New Flyer's (NFYEF) CEO Paul Soubry on Q4 2015 Results - Earnings Call Transcript

| About: New Flyer (NFYEF)

New Flyer Industries, Inc. (OTC:NFYEF) Q4 2015 Results Earnings Conference Call March 24, 2016 9:00 AM ET


Paul Soubry - President and CEO

Glenn Asham - CFO


Kevin Chiang - CIBC

Adel Kanso - BMO Capital Markets

Chris Murray - AltaCorp Capital

Trevor Johnson - National Bank Financial

Stephen Harris - GMP Securities


Good morning. My name is Chris, and I'll be your conference operator today. At this time, I'd like to welcome everyone to the New Flyer Industries Inc. 2015 Year End Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator instructions]

Thank you. Mr. Paul Soubry, President and CEO, you may begin your conference.

Paul Soubry

Thanks Chris, and good morning, ladies and gentlemen. Welcome to the 2015 fourth quarter results conference call for New Flyer Industries. Joining me on the call today is Glenn Asham, our Chief Financial Officer. For your information, this call is being recorded and a replay will be made shortly available after the call.

As a reminder to our participants and others regarding this conference call, certain information provided today maybe forward-looking and based on assumptions and anticipated results that are subject to uncertainties.

Should any one or more of these uncertainties materialize, or should the underlying assumptions prove incorrect, actual results may vary significantly from those expected. You are advised to review the risk factors found in the company's press releases and other public filings with the securities administrators for more details.

In a moment Glenn will take you through the highlights of our financial results for the fourth quarter of 2015 and fiscal 2015. Following that I'll provide some insights into our 2016 outlook, our areas of focus, and then we'll open up the call to your questions.

To set the stage, I'd like to share with you my perspective on our company strategy, operating performance, and a few key initiatives in 2015 that allowed us to where we're today.

We remain committed to our strategy that has been fundamental to achieving our objective of growth and diversification. And we're grateful that our Chairman, The Honourable Brian Tobin and the rest of the Board of New Flyer continue to be actively engaged in assessing our strategic plan and fully support of our efforts to invest.

Quite simply, 2015 was a fantastic year for our company. It's gratifying the hard work of our now nearly 5,000 team members, investment in facilities, people, our product, and our operational excellence, combined with some rational pricing in the marketplace has resulted in significantly improved performance for all parts of our business.

In 2015, we consciously chose not to chase volume for market share sake, but rather to level load our manufacturing facilities and focus on customer satisfaction by delivering first-time quality and resulting margin improvement.

We're also able to add significantly to our total backlog which now -- with both firm orders and options is up over 9,000 units. As you know a few years ago we were explicit about our strategy to optimize our business and processes, defend our market leading position, diversify our products in markets and grow our earnings flow and dividends. Allow me a little color.

First we continue to focus to optimize operations and continuous improvements. In 2015, our Winnipeg plan was selected as a finalist for the IndustryWeek magazine award of one of the best plans in North America for 2015. The only Canadian facility on this list and our bus team deserves tremendous credit for their execution.

We also completed the successful upgrade of our Oracle ERP software to version R12 across the entire company. No small task when you're building in excess of 50 buses a week.

Second we continue to defend our market leading position in both bus manufacturing and spare parts distribution by the continuous migration from just selling buses to trying to provide solutions for our customers and to deliver best value and support for life of our products.

For example, we completed the Chicago Transit Authority mid-life overhaul program for over a 1,000 buses on-time and on-budget. We completed the product rationalization of our Xcelsior bus model across all New Flyer facilities with the investment we have proposed and realized the synergies that were ahead of target.

In addition, our all-electric Xcelsior transit bus successfully completed its Altoona Test for -- and comprehensive demonstration tour of over 60 cities and Canada and United States. The New Flyer electric buses are now operating a revenue service and we continue to pursuit early adopters for this propulsion approach.

We're also proceeding well with our progression to having full stainless steel platforms and 60-foot articulated electric bus offerings. It's very exciting on this technology front.

Third, we continue to pursuit of seeking diversification in growth. As you know after 11 months of over, we successfully completed the acquisition of Motor Coach Industries or MCI. Founded in Winnipeg in 1933, MCI is North America's leading motor coach manufacturer and parts and service supplier with three manufacturings, nine service and parts distribution centers.

MCI has the largest installed base of motor coaches with approximately 28,000 on the road, nearly twice the installed base of the nearest competitor. Well known in the industry of best-in-class quality, reliability, lowest cost of ownership, and a robust coach after-market and part service offering, MCI's business is parallel to New Flyer's leading position in the heavy-duty transit bus space.

New Flyer is committed to its stakeholder model for long-term success by focusing on the balancing needs of our shareholders, our employees, and our customers. We've great people and we believe in our team and our strategy.

We're also very proud of the fact that New Flyer has paid dividends to our shareholders for 123 consecutive months, since the company's initial public offering in August 2005. It's comforting to see that shareholders continue to show confidence in New Flyer with our common share recently trading at new highs.

