NFI Group Inc. (NFI) Earnings Call Transcript & Summary

Good day, and thank you for standing by. Welcome to the NFI Group's Third Quarter 2022 Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Stephen King, Vice President of Strategy and Investor Relations. Please go ahead, sir.

Thanks you, Norma. Good morning, everyone, and thank you for joining us. Joining me on today's call are Paul Soubry, President and Chief Executive Officer; and Pipasu Soni, Chief Financial Officer. Today, we will walk through our Q3 2022 quarterly results, provide an update on discussions with our banking syndicate and government partners with respect to liquidity and covenant relief and then provide comments on the broader macro environment and our outlook. Following that, we will open the call up for analyst questions. If you have not been able to access the dial-in option of this call, please pose your question in the webcast chat, and we will read them aloud from there. This call is being recorded, and a replay will be made available shortly. We will be using a presentation that can be found in the Investors section on the NFI Group website. We will be moving the slides via the webcast link as we present this morning, and we will also call out the slide number as we go through the deck for participants on the phone and on the webcast. Starting with Slide 2, I would like to 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. Please also note that certain financial measures used on today's call do not have standardized meanings prescribed by International Financial Reporting Standards, and therefore, may not be comparable to similar measures presented by other issuers. You're 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 were presented in U.S. dollars, the company's reporting currency. And all amounts referred to are in U.S. dollars, unless otherwise noted. On Slide 3, we have included key terms and definitions referred to in this presentation. Of note, zero-emission buses or ZEBs consist of battery electric, hydrogen fuel cell electric and trolley electric buses and coaches. [indiscernible] EU is the term that we use for both production slot and delivery statistics. The majority of our vehicles represent 1 equivalent unit, while an articulated 60-foot transit bus takes 2 production slots and therefore, equals to 2 equivalent units. On Slide 4, for those of you new to the NFI story, we are a leading independent global provider of sustainable bus and motor coach solution. We are market leaders in our core markets, which include heavy-duty transit, motor coach and aftermarket in North America, heavy-duty transit and aftermarket in the United Kingdom, and we are the world leader in double deck transit bus. We operate under our sustainability pledge to deliver a better product, a better workplace, a better world. Further details on our environmental, social and governance programs can be found on our website and our annual ESG report. Slide 5 shows the breadth of Enterprise Solutions, which includes the vehicles themselves, charging infrastructure, telematics, aftermarket parts and service, training and workforce development and finally, financing solutions where required. We provide highly customized engineered-to-order buses and a suite of bespoke mobility solutions to meet the great needs of our customers. I'll now pass it over to Paul.

