NFI Group Inc

TSX:NFI

Earnings Call Transcript 2019-Q1

[Operator]

Good morning. My name is Jacqueline. I will be your conference operator today. At this time, I would like to welcome everyone to the NFI Group, Inc. First Quarter Results Conference Call. [Operator Instructions]Steven King, you may begin your conference.

[Stephen King]

Thank you, Jacqueline. Good morning, everyone, and welcome to NFI Group's first quarter 2019 results conference call.This is Steven King, NFI's Group Director of Corporate Development and Investor Relations speaking. Joining me today are Paul Soubry, President and Chief Executive Officer, and Glenn Asham, Executive Vice President and Chief Financial Officer.For your information, this call is being recorded and a replay will be made available shortly after the call. Details on the replay can be found on our website.As a reminder to all participants and others regarding this call, certain information provided today may be 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're advised to review the risk factors found in the company's press releases and other public filings on SEDAR for more details.In addition, I'd encourage all participants to review the Q1 2019 financial statements and the associated Management Discussion & Analysis that are posted to our website and on SEDAR. Effective December 31, 2018, NFI transitioned to IFRS 16 Leases, the accounting standard which specifies how to recognize, present and disclose leases. While Glenn will give an update on the impact of this transition, full details can be found in our financial statements and MD&A.To start today's call, I'll provide a few highlights of the quarter, Glenn will then speak to the financial results and Paul will finish up with market insights and NFI's outlook. Following that, we'll open the call to analysts' questions.The first quarter of each year is NFI's slowest period and we saw that again in 2019. In addition, we were also impacted by unusual headwinds. First, we lost several production days at our Minnesota, North Dakota and Manitoba production facilities due to adverse weather that not only impacted our ability to manufacture vehicles, but also delayed onsite customer inspections. Second, at both MCI and New Flyer, we began production on new products, which came with learning curves that impacted productivity and efficiency. Finally, at ARBOC we were challenged as we experienced chassis supply disruption for low-floor cutaway vehicles. I'm pleased to report that chassis are now being delivered to our facility.With these issues behind us, we have some really great things happening that bode well for NFI going forward. During the quarter, we secured several major orders from key customers, with 990 using new [ form of ] orders and options. These new orders included significant new battery electric vehicle awards from Toronto and New York City. Our overall public customer bid universe increased by 5% and, more importantly, active bids increased by 24% after the slower [ bid ] rate we experienced in the second half of 2018.In January, we launched Infrastructure Solutions, a comprehensive platform to assist customers from start to finish as they launch zero-emission electric bus programs and install the associated charging infrastructure. While still early days, our team has already been very busy, and in April, they successfully installed the U.S.'s first interoperable on route charging solution, deploying 2 on-route rapid chargers in New York City.In February, MCI's training academy launched the first ever technician apprenticeship program with the U.S. Department of Labor, which is expected to help MCI and our customers by attracting and training new motor coach technicians. In March, we unveiled the Xcelsior CHARGE H2, a fuel cell electric heavy-duty transit bus and announced that both the 40-foot and 60-foot models successfully completed the Federal Transit Administration's of Altoona testing program.NFI Parts continue to pursue and secure vendor managed inventory programs following the success we had in obtaining 6 VMI programs in 2018. ARBOC's low-floor medium-duty shuttle bus, The Equess, continues to make an impact and has been very well received by customers. During the quarter, ARBOC was awarded a purchasing agreement by the Florida Department of Transportation that allows for the purchase of up to 500 buses over the next 5 years.New Flyer also progressed on its technology road map in the quarter with the announcement of an autonomous bus technology program. This new platform includes development and deployment of technology for advanced driver assistance systems in automated vehicles, a great example of NFI's vision to enable the future of mobility, which includes safe interaction between transit operators, passengers, pedestrians and cyclists by building connectivity that enables sharing of public roadways.With that, Glenn will now take you through the first quarter 2019 financial highlights. And after that, Paul will provide some insights on our outlook.