As you know we’ve now transitioned from a monthly dividend to a quarterly dividend. The first quarterly dividend was declared on March 15, 2016 and is payable on April 15, 2016. It includes a 12.9% increase in the annual dividend rate from C$0.62 per share to C$0.70 per share that was announced as part of the MCI transaction.

We remain committed to making all parts of New Flyer a great place to work and we continue to focus on investing in safety training, employee survey, social communities [ph] and all those things to build engagement. The results are noticeable with employee absenteeism, turnover, grievances, safety instances, productivity and so forth all continuing to improve.

I need also to tell you that the response from our stakeholders on this combination of New Flyer and MCI has been fantastic and it creates a more stable platform and opening up an exciting future for us all.

So with that I'll ask Glenn to take you through Q4 and through fiscal year 2015 and then I'll give you a bit of insight on future.

Glenn Asham

Thank you, Paul, and good morning everyone. I will be highlighting certain 2015 fourth quarter results and providing comparisons to the same period last year. I will focus my commentary on this call to providing key financial insights that will then allow for time and attention on our market business and strategic effort.

I'd like to direct you to company's full financial statements and management discussion and analysis of financial statements that are available on SEDAR or the company's website.

I will remind you that New Flyer's financial statements are presented in U.S. dollars, the company’s functional currency and all amounts are referred to in U.S. dollars unless otherwise noted.

As well it's worth noting that our fiscal 2015 operating results include the acquisition of Motor Coach Industries for the nine-day period from December 18th, 2015 to December 27th, 2015.

Revenue from bus operations increased 3.1% for the fourth quarter of 2015, compared to the fourth quarter of 2014. The increase is a result of a 1.8% increase in total bus deliveries and 1.4% increase in average selling price.

For fiscal 2015, revenues from bus operations increased 7.5% compared to fiscal 2014. Deliveries were up 1.9% during fiscal 2015 and the average selling price increased 5.5% during the year due to product sales mix.

The average selling price can be volatile when comparing quarters as a result of sales mix and propulsion type. 2015 fourth quarter aftermarket increased -- decrease 14% compared to the same quarter in 2014, primarily as a result of the completion of the Chicago Transit Authority mid-life overhaul program.

Excluding the CTA mid-life overhaul program, the revenue from aftermarket operations for the fourth quarter of 2015 of $71.7 million, increased compared to $66.8 million in the fourth quarter of 2014. This represents growth in the core aftermarket business of over 7%.

Fiscal 2015 aftermarket revenue increased 1% primarily as a result of improved aftermarket parts market fundamentals. Excluding the CTA mid-life overhaul program, the revenue from aftermarket operations of $288.2 million in fiscal 2015 increased compared to 271.8 million in fiscal 2014. Once again excluding the CTA contract the core business grew by 6% on a year-over-year basis.

Adjusted EBITDA from bus operations in the fourth quarter of 2015 and fiscal 2015 increased by 34.6% and 56.8% respectively.

The increase in the fourth quarter 2015 and fiscal 2015 bus and coach manufacturing operations adjusted EBITDA compared to 2014 fourth quarter and fiscal period is primarily due to favorable sales mix, pricing, labor efficiencies and the cost savings achieved from the transition to Xcelsior and to Alabama plant.

2015 fourth quarter and fiscal 2015 aftermarket operations adjusted EBITDA increased 12.6% and 23% respectively compared to the 2014 respective periods as profit margins have improved primarily as a result of improved market fundamentals and the benefits to the product mix that have resulted from a far broader portfolio of services and parts offerings to customers.

2015 fourth quarter and fiscal 2015 net earnings increased by $6.7 million and $27.2 million respectively. This is primarily as a result of improved earnings from operations offset by the increase in income tax, expense and non-cash charges.

The company’s net earnings per common share and the fourth quarter of 2015 was $0.25, an increase from net earnings per share of $0.13 generally during the fourth quarter of 2014.

Fiscal 2015 net earnings were negatively impacted by a retroactive past pension service cost charge of $3.7 million and $1.4 million impairment loss on equipment and tangible assets, whereas the fiscal 2014 earnings were negatively impacted by a $4.8 million impairment loss on equipment and intangible assets.

The impairment charge was largely related to the decision to discontinue the NABI product line. Net earnings per share in fiscal 2015 of $0.97 increased compared to $0.40 generated during fiscal 2014.

In the fourth quarter 2015, the company generated free cash of C$47.4 million while the current dividends of C$8.6 million. This compares to C$21.1 million of free cash flow and the occurred dividends of C$8.1 million in fiscal 2014 -- sorry, 2014 Q4.

The free cash flow payout ratio was 31.2% in fiscal 2015 maturely better than 49.6% during fiscal 2014. We continue to evaluate our dividend in context of a debt pay down strategy and operating performance.

With that, I’ll turn it back to Paul.

