NFI Group Inc

TSX:NFI

Earnings Call Transcript 2020-Q1

[Operator]

Thank you for standing by, and welcome to the NFI Group's First Quarter 2020 Financial Results Conference Call. [Operator Instructions] I would now like to hand the conference over to Stephen King. Please go ahead, sir.

[Stephen King]

Thank you, Cheryl. Good morning, everyone, and welcome to NFI Group's First Quarter 2020 Results Conference Call. This is Stephen King, NFI Group Director, Corporate Development and Investor Relations speaking. Joining me today are Paul Soubry, President and Chief Executive Officer and Pipasu Soni, Executive Vice President, Finance and Chief Financial Officer.For your information, this call is being recorded and a replay will be made available shortly. On this morning's call, we will be walking through the financial results presentation that can be found in the Investors Section of our website. We will call out the slide number referred to as we walk through the presentation.Starting with Slide 2, I will remind all participants and others that certain information provided on today's call 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 NFI's press releases and other public filings on SEDAR for more details.During today's call, we'll be highlighting certain first quarter 2020 results and provide comparisons to the same periods in 2019. In addition to the results presentation, we encourage all participants to review the consolidated financial statements, the associated management discussion and analysis or MD&A and press release that are all posted to our website and on SEDAR.We also want to remind listeners that NFI 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. On today's call, Paul will start with quarterly highlights, Pipasu will take us through the financial results and the impact of COVID-19 and finally, Paul will provide some market insights and discuss enterprise outlook. Following that, we'll open the call to analyst questions, I'll now pass it over to Paul to provide highlights for the first quarter.

[Paul Soubry, President, CEO & Non]

Thanks, Stephen, and good morning ladies and gentlemen. I'm turning to now Slide 3 of our results presentation. The first quarter of the year is our seasonally slowest period. And this was our expectation as we started 2020.We did see significant growth in deliveries during Q1 when compared to 2019, primarily driven by the addition of Alexander Dennis plus higher deliveries at ARBOC who did not experience any chassis disruption this year as they did last year.Q1 2020 adjusted EBITDA was generally in line with our expectations. However, we did start to experience the first impact of COVID-19 towards the end of the quarter with a few cancellations and delivery deferrals, nearly all of which were in the private segment of our business. As various governments implemented shelter in place and lockdown regulations, we responded by idling nearly all of our facilities to ensure the safety of our team. We also work with suppliers who have been impacted by the same government measures to coordinate timing and adjust incoming inventory shipments and avoid supply chain disruptions. With the facilities idled in April and into May, we decreased the majority of our cash expenses which are variable and tied to production. And we implemented numerous measures to lower our fixed costs which include freezes on hiring and salary increases, temporary decreases to leadership compensation ranging from 20% to 50%, a delay in payment of 2019 earned incentive payments, a reduction in the amount and delay of Board -- of the Board fees and a permanent reduction in force of over 300 people.While new vehicle production was idled, we were able to complete late-stage work in process vehicles and deliver them to customers. These measures along with the increased focus on working capital have proven to be very effective, as we generated over $90 million in cash from the end of the quarter to now.In addition to cash generation, we greatly improved our total liquidity by securing 2 new credit facilities, including first, a new $250 million unsecured facility or sidecar for general corporate purposes. And second, a strategic $50 million facility to support Alexander Dennis' international operations. Our banking partners also provided covenant relief to help us navigate through COVID-19. The combination of the new facilities and the credit covenant relief shows our banking partners have had strong support for our management team, our business and our strategic plan. Pipasu will discuss additional treasury matters later in this call.We continue to believe that the credit capacity on our existing revolving credit facility is sufficient to fund our business including dividends, but the addition of these new facilities makes us extremely well-positioned to work through the impacts of COVID-19 as we now have over $550 million in total -- Sorry, yes, U.S. dollars in total liquidity. While there is no doubt the COVID-19 pandemic creates near-term challenges, we continue to be optimistic about our end markets. This view is driven primarily by record levels of North American bid universe with active bids up 16% from the end of 2019 and 61% from the first quarter of 2019. In April and May, even as the pandemic caused major disruption, we've been pleased to see procurements and vehicle awards continue. Our recent example was a significant New Flyer win in Miami-Dade for 140 -- Miami-Dade County, Florida for 140 units.On Slide 4, we outline the delivery performance by quarter by product type, all of which increase with the majority of increase coming from the addition of ADL in both heavy-duty transit and motor coach product lines. I'll now ask Pipasu to take us through the financial details of the quarter.

