24 months. So just from a cash flow perspective, we'll start that campaign in the first half of 2026. And so we would expect there to be an effect -- round figures, half of that done in 2026 and half in 2027. And then the warranty piece of what we put in there, we would expect to be disbursed over the next kind of 1 to 4 years. So while it's a big number, that will be done over kind of 2 to 4 years in terms of the cash effect of that.

Okay. That's helpful. And then I guess going back and thinking about the outlook. So a big quarter coming up. And I guess, even going to the bottom of the range still of guidance still implies that there's a lot of buses that have to move out the door. Can you talk a little bit about how you're feeling about that? But also I think more broadly, how you're feeling about the manufacturing platform, where you're at as we go into 2026.

And as we move beyond, I guess, some of the, call it, the problems of COVID and the echoes of COVID and supply chain, '26 feels like it's setting up to be maybe the first normal year in almost a decade. But how do we think about this as a year kind of a normal operations with good backlogs supply chain kind of, for the most part, fixed and working. What do you think the business can actually do with this?

Great question, Chris. So let's start with the fourth quarter.

So the guidance that we've maintained on the low end, and we've just dropped the top end a little bit to reflect that we're almost -- we're 10 months into this business for this year. The guidance range suggests the fourth quarter of 2025 would deliver an adjusted EBITDA in the neighborhood of $105 million to $125 million.

While we have always expected fourth quarter to be the biggest period, it has been further supported by some deliveries that were originally planned for Q3 '25 that moved into Q4. The exit rate does provide us with increased confidence in our ability to deliver growth in 2026. We've not yet provided guidance for '26. But as we've discussed previously, as we look into '26, we expect improvement in overall deliveries for a couple of reasons.

First, we increased the Canadian build. So we've got 4 to potentially 5 units a week of additional deliveries. We freed up capacity that we would have taken for in Crimson, Minnesota to build a shell in Canada, send down to the U.S. for completion, now adds more capacity in the U.S. for builds.

We should be finally past the seat supply disruption, 2 issues. We're now in control of our own destiny of American seating after a very long and protracted and painful process. And number two, as you know, we've diversified the supply to effectively 2 other suppliers. Our reliance on American Seating, for example, in the third quarter is somewhere in the range of 22% or 24% of the deliveries, not 60% like it was this time last year.

The U.K. market has gone through quite a bit of challenges this year. Paul Davis has done an amazing job of idling its facilities where it made sense, working with the government of Scotland on furlough schemes, but more importantly, has been able to already solicit or solidify a reasonably serious increase in volume in the U.K. and in the ABL markets for 2026.

And then, of course, the other thing that is often under the radar is that our ARBOC business continues to perform extremely well. They are by far the market leader in low floor cutaways in North America. They are also now deep into the reintroduction of a medium-class vehicle that we already have sales for book for 2026. Add to that, the underlying contribution that continues from the aftermarket business.

Now if you look at some of the graphs, you may see a bit of a tail off on margin. You may see the EBITDA slightly less than last year. However, that part of that business is highly volatile associated with programs. So where customers will do midlives or upgrades to their fleets, something we can't really control. That core business of aftermarket continues to grow.

And John Proven, who started well over a year ago now to run that business when Brian moved to CFO, has done a really good job at focusing on growth opportunities in that space. All that stuff adds up to what we believe will be a record quarter for us in 2024 -- sorry, in the fourth quarter of '25 and a very strong performance opportunity for 2026. Sorry a long answer, but I thought all those things are appropriate.

And the next question will come from Krista Friesen with CIBC.

I just wanted to go back to your slide on the high and moderate risk suppliers and just comparing it to what you put out for Q2 and the numbers for July 2025. It looks like there's been an uptick in the moderate risk from 9 to 12 and high risk from 1 to 3. I was just wondering if you can give a little bit more color on those suppliers and what's changed there?