Paul Soubry

Thanks Glenn. The company’s annual operating plan for the 53 week period ending Jan 1, 2017 or fiscal 2016 is focused on completing the integration of New Flyer NABI aftermarket parts business, something we call project conversations which should be completed by right into the third quarter of this year.

Defending and growing our leading market share position in the heavy duty transit bus in more equipped markets and developing our combination and integration plan for the acquired MCI business.

MCI has outstanding people. That’s an truly innovative product management systems. Our preliminary valuation is that there is as much to learn and gain from NFI for MCI as a risk from MCI to NFI.

The company’s master production schedule combined with current backlog and orders anticipate to be awarded under new procurements is expected to enable us to deliver new transit buses and motor coaches of approximately 3450 equivalent units during fiscal 2016, which compares to 3265 units which is New Flyers full year volume plus pro forma MCI in fiscal 2015. Note that 2016 is a 53 week period compared to 52 weeks in fiscal 2015. We also expect our core aftermarket revenue to grow by approximately 5% in this fiscal 2016.

We will continue to pursue cost and overhead savings in operations through operational excellence initiatives at New Flyer and quality of sort program in MCI. We stated -- we've already started looking for opportunities to leverage best practices from each other.

With respect to the integration of MCI, we announced that at the acquisition that we’ve targeted annual synergies of approximately 10 million through the rationalization of corporate costs, further deployment of lean operational techniques and leverage sourcing expertise across the company that initial guidance still stands.

We are taking the necessary time to learn the motor coach business and evaluate the market. We’ve begun accessing strategic opportunities for overall business optimization and combination and similar to the previous acquisition of NABI in 2013 will provide investors with combination and integration plans and investments in due course.

We’re posting on the website -- New Flyer’s website this morning under the investment portal and updated investor deck and as we’ve done with New Flyer we’ll continue to evolve the reporting an insights on MCI in the motor coach industry as we understand more.

I’ll look forward to talking to you again at our Annual General Meeting in May 13th in Winnipeg. Thanks for listening. With that, Chris, we’ll hand it over to you to invite questions and please provide instructions to our callers.

Question-and-Answer Session


[Operator Instructions]

First question is from Kevin Chiang with CIBC. Your line is open.

Kevin Chiang

Hi. Thanks for taking my question and good Q4 results there. I guess my first question is, it looks like the average margin per bus for the year was the highest that we’ve seen since 2006 and maybe even beyond that. My understanding, if to recall MCI has a higher margin operation, so I’m just wondering, is there anything in the backlog today or anything from a mix wise perspective in 2015 that was to readjust all of equal bus margins shouldn’t be higher in 2016 versus last year?

And then, when you look at all those margin improvements you’ve seen in a very short period of time, do you think you can keep all of this or do you thing some of this gets riddled away as you go through future bids i.e., the municipalities will want to share some of that benefit moving forward.

Glenn Asham

Thanks Kevin. I guess related to what’s in the backlog, sure that the bid environment has been healthy now for well over 1 year, so certainly the things that we were bidding call say 3-4 years ago on producing two years to one year ago is certainly behind us.

So, I would suggest that we have – there is no real business in our backlog that would be anywhere closed to what we experienced back in those low margin days and why we don’t give guidance on margins, I can’t say that their activity remains healthy.

You can see there is a lot of activity going on and you are correct as you pointed out. You can see through some of the target information we provided in our MD&A that MCI margins are little bit higher than New Flyers business, so we’re encouraged.

Kevin Chiang


Paul Soubry

With respect to Kevin to your question on current bidding in the future, of course, I wish which we had a crystal ball that look at the end of the day there is lots of things that play there is competitive dynamics there is very rare robust replacement cycle going on. There is movement of FX that continues to be volatile and of course, the margin on Canadian versus U.S. continues to move and change all the time.

Remember that, on the New Flyer side or the public transit side they have all submitted bids and evaluated and many of them are price based, lot of them are value based and so there are piece that taken technical performance delivery, quality fast performance and that kind of stuff.

Of course, on the learning on the motor coach side, two-thirds of that business plus or minus is private customers. There is absolutely always pressure on price there and so again it’s a value discussion around delivery quality and uptime, total cost of ownership and so forth. So I guess our view is while we can’t control price and never will be able to in those kinds of environments.

We’re going to continue to go after the cost based to be as efficient as we possibly can. As Glenn said, we’re encouraged that the margins of what we have sitting in the backlog. We’re encouraged the way we’re bidding today that we have through our cost optimization have been able to be flexible and adapting to the various competitions.

As you saw in 2015, we actually consciously choose to slow the machine down a little bit on the flyer side to make sure that we really focused on quality delivery as well as margin and so while we like in and want to maintain the largest player we’re not going to go crazy to try and grab volume at the stake of pricing performance. So hopefully that gives you a little bit of color the way we’re thinking about it.