[Pipasu H. Soni, Executive VP of Finance & CFO]

Thank you, Paul, and good morning everyone. Turning to Slide 5, in the first quarter of 2020 NFI reported an increase in revenue of 25%, which is $710 million. The increase was driven by the addition of ADL, higher ARBOC deliveries and increased aftermarket part sales to public transit customers.Adjusted EBITDA was $56 million, a decline of 7% from 2019 at a margin of 7.9%. The decline in adjusted EBITDA margin is mostly due to the addition of ADL's lower margin international business plus sales mix and margin pressure in the New Flyer transit and MCI private motor coach businesses. Offsetting these items were lower incentive payment accruals.The manufacturing and aftermarket segment saw both significant revenue increases, and while the manufacturing segment adjusted EBITDA was down, primarily for the reasons I previously mentioned, aftermarket adjusted EBITDA increased by 17% from the addition of ADL and positive sales mix from public market sales.On Slide 6, we show net earnings and adjusted net earnings. During the first quarter, we had a loss per share of $1.08, primarily as a result of a non-cash $50.8 million goodwill impairment or MCI. The impairment reflects the dramatic impact COVID-19 has already had and is expected to continue to have on the private coach market in 2020.There was also an increase in the cost of equity capital utilized due to market volatility caused by COVID-19, in the calculation to determine the recoverable amount of the MCI cash-generating units. Net earnings were also impacted by higher depreciation and amortization from the addition of ADL, a higher interest expense, including a $22.5 million mark-to-market loss on interest rate swaps. Adjustments to net earnings for these non-cash items created an adjusted net loss per share of $0.01. Both net earnings and adjusted net earnings include $4.3 million in intangible amortization related to the acquired assets of ADL. There would not have been a similar expense in Q1 2019. A reconciliation of net earnings to adjusted net earnings is provided with additional details in the appendix of the presentation.Turning to Slide 7. First quarter free cash flow was challenged by higher interest in current income tax expenses return on invested capital, which is calculated on a trailing 12-month was also down as improvement to [ LTM ] adjusted EBITDA from higher deliveries, aftermarket growth and lower corporate expenses were offset by impacts felt during 2019 including learning curve on new models and the start-up of KMG. Higher invested capital from the acquisition of ADL and WIP plus the financial impacts of non-cash accounting adjustments from the ADL transaction.Slide 8 provides a detailed look at the impact our debt -- impact our dedicated focus on cash flow management and the phase of COVID-19 has had on liquidity. As you can see, we've improved our position by $445 million since the end of February through a combination of inventory reduction, strong accounts receivable performance, payables management, expense management and deferrals, plus increased access to credit facilities.Turning to Slide 9. Subsequent to the end of the quarter, we entered into 2 new credit facility and also saw our banking partners' way covenants for the second and third quarters of 2020 on both our existing and new facilities.Now I'll provide some insight into the impact COVID-19 has had on NFI. On Slide 10, we outlined the high-level areas where the pandemic has created challenges, and as Paul mentioned, we idled the majority of our facilities in late March to ensure the health and safety of our team members. We've experienced a timing disruption in North American transit deliveries with some units originally planned for delivery and the second quarter being shifted into other periods of 2020, which creates a ripple effect causing some deliveries to move from 2020 into 2021.Again the impact of this market is primarily seen as a timing issue rather than market or customer concern. Today, New Flyers experience negligible cancellations, while ARBOC also idled its operations, they too have not had a material cancellations. ARBOC continues with a strong low floor cutaway order book for the remainder of 2020 are -- and are in discussions with dealers about Equess delivery timing.In the U.K., private operators, operate transit routes and all have experienced a significant drop in farebox revenues, which has put pressure on timing of orders and deliveries. Again, we have not seen order cancellations of any magnitude but we continue in discussions on deferrals into 2021.The hardest-hit segment is private motorcoach, both within MCI in North America and Plaxton in the U.K. Nearly 90% of private coach -- coaches currently sit idle and this slowdown was led to both cancellations and deferrals of orders. High good aftermarket part sales has also been impacted.Our parts business was able to continue operations throughout the pandemic, albeit with much -- but with a much stronger focus on sanitization and physical distancing between staff. Aftermarket has been supporting customers with vehicles in service. In April, we launched additional clean and protect products to assist operators with safety and cleanliness on buses and coaches to help transit agencies and private operators protect employees and passengers. While there have been challenges from COVID-19, NFI has taken a very measured and proactive response to lower cost, protect cash flow and ensure stability for our customers.On Slide 11, we outlined the measures in detail. By focusing on 3 major areas, we've been able to generate positive cash flow over the past month, even while facilities have been idle. From a working capital perspective, we've accelerated receivables and have worked with suppliers on extended terms. We've eliminated discretionary spending and lowered capital spending to critical maintenance projects only. Across the business, our team have made numerous concessions including salary decreases for all management employees, hiring and wage freezes and deferred Board fee payment that have been lowered by 35%.Finally, we made the difficult decision to lower dividend in response to the uncertain economic conditions caused by COVID-19. While these measures were difficult and impact all of our stakeholders, we were appropriate given the unprecedented nature of COVID-19 and the economic uncertainty it has created.I'll now turn the call over to Paul.