Yes. Good question. So obviously, there's a subjectivity here in terms of how we rate things. And so we've seen kind of a nominal movement there in our medium risk. I don't -- I don't think you should really read anything into that beyond the fact that we're actively managing this, and we're sensitive to any types of disruption that we're seeing there. So I wouldn't say that things have materially changed from earlier this summer.

Okay. Great. And then I also just wanted to confirm on the guidance front. Did you say that at this point in time, the guidance for the remainder of the year includes all tariffs that are in effect?

Yes. That's -- everything we know as of right now, yes. And the November -- the early November tariffs, we don't think they'll have a significant effect in 2025. We think that will be more of a 2026 issue that we'll need to deal with.

And the next question will come from Daryl Young with Stifel.

With regards to the replacement of the batteries that needs to be done, which personnel, I guess, are going to be doing that? Is it New Flyer people that you're going to have to pull from your current facilities? And is that going to result in a bunch of overtime and added costs and disruption to your existing supply chains or really no impact there?

Really good question, and we spent a lot of time. So when we started the thinking of a recall, we had kind of 3 options. One was pull the buses back to the factory, not really practical. You also have border dynamics and so forth. Number two was to set up a third party or engage third parties maybe on the East Coast or the West Coast. And then the third option, which is the one we selected is to run those buses on a battery exchange type program in a service center.

So we have service centers in New Jersey, in Montreal, Chicago, Dallas, San Francisco, Los Angeles. So what we will do is effectively because they're battery electric buses, we will have trucks, if you will, driving a battery electric bus into the service center. We will dedicate a bay or 2. We've done a heat map of all the location of all the battery buses that will need to recall. There's a high propensity of the population was in Southern California and in Northern California. We will dedicate 2 or 3 bays or whatever is appropriate at each of those service centers and run them through an exchange program.

Each bus in terms of taking off the batteries, putting on new batteries, there's some cabling and some small equipment that needs to be changed and then there's software upgrades and then testing. It's not massive. Each -- we think we'll be able to do a number of buses a week at each service center. None of the people from the factory will be involved. So there will be no impact on the manufacturing operations. We may need to add a couple of extra people in each of those service centers depend on each of their individual needs. The service center will forego a little bit of third-party work that they do today to be able to assign the space and the people to do this program.

So as Brian alluded to, at this point, the scheduling, the preliminary scheduling says somewhere between 18 and 24 months to be able to complete the entire campaign. The very first replacement will be done in Winnipeg at our new product development center, where we'll have all the engineers and new product development people, the supply people validating the bills materials and so forth. That will start in probably January. And then in earnest, we'll start the recall most likely right after the first quarter. So we've got to make sure the supply is right, the people are skilled and trained and then we work with the customers to allow them to get the vehicles to us.

Just some color as well, Daryl, as you probably heard in the notes, we have disposed -- disposed. We have distributed software on all of those battery electric buses. We're well into that process right now to be able to allow the operators to use the buses. Yes, there's a slight degradation in the pace of charge and there's a slight reduction in the total battery capacity. But again, just the safety and caution, we've deployed that and are well into that process now.

Got it. Okay. And then when you flip to the sole battery supplier in 2026 for your new orders, and I know you mentioned you've been working with them since 2023, I think. Is the batteries they're going to be supplying, is that a new technology? Or is that the same old proven one that they've been building and you're going to add it to the buses and there's no design spec changes or anything like that, that need to come through? And do they have the capacity to kind of hit the ground running in terms of volume?

So the cells themselves are an LG cell. They are packaged by a company called American Battery Systems that's located in Michigan. The cell -- these LG cells are cylindrical cells as opposed to the ones that are currently on there, which are pouch cells. Those batteries are in use in many applications, including vehicles, trucks, buses around the world and by some of our competitors today. So there is not a new chemistry or a new application or type cert or anything associated with those batteries.

Now we have validated with that supplier that can handle both our normal production requirements, which we have for 2026, and the slots sold as well as the surge capacity to deliver the pace at which we need these recall batteries.