Thanks, Stephen, and good morning, everyone. If my voice sounds a little rough this morning, I apologize and we'll try to speak slowly and clearly. As if my luck couldn't get any worse despite 4 vaccinations, I tested positive for COVID this past weekend for the second time. And so I've been working remote. I'm now on Slide 6, and we'll try to summarize the quarter. As we explained during our October 24 update, the supply chain disruption and supplier underperformance has been a challenge for our business since mid-2021. But recent supplier delivery misses and decommitments on critical parts have compounded an already difficult situation. Let me be clear from the onset. Overall NFI doesn't have a demand problem. We are short critical part to efficiently build and deliver contracted buses. The supply disruption has led to lower than planned line entries, completions and deliveries in the quarter and forced us to change our plans once again at increasing production rates in the fourth quarter to fulfill contracted orders. It's also resulted in further growth of our off-line work in process inventory, ending the third quarter with over 400 buses that have been built but missing certain critical components. We're now focused on delivering as many of these off-line vehicles as we can before the year-end. The challenging macro supply environment is not unique to NFI. That's primarily electrical subcomponents which include microprocessors, electrical connectors, wiring harness and other items remain constrained globally, which impacts us and all vehicle manufacturers. We know for a fact that our peers in the bus manufacturing space are also facing these supply disruptions and also experiencing the buildup of incomplete work-in-process and have also had low line entry weeks. While we anticipate these challenges to continue in 2023, there are signs of improvement, which we'll discuss later on in this call. NFI continues to lead the evolution to zero-emission mobility in buses and coaches. In the third quarter of 2022, 13% of our overall deliveries were zero-emission buses, and they make up 21% of our backlog. And NFI electric buses and coaches have now completed over 85 million electric miles in service. In addition, our infrastructure solutions team has now installed over 330 EV chargers, a base of over 55 megawatts, and we expect to install at least 120 more chargers in 2023. In our aftermarket segment, revenue was flat year-over-year. However, adjusted EBITDA was down slightly due to unplanned freight surcharges and some higher input parts costs. We were able to pass on the majority of these increased costs through our transactional pricing programs, but we were not able to do so on certain fixed price contracts and programs. While 2022 has been challenging, our longer-term outlook remains very strong, driven by significant increases in our demand metrics and our win rates. Our North American active public bid universe is up 14% year-over-year at 10,107 EUs. We submitted the highest number of bids on record during the third quarter of 2022 at more than 7,000 EUs in that quarter alone. Success on these bids will help us drive additional growth in our future backlog and our future contract wins that will extend over multiple years. Unprecedented government funding continues to drive this activity, and we expect that this elevated demand for our products will continue into 2023 and beyond. It's important to note that our ZEBs are a critical component of government funding programs as part of their net zero objectives and now represents 48% of our total public bid universe. NFI's total backlog was down slightly from Q2 2022, driven by the timing of new awards and higher option expiries with a number of older diesel options expiring in the quarter as agencies ramped up their plans to acquire zero-emissions. Reflecting the individual timing of each transit agency's unique approval processes and board meetings, we ended the third quarter with an additional 1,360 EUs of bid award pending, meaning that NFI has been selected as a preferred provider but final contract documentation has not been finalized. Once the paper orders received and the contract signed, these units will recognize as wards and added to our pending backlog. We also continue to advance our NFI Forward and NFI Forward 2.0 initiatives with a total of $18 million in combined adjusted EBITDA and free cash flow savings realized within the quarter. In 2022, Q3, we closed the legacy NABI distribution facility in Delaware, Ohio and integrated into our existing NFI Parts distribution footprint. We are also on track to close MCI's public motor coach completion facility in Pembina, North Dakota that we announced earlier this year in the first half of 2023. As we noted in our update on October 24 and our third quarter results, released last evening. Based on our fourth quarter financial expectations, we anticipate we will not be able to comply with certain credit facility covenants that become applicable at the end of the fourth quarter. We, however, are in detailed discussions with our banking syndicate with the Export Development Canada, or EDC, a member of our current syndicate and the Government of Manitoba to evaluate financing structures to obtain relief required as we launch into the next few years of recovery with increased contractual backlog and strong bidding activity. Based on the potential solutions being discussed with the government and banking partners, I anticipate NFI will be able to obtain the covenant relief required. On Slide 7, we present our third quarter 2022 deliveries and our total backlog, which is now has orders out to 2027. At the bottom of the slide, you can see that the quarterly deliveries were slightly within -- were up slightly within the heavy-duty transit space as the third quarter of 2021 was also under duress from supply chain disruption. All of our product lines and deliveries are down significantly on a year-to-date basis, reflecting the ongoing challenged supply environment. I want to stress that it's not all parts, but certainly critical -- it's not all the parts we need, but certain critical electronic and electric system parts related continue to be the most problematic. On Slide 8, we've provided an update on 2 macro impacts to our business, inflation and foreign exchange or FX. For inflation, we assess both firm and auction orders within our total backlog. Generally, our firm orders are manufactured and delivered within 12 to 18 months of an award being received. When we make our original bid, we will obtain specific pricing for more than 50% of the vehicles components from our suppliers, as they're often uniquely specified by the customer. For many other nonspecified components, we use internal sources, including Carfair for fiberglass fabrication or KMG for metal fabrication, electrical kit assembly and plastic thermoforming. We incorporated an inflation adjustment into all of our contracts to reflect the time between award and manufacturing. As inflation escalated rapidly in 2022, we experienced a significant supplier surcharges effectively pushing us to pay for it or bill and get the parts. And actual cost exceeded estimates on certain firm contracts from suppliers, the majority of which were bid prior to 2022. The ability to resource or reengineer other parts into the build is very limited. And for the impacted contracts, we launched a campaign with customers requesting price increases, surcharge recovery and contract prepayments. We have seen success on these initiatives with over $42 million in prepayments received as of October 2, 2022, and certain pricing adjustments have also been received by customers. We continue to advance discussions on similar programs and expect additional benefit in Q4 2022 and into 2023. But please keep in mind that each customer's funding mechanisms are different as to the actual contract as it is the actual contract language and their local and political and budget dynamics take considerable engagement for many customers and time to complete. Some customers have even responded with offering future bus volume and option conversions, but unfortunately, this does not help our 2022 results. In 2022, we updated our bidding and pricing strategies to reflect heightened input costs and higher inflation adjustments for both vehicle and aftermarket part contracts. And because of these actions, we anticipate the inflation will primarily impact 2022 margins with some carryover into 2023. Inflation-related margin pressure is expected to be raised in the second half of 2023 as the majority of our legacy contracts impacted by the onset of rapid and hyperinflation will have been completed. As a reminder, inflation on option orders is a different situation. For the majority of our option conversions, when a customer executes on an option in the future, there is a repricing opportunity that factors in a producer price index or a government PPI cost or, in some cases, other types of inflation instrument. Contracts that have a PPI adjustment clause add a price increase at the time the option is actually executed, which protects margins from future inflationary pressures. NFI's total backlog is currently split about 49% firm orders and 51% options. The majority of today's firm contracts reflect our updated inflation affected cost and therefore, our pricing. With respect to currency movements, our foreign exchange or FX, generally NFI prices contracts in local currencies. For example, in Canadian contracts are priced in Canadian dollars, U.K. contracts in pound sterling and so forth, while parts and components come from different jurisdictions with different currencies. We have a macro hedging strategy in place at NFI Group level to address potential FX exposures. But given the rapid rise in the U.S. dollar in 2022, we expect there to be some negative impact from FX on certain contracts bid last year or earlier this year that are built late in 2022 or in 2023. This is primarily a function of higher-than-normal portion of New Flyer contracts being with Canadian customers planned for 2023. Offsetting this negative impact will be the benefits of lower wage costs for our Canadian-based employees and lower interest costs on our Canadian convertible debentures. Now turning to Slide 9. In the second quarter of this year, we provided a summary of our workaround plan to address a specific microprocessor shortage impacting the supply of critical control modules to New Flyer and MCI in 2022. This workaround program has been a success as we source microchips 3 levels down in our supply chain and completed buses on the production lines using flex units. We've now delivered nearly all of the effective buses that were missing this specific module, showing the success and creativity of our team. Unfortunately, we are experiencing similar issues with other critical parts such as wiring harnesses, electric components and destination signs today. As explained in October 24 press release and subsequent investor call, we launched another action plan this quarter to address key missing components, including the temporary halt of new line entries at all New Flyer plants for a number of weeks to allow our suppliers additional time to deliver back order parts to our facilities. And like our module workaround plan that we announced earlier this year, NFI people are working diligently and creatively using a build-and-hold approach where required to accommodate missing parts. We have retro teams been created in every one of our plants to finish buses with missing parts as they arrive. Given the supply chain for certain critical parts of not yet reliable, we will continue to run operations at lower new line entry rates to minimize the buildup of other station work and therefore, excess off-line inventory. A reminder, for every hour we miss installing parts on the production line in the plant work cell as the buses being built, it requires 3 to 5 person hours to address offline and out-of-station-work. which is both very costly and extremely disruptive to production. Slide 10 is an overall supply chain health chart. Despite the focused and tireless efforts of our supply team, the unplanned disruptions to our production lines of critical components has simply continued longer than we anticipated. Once again, we saw this disruption accelerate quickly early in the fourth quarter of 2022, with some suppliers providing less than a week's notice that they could no longer meet committed delivery schedules to our plant. The overall parts availability has been improving. If you walked into our plant, you'd see 98% or 99% of all necessary parts on hand and in station. But certain critical parts remain challenged, and it becomes even worse, especially when they have significant cascading impacts, for example, a wiring harness has massive cascading impacts downstream in production. We do expect these parts delays to continue into the first half of '23. And as a result, we've delayed once again the increase in production rates in '22 and now plan to begin increasing line rates in the first half of 2023. Given the wide variation in bus propulsion types and unique customer specs, this is not a simple process. And we are taking a measured approach to add capacity conservatively, allowing for proper training of skills and to ensure supply chain health. We are targeting a return to pre-pandemic run rates by late '23 and into early '24. I remind you again, this is not a demand issue, it's primarily a supply dynamic. I'll now turn the call back over to Pipasu to summarize the financial results for the quarter.