Kevin Chiang

That’s very helpful. And then secondly, when I look at the integration of NABI we continue to see the synergy numbers you report on a quarterly basis continue to creep up we saw that again with your Q4 MD&A. Do you think the magnitude of upside potential synergies would be more or less what you would expect or what you’ve accomplished with NABI? Would you expect the same level of magnitude with MCI?

In other words, if I recall correctly, when you acquired NABI back into 2013, you said, we got something like regular synergies and then today it looks like that total number will be above 20 million and maybe even more with project conversations. So looks like about 4 to 5 fourth increase from your original synergy target. Is that possible to MCI or is there something fundamentally different?

Glenn Asham

I guess Kevin there is end number of issues you got to consider. First of all, they are different businesses right. I mean, NABI, we are integrating a business which was playing in our same industries virtually identical to us, right, so there is lot of opportunities there.

The MCI business for sure the sales channel is very different, so whether or not there is opportunities there is a question. I mean obviously our facilities were located in the same place.

So there is definitely an opportunities on the SG&A when we look at some of our corporate cost, for example, as we stated and I guess we continue to assess why other cost savings are out there, but as well we also assess the investment we have to make. We’re not quite there yet. We know that we need to make some investment in this business on a go forward basis. So as we continue with the synergies we ultimately get based on what -- right amount of benefit relative to our investments.

Paul Soubry

The other thing, Kevin, just on that look, NABI was a business that had made good solid profit on the aftermarket but really wasn’t that profitable on the bus business. So as Glenn said, the combination and integration of a common platform to the same customer base really was beyond what we thought as you highlighted. MCI has gone through some of challenging years, but they did some fantastic work. The place is profitable.

As you noted, the margins are -- on core business are better than transit side. And so it’s too early to tell in terms of, and even if there were more synergy multiple as you described, there is that price volatility in a private market that we don’t fully understand.

Kevin Chiang


Glenn Asham

So as we try to say notes here, we’re not trying to sand baggers, but what we’re trying to do is we prudent about the pace which we look at integration combination. We haven’t yet really come to lot of conclusions, so good business; great people, good product, really loyal customer base and we’re going to continue to focus on that. And when we get some color insight on what we think the magnitude of the combination could look like. We’ll be transparent with it as we have in the past. We’re not there today.

Kevin Chiang

Perfect. And then just a housekeeping question from me and I’ll get back in the queue. How should I be thinking about changes in working capital for ’16, was 2015 a good run-rate or was that a bit higher than we should be anticipating and then what should we be thinking about in terms of cash taxes?

Glenn Asham

So couple of things and then obviously sure on the perfect world which is the [indiscernible] world and a portion of the MCI business is really contract specific. So we’ll have contracts that have great working capital profiles and once that have update. So I’d anticipate that on overall this year would have been about average year and I can guess the other factor we got to put in is the MCI working capital profile so that’s bit of different business. It’s much more of a forecast business, little more of a seasonal business …..

Paul Soubry

We also have pre-own coach.

Glenn Asham

We also have pre-own coach as we have to deal with. So I think what you’ll see there is I build up working capital throughout the year as we move into the third quarter of the year and we did provide the historical deliveries for 2015 by quarter you can see that sales are definitely backhand loaded.

So you would see a reduction in a working capital -- as we reduce inventory in that late third quarter, fourth quarter. From a receivable side, point of view, I think the motor coach business actually has better in terms of the transit business, so that is actually a help to the working capital.

Kevin Chiang

Cash tax?

Glenn Asham

Cash tax, I mean I look at it much as I have. I mean we have a number of temporary differences as hard to predict timing of it, but if you look overall I would say that you can really say the corporate the average tax rate is probably 135%. The one that significant deferred item as always there is the deferred tax related to all the intangibles, right.

So the best I give for cash taxes to say take net income add back the amortization on the intangible assets, not the depreciation on the equipment but on the intangibles and then apply the tax rate to that amount are the best view I would have at this point. And for sure, there will be volatility around that number as these other timing differences go up and down.

Kevin Chiang

Perfect. That’s it from me. Thank you very much.


The next question is from Bert Powell with BMO Capital Markets. Your line is open.

Adel Kanso

Hi. This is Adel on behalf of Bert Powell in BMO Capital Market. My first question is on your 2016 compacted deliveries of 3450 new buses and coaches. That’s like a 6% increase year-over-year. Would you be able to break that number out for us between buses and coaches?

Paul Soubry

At this point, our plan to report as a combined segment, so we’re not planning to separate those numbers.

Adel Kanso

Okay. Second question….

Paul Soubry

We continue to evaluate how we plan to report ongoing forward basis, but at this point I mean for sure, there is only 9 days result of that so significantly we look at 2015 and overall I mean it could be I mean one of the options we have in this business right is to maybe [indiscernible] rates to deal with the varying demand in the product, so things may go up and down in either segment, but we expect to 3450 overall to be achieved.