[Glenn Asham, Executive VP of Finance, CFO & Treasurer]

Thank you, Steven, and good morning, everyone.I'll be highlighting certain first quarter 2019 results and provide comparisons to the same period in 2018. I'll direct you to NFI Group's first quarter 2019 financial statements and the MD&A of those financial statements, which are both available on SEDAR or NFI's website. I also want to remind you that our unaudited consolidated financial statements are presented in U.S. dollars, the company's functional currency, and all amounts referred to are in U.S. dollars, unless otherwise noted.As Steven mentioned, effective December 31, 2018, NFI adopted IFRS 16 for leases. This new standard provides a single leasing accounting model, requiring lessees to recognize assets and liabilities on major leases. We have elected to utilize the modified retrospective approach in adopting the standard and, accordingly, comparative information for 2018 has not been restated. All Q1 2018 (sic) numbers reflect the adoption of IFRS 16, while the comparative numbers have not been restated, as I just said. Our MD&A clearly identifies the impact of the adoption of IFRS 16 on our financial results, and I suggest listeners review that information.For the first quarter of 2019, NFI generated consolidated revenue of $567 million, a decrease of 2% compared to the first quarter of 2018. Revenue from manufacturing operations was relatively flat, down just 0.5% primarily from higher transit bus revenue, offset by lower newer motor coach volumes and a decrease in ARBOC revenues driven by the chassis supply disruption for certain vehicles. Revenue from aftermarket operations decreased by 9.5% primarily driven by Daimler's termination of MCI's distribution rights agreement for Setra motor coaches in the U.S. and Canada, market softness in the private motor coach segment and fewer fleet renewal programs.Total adjusted EBITDA for first quarter 2019 of $60.3 million was down 18%. Manufacturing operations adjusted EBITDA decreased by 21.3% primarily due to lower coach and medium-duty and low-floor cutaway delivery volumes and the impact of adverse weather on the coach and heavy-duty transit businesses. Increased production of new products and related learning curves plus normal changes in margin and sales mix also contributed to the overall reduction in adjusted EBITDA.Continued startup losses incurred in our Shepherdsville, Kentucky, part fabrication facility, operating as KMG Fabrication Inc., of $2 million also negatively impacted the first quarter of 2019. The KMG startup loss was an improvement from the $3.4 million loss in the fourth quarter of 2018.Aftermarket operations' adjusted EBITDA decreased by $2 million due primarily to the previously mentioned impact on volumes. Net earnings decreased by $14.3 million and earnings per share of $0.22 per share or 46%. In addition to the items that impacted adjusted EBITDA, net earnings were also impacted by the increased interest expense, which was higher due to losses on NFI's interest rate derivatives and higher borrowing on the company's revolving credit facility to fund working capital, share repurchases and dividend payments. Lower income taxes partially offset these items.Adjusted net earnings decreased by $20.3 million compared to the first quarter of 2018 and adjusted earnings per share was down 54%.Our liquidity position of $301.5 million as of March 31, 2019 decreased from $355.4 million at December 31, 2018. The decrease was primarily driven by the amount of capital returned to shareholders through dividends and share repurchase under the NCIB as well as changes in non-cash working capital, which are primarily seasonal in nature and expect it to be temporary.The company generated free cash flow of $32.4 million during the first quarter of 2019, a decrease of $8.3 million compared to the first quarter of 2018, the decrease primarily due to lower earnings from operations.The company declared dividends of CAD25.9 million in the first quarter 2019, which is an increase of 26.3% for the same period in 2018 and represents a payout ratio of 60% versus 39% last year. In March, NFI increased its annual dividend rate by 13.3% from CAD1.50 per share to CAD1.70 per share for dividends effective March 13, 2019.Property, plant and equipment cash expenditures decreased by 59.3% or $4.8 million compared to the first quarter 2018. Planned capital expenditures for 2019 are expected to be lower than 2018.Return on invested capital or ROIC for the period ended March 31, 2019 was 12.5% as compared to 16.2% for the same period in 2018. The lower ROIC was primarily a result of material investments made in KMG and renovations and expansion of the Anniston, Alabama facility, which are not expected to generate benefits until the second half of 2019, plus higher inventory and lower adjusted EBITDA.With that, I'll turn it over to Paul.

[Paul Soubry, President, CEO & Non]

