NFI Group Inc

TSX:NFI

Earnings Call Transcript 2020-Q4

[Operator]

Thank you for standing by, and welcome to the NFI Group's Fourth Quarter 2020 Financial Results Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions] Thank you. I would now like to hand the conference over to Stephen King. Mr. King, please go ahead.

[Stephen King]

Thanks, Jack. Good morning, everyone, and welcome to NFI Group's Fourth Quarter and Fiscal Year 2020 Results Conference Call. This is Stephen King, NFI's Group Director, Treasury, 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 a financial results presentation that can be found in the Investors section of our website. We will be moving the slides via the webcast link, but we will also call out the slide numbers referred to as we walk through the presentation for participants on the phone. 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 are advised to review the risk factors found in NFI's press releases and other public filings on SEDAR for more details. We also want to remind listeners that NFI's 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 Slide 3, we've included some key terms and definitions to refer to -- for you to refer to as we go through the presentation. Of note, zero-emission buses, or ZEB, as we refer to them, consist of battery electric, hydrogen fuel cell electric and trolley electric buses. Equivalent units is a term we utilize for our production and deliveries. The majority of our vehicles represent one equivalent unit, while an articulated 60-foot bus takes 2 production slots and therefore is equal to 2 equivalent units. I'll now pass it over to Paul, who will recap the quarter.

[Paul Soubry, President, CEO & Non]

Thanks, Stephen, and good morning, everyone. Before I get into the details of the fourth quarter and year-end 2020, for first-time listeners and those not as familiar with NFI Group, I'll quickly provides some background on our business, specifically our leadership position of zero-emission battery electric and fuel cell electric mobility and how we plan to drive the transition to a cleaner electric future or what we like to call the ZEvolution.Now turning to Slide 4. NFI is much more than just a vehicle manufacturer. We're a total mobility solution provider and a leader in technology development. Our offering includes fully -- full turnkey solutions of infrastructure installations, vehicle production, aftermarket support, training, telematics, and parts. We have the strongest zero-emission bus offering in all of our core markets with the widest range of zero-emission mass transit vehicles, ranging from single deck to double deck articulated buses, medium-duty and motor coach variants. We have for more than 50 years of -- we have more than 50 years of electric bus experience and NFI zero-emission buses are in service in more than 80 cities in 4 countries. Our ZEBs have completed more than 20,000 electric service models, and we have delivered 1,371 ZEBs since 2015, including 389 in 2020 or 9% of our full year's deliveries. NFI has the capacity to produce up to 8,000 equivalent units annually, and we anticipate that 20% to 25% of our 2021 production will be zero-emission buses, more than doubling that percentage we saw in 2020.In 2018, we identified that infrastructure or charging infrastructure, one of the main challenges for our offers, which led us to launch our Infrastructure Solutions business to support our customers in their transition to zero-emission fleets. This business has been growing very well with revenue of $24.7 million in 2020. Infrastructure acts as a differentiator for NFI as it helps create stronger relationships with our customers while also allowing us to control the infrastructure installation and coordinate with the vehicle delivery to ensure on-time service and performance.Now turning to Slide 5. 2020 is a year that we soon won't forget. As we begin -- began the year, we had a plan that would see us deliver record results, and we were off to a great start with a solid first quarter. Then, on March 23, COVID-19 became our reality as we idled nearly every one of our facilities. As the pandemic took hold in our geographies, few of us could ever imagine the dramatic impact it would have on our world, our customers, our people and our business. However, we saw a strong finish to the year, exceeding our revised 2020 adjusted EBITDA guidance that we provided in August, but results continue to be impacted by the COVID pandemic as we move through 2021.Our company-wide transformation initiatives, launched in August, titled NFI Forward, achieved its targets for fiscal 2020. NFI Forward is designed to make us a simpler, leaner company with less overhead and SG&A, fewer business units and a reduced footprint. 2020 results from NFI Forward includes $17 million in adjusted EBITDA savings and an additional $1 million in annualized free cash flow generation. We remain focused on deleveraging and strengthening our balance sheet. And in December, we completed amendments to our credit facilities, which now provide us with relax covenants as we recover from the impacts of the pandemic that will help us guide us through '21 and '22. We've also terminated the unused $250 million Sidecar facility and, in March, we closed a CAD 250 million bought deal equity financing that will drive liquidity and improvements to our leverage with expectations that we'll be below 4x total leverage in 2021 and below 3x for the end of 2022. With the fourth quarter and full year 2020 now complete, we can again reiterate our 2021 adjusted EBITDA guidance of $220 million to $240 million.Turning to Slide 6. Our backlog declined slightly at year-end by 378 EUs as deliveries outpaced new awards, driven by pandemic-related delays. Based on our experience so far this year in 2021, we continue to anticipate that we'll see increased order activity as previously delayed orders are released. Our backlog remains a positive strength for NFI that sets a solid foundation for our future. Deliveries were down within transit, but we saw a strong finish to a very difficult year. The decline in deliveries was primarily due to COVID-19 impacts. But Q4 2019, by comparison, was also a very successful period. Private motor coach deliveries were down nearly 40% year-over-year, reflecting the impact of the pandemic. Medium-duty and low-floor cutaway deliveries were up 21% year-over-year, reflecting strong demand, which remains encouraging. I'll now ask Pipasu to take us through our financial results.

[Pipasu H. Soni, Chief Financial Officer]