Adel Kanso

Second question on MCI’s financial. When we look at 2015 financials for MCI it shows an EBITDA margin of about 12.5% and when we look at 2014 EBITDA margin was about 7.5%. So what would have been the drivers of that margin increase in MCI 2015 and with respect to their backlog, you mentioned it’s about $1.1 billion at the end of ‘15. What would that number have been in ’14, just to increase the backlog at MCI?

Glenn Asham

So I guess first of all on the margins. I mean one thing is very significant in the MCI business has been exchange rate. They have a higher portion of their manufacturing cost in Canada relative to New Flyer. So there are definite net outflow of Canadian dollars and therefore the weakening of the Canadian dollar relative to U.S. dollar hasn’t hamster business.

They have also done a lot down their cost side to improve their efficiencies. They have done things on their SG&A on their own prior to our acquisition to reduce some of the cost there. So I would say in a lot of ways that they have a philosophy of -- we call it different things, but that philosophy of lean that they’re working towards and there were seen some benefits coming from that. And obviously the exchange rate has been an impact to them.

Second question is related to the backlog and we publish the backlog as we reviewed it in their own internal audit and comfort of it as of the acquisition day. Their record keeping wasn’t comparable to ours prior to the acquisition so we didn’t go back any further I wouldn’t have the number.

Paul Soubry

But I would say that just in context in 2015 MCI was awarded very large contract with New Jersey transit which had a significant uptick to their backlog. So as Glenn said, we don’t have the fidelity of the data back till the end of the year 2014, a good portion of the growth comes from this very successful win of New Jersey transit contract which originally was 772 options and then subsequently I think they added about 300 or so, so 1,000 options added to that, very positive.

Adel Kanso

Okay. That’s great. Thank you very much.

Paul Soubry

Thank you.


The next question is from Chris Murray with AltaCorp Capital. Your line is open.

Chris Murray

Thanks Guys. Good morning. Just maybe -- just thinking about some of those closures on MCI was actually -- was actually very good. Just some quick thoughts, so just understanding the guidance on manufacturing with a volume, so just to unclear – the manufactured numbered won’t include anything on the huge bus side is that correct?

Glenn Asham

Yes, that is correct.

Paul Soubry

Chris, maybe it’s a good question. Maybe we should have put it in our notes. We choose to go with an annual production because you made this plan, you know that when we have 40 foots versus 60 foots and then you have the MCI volume, MCI has longer shutdown periods somewhere at the end of the year than New Flyer and so forth that we thought weekly run rates might get a little bit delicate in transit and try to come up with the whole list of perspective.

That’s why we said we’ll just give an annual combined volume that can allow you to model a little bit and as Glenn said there is a little bit of a fourth quarter seasonality to the MCI portion of that business which is roughly I guess little more than one-third of it.

The new buses that only include new to both private customers and public customers; the pre-own coach business is about roughly plus or minus 350 units a year every year will be different. But that’s completely independent of that run rate.

Chris Murray

Okay. And then fair to think I mean I’m kind of going back to the acquisition deck and looking on those numbers if I sort of extrapolate, is it fair to think that that would be roughly $40 million a year in revenue, just kind of looking at 2015 numbers.

And you made a comment in the notes, it’s low March, I know there has been some concern in the past. They were actually negative margin, but is it fair to think that there are kind of a couple points on the positive side, but nothing much more than that, is that good way to think about it?

Glenn Asham

I think your revenue estimate it would be good, Chris. I guess the way I continue to look at the pre-owned. It’s very much a sales tool to for the rest of the business. So while we hope a little flop I think the reality is that part of the business should be viewed as a breakeven type business.

Chris Murray

Okay. That’s not a bad way to think about it, then great. And then just you gave us the disclosure around the buses, but just aftermarket seasonality for MCI was actually -- I was little surprise, I would have thought it would have been a little higher in Q4 given the manufacturing activity, but NFI business seems to be fairly steady year around, but is there a more seasonality in the aftermarket business for MCI.

Paul Soubry

I don’t think so, Chris. I think again remember the reason of the seasonality on the OE side of the private customer at MCI is largely for tax purposes at the end of the year. The spare parts business and the service business on MCI is just like New Flyer where is, as is, where is today I need your help, to need your parts and so forth. So I don’t think we can point to any kind of cyclicality or seasonality on the parts and service business of MCI.

Chris Murray

Okay. Good. Maybe moving to something a little bit different and maybe surprise us a little bit. Can you discuss a little bit about the announcement that the Governor of the New York made in terms of maybe some expansion of funding and as part of that they started to disclose you guys might be I guess open up a small assembly facility in New York and what that does to your outlook in terms of just demand and I guess as a tangent to that is what New York is doing with looks like it perhaps accelerating a bit of buy. Is that a churn you’re seeing from other large transit authorities in North America?

Paul Soubry

Well, New York as you know always a very special case just because of the sheer size of their fleet. The other dynamic in New York that is rather unique is that depending on the procurement – the individual procurements, some cases they use federal funds which means they have to – we have to bidders comply with by America.