Thanks, Paul. Turning to Slide 11, we highlight some of our key financial metrics. As previously mentioned, it has been a challenging quarter based on the unpredictable and unreliable nature of certain supply chain elements. We continue to have nearly 99% of our parts on hand in the appropriate build or production station, but the unique 1% causes havoc on our build efficiency, bus completions and financial performance. We are an engineer to order manufacturer of highly customized buses. Therefore, any challenges in supplier performance to commitments results in production inefficiencies, lower-than-planned deliveries and higher material costs. We saw this in the third quarter. And when combined with the lack of government wage subsidy grants in 2022 compared to the $14 million we received in Q3 2021, led to year-over-year declines. The majority of our financial pain is in our North America bus and coach business, where most of our contracts are with government agencies. As Paul mentioned, the dynamics of the contractual process does not allow us to easily pass on supplier or freight surcharges and inflation to government customers. Instead, we enter into negotiations seeking price adjustments and/or advanced payments to help offset inflationary or timing impacts. We have actively pursued these programs. And while we have seen some success, certain contracts remain in negotiation. In summary, for Q3 2022, sales were up 5% year-over-year, but adjusted EBITDA decreased by $47 million. With positive adjusted EBITDA in the aftermarket segment, offset by negative adjusted EBITDA in the manufacturing segment, negative EPS and adjusted EPS of $0.56 per share and $0.63 per share, respectively. Our third quarter ending liquidity was strong at $471 million, inclusive of our $250 million minimum liquidity requirement. This is an improvement of over $150 million from last year, but down over $150 million sequentially, primarily due to an increase in long-term debt, which was used to finance growth in inventory and other working capital balances related to supply chain disruptions. As our vehicles are delivered, they move from inventory to accounts receivable, and it takes some time to convert to cash as each customer has unique payment terms. We do expect to see an improvement in liquidity in the fourth quarter, reaching over $500 million, driven by the lowering of total WIP combined with the benefit of customer prepayments. Due to the timing of cash conversion, some of the benefits from the completion and deliveries of vehicles won't be seen until the first quarter of 2023. On Slide 12, we've reconciled net earnings to adjusted net earnings or adjusted net loss. In the quarter, net loss was impacted by the same items that impacted adjusted EBITDA. Offsetting some of these negatives were fair market value gains from our interest rate swaps. We currently have 2 swaps in place, 1 for $540 million at 2.27% and another for $200 million at 0.24%. This greatly limits our exposure to floating interest rate increases. As rates have been on the rise, we saw a strong gain in the period, which we normalize. The chart on the bottom of the slide walks through the normalizations made year-to-date in 2022. Turning to Slide 13, we summarize our revised 2022 guidance that was updated on October 24, 2022. Based on year-to-date results, our guidance suggests that fourth quarter 2022 will generate adjusted EBITDA between negative $6 million and positive $14 million, dependent on supply performance, WIP completion and ultimate bus deliveries to our customers. I'll now turn the call back over to Paul to provide insight on our outlook.

Thanks, Pipasu. I'm now on Slide 14. As we noted, our public bid universe continues to grow, and we now have over 10,107 equivalent units in active bids, which will drive new orders and awards in the coming months. Longer term, we see over 20,000 years of potential opportunities from our 5-year bid universe. In total, our public bid universe is at record levels over 30,000 equivalent units, with 48% of them being zero-emission buses. And a reminder that ZE buses have -- zero-emission buses have higher margin and higher dollars per -- sorry, higher revenue and higher dollar margins per unit. I want to point out that NFI has now received more than 1,000 vehicles awards from purchasing schedules since the start of 2018, which is showing their growing use by U.S. public transit agencies as a procurement alternative to the traditional one-off public RFP process in North America. These purchasing schedules are not recorded in backlog as they do not have defined quantities allocated to NFI or any other OEM. Once a customer agrees to purchase a bus using one of these agreements, the award is recorded immediately as firm orders in our backlog. On another positive note, we continue to see positive signs of bus ridership recovery with -- after reporting that September 2022 public transit ridership in the United States has now surpassed 70% of pre-pandemic levels. as general travel resumes and as business offices reopen. This will assist our customers' farebox revenues, lower their city congestion and lower emissions in their local communities. While ridership is very important, the primary driver of public transit procurements in Canada and the U.S. is federal, state or provincial and municipal funding that assist operators execute on their fleet replacement plans, which has now been turbocharged by the environmental emission reduction targets, thus incredible funding. On the topic of funding on Slide 15, we recap our performance on the 2022 U.S. FTA low- or no-emission buses and bus facilities grant programs. I do want to point out that there was an error in our previous announcement on these 2022 FTA grant programs and full details of the reconciliation are provided with our Q3 2022 MD&A and our press release. New Flyer was named directly as a preferred partner on nearly $200 million of grants with 15 agencies. This is a significant improvement from our 2021 performance, where the named partner on $40 million -- where we were the named partner on $40 million of grants with 9 agencies. While New Flyer was a named partner with new awards will not be added to our backlog until contract documentation is completed and a formal purchase orders received. New Flyer's success with Low-, No- buses and bus facilities grants provides future backlog growth opportunities. In addition to the named awards, there's another $800 million in the FTA Low-, No- grant program where that were provided to public transit agencies that have not yet formally named a preferred zero-emission partner, which is generating future zero-emission bidding activities for NFI. On Slide 16, we hired a few global wins from our third quarter, including a 50-unit double deck award for ADL from the transport for Greater Manchester in the United Kingdom, an order for 40 ARBOC low-floor cutaways from Las Vegas and 27 60-foot articulated electric buses for Madison, Wisconsin. Even better new subsequent to the quarter, we also announced that ADL received the largest individual bus order in the United Kingdom since 2019 for 200 low-emission double deck buses. On Slide 17, we highlight the growth in the average sales price in our North American backlog. The chart shows heavy duty transit bus and motor coach average prices have grown significantly, reflecting the impact of updated pricing, additional ZEB orders and highly spec-ed options on buses. These average prices will flow through to our future revenues and margins. On Slide 18, our book-to-bill has continued to grow with the third quarter LTM at 130%, positioning us well for the future. We did see a decline in the LTM option conversion, which was expected by us as there were a number of options for certain ICE propulsion buses that some customers decided not to convert as they now plan to update their fleet with more zero-emission buses. For clarity, with FTA funded programs, customers may refine or tweak the specification with bus builders after contract award, but they are not allowed to make cardinal changes as propulsion type. And therefore, when an option -- an internal combustion engine option expires, they must retender zero-emission buses. On Slide 19, we have not moved off our long-term targets and are confident that NFI will recover from the supply challenges and continues to lead the evolution to zero-emission buses. For 2025, we continue to target at least $400 million (sic) [ $400 million to $450 million ] of adjusted EBITDA from revenues between $3.9 billion and $4.1 billion. These expectations do not require massive change to our business as we delivered adjusted EBITDA of $332 million in 2019 on a pro forma basis accounting for the partial -- the acquisition of Alexander Dennis and prior to any savings from the NFI Forward initiatives. These targets are based on higher anticipated sales and markets from zero-emission buses, recovery and production rates has moved beyond current supply chain challenges increased penetration and expansion into international markets and volume leverage as we produce a higher number of vehicles on a lower cost basis resulting from NFI Forward and NFI Forward 2.0 initiatives. Finally, on Slide 20, I'd like to recap our investment thesis. While the past few years, specifically since March 2020 when the pandemic began, we've been extremely challenged that required us to revise our guidance and recovery expectations many times. We remain focused on long term -- on the long term and delivery for our stakeholders. We're very focused on retaining the core talent and skills in our business. We've managed through an ongoing global pandemic, sudden and significant hyperinflation, unimaginable supply unreliability from many suppliers to perform for NFI to a gold standard for over 20 years. and most recently, rapid and material movement in currencies. We continue navigating through supply chain challenges and the associated inefficiency create, but we will move past these initial and recover and start recovering in 2023. As we explore the possible options with our credit syndicate with EDC and our government partners for which we have set several deep and engaging meetings, we anticipate obtaining the necessary covenant relief. As I've said before, 2023 will be a period of recovery and transition for NFI. I fully understand that you've heard that many times from me. But we don't have an order book or a market demand problem. We won't increase our production rates until supply chain health warrants. We're optimistic based on recovered pricing, reduced supplier engagements and lead time agreements, adjusted inventory enhanced strategy at both NFI and our suppliers, declines in commodity prices and now lower shipping backlogs. We will also benefit from a strong backlog position that has given us excellent visibility into our planned 2023 deliveries. We've essentially sold out all of our 2023 production slots in North American public transit and are further ahead of where we would normally be at this time for our other markets. There will continue to be some supply chain impacts, no doubt, especially in the first half of next year. But certain lower contract margins will carry into new year, placing pressure on manufacturing margins. Overall, there will be improvement in 2023, but we anticipate these results will still be simply below our pre-pandemic levels. NFI remains the market leader in North American bus and coach. We're the market leader in U.K. transit, we're the market leader in Hong Kong double decks and a global leader in bus and coach to parts distribution. We've been growing our business internationally and continue to develop market-leading products that will support our customers' transition to zero-emission transportation. In our market, it's not a matter of if, it's a matter of when. I want to sincerely thank our people, our customers, our banking partners and our shareholders for their support as we continue to work through these headwinds. No doubt, we are not alone. It's not been easy and required difficult decisions that impacted our team members and their families, plus our shareholders and our other partners. I'm confident we'll move beyond these issues and get back on track delivering for our stakeholders. As I've always said, we're proud of our history and excited about our future. Although if I'm totally honest, I'd like to forget the past few years. We do and will continue to lead this industry, and we will see recovery in '23 on to 24 that will drive further growth as we get back onto our path of our 2025 targets. With that, I'll now turn the call back to Stephen King to provide directions for the Q&A portion of this call.