Thank you, Paul. Turning to Slide 7. Our Q4 performance saw significant improvement from the third quarter of 2020, but continue to be impacted by the pandemic. Total revenues declined by 22.5% when compared to Q4 2019, driven by the lower deliveries Paul discussed. Adjusted EBITDA saw a year-over-year decline of 37.4%. In response to the decline in revenue, we've been focused on lowering both variable production costs and fixed general and administrative expenses through the NFI Forward initiative. Free cash flow was down by $20 million quarter-over-quarter as we saw lower adjusted EBITDA and higher maintenance capital expenditures.Turning to Slide 8. Our fiscal 2020 performance was down from fiscal 2019 due to the impacts of COVID-19. Total revenues declined 16.4% from fiscal 2019. In addition to lower deliveries, we also saw lower private aftermarket parts sales as operators idled fleets. Full year adjusted EBITDA decreased by 51% as we continue to incur fixed operating costs on a lower revenue base. These negative impacts were somewhat offset by government grants received through wage subsidy programs. On a yearly basis, free cash flow decreased by 82.9%, primarily driven by the idling of production facilities in the second quarter, which resulted in a second quarter free cash flow loss of $43.1 million. Liquidity at the end of 2020 was $233.5 million, an increase of $24.2 million from 2019 Q4. The liquidity does not include the cancel Sidecar or funds from the equity offering, which will further strengthen our position.NFI believes that our liquidity provides us with the flexibility to pursue operational and strategic goals, such as investments in NFI's zero-emission products and electric propulsion technology, investments under NFI Forward and other potential growth opportunities. In addition, we remain focused on returning capital to shareholders through dividends. Turning to Slide 9. I'll outline our net earnings and the adjustments that we've made to reflect the impact of onetime nonrecurring items. Q4 net earnings were $8.5 million or $0.14 per share. Full year, we had a net loss of $157.7 million, driven by lower production volumes, extraordinary COVID-19 costs and nonrecurring restructuring costs associated with production reductions and the NFI Forward initiative. Fiscal 2020 results were also lower as a result of a $50.8 million goodwill impairment charge related to MCI's private motor coach operations incurred in 2020 Q1. Adjusted net earnings for 2020 Q4 were $8.2 million or $0.13 per share. For fiscal 2020, the adjusted net loss was $47.2 million or negative $0.75 per share. Quarterly adjustments include $6.4 million in exceptional costs related to COVID-19 and and nonrecurring restructuring charges. We also adjusted up for mark-to-market and unrealized foreign exchange gains. A detailed reconciliation of adjusted net earnings is in the appendix of this presentation on Slide 22 and 23. Turning to Slide 10. We outline the expected benefits of NFI Forward. The anticipated cost savings from NFI Forward will show up in 3 areas of our financials: lower direct material costs, lower manufacturing overheads and lower SG&A expenses. In aggregate, NFI Forward is expected to deliver an 8% to 10% reduction to both manufacturing overhead and SG&A based on the 2019 run rate. In 2020, we generated $17 million in adjusted EBITDA savings and an additional $1 million in annualized free cash flow. In 2021, we'll add another $30 million of adjusted EBITDA savings for a total run rate of $47 million, driven by the combination of New Flyer and MCI business units, the consolidation of NFI Parts and ADI North America Parts operations and as we realize full run rate savings from actions carried out in 2020. In 2022, we expect to be able to consolidate additional facilities, which, combined with further administrative reductions, will generate an additional $13 million in savings. And finally, in 2023, we'll achieve another $7 million to bring total expected annualized savings to $67 million. These cost reductions will generate significant volume leverage. When markets recover, we'll grow revenues on a lower fixed cost base with drop-through to adjusted EBITDA. We also expect $10 million in additional cash flow savings, on top of the adjusted EBITDA benefits during 2022 to 2023. These savings are driven by a decrease in cash leases and the benefits of the central treasury team. In addition to these items, we continue to explore other cash generation opportunities, including a significant focus on working capital. We anticipate that we will need to make a small full year working capital investment in 2021 to account for increased ZEB production. On Slide 11, you will see a summary of the financial guidance we have provided for 2021, which includes the following: Revenue of $2.8 billion to $2.9 billion, with ZEBs expected to make up 20% to 25% of 2021 manufacturing revenue; adjusted EBITDA of $220 million to $240 million, a significant volume drop-through from cost base reductions generated from NFI Forward; cash CapEx of $50 million, which includes maintenance CapEx; $15 million of NFI Forward initiatives and other smaller projects; and adjusted ETR of approximately 31%. I also wanted to add a comment on seasonality. We expect a decline in Q1 year-over-year, but anticipate year-over-year revenue and adjusted EBITDA growth in quarters 2, 3 and 4. A reminder to listeners that in 2021, Q1, Q2 and Q3 will be a 13-week period, while Q4 will be a 14-week period for a total fiscal year of 53 weeks in 2021. I'll now turn the call over to Paul to discuss the factors driving our 2021 guidance and longer-term outlook.

[Paul Soubry, President, CEO & Non]

Thanks, Pipasu. So now, I'm on Slide 12, and I want to provide a little bit of color on our end markets. So despite the decline of the total bid universe, the long-term demand for transit vehicles remains intact, and we anticipate there'll be growth in procurement in 2021 and beyond as COVID restrictions are lifted and government funding is released. An overall positive sign is that only a few transit RFPs in the past year have been canceled, even with the ongoing pandemic. As we turn to Slide 13, we outlined that we are seeing unprecedented government support for zero-emission transit vehicles. In February of 2021, the Canadian government announced an 8-year, $14.9 billion public transit funding program, which includes $5.9 billion in dedicated project funds starting in 2021 and an ongoing permit funding of $3 billion per year, beginning in 2026 to 2027. The announcement, the largest public transit investments in Canadian history, includes a focus on zero-emission and electric transit buses. We're very excited about this development as based on our U.S. experience with permeant and predictable fund transit gives transit agencies much better visibility as they can plan current and future year procurements. In addition to that funding, the Canadian government is fully supportive of the mandate they've given the Canadian infrastructure bank and $1.5 billion of financing support to assist that transition at the local transit agency. In the United States, proposed INVEST in America Act, investing in a new vision for the Environment and Service Transportation Act, which was originally drafted in June of last year, is a $494 billion draft act that aims at providing significant funds for improvements to the U.S. infrastructure, including transit vehicles. The draft specifically focused on reducing the U.S. carbon footprint and assisting with conversion to electrified mass transit, and this includes $1.7 billion in proposed funding for zero-emission buses, a fivefold increase from the predecessor, the FAST Act. The INVEST in America Act is a 5-year act that provides transit agencies with longer-term visitors as they execute on their plans. And we're encouraged to hear the news and insights from, and priorities, from the Biden-Harris Administration.The recent announcement of a USD 1.9 trillion stimulus package is also encouraging. It not only provides dedicated release funds to help agencies impacted by the pandemic, it also provides funding for infrastructure capital projects. In 2009 and 2010, stimulus packages increased bus procurement activity and there's a potential that we could see some acceleration orders driven by the stimulus funds in combination with a new multiyear funding package. I'll also note that, that stimulus package, for the first time, had about $2 billion focused for the motor coach operator recovery in the United States. In the U.K., the government announced a 10-point plan for a green industrial revolution in November of 2020, which includes a national bus strategy that we will see -- that we'll see more than 4,000 zero-emission vehicles put into service and funding within the U.K. and Scotland has already started to flow. NFI is the leader in North America and the U.K. for zero-emission buses and would benefit from the increased transition to zero-emission buses. At this point, we anticipate ZEBs will make up 20% to 25% of our overall production in 2021, and we are well positioned to regardless of how fast or how slow the transition actually occurs. NFI can manufacture ZEBs at all of its facilities, and ADL has already delivered the most ZEBs in the U.K. MCI is now selling an innovative battery electric coach and ARBOC's electric Equess CHARGE, which was unveiled earlier this week -- or sorry, last week, is now in testing. We received our first order for the Equess CHARGE for 6 buses within 2 days of the Equess launch. Slide 14 outlines the annual market deliveries in North America in heavy-duty transit since the end of 2019. As an industry, we cooperate through a media publication, and we are finally awaiting the 2020 actual delivery data to be consolidated by an external source, but we anticipate a significant decline in 2020 actuals before we start to see an improvement in 2021 and steady growth to follow. We anticipate that NFI maintained or grew our market share in 2020. On Slide 15, you can see how our private customer markets have been dramatically impacted by the COVID-19 pandemic. The North American motor coach deliveries were down 58% as operators idled the fleets due to immediate decreased demand for tourism, travel, convention, sports, university employee transportation. We expect the private motor coach market will recover overtime as travel restrictions are lifted and as vaccines are rolled out, but full recovery will take time with continued challenges throughout 2021. And finally, on that chart, in the U.K., the transit market, where private operators operate public groups, the market was significantly impact and was down 65% in the first half of 2020, but finished the year at a better position and ended down 24%. ADL responded to these market impacts by adjusting production at the Scottish facilities, rationalizing chassis production at its Gilford, U.K. location and removing fixed cost or a reduction in significant administrative and overhead positions. There's no doubt that COVID impact our 2020 plans and results, but long term, buses and coaches will recover, and we will play a critical role as cities reopen. There'll be bumps in the road as we recover to normal run rates, but government funding, the transition to zero-emission vehicles and private market recovery, combined with the structural changes made through our NFI Forward initiative, will make us a more competitive and cost-efficient competitor. Slide 16 provides some insight into NFI's targeted trajectory over the coming years that Pipasu outlined. We're extremely well positioned for the near-term and the long-term, with expectations for top line growth and strong performance improvement. At our 2021 Investor Day, we announced 2025 targets of $3.9 billion to $4.1 billion in revenue, and $400 million to $450 million adjusted EBITDA, representing a revenue CAGR of more than 8% and an adjusted EBITDA CAGR of more than 16% through that 5-year period. Our 2025 targets will be driven by a focus on bus and coach. We have a strong public and private customer base with long-standing relationships. In addition, ADL will grow in the new markets that are underpinning our recurring revenue part stream. We have the largest EV capacity in North America and in the U.K. with proven track record in delivering electric vehicles and will lead the market's transition to a zero-emission future with expectations that 35% to 40% of our production by 2025 will be zero emission, more than tripling the current 2020 ZEB levels. NFI Forward has been a tremendous success so far, and its initiatives will create volume leverage as we'll deliver higher revenue on a lower fixed cost base going forward. And finally, we'll continue to invest in our people, our products and our business and return capital to shareholders through our dividend strategies. I'll now turn it back to Stephen to summarize today's discussion, followed by that, we'll be glad to open the call up for analyst questions. Stephen?