In some cases, they use States funds. When they use state funds, New York has kickers or extra points in the bid for New York state content. The Governor announced that – to us nothing new other than getting very excited about trying to rejuvenate the fleet in New York. They buy a lot of buses every year. The numbers are approximates and that’s all positive and so forth we got to go through the process and so forth.

We have one some work recently for New York and so I think the way the article and stories were combined sure made a sound like New Flyer was awarded 2,000 buses which is clearly not the case. We did in our last proposal to New York offer to continue to increase our New York state content requirement and percentage.

And as a result we’re actively working on setting up a – let’s call it a parts subassembly type process, some of which today we buy from subcontractors, some of which we do another parts of that New Flyer to MCI that we would do inside the state of New York.

So from our perspective we don’t yet have a material dis-closable event around New York. It’s not. We are building buses there in any shape or form. We’re effectively just trying to enhance the New York state content as it relates to Subassembly building. The other thing that made that article or those stories get a little bit more amplified is that the picture they use was 60-foot New Flyer articulated bus which was tricked out in new colors and so forth.

And so I think that thing got blown a little bit out of proportion. But I will tell you we've been very, very successful in working with New York and satisfaction their needs from initial delivery and accelerated delivery schedule on the work that we won for them.

The margins have been fair. New York is a tough customer and so they should be in their sheer size and operating environment and I think we've proven to them that we're a very, very responsible provider to them.

MCI has historically sold a lot of coaches to New York and the last competition was not won by MCI and so the combination of New Flyer and MCI, we're excited about the next competition that comes out on coaches that we can take advantage of some of that New York's big content, take advantage of the joint knowledge and learning between MCI and New Flyer on dealing and supporting New York state.

Hopefully that gives you a little bit more color and that's why we didn’t have any press releases of our facilities and so forth. Nothing is opened up yet and we're still in developing that. What we did do is commit to New York and we'd increase our New York state content and we would have a sign on a building somewhere sooner or later to help support that.

Chris Murray

Okay, great. And just any thoughts on any other transit authorities changing buying behavior, just I don't know we saw FAST Act come through and stuff like that. Anything you're seeing in terms of buying behavior?

Paul Soubry

That's a really good question Chris and I think the way I'd answer that is not really changing the buying behavior, but I'll point back to our investor deck when you see the update on slide eight, we haven’t had that continued chart on kind of mid-universe and active bids and look the FAST Act added an element of longer term stable federal funding which we hadn’t really seen inhibit people buying, but it does add a level of stability and comfort around making multi-year plan.

And our total universe and our active bids continues to be a factor of whatever it is three of what it was say five years ago. So, I would say just that continued health of the general U.S. economy, the aging of the fleet and the reality of needing to replace some of the buses is all boding well for us at Flyer and MCI, but also for our industry. I mean at the end of the day, it's really, really good and we're dealing with an essential service. But I wouldn’t say that change in practice. I would just say it's more of a health of the industry.

Chris Murray

Okay, great. Thanks guys.

Paul Soubry

Thanks Chris.


The next question is from Trevor Johnson with National Bank. Your line is open.

Trevor Johnson

Hey. Morning guys.

Paul Soubry

Hey Trev.

Trevor Johnson

I know you don't want to breakout your 2016 production outlook between MCI and the legacy business, but just curious if you can give us some color on how you're actually treating that big New Jersey order for that guidance and whether there might be a potential for some upside given that the options were awarded in that might flow through a little bit more? Maybe more of a 2017 story, but just curious how you're treating that Jersey play.

Paul Soubry

Yeah. It probably is more of a 2017 play from a run rate perspective, Trevor, and here's why. MCI is actually been building buses or coaches for New Jersey throughout 2015 and I can't remember the last one left lying there was literally early in the first quarter.

And of course, what we have from New Jersey is options. We don't yet have a purchase order other than for the pilot buses. They have a very unique process where they issue an NTP or notice to proceed for their pilots. The pilots then go through an evaluation window. Once you finish the window, they give you the feedback, they do any final tweaks in the bus, and then you start production.

So, we have a certain quantity in our product plan expected for 2016. But without a purchase order yet, it's not yet totally a sold slot, if you will. And so that's why it is just like the New Flyer world, where we continue to work with some level of uncertainty in the builds through the rest of the year even though we assigned to a customer there's not yet a purchase order.

Where the -- so that plays out, we'll know mid-year how that whole purchase order works. The real hard and fast volume that will hit 2016, we think we've got a fairly reasonable and conservative number in our plan and again, if we get any confirmation on that that changes our guidance or volume outlook, by all means, we'll be updating that to our investors. But at this point, we've got a nice reasonable amount sitting in our 2016 operating plan at MCI.

Trevor Johnson

And as a sliding work similar to what you've done with the transit business, I guess it's comparable and it's -- I guess -- I know it's early stage, but is there an opportunity for you guys to take some of those best practices out of really margins and make some initiative changes at MCI, just from an overall scheduling standpoint?