As you can imagine, we're going to be taking off almost 700 buses worth of batteries. So we're also actively working on the recycling of those batteries, the appropriate tear down, the disassembly and working with providers to do the right thing from both an environmental, but also from a cost and a safety perspective.

So we're pretty comfortable with this, which then leads into our engineering teams have already started looking for yet another battery type that would be an alternate to what we have. So what we want to be able to have is always 2 sources of batteries. Should anything like this ever come up again, we will have multiple sources.

Yes. So -- sorry, Daryl, yes, as Paul mentioned, we largely view the replacement of batteries as plug-and-play to make it simple of the new supplier versus the XALT battery. And I just want to reiterate, as we've discussed on the call and numerous times, we continue to discuss costs associated with the recall with XALT, and we have that term sheet in place, and we're looking to get that definitive agreement in the fourth quarter. So I just really want to reiterate that as people are thinking about costs and the costs associated with this campaign.

And the next question comes from Abe Landa with Bank of America.

So from my understanding and going back to the battery recall question, that $230 million that you took essentially is your -- what you currently expect, your portion of the battery replacement plus the warranty cost. And correct me if that's wrong.

I guess maybe -- it is. Let me just clarify that. It is the total cost of the recall plus with XALT leaving the business, it is our estimate of future warranty exposure associated with any installed buses that are not associated with the recall. So what is being negotiated and what is reflected in our term sheet is the portion or the recovery from XALT as a supplier.

Okay. So that $230 million is like a gross cost, let's call it.

Correct.

And if you reach some sort of agreement with XALT, it could decrease from here?

Absolutely. We would expect it to dramatically decrease.

Now of that $230 million, I guess, can you maybe -- like what's the cadence? I mean I could do divide it by 8 quarters, and you get -- or 6 quarters, you can do, call it, $30 million to $40 million per quarter. But I guess is it going to be more front-end loaded? I guess, how does the cash layout of that, let's say, on a gross amount before any sort of recovery look like into '26 and beyond.

So the gross number comprises 2 pieces, as Paul mentioned, it's the campaign money to go out and literally take the batteries off and put the new batteries on vehicles. That's the bulk of that accrual. And we would expect that to commence in the first half of 2026, and it will take 18 to 24 months.

So round figures, that would be half of the cash flow would be in 2026 and the other half in 2027. And then the balance from a warranty standpoint would be spread, I would say, fairly evenly over the next 4 years. So the cash impact would have that kind of a profile. And obviously, as we talk about any sort of settlement, that would be highly dependent upon the terms and conditions of that settlement.

And to all our listeners, we're not trying to be purposely acute or evasive. We have a term sheet. It is still not binding. We're in deep negotiations with XALT. And so it's imprudent to give any indication. We're comfortable at what the term sheet reflects in terms of the economics. The minute we get that done, we will issue a press release to clarify to the market our portion, if any, of that recall.

And have you provided a split between of that $230 million, the warranty portion and the replacement portion?

We haven't provided that. But like I said, the majority of the accrual would be the battery replacement.

Okay. And then maybe going back to this is all -- that was all super helpful color. And then just going to the tariff question. Obviously, quite a few ones out there, Section 232, the 10% imported buses. I guess if we kind of think about 2026, what would be the unmitigated tariff impact if you want to give a quarterly number or annualized number before any sort of price negotiation with customers?

Yes. So we're -- it's a little bit too early to comment on that. So I think we can give a little bit more color on that as we move forward. We're still digesting all the implications of the November 1 changes because it brought some new stuff, and it also did away with some other stuff. So we're still kind of working through that math. And we'll be more prepared to comment on kind of the high-level nature of that as we get closer to the end of the year and certainly as we talk about the full year results.