[Stephen King]

Thanks, Paul. Turning now to Slide 17, I'll recap this morning's call. NFI's 2020 Q4 and fiscal year performance demonstrate NFI's resiliency, strong backlog position and ability to respond to the ongoing economic realities of the COVID-19 pandemic. Although we anticipate 2021 deliveries will remain lower than pre-COVID-19 levels, we are positioned for market recovery and have already seen strong improvements from NFI Forward to drive volume leverage. We view 2021 as a transition year. Falling credit amendments, plus our recent equity raise, we have a much stronger balance sheet. Combined with our cash flow generation, we now have the flexibility to evaluate strategic investments to go our zero-emission, battery electric and hydrogen fuel cell business. We continue to see unprecedented government support for transit. This will help drive order activity and growth in the future. We continue to innovate and disrupt ourselves and the market. And we are excited about the future of NFI. We've had numerous new product launches and announcements to start the year, including the Level 4 automated New Flyer AV, the new battery electric ARBOC Equess and ADL's next-generation hydrogen fuel cell bus H2.0. Soon, we'll roll out the next-generation of New Flyer's electric vehicles and new MCI electric coaches. We are leading this evolution to a zero-emission future with strong 2021 guidance and 2025 targets that would see us drive top line growth and even better margin performance. We'll now open the line for questions. Jack, please provide instructions to our callers.Operator[Operator Instructions] Chris Murray with ATB.

[Christopher Allan Murray]

Paul, maybe I'll ask you this question because certainly, there's been maybe some changes in the market, even over the last 6 months to the past year, in terms of the number of folks that are either getting into the electric vehicle market in all kinds of different ways, call it, everything from the small cutaway stuff that you see ARBOC right up to school buses, transit buses, medium-duty buses. I guess, the question I have for you is, how do you think the market dynamics play? And what is looking like a market that could be much more fragmented over the next few years in terms of you guys maintaining share?

[Paul Soubry, President, CEO & Non]

Well, it's a good question, Chris. And, of course, we've all watched in with keen interest on what's happening with these recent SPAC announcements and all these EV buses or companies making a whole bunch of noise and excitement about entering the zero-emission vehicle space. The vast majority of them, if you really look into it, are truck or van or that type of oriented market. In our space, we have the core legacy competitors of New Flyer and GILLIG and Nova. We have ElDorado National that's part of the Red Group. We've seen in the last number of years, of course, Proterra is not new. They've been around for, whatever, 14, 15 years, but Proterra and, of course, BYD. The only real new player to our space that has announced anything, a direct competitor, what we offer, really is the announcements of rival SPAC and, of course, their plans, their vehicles are not in -- been sold or in service and plans to trying start to test those vehicles in a transit-type environment in the fourth quarter of this year. I'm not so sure I see a massively different competitive dynamic. Everybody has got their different strategies of how far down the chain they are in terms of battery, assembly, battery management system control, and so on and so forth. In the smaller space, that might be an area where we see some change going forward because some of these electric, let's call them, van or small truck producers, in theory, could migrate over to the cutaway type space. But at this point in time, there really isn't a defined direct competitor to our businesses, which only reinforces why we think, Chris, this strategy of optimizing our battery sourcing, our battery management type strategy. A great example, the fact that we're able to bring the Equess charge to market so fast is we basically took the guts and the brains out of the New Flyer Xcelsior zero-emission vehicles, and we're able to put that over to the Equess in record time. So I think that kind of broader strategy helps us defend from current competitors, but also any potential new competitors. I'm not so sure I agree with that we're going to see a much more different fragmented competitor base in the next couple of years in our space.

[Christopher Allan Murray]

Okay. Fair enough. And just one follow-up to that question. Does that, in a lot of ways -- I mean, you talked about smaller market, does that give you some more opportunities with ARBOC or the cutaway to actually start thinking about offering electrified options?

[Paul Soubry, President, CEO & Non]

It's a really good question, Chris, because as you know, that space traditionally, was buy up a chassis from GM, Ford, Freightliner. Whoever and slap a body on the back. And no disrespect to that space, but not the most attractive vehicles. And had a life span of 5 to 7 years type targets for cutaways. In the last couple of weeks, as we've launched this electric Equess, we've actually had an awful lot of conversations with our dealer network and their customers about actually shrinking the Equess even further and potentially even cannibalizing the large size of that cutaway space. And so that scalability dynamic that we're really focused on and the ability to really know how to build that medium-duty class, which actually looks and smells a lot like a heavy duty, I think might bode well for us. The game, and talked lots with the team at ARBOC and, Chris, at New Flyer and his tech team, but the whole dynamic about ultimately what will the core OEMs of Ford and GM do in terms of electric chassis offering, the jury is still out there of how that may impact the pure cutaway space in the smaller vehicles. Plus, as I said, the cutaway historically was a 5- to 7-year vehicle. Of course, you're going to put up $100,000, if not more, of batteries in it, you're going to want to think about the time horizon of the life of those vehicles, which could shift that market.

[Christopher Allan Murray]

Okay. That's great. A couple of questions for me. First, there are some media reports out this morning that the government of Canada might be looking to put some additional dollars into electrification of transit, and this follows on some announcements from the Canadian Infrastructure Bank, I guess, in the fall. Trying to understand if you can give us any color on -- if this is -- these are new dollars or recycled dollars? And I think originally, the goal was to build 4,000 electric vehicles, which when I think about your capacity and what you guys can do and even what's available, seems like a pretty big stretch. Any thoughts around that funding and how that actually might roll into something we see being a little more tangible for you folks?