Thanks, Glenn. As Steven mentioned at the start of this call and as Glenn outlined during his review of financial metrics, we experienced a tough first quarter, but it's behind us. As we look forward, I am encouraged by our performance to date in the second quarter of 2019 and we have a positive outlook for the remainder of 2019.We expect to begin to realize the benefits of significant investments we've made in our business that enhances our competitiveness, maintains our market leadership position, improves our margins, generates free cash flow and enables us to continue to return strong return to our shareholders. From a performance perspective, NFI generates a higher adjusted EBITDA margin and higher free cash flow conversion rate than any of our public company peers.Now looking at our overall bus markets, we expect the heavy-duty transit bus market to remain healthy. Growth of 5% in overall bid universe supports this view. In addition, we expect to maintain our market leadership position in 2019 and beyond. Zero-emission buses, or what we refer to as ZEBs, are an important area of particular focus for transit operators right now. ZEBs currently represent approximately 5% of our total backlog, but they are a growing segment of the market and an important part of our bid universe. In fact, our ZEB bid universe is now approaching 20% of the total bid universe. We feel that we have the strongest ZEB offering in the market as customers can choose from a variety of clean propulsion approaches, including battery electric, fuel cell electric, all built on our industry-leading Xcelsior platform for 35-foot, 40-foot and 60-foot models.As Steven mentioned, Q1 2019 active bids increased significantly, which supports our expectations of active bid growth but I'll caution that while we expect total bids to grow, the individual award sizes may be smaller with fewer options and shorter contractual terms. This is primarily driven by transit agencies continuing to assess their fleet replacement plans and considering how and when they'll approach the ZEB programs. And every customer and every political situation is different. In addition to growing in ZEBs, our overall bid universe, which is developed through detailed conversations with public customers regarding their fleet renewal plans, remains near record levels.The overall private motor coach market, however, continues to experience challenges that we saw in the first quarter with a decline in overall deliveries. MCI was negatively impacted in the quarter due to the previously mentioned challenges with weather and learning curves on some of their new products. But we remain very confident in our ability to achieve our plans to grow our market share.This growth is based on our new products, and in Q1 2019, MCI delivered its first production of 35-foot motor coach, the J3500, and its first D45 commuter rapid transit low entry coach. These deliveries represent the culmination of a number of years of work, significant capital investment and MCI's entrance into market sub-segments where they traditionally have not participated.We've now fully put the termination of the Setra DRA behind us and are focused entirely on MCI motor coaches and diligent management of our pre-owned coach pool.The demand for low-floor cutaway and low-floor medium-duty buses continues to be encouraging. While ARBOC's chassis supply disruption in the first quarter was a challenge, the demand remains strong. We are especially focused on our medium-duty Equess product which is built on our own chassis. The Equess has a higher EBITDA per unit EU than ARBOC's traditional low-floor cutaway vehicles and is expected to represent between 10% and 15% of our ARBOC deliveries in 2019. We're very encouraged.NFI Parts continues to focus on numerous strategic initiatives to counter the competitive intensity and to deliver profitable growth. These initiatives include additional focus on vendor managed inventory or VMI programs and enhanced product offering and capitalizing on the previously mentioned implementation of a common IT platform across the aftermarket business.So in April of this year, we updated our full year 2019 delivery guidance to reflect the impact of the chassis supply disruption that ARBOC had and impacted their ability to deliver all vehicles in the first quarter. To reflect this impact, we've reduced our full year guidance to 4,410 EUs, a decrease of only 45 low-floor cutaway vehicles from our original guidance. We've made no changes to our heavy-duty transit or motor coach full-year delivery guidance and year-over-year, we still anticipate a total of 2.2% increase in deliveries. Our volume guidance is supported by the strength of our backlog and the visibility provided by secured contracts and expected option conversions.For 2019, we continue to plan our PPE expenditures to be in the range of $50 million to $60 million, a significant decrease from our fiscal 2017 and fiscal 2018 spending. Due to the nature of MCI and ARBOC end markets, combined with annual production and vacation schedules, the first and third quarters are slower periods when compared to the second and fourth quarters as Steve discussed earlier. This seasonality will be reflected through our financial results for those respective periods.Within NFI Parts, sales remain difficult to forecast in a quarterly basis as there is typical quarter-to-quarter volatility. Now while 2019 Q1 financial results were negatively impacted, we do not expect the same factors to repeat. We anticipate a significant portion of the missed heavy-duty transit deliveries from 2019 Q1 should be made up during the remainder of this year. And as you've heard throughout this call and as you've seen in our press releases recently, we're busy on numerous fronts to drive our vision and the strategic path forward. We continue to focus on providing the best and most diverse bus platform in the industry.We [ announced ] our ZEB offering and we've created stronger support for our customers, including the addition of infrastructure solutions, enhanced training and vendor managed inventories. Our strong backlog position, free cash flow generation, liquidity position and leading adjusted EBITDA margins enables us to continue to provide growing cash returns to our shareholders through dividends and NCIB use. In addition, we continue investigating acquisition opportunities. Our track record in that speaks for itself. And any investment we make will be strategic, prudent, measured and appropriate.As always, we encourage our longer-term view of our business to not focus on specific quarters. Our business can see significant mix impacts and volatility from quarter-to-quarter. But the strength of our business is the visibility afforded to us from the nature of our public customer contracts, our leadership positions in our core markets and our proven history of being able to deliver margin improvement from the investments we make.Finally, before I turn the call over for questions, I want to note that one of our longest-serving Board members, Mr. Jim Sardo, Chair of the Human Resources and Corporate Governance Committee of NFI, is retiring from our Board at the Shareholders Meeting later today. Jim first joined our Board in 2005 when the company launched its initial public offering and he has been a fantastic contributor to our growth and governance programs. So on behalf of everyone at NFI, we thank Jim for his outstanding commitment to NFI and wish him all the best in his retirement.I'm also excited to report that Ms. Kathy Winter is being nominated for the Board at our 2019 Annual General Meeting later today. Kathy is currently the Vice President and General Manager of Automated Solutions of Intel Corporation which delivers comprehensive platforms for advanced driver assist systems, an autonomous driving solution. Kathy brings a wealth of experience and unparalleled knowledge around advanced driver assist systems that will help us navigate the future of mobility with our vehicles. At NFI, we're proud of our history, and we're really excited about our future.With that, I'll turn it back over to Jacqueline. Please provide instructions to our callers for questions.