Just a comment on '25. The vast, vast majority of units that we'll sell in '25 are already physically in the United States. So the real tariff dynamic that Brian just alluded to is the country tariffs, the tariffs on our suppliers as they input parts in, what we bring into Canada as opposed to what goes straight to a U.S. supplier. And now, of course, the Section 232, 10% on buses and coaches. And your question is a good one in terms of the unmitigated. We also have an awful lot of mitigation opportunities, which might mean migration of more of our work or of our supply chain physically to the United States.

Okay. And my last question is, like I've read a lot of articles, maybe there's just newspapers or local kind of warning about local transit budgets, service cuts. But I guess I kind of want to know what you're hearing. I guess, when you speak to your transit customers, what are they saying regarding their budgets, their busing needs? Any sort of comments on timing or changing of timing of bus deliveries? Just that would be some helpful color.

Well, it's a good one. And of course, it's not a simple answer because we have multiple business units. So let's just kind of dissect each of them very quickly for color.

So Alexander Dennis, of course, sells a small amount of buses in North America. The schedule is sold out in our mind for the vast majority of '26. There's a few slots we still have to fill, but there hasn't been any changes, reductions, cancellations, anything associated with that. It will see an increase in volume in the U.K. and internationally. So we're pretty excited about after a pretty rough year for Alexander about them next year.

The ARBOC business, just like when we entered into 2025, has almost all of their slots sold out for next year on the cutaways and a very healthy portion as we reintroduce the medium-class business -- medium-class buses into the United States. New Flyer, the vast majority of the schedule is sold for 2026. And if you go back to our -- you look at our backlog, both -- well, the firm portion as well as some expected auctions to conversion. We've seen some customers change an order from a zero emission to a hybrid or a diesel or natural gas. We've seen some people push out. We have not seen the option conversion drop as we showed you in the charts. We also have not seen a drop-off in any of the RFPs hitting the street or the bid universe.

And so in our deck on slide -- I think it was Slide 21, we showed both a very healthy portion of active submitted and received bids, but also the continued expected buy over the next 5 years. So we haven't seen that drop off.

The other area of our business is MCI. And of course, MCI is roughly 65% or 70% private customers and 35% public customers. There are only, I don't know, 7, 9 real operators in the public domain, and that's blocky in terms of they buy in certain years, they don't buy in other years. They'll buy at high volumes or recur mode.

There is some risk on the MCI side associated with filling all the 2026 slots, although it's not a big, big portion of our overall business. The private market has recovered fairly well. in terms of the private operators and the overall market demand continues to be, let's call it, in recovery mode. These new Section 232 tariffs of 10% apply to us just like they apply to all of our competitors, whether it's another competitor that's in Canada or international competitors.

So an extra 10% tariff, we all try and pass on to some of those private operators, it could have an impact on that demand. But when you roll all that stuff up and look at our business going into 2026 from a market perspective, from the portion of our business that is sold or secured slots, we're still, in our views, in very much an operational and execution-focused mode as opposed to about worrying where we're going to get business from.

Yes, the only thing I'll add there, obviously, been encouraged by comments from the administration around getting America building again and investments in Surface Transportation Act. We saw the 2025 allocation for the Infrastructure Investment Jobs Act was the same as 2024, and there is another year of that funding act that goes until September 2026.

And also, the FTA is still active and still actively funding projects that have been approved even during this kind of current shutdown. So our customers are still getting funding for their capital projects that have been previously approved. So all that to say to Paul's point, still feeling very confident in the government funding environment in the United States.

So it sounds like the majority of your buses for public use or the build slots are essentially filled for next year? So no current change.

Absolutely.

And the next question will come from Cameron Doerksen with National Bank Capital.

I just want to come back, I guess, to the bus recall and battery issue. It sounds like you've got, I guess, productive talks and some sort of agreement with XALT. I guess maybe you can sort of give us your assessment of the risk around this potentially leading to some sort of lengthy legal dispute.