[Paul Soubry, President, CEO & Non]

Well, it's a really good question. And I had the opportunity yesterday, Chris, to participate in that Canadian club luncheon in Toronto, like 1,000 participants listening online in the panel. Here's our view on that. First of all, I don't know -- we don't know the actual logistical details of how that kind of funding makes its way into the public transit environment. But here's the elevator speech as I see it, which I think really net is a fantastic movement for Canada. A, the Canadian government has -- the current liberal government made a commitment in their election plan to put 4,000 to 5,000 electric vehicles on the road in 5 years. Pretty ambitious, with no real details of how they are going to do that. B, they started off with this commitment to allow the Canadian Infrastructure Bank a dedicated $1.5 billion pool to think about how to facilitate transit agencies, pulling their CapEx forward and basically CID taking the risk on future savings. But really, turbocharging, if you will, the pace at which we can look at adoption of ZEBs in Canada, both vehicles and the charging infrastructure. And then, a couple of weeks ago, we saw that big announcement of the federal government to think about dedicated funding more in the line of what we see in the United States. All that, I think, bodes really, really well. I wouldn't expect us to see big orders in the next couple of months but quite honestly, that is a game changer for the Canadian public transit environment. And it isn't just a vehicle strategy, it is a green, zero-emission, environmental congestion type strategy all balanced or bundled into kind of one overall. It's the first time -- I've been here 12 years, the first time we've seen the federal government in Canada come out with that strong of a both of a statement, but also economics around making that happen. Devil's in the details, but I'll tell you, I'm really, really encouraged.

[Christopher Allan Murray]

Okay. Great. And then just one kind of technical question for me. On the 2021 guidance, you talked about a 31% effective tax rate. Guys, I mean, we just saw the U.K. increase, I guess, corporate taxes by about 5 points to 24%. Just any thoughts -- I guess, 2 parts on this one. One, does your 31% kind of incorporate that tax change? And then two, structurally, for years, you guys have always paid higher effective tax rates, and I appreciate part of that is how -- essentially New Flyer got structured a bunch of years ago as a public entity. But is there anything you guys can do to bring that back to what I would call a more normal rate, the most corporation space?

[Pipasu H. Soni, Chief Financial Officer]

Chris, this is Pipasu. So just kind of following up on that question. We are reviewing some options for the tax for bringing down that ULC, the 7 points that we've kind of incurred with that ULC. So we have been investigating that. We've got some options on the table. We're working that. I think from a tax rate perspective, we do feel like, from our perspective, that the 31% is in line with our expectations. And the thought process there is just a couple of things. Number one is, as you know, the tax rate does get -- the tax rate percentage just does get a little bit goofy from time to time, as you've seen. And the reason is because there's a couple of things that happen for us, as you may already know. Like, for this year, for 2020, we had the goodwill that was nondeductible, and then we had some FTC, foreign tax credits, and then our BEAT tax, which was a little bit of an issue. But we feel like for 2021, we should be fine with that. And then -- and just on the U.K. tax that you mentioned. The U.K. tax, that isn't effective until 2023 from what I've read so far.

[Operator]

Mark Neville with Scotiabank.

[Mark Neville, Analyst]

Maybe just on the 2021 guide on the ZEB. Can you maybe give just help everyone sort of bridge the gap, I think, it's 20%, 25% for '21. It was 9% last year, and I think it's 6% in your backlog. So just sort of help us sort of bridge the ramp and sort of how to think about that?

[Paul Soubry, President, CEO & Non]

You're talking about the percentage of our vehicles that are zero-emission?

[Mark Neville, Analyst]

Yes. I think it's 6% of your current backlog, but it's 20%, 25% of the guide for manufacturing in 2020...

[Paul Soubry, President, CEO & Non]

I see what you mean. Yes. Yes, so there's a couple of things that are happening. I think -- and Mark, we talked a little bit about this in the past in our material in becoming more and more prominent. First of all, the Canadian customers don't have significant backlog. Historically, they haven't been really multiyear contracts. Some have, but most of them have been kind of 1-year buys. So that wouldn't be in the backlog and therefore, would be any orders on zero emission in Canada would be additive to that percentage. The second issue is the United States, obviously, you have the federal funding, you have the changes in the FDA rules a couple of years ago where you can't just put a whole bunch of options on there and then shop the options around. They have to be intended for a specific audience of customers. Consequently, what's happened in the last 2 or 3 or 4 years is the advent of state schedules, which means that the pick one, the state of Florida puts together a schedule, California has them and others, where multiple operators can buy off a state approved schedule. And, of course, because those schedules don't have defined quantities, they are effectively a buy, and in some cases, potentially multi-year. They go immediately to a firm order. They don't sit in an option backlog to start. And, of course, they're only announced that point of not of the signing of the state schedule, but actually at appeal as received from a customer. So those are the biggest things. The other part that I would suggest in the next couple of years is we're starting to see -- we will see more pure zero-emission RFPs hit the street, including both electric vehicles but also fuel cell vehicles.

[Pipasu H. Soni, Chief Financial Officer]

Yes, Paul, I'll just add to that, the -- what you mentioned about Canada is a similar experience in the U.K. where the operator is not so much in backlog on the annual basis.

[Paul Soubry, President, CEO & Non]

That's true. That's true. So they go immediately to the calc.

[Pipasu H. Soni, Chief Financial Officer]

And then I would say too, Mark, that more of the ZEBs are in our firm backlog than our option backlog because they had that kind of shorter tenure.

[Mark Neville, Analyst]

Okay. Okay. Maybe just the -- sorry, the Infrastructure Solutions business. Again, I think that's the first time we get a number on that. So I appreciate that. I guess, one, I'm just curious sort of the growth you saw in that business this year? And, I guess, just bigger picture, when you think about that business, I mean, I don't know if my math is correct, but maybe $25 million might be roughly 10% of your ZEB sort of manufacturing revenue. Is that sort of how we should think about that business? And is it something that grows alongside ZEB? Or is there -- or would this something that maybe grows in excess of sort of what you see in the manufacturing side?

[Paul Soubry, President, CEO & Non]

Yes, it's a really good kind of question and insight, Mark, because -- and we'll take half good luck and half smart people in our team. But we kind of sell-in the Infrastructure Solutions a couple of years ago when we got frustrated with the first deliveries, and the customer may not being as ready or the installation as correct or efficient relative to the vehicle deliveries. So that business has actually really started to take off. Rough order of magnitude, maybe 60% of all of the ZEBs competition and where we win, there's a zero-emission infrastructure requirement as part of that RFP. So what Chris and team have done so far is effectively being able to say to the customer, if you want to include infrastructure in your RFP or a long -- in your bus RFP or alongside in a separate RFP, absolutely, we will participate. There are some customers that have a much broader city strategy, for example, zero-emission refuse vehicles or vans or heavy equipment that they're having a broader strategies so they've aggressive position at installing their own chargers. So I would suggest as far as we can kind of tell the next couple of years, as the more customers take on zero emission, that we're going to continue to see that 50% or 60% of the time will be involved in the charging strategy. The bigger discussion then long-term is do we offer that as a service in itself independent of a bus? And is there even more of an expansion into a model where we work with financiers or other scenarios, where, in addition to just responding the RFP and putting the chargers in place, of course, the design, the optimization, working with them on whether it's depot or on-route chargers, but a broader strategy of bringing together a whole package, which includes service, it includes financing, it may include telematics, energy optimization and so on and so forth. I'd say it's a safe to watch for us. Clearly, it's a critical part of the success of the vehicles. It's not like the old days where you just put diesel into a vehicle, wherever it comes from, or Life's Good. There's a lot of complexity here, and it's a complete game changer for transit agency who never have that skill set inside their machine to this point in time, at least, from a bus perspective.

[Mark Neville, Analyst]

Okay. And on the -- maybe the 30%, 40% that, I guess, they're doing it themselves or have their own strategy, like is there a -- are you? Or is there an opportunity where you're providing consulting services around that, even if you're not maybe selling your infrastructure with it?