[Paul Soubry, President, CEO & Non]

Thanks, Pipasu. So I'm now on Slide 12 of our deck. Our total backlog position ended the quarter at 10,579 equivalent units, with a total value of $5.1 billion. And as you see from the graph, it has held since Q4 2018 and continues to provide us with visibility and confidence, not only as we navigate through COVID-19 in 2020, but as we look to the future periods.Turning to Slide 13. There is no doubt that 2020 will be a challenging period for our operations and our financial results. But we are well-positioned to execute on our restart plan, with our production facilities reopening already and continuing on through early June on a very calculated phased and staggered approach. Our internal supply businesses started operations this past week, as both Carfair and KMG resumed operations to support our business start-up.It was important that these groups reopen as they supply to varying degrees the vehicle production lines at New Flyer, MCI, ARBOC, ADL North America as well as our New Flyer parts business. Next week, our main production facilities will begin a staggered site-by-site process of resuming operations, with the expectation that all facilities in both North America and U.K. will resume normal operations by early June.There is a risk to this operational plan due to the unknown certain -- surrounding COVID-19. But we are taking every precaution to ensure a clean and safe working environment for our people. Last week, we launched a very detailed return to work protocol for all employees which includes extensive social and physical distancing policies, continuous cleaning and sanitization measures, additional personal protective equipment requirements and significant other guidance to govern how we will work while we are at work. This program will be supported through training and orientation for all team leads and every team member to ensure understanding and compliance.As we resume operations, we continue to utilize or investigate government programs which may assist us with reimbursement for costs incurred. We're currently availing of these programs in the U.K. and exploring opportunities in Canada and with the U.S. government, also-- which will also play a critical role for many of our customers who have lost billions of revenue and incurred significant operating cost during this pandemic.So given the ongoing uncertain nature of COVID-19, it is important to provide financial guidance for 20 -- it is imprudent, sorry, to provide financial guidance for 2020 at this time, but we can offer some insights to our investors about potential scenarios.First, our financial results will be negatively impacted by COVID-19, no question. In the second quarter, we expect a significant decrease in revenue and adjusted EBITDA net earnings and free cash flow from the same period in 2019, all driven by the disruption of this pandemic. We expect the third and the fourth quarters will be impacted by the pandemic, but not to the same degree as the second quarter.Our capital expenditures will be significantly lower in 2020 then we planned and our original guidance of a range of $45 million to $50 million will be down to a range around $30 million to $40 million. Dividends continue to be important part of the NFI story and we believe that our cash flow generation efforts, combined with our existing liquidity provides us with the funds required to finance our operations through the pandemic and continue to return shareholder -- capital to shareholders. Obviously, as this proceeds, we'll provide further updates on our 2020 guidance when the situation stabilizes.Now shifting to our long-term outlook. As we move through with COVID-19, we do so from a position of strength. We have now, strong liquidity, a business that is primarily driven by variable costs linked to production and a solid aftermarket business provides a base of recurring revenue. We focused on lowering our fixed cost base and have a track record of removing cost through operational structural initiatives. We see numerous opportunities to drive margin enhancements now and in the future, as we transition NFI from a holding company type structure to more of an operating model.The majority of our global end markets remain positive. NFI's vehicles are largely used for public transit, which remains the spinal cord of cities around the world and the primary daily method for transportation of millions of users. As numerous jurisdictions recover from COVID-19 pandemic and execute on strategies to improve accessibility, renew fleets and migrate to more zero-emission buses, we expect to be a beneficiary. Our view is supported by continued strong growth in our North American bid universe which remains at record levels, plus announcements from governments in Canada, the U.S. and U.K. regarding dedicated multi-year funding programs to support transit operations and vehicle procurements.While the outlook for overall end-market demand is positive, we do expect that the private motor coach business, which represents approximately 12% of our consolidated revenue and even lower percentage of our net earnings will continue to be negatively impacted by the COVID-19 pandemic in the near term. This near-term impact is reflective of the impairment we reported in Q1 2020. Longer-term, we do see motor coach returning to previous cash flow performance and this view is supported by previous economic cycles. But given current market conditions, we've taken measures to remove cost from this segment of our business.We made the difficult decision to complete permanent layoffs and decrease production levels by 62% which are expected to save MCI in excess of $10 million per annum to date. We have continued to explore options with the coach business and the team and other NFI businesses to adjust our overhead and we'll act accordingly.Before turning the call back to Stephen and opening the call for analyst questions, I really want to take this opportunity to thank our team members who have been extremely supportive and committed both those who've been idled and disrupted and those who work in a central or core services through this COVID-19 pandemic and implemented a variety of protocols for us to get back to work.Everyone across our business units has played a role in developing and executing our safety programs. I also want to thank the dedicated frontline members of our transit agencies, public and private operators who continue to work every day putting their health and safety at risk to ensure essential workers are able to get to work and communities and families can stay connected. We will do everything we can to support transit agencies and operators to make buses safer for drivers and riders during this pandemic and following on. With that, I'll hand it back to Stephen.