I guess, how do you protect yourself over the long-term if the owner of XALT, given that they're shutting the business down, decides to put that business in bankruptcy and somehow get out of the liability that they have. I'm just wondering, how you sort of assess those risks and how you can protect yourself?

Well, Cam, look, there's always the risk of something turning sideways. But I have been personally and actively involved along with David White, our EVP of Supply, directly with XALT and with the owners of XALT. The owner of XALT is a very, very large global international privately held business that has a very strong reputation for responsible customer support, responsible products and so on and so forth.

We signed a term sheet, which would be a normal process. I would suggest it was a very constructive and healthy negotiation. We independently hired technical experts to try and assess the cause, the root causes, the ability to operate them safely during the process of that stuff.

I would characterize the negotiation as constructive, as healthy, the outlook being very positive. The economics that are in our term sheet are acceptable to us. We just got to convert that into an agreement. We believe very definitively in our technical position and assessment of the cells and the cause of -- and risk associated with the short circuits.

We have done our work from a legal perspective and have worked with outside external counsel to defend and prepare our position if and when we ever had to get there, which I don't believe we will do. So -- and we've had unbelievably strong support from the Board, a, to do the right thing for the customer; and b, to prepare all avenues associated with both our negotiation and litigation if it got to that.

Okay. No, that's helpful. Just second question, I guess, on the investment in American Seating, the JV with GILLIG. Anything you can sort of disclose as to how much capital you might have to put into that business? I think you sort of indicated that maybe there's some investment required for them.

And I guess what's the intention kind of long-term. Is this, I guess, a supply that you want to have long-term in-house? Or is this something that at some point in the future, you don't think you need to necessarily have?

So look, and we've talked to you and all the other analysts about how hard is this? Why don't we just change suppliers or why don't you just put pressure on. This has been a year-long or deal or nightmare for us and for GILLIG for that matter and some of the other customers of American Seating.

We finally came to a scenario and given the status of their debt and the debt holders' decision and desire to get out where we could acquire the debt and then proceed with that. So job one is stability. We have changed the leadership team. We have put a turnaround firm in place to fix the business. We are actively recruiting for long-term employees to run the place and executives to operate the business. We have a joint Board of 2 from GILLIG and 2 from us.

And so it's all about stabilization of operations. The investment is not material in our overall business. The pain we suffered over the last year has been ridiculous relative to just one supplier. The amount of seats that are behind is still a notable number. It got better, notably better as we got through the summer of this year and then started to return, which is why we jumped at the opportunity to take control.

Seating is not a strategic element of a supply chain that we want for the long-term. And we'll deal with that in due course once this place is stable. And quite frankly, if we can have 3 suppliers in the U.S. competing and buying for that business, the quality of what we all get, the pricing effectiveness and so forth is critical.

Typically, our strategy for in-sourcing, and Cam, you've been to our plants is where we own or control the drawings associated critical parts on the bus, the frame, the structure, certain electro components, fiberglass, those kind of things. We've in-sourced that. And about 10 -- more than that, about 15% of our cost of sales, we control.

This is, I would say, a targeted strategic investment to ensure surety of supply for the next couple of years, and then we'll decide whether this is a long-term. It's awkward. We're doing it in a joint venture with a competitor. I will tell you they are standup people. We work cooperatively. We've put all the controls in place from an antitrust perspective. I'm comfortable we'll get this place back on track, and then we'll deal with this future as we move through '26.

And Cameron, obviously, as Paul mentioned just there, a little different than our usual acquisitions where it's a joint venture. So you'll see it on our Q4 results as an investment in the joint venture on the balance sheet. So we'll have a bit more detail with Q4 results in March on the accounting treatment.

Okay. No, that's super helpful.

And the next question comes from Jonathan Goldman with Scotiabank.

If we think about just the battery replacement in isolation for a layman, who doesn't know much about the industry, if you strip out the cost of the actual battery itself and all the materials, what would be the approximate cost per battery for labor, freight and overhead to change out a battery?