[Operator]

[Operator Instructions] Your first question comes from Chris Murray from AltaCorp.

[Christopher Allan Murray]

Paul, we've heard what you said about your thoughts around the improvement, I guess into Q2. I mean, can you kind of walk us through why you think you have that kind of confidence on why things are getting better? Because frankly, Q1 was a bit of a negative surprise. And then, just maybe if you can talk about to -- your inventory really stepped up in the quarter. I'm just trying to get a sense of what's normal once you get pass through some of the start-up issues and some of the other issues and flush some of the stuff.

[Paul Soubry, President, CEO & Non]

Thanks, Chris. I mean it's a bunch of issues there. Appreciate the question. So first and foremost, we had a tough winter in Manitoba, North Dakota and Minnesota. And when you're running production lines like we are with a fair degree of variability and customization of each of the products, the minute you lose a production day or production days, not only do you not get people there, you don't get material there. The trucks aren't moving, the inspectors are not there and so forth. So basically once we started to lose 1, 2, 3, 5, 8 or 10 or 12 total production days, we're effectively plugged, and so your inventory and your VIP grows quite dramatically. And so that's really what happened, both in New Flyer and MCI's case. In the ARBOC case, the VIP grew a little bit because, again, we had inbound inventory without chassis to put it on. And so, as we are now, whatever it is -- halfway through the quarter, the production rates we've seen since the end of the quarter in Q2, the deliveries we had, the catch up where we're spending, whether it's overtime or weekends and whatever it is drying up, unplug a bunch of that VIP. We're starting to see that move. And so that gives me confidence. I'm not so sure I'd agree with you that it's a total surprise. We advised everybody in April when we finished the first quarter around the challenges associated with winter and so forth, and everybody I think adjusted their expectations appropriately. The other stuff like in-sourcing activity, we've done at Anniston or in Winnipeg or the launch of our Kentucky Shepherdsville KMG Kentucky manufacturing business to make parts of our businesses, we're on schedule. We were a little bit slower than we hoped last year. This year we're catching up in terms of the parts it's delivering. It's hitting stride. The ARBOC -- sorry, car fair fiberglass business is now hitting stride and so forth. So all those things in our mind conspire to give us a much, much better view and confidence in specifically Q2 but the rest of this year. As you know from a full year perspective, most of New Flyer's business, if not all of it, is effectively slot that are sold or assigned to a customer. So that's an execution story. In the motor coach case, as you know, maybe 40% or 50% of the slots are sold throughout the year. The rest of it is transactional sales, and so -- and because it's back-end loaded primarily the fourth quarter, the customers were talking to the initiatives we're working on in terms of new products to sell and so forth, there is clearly risk still in the MCI number. At this point, we don't think the risks put us in a position where we need to change our full year guidance. So a lot of stuff there, but again, we wanted to come up very strong today, say, Q1 was Q1. No excuses, we went through it, and we're feeling pretty good about the recovery we've got in place for the rest of the year.

[Christopher Allan Murray]

All right, thanks. Hey, Glenn, just a question on the leases. We have seen a number of other companies report, a bit of a mix of folks who are property leases and equipment leases, but it was a bit surprise that the magnitude of your lease liability relative to the actual EBITDA impact on the depreciation of the right of use assets. Just kind of wondering is there something in your lease portfolio that is maybe odd. Are there some weird contracts you guys got left with from MCI that were off-market or something like that? Just trying to put it in context. Most folks are putting the liabilities on the balance sheet of at 4 to 5 times the add-back. You guys are bringing in the liabilities on it 10 times the add-back? So it's just something I'm trying to maybe square.