Thanks, Paul. We'll now open the line for analyst questions. [Operator Instructions] For analysts who on the call, Norma will now open the line and provide instructions to callers.

[Operator Instructions] And our first question comes from Kevin Chiang with CIBC.

Paul, hopefully, you will start feeling better soon. Maybe just on the comments you made around the liquidity and covenant relief. It sounds like you're working with banking syndicate, but you also mentioned working with the EDC, one of your banking partners as well as the government of Manitoba to maybe find an additional solution to improve liquidity. Just wondering if you could elaborate on maybe what that is. It sounds like you could be doing something with the backlog there. And does that need to happen first before the banking syndicate looks at providing covenant relief? Or can this happen concurrently? Or are they 2 separate negotiations, I guess?

No. Thanks, Kevin. Great question. And so just building on what we talked about in our script. And back to that chart on supply chain dynamics, where we reset our covenants and put in a revised credit agreement in the end of July. We had started to see supply chain improvement in health and therefore, continue to expect 2 things. We burn off WIP that we have built and was offline and two, we'd be able to ramp up our production capacity. Again, we have contract -- we have orders for this stuff. It's not like we're building to put stuff on the shelf. As we got through September and into October, it became crystal clear that those 2 things were not going to happen. We continue to have some pretty serious part supply issues that are cascading and I used the example on the script around the wiring harness. If you don't put the wiring harnesses in the bus in stages 2, 3, 4 or 5 of the build process, the cascading impact of all the other stuff you have to connect is absolutely suicide. So putting more units to the production facility only to create off-line WIP that requires more off-line people was kind of crazy. As a result, we pulled the fire alarm early with the syndicate to say, we don't believe we're in a default until the end of the quarter. But quite honestly, there's no way we're going to be able to catch up and, therefore, heads up on some of these covenants we've put in place. So the conversation is absolutely happening in parallel. First and foremost, we went back to our credit syndicate and has had discussions about those realities and those dynamics. We've provided them now with updated forecast for the quarter as well as for the 5-year plan, that's continue to be a work in process. In parallel, we went to our local province to see if there's any creative programs that they have in place that could help with a different kind of debt or liquidity to help us manage on that, obviously, all on commercial terms. And then we went to the federal government to say, look, we're not alone. But our business, our industry has been inordinately or largely impacted with no ability to cure in the short term. And so working with many of the federal government departments and specifically with EDC, who is the current member of our syndicate, we're exploring all possible options of both liquidity, but also covenant flexibility because it's impossible to say how fast things going to snap back. We firmly believe, based on our order book, we can recover a great degree in 2023. But to get back to pre-pandemic levels, as I said, it's going to get to '24 and beyond. So we don't need runway for a quarter. We need some flexibility for probably a year to make sure that we can navigate as supply chain gets healthy. But the response has been fantastic. The acknowledgment of the critical nature of our business and what it does to specifically government targets around zero-emission and environmental impact, the response has been fantastic. All that stuff is happening in parallel. I wish I could have had more detail to provide you on today's call. But we got all hands on deck and all support we could have asked for to try and come up with some solutions. So stay close and stay tuned to what those look like.

No, I appreciate that. I appreciate the sensitivity of the conversations today. When I look at Slide 10 that kind of highlights your -- or that highlights your supply chain challenges. When you look at that spike back up from kind of 24 high-risk suppliers to 39. I'd be interested to know, are those incremental 15 high-risk suppliers. Are they new suppliers? Or are they suppliers that used to be up when you had 50 were these kind of previously high-risk suppliers that eventually you saw moderation now they're kind of back to being high risk or just kind of how that's trending? And then I guess are you seeing -- when you see these decommits, are you seeing like even your secondary suppliers decommitted. Is that creating a problem? I know you've tried to find alternate suppliers here, but are they also decommitting and which is now exacerbating this risk management process?