[Stephen King]

Thanks, Paul. I'll now turn to Slide 13 to summarize today's call. The first quarter was in line with our seasonally slower expectations although COVID-19 did begin to impact operations and customer orders late in the quarter. COVID-19 is a new reality and has created a new normal for not only NFI, but our customers and suppliers around the world. We have responded appropriately and are continuing to focus on ways to remove cost from our business while also offering additional products focused on health and safety. Our operations are resuming, and we'll continue to do so into early June. We are at a much stronger position than we were just over a month ago. Now with improved liquidity and increased flexibility and financial capacity from the generation of $90 million of cash and over $300 million in additional credit capacity.As Paul mentioned, 2020 will be challenged and results will reflect the impact of COVID-19, but we remain very well-positioned to be a beneficiary as demand for transit vehicles remains high, we have a strong backlog and a solid aftermarket revenue base. We'll now open the line for questions. Cheryl, can you please provide instructions to our callers.

[Operator]

[Operator Instructions] Our first question comes from Kevin Chiang from CIBC.

[Kevin Chiang]

Maybe I'll start with MCI, I appreciate the color you've given in terms of the near-term adjustments you've made, I think you said production, you've produced at 62% and it's about $10 million of, I guess, cash cost savings, but to the extent that leisure travel takes multiple years to get back, what's the long-term -- how do you reposition this business for the longer term, if, let's say 2/3 of its typical demand takes a much longer time to recover?

[Paul Soubry, President, CEO & Non]

Thanks, Kevin, for your question. And it's a good one. Let's just dissect MCI a little bit and I mean, you know the business well and roughly 50% to 60% is private operators, 40% to 50% depending on the year is our public operators. The public is contractual. There is no change at this point in time, at least for 2020 is -- that we've seen in any way, shape or form that reduces the public demand.The private demand as you know has sub-segments. And so no question the tourism type operator is idled at this point in time. You still have demand from employee shuttles, you have demand that we think we'll recover to some extent in the limousine or private charter type environments, the city-type charter. We think that over time, throughout this year as people get back and comfortable of getting on an airplane or whatever, that you're still going to see people moving and coming back, albeit maybe less people on board, more social distancing with all these protect and care type products that we're putting in place, UV lights and the air-conditioning systems, cleanliness, sanitizing products, barriers in between drivers and passengers, barriers between passengers. At the end of the day, once the world starts to move again, you're still going to have to move those people in some efficient way.And so we know when we go back to, heaven forbid 9/11, you go back to the financial crisis and you look 20 years, 30 years back, when there have been economic shocks and then recoveries. Albeit this one is different, it's not just the economics, it's a health dynamic.But when we look at MCI, and we did a forecast, we've taken a pretty aggressive look at the downside on the private market or at least the segments that we think will be impacted in the short term. And at the end of the day, fast forward X months -- or is it months? I should say quarters or years, a smarter, safer, more cognizant social distancing communities and so forth, we're still going to see people moving and you cannot find any community in North America that doesn't have a big reliance on the coaches as part of their transit or as part of their moving of people.So it's dire in the short term, no question and Ian's team has done a fantastic job to dial the tap back on production for the private motor coaches. But we still have that public business, MCI is still a viable business, but it's going to be impacted to some extent. That's why when you do the math, when you rerun the forecast, there is obviously a goodwill impairment in the short term.