[Glenn Asham, Executive VP of Finance, CFO & Treasurer]

So, we have a fairly significant lease portfolio in terms of facilities. As you know, we have around 30-some facilities. Most of those facilities are actually leased facilities. I mean, when you look at, for example, the manufacturing operations, our facility in St Cloud is leased over a long term, so that has a very long tail to it. So that's part of the reason why the obligations are so high is because they're long-term leases. Similarly, we have long-term leases in Louisville at the parts facility and similar in Delaware, Ohio, at the parts facility. So when you're looking at leases that have 10-plus years term [indiscernible] creates a fairly significant obligation. So, I mean, we have sort of the normal equipment type leases and obviously we've added significantly to the lease pool because we've financed a lot of the KMG assets that were acquired the last year. So that's really the background behind our adjustment.

[Christopher Allan Murray]

Okay. But there is nothing in there that's [indiscernible] left over from the MCI transaction that was still what you would consider egregious or off-book or anything like that?

[Glenn Asham, Executive VP of Finance, CFO & Treasurer]

No, no egregious. It's some very long-term leases, right? So, I mean…

[Operator]

Your next question comes from Cameron Doerksen from National Bank Financial.

[Cameron Doerksen, Analyst]

I guess maybe just first question on the -- just on this interest rate swap loss, $9.5 million. I wonder if you could just describe why that was so large in the quarter.

[Glenn Asham, Executive VP of Finance, CFO & Treasurer]

Sure. So I guess first of all, we had an interest rate swap that we then blended and extended once we sort of -- everything cleared up from our refinancing last fall. So we had a $6 million asset sitting in our derivatives that got blended and extended into the new derivatives that's over a 5-year terms. Shortly after putting in so effectively that $6 million asset moved into the new swap, the market rates then dropped, resulting in a fair value adjustment to our derivative I think in the neighborhood of $9 million. So the $6 million asset went to a 2-point-some-million-dollar loss. Ultimately, what we actually realized on that derivative, we'll find out over the next 5 years. I mean, effectively, what we're looking at doing is trying to get our true cash costs fixed and controllable. So, that we have achieved with this swap. Our rate is something like 2.25% plus the margin. I guess the actual rate is in the notes of financial statements, but I think I'm pretty close to what that fixed rate is in the swap. So, effectively we are going to see mark-to-market adjustments quarter by quarter. If there's volatility in interest rate markets, we're going to see volatility in that derivative.

[Cameron Doerksen, Analyst]

Okay. No, that's helpful. And just on the margins. I mean one of the issues in Q1 that you've cited here was the ramp-up in deliveries of the new model coaches and there was some learning curve impact. Can you just maybe talk about how long that's kind of going to be kind of an impact on the margins? I think I assume we'll probably see a little bit that in Q2, but how long does that kind of extend for?

[Paul Soubry, President, CEO & Non]

Yes. So we saw that -- again, depending on the mix of what we're building in every quarter, sometimes it becomes more obvious and sometimes not. In the New Flyer side, the mix issues and the learning curve was associated with every one of our production facilities. Now it has electric buses running down exactly the same production lines we already have natural gas or diesel or hybrids and so forth. And so that learning curve was most obvious in the first quarter. It gets better in the second quarter and then third and fourth quarter, we think we'll be at back to mature normal rates from an efficiency and productivity perspective. The same thing at MCI. We introduced now 35 footers. And this new model CRT on the same J production line. And so again, that will take some time working its way through the second, third, fourth quarters. I wouldn't say they're massive margin impacts, but they're noticeable and you see them. Add to that that the volume is lower than normal and the EBITDA per EU gets hit quite dramatically. But I think we're well on our way to knowing how to kind of build those models on and it's best to plan and it's best to organize. You've got new suppliers, new parts, new fit, new whatever it just takes time to ramp them up. But we're confident we're in pretty good shape now.

[Cameron Doerksen, Analyst]

Okay, okay, great. And just lastly for me, just on the chassis supply issue, I mean, it does sound like that is back to normal. But what kind of confidence do you have that this isn't something that could recur? I mean, it sounds like it was kind of a one-off item, but are you pretty confident we're not going to see this issue kind of creep up again?