No. For the most part it's same cast of characters. And they started off in everybody, if you go all the way back to 2020 and early '21, we always have a handful of customers just because we need customization -- sort of a handful of suppliers have challenges. And some of it is their ability to get manpower, some of it is their ability to source individual pieces or components or microprocessors and so forth. As we moved through 2021, both the ones that are in high risk, high impact increased as well as the medium-class guys. And so as you can see, at one time, we literally had 110 Q1 of 2022 of our total 700 top suppliers that we had our eyes on, 50 of which could literally shut our product lines down. And then what happened is, as we moved into Q2 and Q3 of this year, we started to see the high-risk guys move into the medium category. Their delivery performance was getting better, their lead time management was getting better and so forth. But then all of a sudden, this is new suppliers joining that party. These are those same suppliers that had planned a certain level of inputs, whether it's electrical connectors on a wiring harness, wiring themselves, microprocessors that go into control modules. And so it's not like it's a new group of stuff and the ability to alternate source that stuff is very difficult, which goes back to what I said before. The reason we were successful on recovery on the VMM module issue is, we actually went down 2 or 3 or 4 levels in the supply chain and helped our supplier find a number of microprocessors that could then improve their health, that could then get us those processes -- those parts. So look, it's -- I think it goes to the broader dynamic around global supply of some of these key components. And because of the bespoke nature of the customized nature, there -- our suppliers' ability to alternate supply is also compromised. Historically, we've never worked below the first or second level in our supply chain, and now we're actively doing that. And back to the VMM module, for example, what David White and his team have done now is we're pushing our supplier to have 2 years of chips on hand or their inputs to give us the modules. And so we're trying to push responsibly down in the supply chain that is not only us that need to carry buffer inventory we can, but our suppliers to do the same thing. It sounds rather perverse, but we're kind of excited about the possibility of some global recessionary dynamics where some of the global demand on maybe some of these microprocessors, electrical connectors gets offset a little bit that will free up some capacity or release some of the concerns that we have.

That makes sense. Yes, go on Steve.

I'll just jump in real quick. I just want to help clarify a bit, too, that this is definitely an industry issue that we're seeing is kind of the commitments and supplier challenges across the industry. So we've heard from our suppliers, from our customers our competitors as well have had to do temporary halt on new vehicle production they've seen a buildup of work in process inventory. And so it's definitely this kind of, I guess, surge in kind of some supplier challenges. There's definitely something that's impacting the entire bus production industry. So not only it's just NFI, we're also seeing it, like I said, at all of our biggest competitors.

No. That's great additional color there. Maybe just last one for me. When you look at your backlog, firm and option, but call about half of its options. What percentage of those options would be pure diesel. So ones that you would think are at risk of essentially being not exercised as those transit agencies look to transition to a low or no emission vehicle type?

Steve, you probably have that data. Stephen, are you there?

Sorry, just getting -- sorry about that. So yes, I think on the options that are still -- or sorry, ICE traditional, there's still quite a few in there, but most of them, we did see quite a few get -- didn't get converted in the third quarter. And so then we did see a lot of flow through this quarter, we'll still see, I think, before the end of this year and as we head into 2023, as we get beyond that, more of the future options that we're starting to build up are getting more and more ZEB all the time. There are definitely no and continue to be some CNG, hybrids, some diesel buses in that option backlog. Now not all customers won't choose to not convert those options. So certain customers will convert their hybrids or some diesel vehicles still. But on the transition to zero-emission, we definitely will see more customers focused on executing new orders to issue new battery electric fuel cell electric orders that will likely replace some of those options that don't get executed. So now like you'll see that we have orders going out now to 2027 and quite a few of those are hybrids or electric orders. And as Paul mentioned, 48% of our public backlog is now zero-emission. So I think what we may see is conversion probably stays in that kind of 60% kind of rate, maybe a little bit lower certain quarters and maybe a little bit lower at certain times on an LTM basis. But we will see, I think, the options that don't get converted be replaced by future options that are probably more zero-emission.

All right. Just kind of a replacement cycle there. That's helpful. I'll leave it there. Paul, feel better.

[Operator Instructions] Our next question comes from Chris Murray with ATB Financial.

Just maybe going back to maybe some of the discussions with maybe the problems, EDC and the credit facility or the credit syndicate. I guess starting here, you've talked a little bit about the fact that you have a covenant calculation is not really a liquidity issue. So I'm trying to understand a couple of things. One, what exact liquidity would you be looking for? And would that be -- to reduce the liquidity draw off the main credit facility? Is that how we should be thinking about this? And then second, you did put some language in there around the dividend and probably that may be having to go away in the quarter. But just if you want to talk about dividend or any other incentives you may have to give to get this through, be that warrants or other equity, that would be helpful as well.

Thanks, Chris. All great questions. Limited a little bit in the ability to provide you much more color, a couple of things. The fourth quarter, we are expecting to actually improve our liquidity a little bit as we burn off and deliver -- sorry, burnoff is a bad word, as we complete and deliver some of this off-line WIP and parts come in. There's a bit of a challenge there because every customer has different payment terms. So if we deliver this week, depending on when it gets arise and when it gets accepted and then we ask the accounts payable cycle for our customer works and so forth. So -- but we don't expect cash in the fourth quarter, which goes back to the issue really is in the short term, a liquidity dynamic. As we ramp our business back up in the next -- over the next 12 -- 6, 12, 18 months, it is most like we're going to need some more liquidity room to be able to give us higher-priced buses and manage the increased WIP associated with that. So until the things done and solved. We're exploring all possible options, whether it's the way the current syndicate is made up. As you know, today, we have $1.25 billion capacity with $250 million minimum liquidity. And we're looking at things aside from that, such as other examples of debt from whether it's a government or type organization or subordinated debt type examples. So we're working through all that stuff to try and come up with a solution that makes sense for us as a business to operate with flexibility for our banking syndicate to make sure they continue to support us going through this. But we get it. They've been ridiculously supportive over the last 2.5 years as we've managed our way through COVID and supply chain. We get that they're doing everything they can to manage their risk profile. And we've had super support from the government people we've talked to and whether it's provincially or federally, but the importance of our business not only as an employer of people across North America and the world, but also, quite frankly, as one of the key enablers of the zero-emission agenda. So all those things are in place. size, type, shape of the debt, the ultimate liquidity number, the whole covenant package that makes sense for us to manage through this period of uncertainty. I don't want to be flippant about it but I continue to go back to RFPs and bid universes at macro level, bid universe of what people say they're going to buy is that at all-time highs. Our backlog is very healthy. We've got a whole bunch of stuff sitting in the batter's box just waiting for paperwork. So it's not really a demand issue, it's around making sure we have the flexibility and our credit partners have the security and the risk assessment, the risk appetite to help us manage through that, not to be silly about it or to be simple about it. It's very complicated, but we are committed and we are confident we're going to get that next level of flexibility to help us manage through.