[Paul Soubry, President, CEO & Non]

Yes. Let's put it this way, Mark. It's really more advisory and consultation upfront as part of the kind of selling and marketing and relationship process. But once -- New York City, for example, decides to put in the charger, they have way more resources and a way broader, and are dealing direct with the charging providers and the energy utilities and so forth. But it's -- I wouldn't say no, but it's not going to be a prominent part of our business.

[Mark Neville, Analyst]

Got it. Maybe just one last one, this is for Pipasu. Just on the free cash flow guidance or maybe a guide for free cash flow for 2021. We've got the EBITDA guide. I think we've got CapEx guide. I think you said working cap would be a small investment this year. And then just on the tax, the 31% effective tax, is that sort of representative of what your cash taxes will be? And maybe just thoughts around interest expenses, post the equity offering?

[Pipasu H. Soni, Chief Financial Officer]

Yes. No, I would say that, that should be in line with what we should expect from our perspective.

[Stephen King]

Yes. So sorry, I think, yes, like we said, do expect a small investment in working capital for the year. I think, mostly, as we said, driven by the kind of more heavy investment in zero-emission buses. As Pipasu just mentioned, yes, I would say that 31% cash tax kind of equivalent to regular tax. And I think, overall, from free cash flow, the historic profile has been kind of 50% of adjusted EBITDA. But now we've got higher interest expense in 2021. So just factor that into [indiscernible].

[Pipasu H. Soni, Chief Financial Officer]

Yes. I think, Mark, just the working capital piece, which Stephen alluded to. We're expecting the battery cost to be obviously significantly more. That's why we're talking a little bit more about, and then the testing takes a little bit longer with the EV. So that's the thought process with having just a little bit of a working capital play that we -- or increase that we're going to have to deal with.

[Operator]

Nauman Satti with Laurentian Bank.

[Nauman Waqar Satti, Diversified Analyst]

So my first question would be, what's the feedback that you guys are getting from your customers, primarily the transit agencies. Are they comfortable with what they have right now? Or are they sort of waiting for some of these stimulus packages before they can sort of put in the orders?

[Paul Soubry, President, CEO & Non]

I think that's a good observation. What these guys have gone through hell this past year with trying to continue to provide service and driver issues and reduced passengers and local funding dynamics and so forth. Every transit agency has, in some cases, a 5- or a 10-year fleet replacement plan anyway. And they've been updating them. Of course, the political pressure and the public pressure the last couple of years to think about zero emission, has them, in many cases, doing pilot or demo projects and so forth. As they get back on their feet from both more normalized operational perspective and start to think about rejuvenating their fleet replacement plans, the stimulus or economic support packages in Canada, the U.K. in the U.S. are going to have a massive impact what I would suggest is their pace or their desired pace of adoption. Keep in mind that these are -- most of our business is public transit agencies. Those vehicles have been funded by taxpayer dollars. Many of those vehicles have useful life left to them. And so, it's going to be a very difficult political sell to take vehicles off the road that still have economic or useful life just to jump on to a zero-emission dynamic. So those things all will play into, which is why we've been very, I would say, cautious or clear in our direction about adoption. And it is, in our minds, a revolution. It's not going to snap back to massive volume or demands in the short term. It's going to be a replacement strategy over time. There is no question though that zero emission, again, whether it's battery electric or fuel cell electric or, in some customers, trolley electric, is going to be take on more and more promise as part of that decision.

[Nauman Waqar Satti, Diversified Analyst]

That's great. And just going back to the infrastructure solutions spot. The $25 million that you have there, is there some sort of recurring revenue within there? Or is that just the services that you offer and you charge it? And just maybe, I'll add on there that once the zero-emission sort of buses grow, do you see that any -- that would impact your aftermarket business because I've read that generally EVs require less maintenance than traditionalized engines?

[Paul Soubry, President, CEO & Non]

Well, it's a good question. So first and foremost, the service that we provide today is something as follows. We respond to an RFP. They want us to assess their situation. They show us the location of their vehicles, they show us their roots, they walk us through their root strategies going forward. We then would propose whatever chargers make sense, whether it's at depot or at -- on route. We would work with the various suppliers to try and get the right combination of price, performance, location, support and so forth. But the vast majority of our infrastructure solutions revenue is getting paid to install the chargers. Source them, install them, get them up and running and so forth. Whether there will be ongoing revenue stream associated with servicing or supporting those chargers is, let's call it, still up to be determined. The second part of your question is there is no question that over the next 20 or 25 years, our parts business is going to be impacted by vehicles requiring -- electric vehicles as zero emission requiring spare parts. I'll caution you that though, however, the vast majority of the parts that will be impacted by zero emission are things like engines or say, brakes. In both of those cases, we are involved in the spare parts support, largely in a brake dynamic where we're the largest provider of spare brake parts in America and Canada. But on the engine side, companies like Cummins or in the air conditioning side, Thermo King and all these other guys, they have their own spare parts support infrastructure. And so the transition to the zero emissions will have less an impact on our business. But there is no question, our spare parts business is a long term, will be inhibited, which is why we've looked at different revenue sources, whether it be infrastructure solutions or monitoring or telematic support for those kind of things that have revenue potential in them.

[Nauman Waqar Satti, Diversified Analyst]

Great color. And just maybe last from my end. So I remember you mentioned that you're for New Flyer, your weekly production E-units had gone down to about 45 per week. In the first quarter, is that still the case? Or has it improved? And maybe a sort of bigger picture on the production side. So your capacity is about 8,000 units per year. I'm just wondering that's -- like is there a room to sort of rightsize that capacity? I would assume that in the coming future, we don't see that you're going to hit that sort of rates.

[Paul Soubry, President, CEO & Non]

Yes. So 2 questions. The first, yes, our rate of production is still approximately 45 a week. If you were in the daily meetings at our company, you've seen that we literally are adjusting production schedules based on orders, auction conversion, state schedule buys and so forth as well as customer decisions on when to take them and so forth. So we're adjusting that schedule literally every week. And the trick then, and the strategy through '21 and into '22 is to ensure we have level loading across our plants. Way harder than it actually sounds. The second issue is the gap between what we currently build and our max capacity, there's lots and lots of variables. The percentage of the different types of vehicles has an issue on labor efficiency. A single bus or an articulated bus, but then has 2 production slots, has a massive impact on the production efficiency and so forth. So not to be too simplistic, but mix and volume and propulsion type has quite a dramatic impact on the ability to run efficient factories. Your insinuation about can we take out cost or rightsize, that's exactly what we have been doing through our NFI Forward initiative, both on the cost of running factories, if you will, as well as the overhead and SG&A associated with it. But that's built into our forecast that we are effectively doing that.

[Operator]

Cameron Doerksen with National Bank.

[Cameron Doerksen, Analyst]

So maybe you can just talk a little bit about your degree of visibility on the back half of 2021 because you have sort of highlighted, as is usually the case, higher deliveries in Q3, Q4. So at this point in the year, what's, I guess, your degree of confidence in Q3 and Q4, what kind of visibility do you have?