Good question, Jonathan. It's nominal. I'm going to give you an estimate that's context, right? We're going to ship a bus from one location on a flatbed to our facility, a grad or 2. We're going to ship it back grad or 2. We're going to put 30, 40 hours of labor into each to take the old battery packs off, put the new ones on. So that part of it is not the major part of it. The vast majority is the actual battery pack replacement itself.

That's really helpful color. I appreciate that. In the quarter itself, the sequential decline rather in transit bus ASPs, is that mostly just a mix issue? Or is there something else going on there? And then how should we think about the trajectory of ASP for Q4 and into '26?

So the ASP, first of all, your intuition on that one is exactly right, mix. What we bid on that window, what we deliver in any quarter has a massive impact on the average selling price. What we put into our backlog is the bid price.

So -- and between bidding, going through the final build materials reconciliation, any changes the customer makes, any additional electronics and so forth they put on there could be a material -- not material, but a notable change from what the average selling price into the backlog is compared to what the actual average selling price is when it is delivered.

The other dynamic that happens, and as you can imagine, almost all of the stuff that goes into the backlog are multiyear contracts. And so we put it into the backlog at current year selling price. As those options convert, we have purchase price indices that get applied to those in the out years. So it will depend on any changes to make to the bill of materials, but also what the PPI is in those out years. And that's what drives up the ASP between point of installation into the backlog compared to what happens when we actually delivered the unit.

Okay. That's good color. And then thinking about the repricing, time of manufacture, would that include outside of the PPI, any increases on account of tariffs or I guess, like force majeure type of events?

No. Think of tariffs, if you and I were building a house, almost like an engineering change order. So we are going back to the customers. Now every customer is different, every contract is different. For the most part, here's your bus for $500,000. Here is an added charge for the tariff. And of course, the math associated with the tariff. For a while, we were able to use an average tariff application per unit. Now given some of the changes in the regs and the counts, most customers want a specific tariff calc based on what's actually in their bus. So that is an add bill or an engineering change order type dynamic as opposed to an embedded part of the PPI or any other part of the pricing.

Okay. That makes a lot of sense. And I guess last one for me, and I guess Cam asked this earlier about the capital investment required in American Seating. But from an OpEx perspective, what level of OpEx would be required on your part to support American Seating into next year?

None. I mean, at the end of the day, this is an investment we've made. We have bought the debt. We are helping with investing in the business to operate the cash flow. They are still in 2 facilities. There will be a couple of million dollar spend to rationalize those facilities into one. It is not a notable amount. And of course, the operating costs will be managed by the business itself.

I would now like to turn the call back over to Steven.

Thanks, Michelle. So we have one question from our webcast. So I'll just read it aloud, and it references similar to what we had this morning in other cases. Is the warranty provision a worst-case scenario? And does finalizing the agreement with the XALT lead to a scenario where the provisions will be reduced materially?

Yes. So I'll take that question. So the -- what we booked is the liability side, which is our best guess today at what all the costs will be to retrofit all the batteries and support the warranty obligations on those batteries. So that's what's sitting in our financial statements right now.

And the second part, Brian, the finalizing the agreement with XALT lead to a situation where the provisions will be reduced.

Yes. So we are both motivated us at XALT to complete this agreement before the end of the year. And so we have meetings every day and every week in this negotiation. As part of us assuming some warranty obligations going forward, there's diligence on certain people and equipment and IP and software and so forth that is actively going on. So the ultimate agreement and the economics associated with it would -- if it goes the way the term sheet would be a significant reduction in the provision. And so again, we'll press release that as soon as we know.

All right. Okay. Well, that was it. That was all of our questions. So thanks, everyone, for attending today and for listening in. As always, please don't hesitate to reach out to us with any further questions and all of the information you need is on our website, including today's presentation. Thanks so much, and have a great weekend.

This does conclude today's conference call. Thank you for participating, and you may now disconnect.