Okay. And any commentary around your thoughts around the dividend and/or...

Well, dividend will play into that same conversation, right? There are calculations inside our current credit agreement that has dividend tests and so forth, that's one issue. Second issue is depending on what our solution looks like, whether it's a government support program at commercial rates and so forth, there may be restrictions associated with it. The syndicate is clearly interested in where any available cash goes. So there's no definitive decision yet on how that works or where that falls out. You know that we've historically felt dividends was an important part of our business, we want to retain that going forward at the rate level. Given the profile of our customers of our industry, the fact that it's not a massive growth business or growth industry, it's really a replacement one. And actually, in some cases, more like utilities than it does any other kind of other business. So it falls into the whole discussion about credit syndicate about liquidity, about covenants and so forth, and that will be part of the solution, depending on where that whole thing ends up.

Okay. Helpful. My next question, looking at Slide 16 and 17 for a second. I guess the first thing, kind of interesting to your commentary. So first of all, pretty substantial step-up in average selling price in the backlog, but you also made the comment that the dollars per EU contribution, I guess, you would thought that as the EBITDA per EU type of number, it's also going higher. Historically, you've been kind of cautious about the way you had us think about EBITDA as sort of a fixed number. Is there something changing in the dynamic here? Or is this just more inflation catch-up and normalizing of margins is how we should be thinking about this? Or just any color around that would be somewhat helpful.

Yes. That's a really good question as well, Chris, because there is no question if you compare our margins of 2019 or 2020 to today, right, the massive impact has been parts cost that we can't pass on and quite frankly, labor inefficiency. Just a silly example -- not a silly example, a point-in-time example. Every percent of labor efficiency in our factory is worth about $2 million of EBITDA, just on the New Flyer side of our business. And so the inability to build the buses with efficiency has not only the costs have increased material but also tremendous labor efficiency, which is actually killing our margins. So there's no question there's a normalization of margins. The other thing, quite frankly, and we've been saying this since we saw the zero-emissions, come into our portfolio that a zero-emission bus has a better margin, whether it's battery electric, trolley electric or fuel cell electric. And so a higher percentage of that in our business will impact the overall blend of EBITDA or margin per EU.

Okay. That's helpful. And then Slide 16, you talked a little bit...

Chris, sorry, just to chime in shortly, too. I think on the EV side as well, like a few years ago, more so pilot programs, smaller orders, smaller projects that customers were doing is they were looking at pilots. And now we are starting to get to those larger orders, some more economies of scale, larger commitments from customers on to EV. So that, too, I think, is helping some of the revenue and margin profile on some of those electric customer programs.

That's helpful. Just if I can, just one more, just looking to Slide 16 and thinking about the U.K. market for a second. Lots of changes going on in the U.K. at the government level. But I think on a positive note, you saw, I think you called it, the largest order for Alexander Dennis since 2019. We've been sort of weighing, call it, pent-up demand for a while for the U.K. government to make some final decisions on where they want to go on spending and not only make those decisions but start getting funds flowing. Are we starting to move into or are you starting to see signs that these orders are now materializing? And if so, how do we think about order growth out of the international group into '23?

So when Boris Johnson was Prime Minister, he planned a massive funding for zero-emission buses. And of course, as we know, it's a private operator that bids on performing a public service for providing public transit. That money announced at that time was intended to help operators offset the cost between a diesel bus and a zero-emission bus. That's pre-COVID. So COVID kicks in and their ridership goes in the tank there the U.K. operators are heavily reliant on farebox. So ridership has started to come back. In fact, it's probably slightly better in the U.K. than it is in North America. The operators have not really rejuvenated their fleets. They've been trying zero-emission. We've had great success with the Alexander BYD partnership in the U.K. But that doesn't mean they've done the fleet -- the full fleet renewal up at this point in time. The fact that we've had a number of government changes over the last 2 or 3 years following out of the original Brexit dynamic, which put a lot of stuff on hold. And the fact that there hasn't been the same level of government funding out of the U.K. government that was expected. I think these latest orders for diesel buses as we're starting to see customers saying, we clearly want to go zero-emission, but without some help, we need to rejuvenate our fleets. And they've chosen to do that with diesel buses at this point in time, most of the diesel buses. Now we still get zero-emission bus orders. We're still making penetration across the U.K. and internationally within the Alexander Dennis BYD partnership. We announced last year or earlier this year, sorry, that we also did a revision to that BYD partnership where headed to late '23-'24, we'll be offering our own Alexander Dennis zero-emission offering in the double deck space and the smaller bus space. I think those ones are positive for us. Scotland has stepped up with quite a substantial funding or the low emission-type funding, U.K. has lagged. And I think we'll continue to see a lag until we see the global economy, the U.K. economy specifically stabilized a little bit. And quite frankly, the government get on to the feet underneath them.

[Operator Instructions] And our next question comes from Daryl Young with TD Securities.

First question for me is on the EV and just the rapid growth in the demand for -- in the projected future orders. My question is, is the supply chain for EV specifically robust enough that you could actually deliver on that kind of volume? Or are you going to see bottlenecks just from lack of the volume of the key components that go into EVs in the future. I guess I'm speaking agnostic to the current issues, but just that long-term pipeline of EV componentry.

That's a great question. I think when our supply team has tried to do and unfortunately, has learned the hardware through COVID is that we can't just order a part and expect that part to show up without us having understanding of the sub-supply chain and the tiers that go into it and where that go input cost, input components come from and so forth. I go back to what's going on in our production line right now, 98%, 99% of the parts are there. So building the bus is not the big challenge, its critical components that have cascading impacts a lot of the market are EV type or electronic related. But for example, we're missing hundreds of brake pads -- brake pedal, sorry, for motor coaches. That's got nothing to a zero-emission. We had challenges in the last month or so with seat suppliers had nothing to do with zero-emission. The stuff that comes from Siemens or BAE that affect our zero-emission buses or hybrids, we think are isolated to a couple of critical parts where there have been sub-supply chain type problems. We are way smarter now at how we source and what we expect of our suppliers, given the nightmare we went through over the last 1.5 years and are now trying to embed those expectations of them having buffer inventories of subcomponents on hand and so on and so forth. Never say never that we're through this thing. It's really hard to answer some of these questions about when you pass the supply chain dynamics, we will always have them. At this point, I think our team is not worried about late '23 and '24, the way we are today where we're hand to mouth on some of those key parts. Again, back to the comments we made in the script, every bus is different in many situations and therefore, managing that bespoke nature of supply chain always has its unique challenges. We are deeper and smarter at where and how we're buying the stuff and the expectations of suppliers. So it allow us to be at risk, we're doing anything we can to manage it. The other part of -- let's just say the other part is trying where we can to have alternative sources of supply. So historically, we had one battery supplier coming on later this year and into next year, we've got a second battery supplier for zero-emission buses. Today, we offer 2 different hybrid systems, Allison and BAE. So we're trying where we can to dual source stuff to add not only competitive tension in the supply chain but also the ability to ensure that we can solve our customers' problems in a different way, should we have supply chain challenges.