[Paul Soubry, President, CEO & Non]

So as you know, every business is different. The motor coach rule effectively because we're not really building for private customers right now. We are effectively -- slots are all sold in terms of -- as an execution strategy. The same, to some extent, in the cutaway and the Equess at ARBOC, although they have still some open slots and some variability in, let's call it, Q4. In the New Flyer case, we probably have the most fidelity, just given the nature of the bid dynamic, the sold slots, the customer orders, awaiting purchase orders and all these other things. And as you know, we don't release our orders until we actually physically get a purchase order from the customer. I would suggest that when we look at, for example, Chris' forecast for the year, and his upside, downside, it's probably the tightest range of any of our businesses. So I would say we have a pretty high degree of confidence of being able to sell the slots that we have still open, which either come from a new award or largely from an auction conversion or, in some cases, a state schedule kind of buy. In the U.K., I have to tell you, the last 2 or 3 months, Paul Davies has done a fantastic job of solidifying the first 3 quarters of the year in terms of its actual build schedule and the fourth quarter is starting to come into clarity. The parts business has actually started off maybe a little bit better than we thought in the first quarter compared to the fourth quarter, which is actually quite encouraging. So all that to say, Cam, there's always risk in our business plan. We gave you a range of kind of $220 million to $240 million for the year on adjusted EBITDA, but I would suggest we're in a better place this year than we were last year at this time on the confidence of filling the slots and executing to it.

[Cameron Doerksen, Analyst]

Okay. No, that's very helpful. And just a second question for me. Just on Buy America. I mean, there's been a lot of news in the press about the Buy America provisions for any infrastructure spending in the U.S. Obviously, you guys are fully Buy America compliant. But is there any, I guess, anything you're hearing that would suggest there might be any changes to Buy America percentages or perhaps with a new long-term kind of FAST Act type build there might be any change with buy America? Just any sort of thoughts around what you're seeing on that front.

[Paul Soubry, President, CEO & Non]

Great. It's a really good question, and we've spent an offline time talking about it. Of course, you and the others will remember, we went from 60% U.S. content to 65%, now to 70%. The rules around what physically happen in the United States have not changed. I can tell you with a pretty solid degree of confidence that our intel, our lobby efforts or work with APTA and the trade associations has no -- we don't see anything yet that there's any words or draft legislation or anything about changing the percentages or changing the final assembly words. I will caution, our readers, our listeners, our investors that in many cases, the media will confuse Buy American with Buy America. And, of course, we live in the Buy America rules of that 70% in U.S. content and finalization. Buy American, it gets often bumbled to get. That's really around infrastructure or physical roads and bridges and those kind of things. And I think that's an area we're going to see potentially more changes under Biden and Harris. But the short answer is, at this point in time, Cam, we haven't seen or heard anything that would change the rules of the road for us going forward.

[Cameron Doerksen, Analyst]

Okay. And just on that, I mean, obviously, with ZEBs becoming more popular, there's changes in supply chain or the value of supply chain. I mean, is there any, I guess, adjustments to the rules that would reflect maybe the eligibility of certain components in a zero-emission bus?

[Paul Soubry, President, CEO & Non]

Well, this is, again, fantastic and very insightful question because when we first started the ZEB journey, we chose our primary battery supplier, a company called Axalta in Michigan to be U.S. manufactured cells going into a manufactured module that then shows up at our place that we put into a battery pack and install into the buses. And our competitors were sourcing theirselves offshore and then packaging them in America. And that is -- as per the Buy America rules, a cell is a subcomponent. And therefore, as long as the component itself meets 70% content, we're fine. So what you're going to see is our strategy about self-sourcing, where it comes from, how we package it, who it comes from is going to evolve over time. But it sure feels like the U.S. government, up to this point in time, has not changed their rules of their minds around origin of cells. Having said that, we've also seen President Biden have lots of discussion, executive orders around everything around mining as well as cell manufacturer, which clearly, the United States is behind the rest of the world on. That may change in the future. But our strategy there, as you know, is not to be manufacturing cells. We want to be the smartest and most agile buyer of cells and be able to adapt both from a technology as well as cost per kilowatt hour type strategy. And I'm really quite encouraged by what David White and our team and Chris Stoddart have been doing on that front. I think we'll be very competitive.

[Operator]

Daryl Young with TD Securities.

[Daryl Young, Mining Research Associate]

Quick question for me on the longer-term target of $400 million to $450 million of EBITDA. You sort of touched on parts of the market share question that I have related to it with Chris' question, but just trying to get a sense of what assumptions went into that, and what makes it -- I think you refer to it as a conservative target. So maybe just where some of that upside comes from?

[Pipasu H. Soni, Chief Financial Officer]

So this is Pipasu. So let me kind of walk you through how we did this. So one of the things we did was we went through each individual bus or region or whatever the case may be, right? And we looked at the transition of what we think from each one of our product categories, right, each one of our buses and what we would expect in each year and then what the transition would be for those. And I think where we come back to saying, you know what, we feel comfortable with that as we stand today is because a couple of things, right? We took kind of our midpoint approach through that process. So it was fairly detailed when we went through that process. Number two is, I guess, where I go back a little bit is with our NFI Forward initiative and the cost savings we're going to get out of that, we should start getting some volume leverage as some of our markets pick up. And we took your conservative approach on when our markets will pick up on that. So that's the thought process. A couple of quick things is sometimes if you can do the backward math, you would say we did about $330 million in 2019, if we did a full year of ADL, and then we add the $65 million, $67 million of NFI Forward, you start getting in that $400 million range. And I know there's a mix shift in some other things, but that's kind of why we say we feel good about the number.

[Daryl Young, Mining Research Associate]

Okay. Great. And then just a second question. In the past, on the EV side, you referred to the dollar margin being roughly the same as a traditional diesel bus, but the percentage margin declining. Would there be an expectation that over time, as battery cost come down, you maybe be able to recapture some of that margin and you'd see a margin expansion leading up to that sort of 2025 target?

[Paul Soubry, President, CEO & Non]

Yes, that's exactly part of the way we work our model, to some extent. In the diesel environment, we buy a diesel engine, we get an actual, we get a transmission, there's the competitive dynamics, the cost is the cost, the prices is the price, we embed it. The way we build our pricing up from a kind of a cost plus, if you will, doesn't allow for much margin as the bus gets more expensive. In the battery world, we got some new dynamics. A, the battery cell costs are coming down and will continue to go down, which goes back to my point previously to -- I can't remember if it was Mark's question, but we don't want to get too deep on any one cell supplier or any one battery management packager because we want to be as agile as we can over the next 10, 15 years to make sure that we got the best technical solution, but the best price solution. So there is margin opportunity in that. The second dynamic is we now have margin opportunity we didn't have before. We make our own battery, let's call it, pack enclosures. We have other fabrication capability inside that whole value chain. We can either make or buy certain software or battery management software, all those kind of things. Today, we're starting to see the zero-emission margins look a little healthier than we may have originally intended. The question is going to be going forward on competitive intensity, how much of that savings are we going to build to keep and how much we're going to have to handle over the customer to ensure that we're market competitive? But I would tell you, today, compared to a year ago, the confidence that our battery -- we can maintain our margins in a battery world is, in fact, improving compared to conventional, is probably higher today than it was a year from now as that game starts to get more mature, but also as the volumes start to happen.

[Pipasu H. Soni, Chief Financial Officer]

One thing. Just to follow-up on that. I think just to make sure that what we did say was our margin dollars for our EVs are higher than our conventional, right? And the percentage was lower. So just for clarity sake.

[Operator]

Maggie MacDougall with Stifel.