[Kevin Chiang]

That's great color. And maybe just a second and last one for me. I'd be interested to know in your conversations with the transit agencies, do you think there'll be a change in how they look at the fleet composition? I mean, I think we've all read headlines around ridership being down and I think there's various forecast around what that recovery looks like. So do you think maybe absolute transit demand is lower, but maybe people want smaller buses because they end up De-densifying the bus? Does electrification -- is that still an important goal for a lot of transit agencies today? I'd be interested to know what your end markets are saying in terms of how they think of fleet composition post-COVID-19.

[Paul Soubry, President, CEO & Non]

Well, the -- not all the transit agencies have people all back to work in a full complement and so forth. And we saw ranging from let's call it 50% to 80% drop in ridership universally across North America and even into the U.K. and Hong Kong and so forth. The Hong Kong market is back up and running quite efficiently, and so we're seeing demand over there has stabilized and actually be fairly healthy.The U.K. is on lockdown and continues to be unlocked down. Here's what we're hearing from customers. Hey, they haven't changed their fleet replacement plans. We know that there was a slowdown as we saw in '18 and '19 around trying to figure out how electric vehicles or fuel cells or -- might make it into their fleets. The fleet replacement plans are critical to their ability to access federal funding and to have a real strategy about replacement of 12-year buses in the U.S. and 500,000 miles and all those kinds of dynamics.What we're hearing from, though, is that you look at it as a movement of people across any city that gets to some level to some level of normality. There are not enough cars. There is not enough Ubers and Lyfts out there to be able to move all these people and quite frankly, the cost of those things are prohibitive for the average person that uses public transit to get to work or to move to go visit people, to go shopping and so forth.What we have heard in some cities anecdotally, and I can't translate it into demand, is we may see more buses on the road because they don't want to fill them for the same level that they had before. And as you know, the average bus has 50 seats or 60 seats depending on the configuration and other 40 or so people 30 or 40 that can be in standing capacity. We actually may see, coming out of COVID, more fleet as well as root strategizing around more capacity to be able to move people and still allow some level of social distancing.We haven't seen a change in any of the RFPs that we've seen of late in terms of size or scope of the bus, if you will, from that perspective, nor any differential in the propulsion system strategies.Good news for us if we see any of that stuff. We chose years ago to have both single-deck articulated buses, double deck, which is really helpful in terms of social distancing, got way more seated people across 2 levels that can spread out as well as now the addition of ARBOC that has cutaways but also shuttle buses. And so I think we're very well-positioned, Kevin, if we do see any of those shifts. Quite honestly, it's probably too early to be able to predict.I'll point to one last thing and we talked about in our materials. It's amazing to see our active bid universe has not gone down, it's actually gone up quite materially as well as the total bid universe. And the total bid universe, all that is us collecting the fleet replacement plans of our customers and what they expect to buy in the next 5 years. And it's just a proxy for intent, but it's actually quite healthy. And so that gives us quite a bit of hope and confidence that we will navigate the short-term and then we build to get back on what looked to be for us a very solid 2020 and maybe that gets pushed out to 2021. But we're pretty comfortable on that side of our business, about the recovery.

[Stephen King]

And Paul, maybe I'll just add quickly too on the aftermarket side, obviously we're seeing an increase in demand for things like driver barriers vehicle cleaning systems and so our team is really focusing on the aftermarket piece of the business, increasing our product offering within that segment to help transit agencies increase obviously the cleaning and sanitization and health and safety of the vehicle that they operate.

[Operator]

And our next question comes from Cameron Doerksen from National Bank Finance.

[Cameron Doerksen, Analyst]

Just maybe a couple of questions on what's going on in the U.K. I mean, obviously, most of the transit there is serve by private operators who obviously are facing some financial difficulties, but still offering a public service with transit, but I'm just wondering what you're seeing from those customers as far as their procurement and also I guess, in addition to that, is there any update on the I guess the pre-COVID announcement that the U.K. made about making a significant investment in buses. Do you think that that's still something that's going to go ahead.