Yes. Daryl, just sorry to chime in, you would have seen an announcement from us last week on ADL that they have brought online a new battery supplier in addition to the legacy BYD relationship that they're working with. And then we also have, as Paul alluded to, alternative suppliers that we're bringing on from North America as well. We're definitely expanding the supply base within the battery space is really important.

Okay. Great. And then second question is just around the increase in the average price of the bus in the backlog, I think we're up over 30% now from 2020, 2021 period when a lot of that funding would have been announced. So I guess my question is -- and I think the pricing will probably take another step function higher as the mix of EV continues to evolve. So my question is, how much funding do we actually have available? Or like is that chewing into the amount of funding that's been announced to date? And do we actually need more funding?

I would say that, of course, we manage and monitor and track dollars and units, which you're alluding to. And therefore, if units cost more money, can you buy less units? So we watch and monitor every customer's fleet, age of fleet and mix of fleet. We take their fleet replacement plans that they publish and then we fly it forward that gives us our demand. We have tempered. There is a scenario that you could actually say, well, we don't need 6,000 or 6,500 units a year in North American transit. We need 7,000 or 8,000 to catch up with fleet replacement strategies. What we've tried to do is temper the expectation of the oversize of -- the total size of market expectations with that whole dynamic that buses are going to cost more. The other reality it's not only you can buy a more expensive bus. Most operators still have to invest in the charging infrastructure and money has got to come for that as well, whether it'd be local money, federal money, matched money and so forth. The great news is there is a lot of money out there, both in Canada and U.S. specifically, that are incentivizing operators to push that zero-emission agenda. And as Stephen said earlier, we went through a period of orders of 3, 5, 7, 10 electric buses and now we're starting to see 30, 40, 50 to hundreds. So our view of recovering through the pandemic, but also the fleet transition looks very healthy given the total number of funding. Will they potentially need more funding in the future, absolutely.

Okay. And just one last one on -- sorry, go ahead.

Sorry to do that again. I was just going to say, I mean, I think what we've seen to, as Paul kind of alluded to, in Canada, now we have a federal program, multibillion-dollar program focused on really driving that transition to zero-emission. And then the U.S., $100 billion plus infrastructure investment Jobs Act focus on public transit investments. And like the low-, no-, for example, went from $180 million to $1.2 billion year-over-year. So I think the governments have definitely done a good job of putting in a lot more funding to focus on the higher cost of these vehicles. But as Paul alluded, as we go forward is to get beyond '25, '26, will there need to be more funding, more than likely to reflect the higher cost of these vehicles, but definitely feels like government has definitely stepped up and put a lot of additional funding focused on driving procurements of zero-emission buses.

Okay. And then just the aftermarket margins and some of those fixed contracts, should we expect that to be a couple of quarters that need to flush through still or some of those fixed price contracts coming to an end?

Go ahead, Pipasu.

Sorry, I thought we were on mute. Can you repeat that question on aftermarket margins?

Just curious if the fixed contracts that are dragging down the margin in the quarter, if those are going to extend over multiple quarters or if they're close to running off?

I would say that at this stage, we are close to running off on those. So I don't think they will extend further up from our perspective.

Yes. I think, Daryl, the way to think about is, like I got our business, I think in the aftermarket, and Paul, correct me if I say anything wrong. I think probably 2/3 is transactional. So somebody orders a part, we provided them 1/3 contractual. And those contractual contracts do a definitely shorter term. I think so to Pipasu's point, most of that impact will run off, and then we'll be able to reprice and make sure that the adjustments are properly put in place. We also do try to update our pricing list on those contracts to reflect the inflation wherever possible.

And I think one other thing we should add is [Technical Difficulty]

[Operator Instructions] Our next question comes from the line of Mark Neville with Scotiabank.

Can you hear me okay? Just have an issue with the line. I'm not sure if it's me the broader audience.

Yes, we can hear you coming through.

All right. Yes. Great. Perfect. Look, I appreciate that the discussions are sensitive and complex. But I'm just curious sort of if you think that there's a scenario or an avenue to sort of -- that you do this or you get relief or further funding that would be nondilutive or avoid sort of some dilution or most dilution?

Well, clearly, that's our goal, Mark, is to try and find a way to live with the liquidity that we can manage through with a little bit more patient debt structure that has a little bit of runway to get us our volumes back up and therefore, get into becoming a profitable business that's generating EBITDA and cash flow to pay down debt and therefore delever, not that we're not looking, but our last desire is to try to -- is to do anything that dilutes our current shareholders. We've done that twice in the last 2 years. And so clearly, that's our objective. And it's a delicate negotiation, which is part of the reason why we engaged in various levels of government to try and see if there's different ways to work with the syndicates to, again, manage their rest of expectations, but also not hamper or hinder the opportunity in the future of our business.

Great. Understood. I just wanted to had to ask that question, sorry. Just -- Paul, you talked about being sold out for 2023. I mean, just sort of what line rate or sort of how should we think about sort of production rates next year and again the fact that you're sold out and just well unsure sort of what line rate that is?

So we'll work through our guidance discussions for '23 once we get our annual offering plan and our long-range plan solidified through the banking discussion that we're working on as well as through Board approval. The current run rate of our business in all of our facilities, all of our product lines is muted relative to pre-COVID. I think I said in the script today that we think we can get back to pre-COVID levels by the end of 2023 and into early 2024. For example, New Flyer is running its business today somewhere in the early 30s in terms of new line entries every week. Pre-COVID, we were running north of 50. So that's kind of our desire. And because the -- it's not like to turn in the machines you've been here, not just turning the factory up, you need skilled labor and you need parts availability. And if you don't have both at the same time, you have extreme inefficiencies in your cost base. So we don't want too much inventory sitting here and we'll have too many people sitting around doing anything or we don't want people that don't have the material to do that stuff. So ramping up is delicate. And so we've always said, when we do that here to go from, call it, 35 buses a week to 37 in 2 weeks later to 39, 2 or 3 weeks later. It's a phased ramp up rather than a step change in just have comfort in terms of how we build labor efficiency to quality. But we want to get back to close to pre-COVID levels by the end of '23 and early '24 from a run rate perspective.

Okay. That's very helpful. And then just the last question, just on the idling. Curious or is that completed? Is it still ongoing? Has it been extended sort of as the leading objectives? Just sort of an update there.