[Paul Soubry, President, CEO & Non]

Yes. Am I pretty confident, Cam? Yes. Is it possible it can happen again? Yes. In this case -- I think I talked about it last quarter, but just a little context for you. The smaller cutaways are largely built today on a General Motors chassis, and the number of chassis that come out of the truck world into the bus world is relatively small, and so we are buying them, we're ordering them, we're working with the dealers to get them and so forth and there's always a little bit disruption. We're getting a little bit more aggressive about pre-buying and trying to lay in more so that we don't have that kind of a hiccup. The other chassis that we had impacted us were Freightliner chassis for kind of some of the medium sized cutaways. And in that case, Freightliner wanted to do and had to do some additional testing because of the chassis that we were expecting were natural gas, not diesel, and we were fully supportive of all that extra testing and work and so forth. So the other new dynamic then I talk a little bit about is that we expect the fastest part of growth out of our ARBOC is going to come from this new model Equess. Now we don't buy a chassis on the Equess. We make our own chassis, and so that's the new dynamic that should mitigate any of the chassis issue kind of going forward. Could it happen? Yes. The other dynamic is that on the smaller ones, we've now designed those buses to go on for Ford chassis as well as GM chassis, and so we have a little bit more flexibility with multiple sources of chassis, depending on what our customers want. All that to say we hope this and expect this to be kind of a one-time bump. But it's not without their own possibility of happening again at some point in the future. Not a material part of our business, but had a bit of a bump in the quarter 1.

[Operator]

Your next question comes from Stephen Harris from GMP Securities.

[Stephen C.A. Harris, Head of Research]

Just wanted to follow up with a little bit. Maybe if you go through some of the issues that [ cost ] you in Q1 and maybe take them one by one and let us know what impact you've seen so far in Q2. We know that the coach business has been weak. To what extent has that continued on? I think some of the weather issues; there were some concern about flooding might affect some of your plants into April and maybe May. Shepherdsville, where we continue to see those losses trend down. If you could deal with each of those individually, that would be great.

[Paul Soubry, President, CEO & Non]

Sure. Thanks, Steve. So first of all, the weather is behind us, and as we talked just a minute ago about the catch-up work on kind of delivering some of the excess [indiscernible] in the VIP. The flood that we were real worried about in the Red River Valley, which as you know flows north, so from Minnesota through North Dakota to Winnipeg did not happen. We, and let's say, we're pleased to report that we had a cold spring and so it impacted on a positive note that we didn't have any disruption from a flooding perspective. The KMG facility, help me out here with numbers, Glenn, that we lost about -- had startup costs last year [indiscernible].

[Glenn Asham, Executive VP of Finance, CFO & Treasurer]

Yes, if you look at it from Q4 to Q1. So we have $3.4 million loss in Q4 2018, that loss was reduced to $2 million in the first quarter 2019,

[Paul Soubry, President, CEO & Non]

Yes. We've always said by the second half of this year we'll be a profitable business. So that's making its way through -- what else is there?

[Stephen C.A. Harris, Head of Research]

And maybe talk a little more about the MCI business. A general discussion on what you're seeing there, including the impacts, I guess, of some of those bankruptcies that we saw earlier and whether that's still impacting demand or whether you've seen that sort of pass now.

[Paul Soubry, President, CEO & Non]

Yes, sure. So MCI first quarter is always softer than -- even more soft than any other parts of our business because it's largely a private market or 60%, 70% of it is private market and customers by largely in the back half of the fourth quarter of the year. So we drain the orders, if you will, and then Q1 is abnormally slow. Add to that the fact that we had some of the weather and some of the other issues going forth. Second quarter, the volume has been starting to recover. The number of [ ask what’s ] if you will, or bids or quotes that we get out is back to kind of normal levels. The industry continues to be slowing down. We saw that start at the end of last year, and so we saw 2018 to be slightly less than 2017 and we're expecting '19 to be less than '18 by a couple of percentage. So we're seeing that market slowdown. But there's also parts of it that we're pleased with. As I mentioned earlier, we're now delivering 35-footers, which we never did. We're now delivering some of these new Ds, the low entries out on the West Coast, at the employee shuttle type market. So Q2 will be back in line to what our expectations were. But again, the big, big impact for MCI is a fourth quarter volume story.

[Stephen C.A. Harris, Head of Research]

Okay. One of the things that started all this off on the coach side was some of the pressures in the used coach business and the collapse of pricing there. Can you give us any thoughts about where that is? Has that stabilized? Are you seeing any recovery?