[Paul Soubry, President, CEO & Non]

It's a real good topical issue, Cam, we have the daily calls with our Group leadership team including Tom Robertson over the U.K. that's been very, very close to the Scottish government as well as the U.K. government. And your point is a good one. Before we headed in the COVID and before the British Prime Minister got COVID himself, there were some real strong initiatives, a commitment of $5 billion to look to fleet rejuvenation and more focus on zero-emission buses in the U.K. Of course, COVID threw everybody in a bit of a tailspin.The discussion about private operators who are publicly traded for the most part is absolutely real. Their valuations are down, their stock prices are down, their cash flows are down. Some of them have issued equity, some of them got some more debt and credit capacity. And so they're obviously like us navigating through this pandemic, both from a profitability perspective, but also cash flow.I can say with a high degree of confidence, we have not really seen any material cancellations of orders in the U.K. What we have seen is lots of dialog about rescheduling, pushing out. So in our mind, it's not a demand issue going away, it's more around timing and recovery. And because those are private operators that bid on operating public routes or public service, again just when the U.K. economy and albeit maybe slower or different in terms of getting people around those cities and around those communities has to happen to some level.And Colin reported actually yesterday the dialog we just had with Kevin about some discussion with some of the operators about increasing the fleet use to try and spread more people out on those buses and those coaches. So probably early to say, we haven't heard any specific initiatives of how that pre-COVID commitment converts into tangible actions in the short term, but there is an awful lot of dialog around trying to help support those operators. It's not like they're public agencies like you see in North America where they can continue to operate at losses and then kind of navigate, these are private businesses that are absolutely finding a way to do it economically going forward and profitably in some way, shape or form.

[Cameron Doerksen, Analyst]

Okay. That's helpful. And maybe a second question from me, just from an operational standpoint. I mean, obviously, as you restart production here, you've got maybe some social distancing efforts in the plant. Assuming that some of these things stay with us for a while. I'm just wondering what that means from an operational efficiency point of view. I mean, are you able still to build the same number of buses in your plants by also you're combating social distancing rules; I'm just wondering what that does, from an efficiency point of view?

[Paul Soubry, President, CEO & Non]

Yes, it's really topical as well really important to us. Let's go back a little bit in terms of demand. In the public world, we have not really seen cancellations. We have seen a little bit of schedule changing in deferrals, so that world we are relooking at every day literally re-issuing a new production schedule to plan our people, but also to plan the supply chain that supports it.We have put teams in place and we kept the number of people on through the shutdown or through the idling period to relook at the manufacturing processes and, of course, every site is slightly differently. A processes is that, Stephen and I are putting wheels on a bus, as our way of doing that with tooling rather than the 2 of us sitting 2 feet apart. We've gone after that stuff. We've put up some people barriers or plastic barriers or cardboard barriers where that makes sense. We've tried to re-engineer some processes, so that people can spread out. We've tried, in some cases to look at shift pattern, so you have less people on site and the takt time individually in the facilities. We will start off every facility at a lower production rate that when it -- than when it went into idly and we are staggering the start-up of our facilities, so that we don't overburden our supply chain, plus the fact that any lessons learned in one factory about spreading things, outdistancing, cleansing of common tools, mask utilization and on and on can be spread across our facilities.We started -- as I mentioned earlier, we started bringing some people back across the business, the week of the 27 or whatever it was, we started up some people this week. And then we get back to legitimate production rate starting next week. Knock on wood, we've learned a lot, we've deployed it across the business very quickly and so far we haven't seen any issues. We have been very aggressive with across company task force that meets every single day to compare cameras as people come on-site to check temperatures, to ensure mask utilization or deployment in the facilities, cleansing and on and on.So I'm -- never say never, but I'm feeling really confident that we are prepared and we're going to jog before we run and get back up to those production levels, which is why we gave that color around, don't expect our production levels to get back from 0% back to 100% immediately. We will take time.

[Operator]

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

[Jonathan Lamers, Analyst]

Paul, following up on that last discussion, would you happen to have handy where the line rates will be for the New Flyer transit plants as production reopens? And maybe an estimate for how long it might take to get back to full run rates?