Paul Soubry

Yeah. Although you know what Trev, these guys are compliments to the MCI team and what they have done over the last three or four years of instituting some real stage gate type approval processes for the building.

The difference being that MCI, the number of orders online from public customers is a materially smaller. It's in the tens or so as oppose to New Flyer, we have 30, 40, 50 customers online at one time or in the production schedule. And so we on the New Flyer side will move and jerk around production slots all day long, MCIs are far more stable in that perspective.

And then the other side of MCI which is very different is the private world where they are selling slots that are sold to a customer and they are building a specific bus, but they also build what they refer to as a fast-track which affectively is like the aviation where you're called white tail which is a generic bus and then as the bus go through the production line, there are ways to be completed for a certain customer minor spec changes or it gets sold while the thing is in production process.

But I wouldn’t take away from this discussion that MCI is willfully inappropriate or inadequate on their planning and so forth. Honestly, there are lots of things that Flyer does that MCI could take advantage of and vice versa. And that's there and where we're looking at the combination and the combination options that we're working on right now. Similar -- to summarize similar on the public side, a lot different on the private side.

Trevor Johnson

Got you. And I mean you need to take some time obviously to just get your head around the business and you've articulated that from when you bought them. But just curious how long you're thinking you're going to need before you actually say, you know what this is our game plan to really integrate this business.

Paul Soubry

Well, as my dad used to say, how long is a piece of string, but hard to know at this point. Again, it's not broken. The guys do a really good job there and they are very focused on their quality of their customers and they have invested in some of the tools and systems we think that they are going to be more added to that.

The bigger question maybe goes back to what Glenn was referring to earlier in terms of what does the operating combination look like and how do we manage and run the business and take advantage of some more of the shared learning and so forth.

And so I would say by the end of this year, our vision -- we have a capital with the Board, we have a debt pay down plan based on operating results. As Glenn said we continue to look at the dividends and all those kind of things to make sure that we're meeting expectations.

I would suggest 2016, we're going to take our time and do it right and we're in no rush. We'll put bandage and bridges and shared opportunities in play as fast as we possibly can on things like purchasing and procurement and whatever. But it's not tomorrow and it's not two years from now. I would say no later end of this year; we'll come up with clarity of what we want to do.

Trevor Johnson

Okay. And then last one just looking at the backlog at MCI, is there opportunity to probably ramp that -- by our math, it's about one and a half-ish times run rate production, topline from a revenue standpoint. I'm just curious if -- what the pipeline looks like for maybe ramping that production -- or excuse me ramping that backlog for MCI, maybe getting it more in line with what you've done with the visibility on your transit side?

Paul Soubry

Well, that is directly result of opportunities. There was a bit of a drought in the public environment on the motor coaches and now they are -- there's fairly robust. New Jersey was a big opportunity; New York will be buying in the next couple of years. Houston is going to be buying, Denver, some of those transit agencies that are common to New Flyer customers.

There are other transit agencies that buy much smaller quantities. So, it's opportunistic and it’s a timing available and at the end of the day, it's going to have to come down to fair reasonable price for those types of competitions.

But the good news is that right out of the box that New Jersey win by MCI is very, very helpful to get us through the next couple of years without having to go out and price just to secure orders for the sake of orders.

Trevor Johnson

Good stuff. Thanks guys.

Paul Soubry

Thanks Trev.


[Operator Instructions]

The next question is from Stephen Harris with GMP. Your line is open.

Stephen Harris

Congratulations guys. Great quarter.

Paul Soubry

Hey Steve.

Stephen Harris

Just had a question for you on margins, when you look at the EBITDA for EU, we're getting 45,000 for the quarter, which sounds like -- I think it’s a record and a spectacular number. And I think when Glenn was talking; he was suggesting a number of factors in there, some of which could have been more one-time-ish like mix and some of them were which look like sort of ongoing sustainable improvements like the NABI synergies and labor efficiencies, et cetera as well as may be currency which is maybe medium term continuing bullish factor.

Can you just sort of give us a sense of relative importance of those? And if its mix, what exactly was driving that? And just to get a sense of how much confidence we should put in that 45,000 number going forward?

Paul Soubry

Well, mix is always a factor Stephen, in our world. And I think we'll see that as we get closer and better understanding of how the MCI guys actually operate, what they bid on, how long the backlog results for and so forth.

As we talked about before, nothing in the backlog that we really need to be concerned about. Those that followed us over the last couple of years know that we hit a tranche of work that was very, very low margin. It was very painful to get through the system. We worked hard to try and recover margins, at the same time, meet our customers' expectations.

So, mix will always be a factor. And mix is everything from the type of customer to the propulsion system, to the number of options, to the 40 versus 60 flips on the new Flyer side that adds fair bit of volatility. So, we always go through that which is why we always try and remind our analysts and our investors to look at it at an LTM basis to kind of try and remove some of the mix.