[Margaret Anne MacDougall, Head of Research]

A couple of questions here. First one, a bit of a housekeeping question. So your NFI Forward cost savings looks like you found about $2 million in change laying around somewhere. So wondering if you could just give us a bit of an update in terms of where you're finding some excess savings? And then perhaps a bit of color in terms of cadence of savings that you should expect to occur as we go through 2021 and 2022 to help with the modeling executions?

[Pipasu H. Soni, Chief Financial Officer]

Maggie, this is Pipasu. So let me -- I'll give you a little bit of a high level. We are finding a lot of savings in our NFI Forward, right? But we are taking a little bit of a conservative approach. So our conservative approach is really when we think about our material savings, we are finding savings in the EV space, et cetera, as we kind of move forward. But one of the things we're doing is we're taking a little conservative approach because as we think about the competitive dynamics, we're trying to determine if some of that is going to be given into price, right? So that's why just slowly ramping up from the 65 versus going all-in until we kind of see how those dynamics play out.

[Paul Soubry, President, CEO & Non]

Maggie, there's all kinds of subprojects under NFI Forward. We call it mesh with the combination of the parts businesses of ADI and NFI in North America. There's the rationalization of some of our fiber glass manufacturing facilities, there's the combination of our ARBOC and ADI North American manufacturing facilities and so forth. So, of course, we put plans in place, we do the math. But as we've been executing on some of that stuff, the size of the opportunity is starting to look a little bigger on a few of those projects. And that's why, as Pipasu said, we've inched it up from kind of a 65 to 67. The original cadence that we provided of how much we'd see in 2020 versus '21 versus '22 is still approximately the same. The target -- the project's actual execution are kind of right on track from a milestone perspective and slightly ahead from a savings perspective.

[Margaret Anne MacDougall, Head of Research]

Okay. Great. That's very helpful. Second question here sort as back a bit onto that Chris asked the top of the call. He noted taxes increasing in the U.K. and we're looking at commodity prices basically across the board, with the exception of maybe a couple up significantly. We haven't yet got to the point of wage inflation, but there's a proposed minimum wage increase in the U.S. potentially down the road, and it's been a very long-term since we had inflation of any kind, but it is something that seem to turn up there. So I'm wondering if you could help us understand how wage and raw material input cost inflation can a, be passed on; or b, perhaps dealt with in another manner?

[Paul Soubry, President, CEO & Non]

It's a good question. So as Pipasu said, the broader -- the first part of your question, the broader -- or effective tax rate, there's a delay before the U.K. tax increase that comes into 2023. As you said, who knows what happens in in Canada, U.S. over the next period of time. We are taking a broader look at our ULC structure and the tax structure of the business to see. We've got some ideas about how that may be able to be changed or modified going forward. Stay tuned to look for that. From a cost perspective, remember a couple of things. First of all, labor is probably 8% to 10% of the cost of a bus. So it has an impact, if labor goes up, but it's not a massive impact. The second issue is that the vast majority of what we buy is components or subcomponents or parts as opposed to pure raw material that we buy steel or aluminum or carbon steel or stainless steel. So when we put our bids together, remember that what we do is we will get a quantity that's firm and a quantity that's auction, we'll know the configuration. We then will basically get a cost-to-bill of material, which includes multiyear pricing, and then we'll add a targeted dollar margin. So we effectively bid based on kind of a cost-plus dynamic with inflation effects impacted in it. Again, the raw material in a bus might be $20,000 plus or minus. It's an impact, but it's not massive. So we work with our -- the mills and the providers to get as far out pricing as we can. Of course, that dynamic is very short-term in orientation. So then the real risk becomes our contracts that we've already got in place that have options. The good part of those contracts is almost all of them, if not all, have some kind of purchase price escalator that allows us to actually increase price based on inflation. So if somebody had a very simplistically, a new contract in 2020, they had options for '21 and '22. We have price escalators if they convert those options in those out years that handle the vast majority, if not all, or in some cases, even more than inflation. So we work off a purchase price indices. So it's not a perfect science, but we're pretty well protected around the risk associated with those things.

[Margaret Anne MacDougall, Head of Research]

Okay. Great. And then one final question for me. Just switching gears. Looking at the motor coach industry in North America and the U.K., it's obviously been having a bit of a recession for, at least, a few years now. Clearly, when the opening is happening in many parts of the economy, although I, don't know if it's smart or not, but it sounds like Texas is just ripping the band aid off and going fully open. And so, I guess, my question here is, there's likely to be a gradual recovery in your motor coach business as things continue to sort of normalize. What is competitive the landscape going to look like by the time we get there? I know there's been some challenges in the industry with some of your competitors, but I'd really be curious to hear your view on that and how that may impact your positioning as things improve?

[Paul Soubry, President, CEO & Non]

Yes. This is one of the things we spent an awful lot of time on. So if we just go back into the beginning of 2020 or even into 2019 and before, the motor coach market in North America is not one homogeneous market. There's subsegments, right? So there's the tour and charter guys, which is probably half the market and these are the guys who are moving sports teams or church groups or, in some cases, regional tour and charter, in some cases, national and so forth. That market has been decimated. Nobody's moving. The other major market is the line haul guys, the Greyhound or the Megabus type people. And of course, universities have been stopped, inter-cities kind of stopped. So that place has been decimated. And then the other kind of segments are the government-type operators of motor coaches, which has continued, but the limo guys or the employee shuttle type things. So there's a couple of things in terms of the market and our personal dynamics. A, we stopped building commercial motor coaches and stopped it if we're not doing it now, but it's not like we've stopped. We've just idled the production lines. The second thing is we have finished goods inventory, not as much as -- more than we would have wanted to but again, COVID made that market stop overnight. So we've got something like 160 or 170 motor coaches on the shelf, if you will, in various configurations. So as the motor coach market starts to recover, our ability to sell a finished product relatively quickly is pretty high. And, of course, that's one place that we're actually quite encouraged. Last week, Chris, Ian Smart and I and our MCI team hosted a conference call with about 200 different operators in the United States and Canada and had a conversation about how do they feel about the market, what's going on. There is actually a little bit of a sentiment of more positive excitement of recovery later this year, where 2, 3, 4 months ago, I would have told you, it wouldn't have until 2022. So fingers crossed. The fourth part of that discussion is, as you'll remember, last year, we made the strategic decision to liquidate our preowned coach pool. That was roughly 350 units. And so, unfortunately, we took a balance sheet write-down, we received the cash, we got rid of those units. The good news as there's recovery, in addition to having units on the shelf or in the lot that we can sell, we've now got a clean balance sheet associated with used coaches and that we can be a little bit more creative and flexible on trade-ins going forward as that market recovers. So I think we've done a really good job of containing the cost, a really good job of optimizing the combination of New Flyer and MCI into one operating business. There's lots of things that we're learning about more technology transfer, IT harmonization and so forth. When that market recovers, and I firmly believe it will, that we're in, I think, a really good place. The competitors, one of -- the biggest one of our competitors is a privately held company called ABC that's an importer of Van Hool coaches. I have to believe they're having some interesting times. So from their balance sheet and cash flow perspective. The other one is Prevost, which is owned by Volvo, who continues to kind of participate in the marketplace. And -- I don't know. we'll see how it goes. The exciting part is we're also ready for the electric dynamic when it hits motor coach. And it's already started. We already have orders for electric coaches that we're actually building right now. So it's going to be a slow recovery, but I believe it will recover in the next couple of years, and we're in a good place.