[Paul Soubry, President, CEO & Non]

So at -- just the risk is, just not trying to your [ script ] your question, Jon, but a little bit of color. We chose -- we looked at all of our facilities as I mentioned in the transit case, New Flyer case, as you know, we burned off most of the excess work in process last year. We still had some that bled over into this year. So we took advantage of keeping the lines stocked, but actually getting rid of some of that excess work in process capacity.So we are going to start up the facilities that are the healthiest if you will, of inventory on hand, available people, unless any work in process post line.So basically we're going to start off with the Anniston, Alabama facility first. And then we're going to move to the Winnipeg-Crookston completion scenario second. And then we're going to move to the St. Cloud facility. So Chris has got a very, very exciting and if you will, staggered plan to get that up and running.In parallel or in addition, our internal capability of KMG and Carfair have started up at a quite a lower capacity to fulfill those. I would suggest that we are probably through -- phasing through -- Q2 is down Q3 will get back to somewhere in the 2/3 of our capacity. And by the end of the year, we should be back up to the run rates we were at previously in the fourth quarter.

[Jonathan Lamers, Analyst]

That's great. And one question on your commentary about the trajectory of public transit demand. There is quite a few news articles indicating that state and municipal budgets are under pressure. Is it -- I understand that you're not seeing material cancellations yet, that you are more seeing deferrals to 2021, but is it fair to say that there would be another round of federal funding required to support these transit agencies to avoid a scenario where the deferrals become cancellations?

[Paul Soubry, President, CEO & Non]

Well, it's a great, great question, Jonathan. I wish I had a crystal ball in, of course, every city, municipality, state provinces in a different situation. But let's talk a little bit about the dynamics inside a transit agency. First and foremost, the operating with 50% or 80% less people on your buses has a massive impact on the farebox, which on average is about 30% to 35% of the revenue of a transit agency. So that part of it has been decimated for the vast majority of transit agencies. The U.S. CARES Act, which was a $25 billion investment really was intended, primarily in the United States, to help pay the operating costs of what were very, very inefficient transit agencies to keep that essential service operating. The CARES Act did not specify whether those transit agencies could use the money for operating cost or for capital. And so we've actually seen some operators refer to the continued purchasing of their buses using some of that CARES Act money.The second issue is that they also separate, we call it colors of money or buckets of money, but the operating budgets that I think you referred to have been dramatically under pressure in a lot of different places. We have -- well, we -- as you know in the U.S., they use the FTA funding for the capital portion of fleet renewal, and so the bigger issue then is, does those municipalities have the ability to come up with their 20% match? We did see, as you know, in the last financial global crisis, we did see unique stimulus money to help transit agencies buy capital assets. We have had lots of dialog about that in conjunction with the renewal of the FAST Act that expires at the end of this year. And so I wish I knew more to be definitive, but to us it's telling that these people aren't canceling their RFPs, they aren't stopping looking at buying, they're continuing. The number of RFPs that we have and work in process on our table right now specifically in the New Flyer case is quite staggering, and so sure, there is going to have to be government initiatives. I think there's 2 things at play here. One is creating jobs in the whole manufacturing and supply chain. Two, it's fleet upgrading to ensure that public transit continues to be an essential service. And three is that whole environmental dynamic. If the government is going to spend money to try and economically push the economy, there is a huge story about doing it with green or zero-emission buses from an environmental perspective, which not to be silly, but ticks a lot of boxes in terms of the essential desire or the desired outcomes from government funding.Canada is different. We don't have the same kind of federal funding. No question, every Canadian transit agency is struggling to continue to operate effectively. The federal government, to their credit, has been talking very aggressively about some unique approaches and programs to help them both from an operating perspective, but also from a capital perspective.I hope by the time we talk next, Jonathan, in August, we'll have started to see the game back on and a little bit more clarity about that. I just go back to if the number of bids on my table stopped or everybody started canceling RFPs or canceling orders that we have in place, that would be a really concerning signal. We have not seen that.

[Jonathan Lamers, Analyst]

And I have one question for Pipasu and I'm not sure if you have this in front of you, but following all of the reductions in fixed cost that management has implemented, do you have an estimate for where the cash burn rate would have been for April and sort of the fixed expenses, we should be looking to as the plants ramp back up?

[Pipasu H. Soni, Executive VP of Finance & CFO]

I think -- no, thanks, Jonathan again for that question. The way that I'll answer this and then obviously, Paul, add some more clarity, but from our perspective, as we start looking at our cash flow on a regular basis, one of the things that we've projected so far is we look like we can stay within our original [ 1250 ] facility. So we're managing to that. Obviously, if some other disruptions or anything does happen, then obviously, we may have to use the sidecar facility. But so far, we feel pretty comfortable that we're going to be able to manage within our $1.25 billion facility.