You're absolutely right that there's truly sustainable savings and improvement in our margins. Things like -- a lot of facility optimization investments we made in kind of 2010, 2011, 2012, 2013 are starting to pay off through Flyer, some of it in terms of just pure process flow, some of the in-sourcing or out-sourcing that we make good -- kind of make buy decisions on that are coming through.

You have the synergies on, the NABI rationalization to the Xcelsior which we believe are sustainable savings going forward just from a share -- critical mass perspective.

And so I bet how we'd handicap or weigh the different components of that or thrilled that we've been able to continue to march the margins up and we continue to point that it’s a combination of mix, a combination of cost improvement and as Glenn referred, normalcy of pricing in the market has been comfortable so that we're getting paid value for what we're delivering.

So, we're encouraged by that. Yes, it's been at the high end of what we've seen in the past, but we're going to continue to try and work to those types of levels.

Stephen Harris

Perfect. And while you're at it, your own strategy you commented on in terms of pricing. Can you talk a little bit about pricing strategy as you're seeing from your competitors and are they embracing this sort of new more rational world and going along with you on it or what's their approach?

Paul Soubry

Well, there's two parts of it, right, the transit bus business, the new entrance in that world are guys that have delivered relatively low volume so far which is the electric buses, those are really still early stage R&D stuff. I don't think any pricing or margins in there are really meaningful comparison.

The legacy players, ourselves, our friends at Nova Bus and [Indiscernible], each handled the competitions based on our current backlogs, our run rates, our expectations. Sure, there are times where we're seeing some pricing that we think is well below what is fair reasonable for those and in those cases, we're not chasing the prices down where others are.

And it's not be difficult with our customers, but if we're going to provide world-class service, we need to get paid for the product, the people, the support people on the ground, the delivery, the constant warranty support and so forth. But just chase to the bottom for volume in a very complex business that we got deliver high variability, different products, different configurations, in the past that's been your recipe that takes years to get of it and we saw that through some margin in our backlog that was low.

On the coach side, it's again a different dynamic. One factor that's real in reality is historically MCI was probably the only ones that were truly Buy America compliant for the public side and so now Prevost, the sister company of Nova is now Buy America compliant and so we're seeing them be very aggressive on pricing.

So, again, the good news is that price doesn’t always carry a day. There's a value discussion and a performance discussion that has to go along with that. On the private side, I would suggest that the MCI relationships and MCI brand and MCI installed base all plays into a factor of selling real value to the customer and it's probably less margin sensitive because it's easier to sell a value story in a private environment than it is in a public which largely has a lot of considerations attached to the scoring criteria.

So, I would characterize the market as kind of rational today for the most part. There is some what we think to be stupid pricing or whatever the right expression is. But it's more rational phase than it was three or four years ago.

Stephen Harris

Perfect. Thank you.

Paul Soubry

Thanks Steve.


The next question is from Kevin Chiang with CIBC. Your line is open.

Kevin Chiang

Hi, thanks for taking the follow-up. Just a quick question, are you able to -- it sounds like you're going to take some additional restructuring charges, if I'm not mistaken through the first half of this year with Project Convergence. Are you able to highlight what the magnitude of those restructuring charges are?

And then when I look over 2016 and maybe pass that, it seems like you're moving pass a lot of the one-time expenses that were hitting your reported EBITDA line. Should we start seeing a great convergence between your reported EBITDA and your adjusted EBITDA? As you kind of get through some of these initiatives you've discussed.

Glenn Asham

Yeah. So, I guess first of all, on Project Convergence, the actual cost to do the integrational work on there is relatively small. So, it's not to the same degree as that we had -- we saw when we were doing the product rationalization of the NABI product line in that NSN plant. So, I wouldn't just pick up that those costs would have any sort of significant impact.

As I -- obviously as we look at sort of adjustment we’ve been making to EBITDA, really what we've been trying to do is pull up those type of cost that we knocked down acquisition, we pull out, or things like pension charges, which are one-time item that get funded over many years. So, those type of adjustments.

Yeah, and I would agree as subject to any other sort of strategic events that we enter into the adjustments to EBITDA should decline. Now, the one adjustment we will be seeing in 2016 is the earnings related to the MCI piece of business will be downward pushed due to the fair value adjustments we made to the balance sheet that acquisition.

So, we will -- in our commentary going forward and this is how we did in the nine-day period for this year, we will make adjustments for those fair value adjustment -- bumps, but other than that they should be reducing as we go forward.

Kevin Chiang

Perfect. That's it from me. Thank you.


Showing no further questions at this time, we'll turn the call back over to the presenters.

Paul Soubry

Thanks Chris. Much appreciates everybody for joining us today. Thanks for listening. We look forward to talking to you again next quarter. Have a great Easter. Thank you.


Ladies and gentlemen this concludes today’s conference call. You may now disconnect.

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