[Paul Soubry, President, CEO & Non]

Yes. So you talked about it earlier, and I guess I didn't mention that, but there were a couple of bankruptcies last year. There always are. But there were a couple of larger fleets that went bankrupt and then they liquidated their fleet through auctions, which did 2 things. Maybe it slowed down some of the normal buy and sell, if you will, of the pre-owned coaches, but it also -- one of the customers had a lot of late model relatively new MCIs that then certain other customers bought through the auctions instead of buying new coaches from us. But that kind of market seems to be relatively fluid right now. We're not seeing crazy pricing. We're not seeing unrealistic pre-owned coach valuations any different than we saw in the last quarter. We're pleased with our competitive position. We've upgraded the model line. We've added some new products, and so we're feeling like we're ready to compete in the back half of this year better than we've ever been.

[Operator]

Your next question comes from Jonathan Lamers from BMO Capital Markets.

[Jonathan Lamers, Analyst]

I want to ask about the motor coach business. I believe the 2019 volume guidance continues to imply some growth. Do you expect there to be a mix shift this year to lower margin public sector coaches from higher margin private sector coaches?

[Paul Soubry, President, CEO & Non]

Yes. Just trying to get it off the top of my head here, Jonathan, the mix. Yes, there might be in the back half of the year the portion that's public that's already under contract, whether it be New Jersey or others. But I'm not so sure that the mix is going to be materially different from public/private. The 35-foot private coaches have less margin than a 45-foot, so that's going to be a factor that we're going to have to deal with. The [ D CERTLE ] model has so far good solid margins. We don't see any reduction there. But again, it's largely transactional oriented business and so for what we see right now where we think our mix and margin for the rest of year is reasonable. As you know, the back quarter is absolutely the biggest part of the year and that still remains to play out. So where we sit today and the customers we're talking to, we still have been able to and feel confident keeping our guidance for the full year the same.

[Jonathan Lamers, Analyst]

And can you just comment on the demand trends that you're seeing in the private motor coach market year-to-date? I know there were production issues for Winnipeg and Minnesota, but it seems that the underlying demand if I just look at the market starts was down and some of the competitors maybe had some large delivery that just happened to fall into Q1. Can you just comment on maybe what they are telling you?

[Paul Soubry, President, CEO & Non]

Yes. We track the publicly available data as well as our own individual kind of bid databases. The market was down in the fourth quarter, the overall deliveries. So the market was overall down in the first quarter by a couple of percentage points. The mix every quarter is to be different depending on the portion of public contracts and so forth. But again, like it's not like we have a lots of new competitors showing up. We have the known major competitors, and so we're continuing to bid against them. It's transactionally oriented. Pricing seems to be reasonable. I'm not sure what -- how much more I can give you. It's not like we've got the public market where you've got macro trends on orders and all that other stuff. It's really transactionally oriented.

[Stephen King]

And I think that is right, though, Jonathan. There were some legacy orders on which some of our competitors had larger delivery in the first quarter.

[Paul Soubry, President, CEO & Non]

Yes. Every quarter is different.

[Stephen King]

Yes.

[Jonathan Lamers, Analyst]

Okay. And in the MD&A, the commentary on the Q1 margin referred to a mix shift impact. Was that lower private sector motor coach deliveries? And was that material? Or was the real issue just the missed production days?

[Paul Soubry, President, CEO & Non]

Well, there's both of it, Jonathan. If you don't deliver buses, you don't have the volume, and you've got fixed cost in your machine. So that's the first issue. The second issue is the number of delivered public units was greater percentage in the quarter than in the private one, and so they have lower margins. Then you have 35-footers that now have lower margins. I would look more of an LTM basis than I would look at a quarter in isolation.

[Jonathan Lamers, Analyst]

Right. Can you tell us how the selling prices for the private motor coaches compare to the selling prices for the public motor coaches?

[Paul Soubry, President, CEO & Non]

Off the top of my head, I can't. Our largest single customer is obviously [ New York City ]. That's a public procurement and public knowledge. The auctions, selling prices to us are irrelevant to some extent, the way the units work. Every public customer is based on a very, very different spec where every private customer is based largely on pre-configured type auctions.

[Jonathan Lamers, Analyst]

Right. Okay. If I could just squeeze in one more topic. I noticed the company has not purchased any shares under the NCIB since announcing the doubling of the authorization. Could you just update us on how the Board is thinking about the NCIB at this stage?

[Glenn Asham, Executive VP of Finance, CFO & Treasurer]

That's actually incorrect, Jonathan. There were the 153,000 shares purchased in March. We do have a discretionary plan. So our buying and selling is limited by our blackout period, so obviously, April, we are not buying because we're in blackout, but we did buy in the open windows that we had available to us.