[Paul Soubry, President, CEO & Non]

Yes. Thanks, Pipasu. Jonathan, just a few other notes. I'll get the numbers wrong, but directionally, 65% or 70% of our people have gone on to government support programs or EI, or those kind of things or using up vacation. And so that's been helpful to reduce our expenses as well as our cash burn. We did make some decisions on people, we did cut leadership salaries, we did cut Board fees and a whole bunch of other stuff. We did, from a cash perspective, differ and work with our suppliers on payment, accounts payable deferrals. We did defer and work with our lessors on rents and all those kind of things.And so we've been very careful and very thoughtful of trying to stay as Pipasu, to live within what we originally thought from a cash burn perspective. The liquidity is quite significant now at over $550 million. We have generated an awful lot of cash through the pandemic and as we start back up, but as we start back up, the ability to hold back payables or to be able to do other stuff starts to wean and so you'll see us starting to use cash through the second quarter to get our facilities back up and running.But I'm very pleased with the work the teams have done around cost and around expenses to be able to stay inside that existing line. I'd -- I really don't want to get into exact dollars about spend and savings and those kind of things, if you don't mind.

[Operator]

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

[Daryl Young, Mining Research Associate]

Just one question from me around the North American transit space and the backlog, just looking at what the margins could look like in the backlog currently, and then maybe a little bit of color on any competitive situation in terms of the new RFPs and what pricing is looking like on those orders?

[Paul Soubry, President, CEO & Non]

Well, the backlog as we reported in the past is the average backlog and the range of pricing that's in there, some great margins and some tough margins is not materially different at all from what we saw as we ended 2019.You remember that we reported 2019 margins under pressure for a couple of regions, a, is the challenges we had at KMG, which put us in a loss position, which then resulted in the businesses not being able to efficiently build product and over time and reprocessing and all these other things that go with expediting freight and those kind of things.So we -- as we started the year we expect it to try and see some really good solid margin recovery. As we got through the end of March, halfway through March as you can imagine, every one of us is checking the news, every one of us trying to keep 6 feet away from each other. Everybody's wondering whether we're going to share facilities down and so forth. A number of people whose children didn't have daycare or schools and all of those dynamics caused absenteeism to go up. And so that's one of the biggest issues as we ramped back up through Q2, Q3, is getting efficiency of operations.But I wouldn't say from a pricing perspective, other than every once in a while we think what we would call it a stupid price or stupid bid. We haven't seen that in the last little while of any real material nature. We've always said that we're too early in the game to know whether the normal margin of an electric bus, as you start to get larger volumes is better or worse than a conventional, whether it's natural gas or diesel and those kind of things.Again, the volume is just not big enough, but I feel pretty good about the pricing that we've got, the margins that we've got. What -- the biggest areas that are going to take an impact is not the public stuff in the short term, is going to be the private market where a lot of those operators are going to be, not only operating cost challenge, but they're going to be capital challenge, and so to sell a private bus, the dynamic coach, the dynamic around trade-ins and pricing versus competitors and stock on our shelves versus custom built and so forth, that's where we expect to see the price pressure.

[Daryl Young, Mining Research Associate]

Okay. Got it. And then just one point of clarification on the 30% of the backlog being related to electric buses, was that the active bids or the backlog, that's emissions, zero emissions?

[Paul Soubry, President, CEO & Non]

So I think that's the total backlog.

[Stephen King]

That's the bid universe.

[Paul Soubry, President, CEO & Non]

Yes. The total bid universe. Yes.

[Stephen King]

The bid universe, yes, we get 30%.

[Paul Soubry, President, CEO & Non]

Total bid universe of 30%

[Stephen King]

Yes, the backlog. I think it's around 4.5%.

[Operator]

And that concludes the questions in the queue at this time. I will turn the call back over to management for closing remarks.

[Stephen King]

Well, thanks, Cheryl. Thanks everyone for your questions and for participating with us on today's call. Before we terminate, I just want to remind listeners that NFI will be hosting our Annual General Meeting later this afternoon at 2 p.m. Eastern. In order to ensure the health and safety of participants, obviously, in the phase of COVID-19, we will be hosting a virtual meeting. You can find details on how to join on our website within management circular because it will be a webcast virtual meeting. We'll now terminate the call. Thank you. Everyone, have a great day and stay safe.

[Operator]

Thank you very much, ladies and gentlemen for joining us today. This concludes our call. You may now disconnect.