[Operator]

Jonathan Lamers with BMO.

[Jonathan Lamers, Analyst]

Paul, appreciate all the commentary on the competitive picture for motor coach and the New Flyer. On Alexander Dennis, how do you see their newer ZEB products as competitively positioned in terms of price and value for the U.K. and Europe?

[Paul Soubry, President, CEO & Non]

It's a really good question, Jonathan. Here's a couple of things. We were first. Alexander Dennis, at that time, the strategy was to team with BYD, and that's now going 3 or 4 years back. That is going really, really well. The partnership where BYD provides the chassis, we bought it, delivered to the customer and so forth. The competitive pressure from a couple of the other guys in the U.K., namely Optare and our friends at Wrightbus. Wrightbus, as you know, went through kind of a Chapter 11 type event, I guess, 1.5 years ago now. We are in a really good place with the size of vehicles and the type of vehicles, meaning single deck or double deck. We made a deal with BYD that we actually will now start to build their chassis. So it'll be a far more of a build in U.K. type position. And even better now that the government is stepping up to provide economic support to private operators for zero-emission adoption. It isn't as firm and as hard as, if you will, in the United States with Buy America percentages, but there's a build in Britain type mentality around those awards. And so I think what Paul and the team over there has done is really well -- really good in terms of the quality of the product, but now the deeper integration with Alexander Dennis. And so the exporter -- sorry the importers, if you will, into the U.K. have not, up to this point, some of the other Chinese type players made any real major traction. In Europe, as you know, we had a couple of key targeted areas. We got into Switzerland, we're now into Northern Island, we're into Germany and the strategy there is going to be different. It's going to be integral type Alexander buses -- Alexander Dennis buses with our own battery strategy. This is where the partnership and coordination with New Flyer comes into play about how we package them, the strategy associated sourcing cells, battery management systems and so forth. But remember, in Mainland Europe, we're very much targeted at this point as opposed to mainstream. Longer term, I really quite like Alexander Dennis' competitive position.

[Jonathan Lamers, Analyst]

Okay. And a couple of questions for Pipasu on the guidance. Within the new fire forward cost savings numbers that you've provided to us, are you able to break out those by segment, what portion will be in parts versus manufacturing?

[Pipasu H. Soni, Chief Financial Officer]

Yes. That one, we do have that kind of information. And Jonathan, we may want to follow-up with you on that one.

[Stephen King]

Yes. I think, Jonathan, in the -- in our MD&A, we break down within the manufacturing and aftermarket segment, what was savings for 2020. So if you -- in the detail of the MD&A is the breakdown between the 2 segments. And then it kind of keeps that similar profile, I think. But as things go on, we'll continue to update, I guess, on exactly where the savings are. So every time in our MD&A we'll report kind of where the savings were recorded. And again, the mix to between the areas as Pipasu mentioned earlier, materials, manufacturing overhead and then SG&A.

[Jonathan Lamers, Analyst]

Okay. And on the 2021 EBITDA range, does that include government grants and subsidies? And are you able to provide a sense of what range might be reasonable for this year?

[Pipasu H. Soni, Chief Financial Officer]

Yes. So I mean, that's something that's a little bit variable right now. In some of our cases, what we do know today, we are looking at those subsidies into our...

[Paul Soubry, President, CEO & Non]

To Jonathan's point, we have included an assessment or an estimate with, off the top of my head, an exact number of what -- whether it U.K. furrow support or the SUS program in Canada, it is embedded in our $220 million to $240 million. So it's not additive. The issue, I guess, will be ultimately what do we achieve or accomplish as opposed to what our estimate was.

[Stephen King]

I don't think we've provided a guidance on how much we think we'd get in 2021 specifically associated with SUS.

[Pipasu H. Soni, Chief Financial Officer]

No, we have not.

[Jonathan Lamers, Analyst]

Okay. I'm just think it's relevant for rolling forward to 2022.

[Operator]

Kevin Chiang with CIBC.

[Kevin Chiang]

If I could go back to maybe some of the comments around maybe looking at strategic investments in your zero-emission bus portfolio and just when you look across the landscape of transportation, there seems to be obviously an acceleration across multiple modes to electrify transit. Just wondering how important it is, as you sit here today in early innings, to secure that supply chain. This morning, you saw GM was looking to build a second battery plant with LG Chem. And just given the size of the trend a bus market, which is arguably relatively small compared to the total vehicle market, is there a necessity on your part to kind of secure that supply chain so that you're not caught in a situation where you're not able to get battery modules to eventually be build battery packs in your facilities? And are you seeing anything now, just given there seems to be some supply chain constraints already here in 2021?

[Paul Soubry, President, CEO & Non]

So we have not been disrupted on cell supply today from Axalta or anyone [indiscernible] batteries from today to our business, nor the BYD supply of chassis to our friends at Alexander Dennis. So that's kind of where we are today. Your comments about surety of supply going forward as everybody's chasing electrification is absolutely valid, and so we are actively and deeply engaged in wherever we go on self-sourcing that we have, not only a relationship with ultimately who might package those batteries, but ultimately, securing our own portion of that source of supply. That is absolutely fundamental to our business because you're right, that the battery electric portion of buses compared to the demand for vehicles, whether it be cars or trucks or whatever else, is going to be huge. So we're deep in that, and that is effectively a core competence or a strategic imperative for our business to ensure we have that supply.

[Kevin Chiang]

And when you think about battery, I guess, the electric battery supply chain, if you look at the battery packs now, you've done a good job historically of kind of in-sourcing more of the manufacturing so they can capture more margin. Can you continue to move up, what I'll call the battery supply chain? Or is, for example, can battery modules, just not something you want to get into? Or is that something you're also looking at today?

[Paul Soubry, President, CEO & Non]

Well, I would say, no, Kevin, and here's why. We've seen all these ZE bus -- ZEB bus companies, all these SPACs and whatever make all these unbelievable promises around volume of vehicles, but also battery pack manufacturing and infrastructure or energy and all this other stuff. Look, at the end of the day, we need battery going on our bus just like we need a window or a seat. And the pace of change, not only the technology, the energy density, the range performance, the health life of a battery as well as the price is going to continue to change. And so our strategic decision has not to be there, but to be the best, smartest buyers of that stuff and the most agile so that we're not overly pregnant or married to a certain supplier. At the end of the day, no disrespect to all these cell guys, but they're largely going to end up very similar in commodities. And we need to be really, really smart and agile of how we move that. And as your question previously, the ensuring we have source of supply is absolutely fundamental to our business, and that's what we're focused on. But I don't think you're going to see us moving too far down the chain and investing money in something that's changing at a rapid pace with some pretty big gorillas and a whole bunch of other guys trying to play in that space. We want to be an agile and efficient as possible.

[Operator]

There are no further questions at this time. I'd now like to turn the call back over to Stephen King for closing remarks.

[Stephen King]

Thanks, Jack, and thanks, everyone, for your questions and for joining us today. Before we wrap the call, we will remind everyone that we will be holding our Annual General Meeting virtually on Thursday, May 6, 2021. We will also issue our Q1 2021 results on the same day. Details on how to join the AGM will be posted to our website. And finally, before we wrap, I just wanted to mention that we are launching a new ESG component of our website. So we should have that up soon, and we're -- we'll have our latest ESG report, will be published in May 2021 as well. Thanks, everyone. Have a great day.

[Operator]

This concludes today's call. We thank you for your participation. You may now disconnect.