[Operator]

[Operator Instructions] Your next question comes from Daryl Young from TD Securities.

[Daryl Young, Mining Research Associate]

My question is around the electric side of things, and just wondering, we are now well into the pilot programs in New York City and Toronto. I'm just wondering if you can kind of provide an update on how you're feeling about your competitive positioning there and some of the progress maybe you're making on the infrastructure side.

[Paul Soubry, President, CEO & Non]

Yes, that's a really good question, Daryl. Thanks for bringing it up. So the Toronto pilot has been delivered the first. The others are in production. The bus is actually still only in testing phase or commissioning phase with TTC, but so far, the feedback, the result, the range, the performance has been really, really positive. The most mature buses that we have are either in Seattle or in New York City. Originally, the New York City had some kind of teething issues, commissioning issues, getting the chargers up to speed. The range, reliability and performance has been really, really positive. So we're feeling very, very good position. One of the issues that some of our competitors are struggling with is not necessarily the electric system, but it's a lot to do with the reliability of the bus and the doors and all the other issues associated with it. Our strategy, as you know, has been to build the electric versions on our proven Xcelsior platform. So we don't have the bus problems that some of the others are having. One of the thing that often people misunderstand or underestimate in operation of electric buses, everybody gets excited about how many batteries and what's the range and just to give you some stats for a context. In New York City, the buses, the 5 of them are running back and forth in Manhattan. There is a charger, an opportunity charger at either end of the route. Those buses are averaging about 3 miles an hour and about 50% to 60% of the energy used on those buses is not to move the bus, but it's for heating and cooling, and so that's just a simple example or insight in that every single electric bus program is going to be different. We are really happy though so far with the performance. And as you saw from our initiatives, in addition to selling the bus, the fact that we are actively involved in scoping, specking, procuring, installing the chargers really is providing us I think a competitive advantage in terms of a solution to the operator, rather than a bus sitting there waiting for somebody to set up the infrastructure. It's not to say there haven't been challenges. Columbia University, for example, with a private operator academy, they have some challenges getting the charging system appropriate, up and running and a few other issues but I'm really comfortable with where we're at.

[Daryl Young, Mining Research Associate]

Okay, excellent. And then, in terms of larger order sizes on the electric front, would those be sort of another 12 to 24 months out before you see the big orders come through in that space?

[Paul Soubry, President, CEO & Non]

I think so. I think we're pretty -- we've got a good size order coming for Laval and STM in Montreal; that was 40 buses. We got the big one in Los Angeles for the articulated buses. The rest of them are 5, 7, 2, 10 those kind of things. The single biggest issue is the funding dynamics and model. And of course there's a lot of people trying pilot projects or proof of concept type projects, but we haven't seen an RFP recently for anything like what we saw for the LA one. Most of them have been really small, and the U.S. government and the states and the cities are really trying to figure out the funding model of how they're going to not only pay for the increased cost of the buses but also associated with the charging infrastructure. It's going to be a while.

[Daryl Young, Mining Research Associate]

Okay. And then one final question. Just in terms of the transit space currently, the pricing and competitive dynamic, has there been any change versus a year ago? Obviously, the active bid universe is lower than it was a year ago, but just wondering if there's been any updates there.

[Paul Soubry, President, CEO & Non]

I don't think so. Again, it is a spec based business, and [ Vas ] and everybody else are effectively trying to sell slots. We're in a pretty good position with a good sized option pool as well as a firm order backlog. I'm not sure I could point to, oh my God, we've seen dramatic price changes on the last number of RFPs that we've seen. They all seem to be kind of in the same range that we saw in 2018. I don't think we've seen any abnormal. Every once in a while, we'll see a kind of a crazy bid by somebody, but I don't think I can point to any kind of major trend that's changed over the last 3, 6, 9 months.

[Daryl Young, Mining Research Associate]

Okay. And then has Van Hool made any updates? I think they've broken ground on their new facility, but have they entered any of the bid processes or approval with their buses by American standards?

[Paul Soubry, President, CEO & Non]

I'm not sure I can confirm that they actually have a shovel in the ground. I know there was an announcement. We have not seen any Van Hool North American spec buses at, for example, at the Altoona test track yet or have we seen them bid yet.

[Operator]

There are no further questions at this time. I'll turn the call back over to the presenters.

[Stephen King]

Okay. Thanks, everyone, for joining us. If you have any further questions, feel free to reach out to me at any time. And again, we'll encourage you to see our MD&A and our financial statements and our investor presentation on our website. Thanks, and have a great day.

[Operator]

This concludes today's conference call. You may now disconnect.