Yes. So we started it 2.5 weeks ago. We extended it and adjusted it for each of the plants, depending on their unique build schedules. I stand corrected, but I think I believe after this weekend, we are back to line entries as the way they were previous to the idling. Unfortunately, during the idling, that means a number of people get actually temporarily laid off, which is not a fun thing to do to people, especially this time of year. We do have a number of crews, retro crews, volunteers in some cases that are willing to work during those lines in 3 weeks to help us burn off or complete the excess work in process, the parts that are out of the station and off-line, the buses. So we're through most of that, the objectives of getting supply to get caught up. I had a briefing the other day that the vast majority of the parts that we expected have come in, there's still a couple of problem parts that the guys are working on and expediting. And it has also helped us -- I don't know the magnitude quite yet, but has helped us actually deliver some of the offline buses and that worked down those off-line hours. So we'll see that transpire over the next couple of weeks as we start to deliver more vehicles or complete and deliver more vehicles. And so that whole period of time was at 2 objectives, not induct more units that would create more known off-line WIP and number two, help us work off the excess work in process.

Sorry, wanted to jump in, you are correct. Yes, kind of next week is when we'll be fully back to kind of, again, pre-idling run rates, but everybody should be back in the plants next week.

[Operator Instructions] And the next question comes from Alex Hutton with National Bank.

Alex Hutton on for Cam Doerksen today. I noticed that ADL recently won that 200 -- or a 200 bus award in the U.K., which is great to see. But we've also seen some of your competitors in the U.K. market have some good order success as well. we're wondering how Alexander Dennis' market position is in the U.K. and how the competitive environment has changed? Just hoping to get a little bit of color on that.

That's a really good question. So there's 3 major domestic competitors in the U.K. There's Alexander Dennis, who is by far the market leader; #2 is the Wrightbus; and #3 is Switch Mobility, which used to be called Optare. We also have buses that are sold that are manufactured offshore in China, for example, by Yutong and a few others. Wrightbus is the #2 player, did go through a bank reorganization or whatever the words are in the U.K. a couple of years ago. has recovered somewhat, but has nowhere near the volume they had pre that registration process. Our market share has continued to stay upwards of 60-something percent of sold and delivered units in the U.K. and way in excess of that when it comes to the zero-emission buses. Wrightbus has now -- is now offering electric buses as well as fuel cell buses and have won some orders. Up there or Switch has not really gained much traction. And we see the continued same kind of penetration from the Chinese players. I said before in one of the questions, we're pretty excited about what Alexander Dennis is doing, the option to be able to deliver diesel, if you will, or hybrid buses on their own platform today. the ability to offer buses on the Alexander Dennis body on a BYD electric platform and soon an all-out Alexander Dennis platform with our own battery and battery management and electronics package, which has got tremendous response from a number of the operators. Quite pleased with the market positioning, the competitive performance and so forth of Alexander Dennis, albeit we bought the business 6 or 8 months pre-COVID and so the entire market has been materially impacted by it. I don't see our competitive positioning getting any worse in any stretch.

And I have a follow-up from Kevin Chiang with CIBC.

Just one follow-up question for me. Paul, you mentioned just kind of the ebbs and flows with -- I guess, with your labor now as your production ramps up and down. Just wondering, is that exacerbating any labor shortage issues you're facing or turnover? I know labor was an issue for you kind of through the pandemic, not sure how that fits in and whether the supply chain issues are exacerbating that?

Well, there is no question that labor is our problem and everybody's problem #2. In our world, and Stephen talked about this as the capacity of our competitors have had shutdown week, our competitors have offline WIP that they're waiting parts and so forth, which then impacts their ability to run their facilities just like we have. We have, let's call it, excess labor today in our facilities because we have to both build buses online and manage and complete the off-line WIP. So there's not free, but there's available capacity, once the off-line WIP goes away for us to actually increase with existing manpower levels to get back up to pre-COVID levels. There's no question we're going to have to go and do more hiring as we get through '23 into 2024, which goes back to archive perspective of maybe a broader recession in some markets might allow the availability of labor because it is no question of difficult to hire people in any of our markets today. And we've all had pressure on wage rates and benefits and those kind of things. No, there's no question and no doubt that our #1 problem over the last 1.5 years has been parts availability. Turnover in certain plants have been a little higher than others, but they've been as best we can tell under industry averages of turnover. We have adjusted in many cases, the wage rates across the businesses, some as a result of union negotiations, some of that we've done on our own just to make sure we're competitive in those individual marketplaces. The next chapter, once we get more and more confident in supply chain is to use that available capacity to build buses right the first time and then to selectively hire where we need to. There are key skills that continue to be a problem in everybody's markets, such as trade people, welders, electrical people and so forth. And so we've ramped up working with local institutions as well as some of many of our own programs at kind of apprenticeship or training type programs in many of those key core skills knowing, going forward, the buses are not getting less complex turning and get more...

And at this time, I'm showing no further questions. I'd like to hand the conference back to Mr. Stephen King.

Okay. Thanks, Norma. We do have one question on our webcast comes from [ Simon Chu ]. And he just says, have you seen customers more hesitant in placing firm orders on your contract with NFI after you announced the need for covenant relief?

Paul Soubry in response. A great question. The answer is no. In every one of our situations, specifically in the public situations, we have often bid bonds or often performance bonds in place that help a customer understand and have comfort that we can deliver on the product that they've ordered with us. We often -- often the vast majority of times, our proposals have financial statements embedded in them. We have complete disclosure with our customers about our challenges and so forth. We have, for the last 2.5 years dealt with short-term covenant dynamics and been very transparent with our customers. To date, we have not seen any adverse impact.

Paul, and just to add as well, I think you covered everything. But again, as I mentioned earlier, definitely an industry issue. And so we haven't seen any public customers cancel. And I think they all realize that as well, our competitors have the similar issues. So if you cancel an order or if you went with a different provider, It's going to be that same delay in delivery and challenge. And I would say the good news for us as industry leaders is we get that track record of performance, that track record of delivering the highest quality vehicles and best performance for our customers. But again, yes, definitely an industry issue on the supply challenge, which I think our customers definitely realize and appreciate. And as Paul alluded to, we have definitely seen our backlog grow. We've seen our awards come in. And like we said, the highest bids on record in the third quarter. So demand is still very, very strong. And with that, I think we have answered all the questions. So we will wrap up this call. Norma, I know you'll close it out, but I just want to say for everybody, there will be a recording of this on our website as well as the presentation and a copy of transcript of this call as well will be on our website. And we will talk to everybody again soon. Thanks, and have a great day.

This concludes today's conference call. Thank you for your participation. You may now disconnect. Everyone, have a wonderful day.