NFI Group Inc. Those buses don’t fly.

NFI Group Inc. aka New Flyer Industries Inc. (TSX:NFI) is an amazing company making cool buses: transit buses, double-deck transit buses, motor coaches, diesel, natural gas, battery-electric, fuel cell-electric, you name it.

Just check these pictures of futuristic buses made by NFI:

After looking at these pictures I wanted to be a bus driver myself, or at least a shareholder of the company.

Apparently, buying shares of NFI stock is easier than becoming a bus driver, so I went the easy way and bought some back in August 2019 (yeah, pre-COVID) for $25.25 a share. That was my bet on the future of clean/electric transportation.
NFI Group Inc. is a Canadian company, so all numbers are in Canadian dollars.
Even though NFI reported very strong FY 2019 results on March 12, 2020 “with Record Deliveries and Revenue” and “Declared dividends of $26.6 million in the quarter”, this could not stop the fall of the stock price along with the broader market.

But it was understandable and I couldn’t blame the company for that, what I couldn’t understand was the next step made by management:

Given the ongoing economic uncertainty and the impact that COVID-19 has had on NFI’s operating businesses, the Board of Directors (“Board”) has determined to temporarily reduce the Company’s quarterly dividend, for the period January 1 to March 31, 2020, to C$0.2125 per common share. Holders of record at the close of business on March 31, 2020 will receive the dividend to be paid on April 15, 2020. The quarterly dividend reflects the Board’s confidence in the Company’s business while maintaining the financial flexibility required to operate during a period of significant uncertainty. Due to the unpredictable impact of the COVID-19 pandemic on the global economy it is nearly impossible to forecast the ultimate effects on NFI’s operations, financial performance and cash flow.

I like dividends, I do, but in this case, the prudent choice was to stop paying dividends completely until it is possible to forecast, as many other companies did.
Around that moment a different thought visited me, while New Flyer had an amazing team of engineers, their management team might have not been so good.
Because at a time when it is “nearly impossible to forecast” they still decided to blow ~$53M/year on dividends.

Fast forward to February 2021, can’t remember the exact reasons, but I’ve finally decided to sell my NFI stock at $29.10 netting ~15% gains + “suicidal” dividends.
I’ve done that on February 1st, just 2 days before NFI announced Bought Deal Financing for Gross Proceeds of Approximately $250 Million:

…pursuant to which the Company will issue from treasury, and the Underwriters will purchase on a bought deal basis, 8,446,000 common shares (the “Shares”) at a price of C$29.60 per Share for gross proceeds to the Company of approximately C$250 million (the “Offering”).
…
NFI is on a strong path to recovery that is expected to deliver growth and profitability as we lead the transition to a cleaner, more efficient zero-emission future.

Will you dilute your shareholders, if you are on a strong path to recovery?
Somehow it didn’t spook investors as the stock kept trading more or less flat until September 2021.
As for me, I was already out and didn’t care much.
Even though I still believed that the company had a bright future ahead, I wasn’t happy with the management wasting money on dividends and issuing more shares at the same time.
It just felt illogical to me.

In 2021, while reporting more new orders for its amazing buses, NFI kept issuing more shares, taking on more debt, lowering its guidance (September 2021), and still paying those stupid dividends:

Given management’s expectation that these supply and logistics disruptions are temporary, the Board of Directors has declared the Company’s quarterly dividend for the period of July 1, 2021 to September 30, 2021 on the common shares of the Company (the “Shares”) at the pre-existing rate of $0.2125 per Share to holders of record at the close of business on September 30, 2021.

NFI Group Inc. didn’t really announce that, but it took on more debt in Q3 2021, an extra $78.5M.
Then in November 2021, NFI Group Inc. Announces Bought Deal Financing for Gross Proceeds of Approximately C$400 Million and Amendments to its Senior Credit Facilities:

…have agreed to purchase 6,110,000 common shares of NFI (the “Shares”) at a price of C$24.55 per share and C$250 million aggregate principal amount of convertible senior unsecured debentures (the “Debentures”) of NFI for distribution to the public by way of a “bought deal” financing (the “Offering”). The Debentures will have a coupon of 5.0% per annum, and a conversion price of C$33.15 per Share, subject to adjustments in certain circumstances. The Debentures will mature on January 15, 2027 (the “Maturity Date”). Completion of the Offering will result in total gross proceeds to the Company of approximately C$400 million.

Later the debentures were upsized from $250M to $300M.

I mean all these new bus orders are great, but unless you can deliver, you are in trouble.
While losing money NFI kept paying dividends digging the hole even deeper.
Extra $61.7M in dividends were paid in 2021.

March 10, 2022, NFI Announces Fourth Quarter and Full Year 2021 Results and 2022 Guidance:

Reflecting supply chain disruption, announced a reduction of quarterly dividend, to $0.0531 per Share, with an opportunity for a subsequent increase based on improved financial performance in 2023.

Still did not cut to ZERO! Around this time NFI stock price dived to COVID times but that was not the end of struggles.
On April 29, 2022, NFI provides market and supply chain update with revisions to full year guidance:

Lowering financial guidance for Fiscal 2022 with expected Adjusted EBITDA range of $15 million to $45 million primarily due to supply chain challenges.

EBITDA between $15M and $45M for the whole year of 2022, still didn’t cut dividends, which will be $16.4M for 2022!

In Q1 2022, New Flyer took an extra ~$90M of debt from their revolving credit facility and still ended the quarter losing almost $51M of cash.

To sum it up, NFI has wasted ~$120M (actual cash amount is ~$100M as some shareholders are probably DRIPing) on dividends since 2020 while issuing more shares and debt.
The biggest disappointment is not dividends per se, but short-sighted management.
Their initial 2022 guidance was a total bullshit: revised from $100M-$130M of Adjusted EBITDA on March 10, 2022, down to $15M-$45M on April 29, 2022!

Management is very upbeat nevertheless.
They are expecting to receive chips for their buses in August 2022 and they are working on alternative module that uses different chips/processors.
There are, apparently, undisclosed number of buses ready, just waiting for modules to be installed.
Adam Gray, one of the Directors, is very bullish and bought lots of shares.

My opinion is “GAMBLE BUY“.
The future is quite foggy so far, 2023 can be worse than 2022, and management is deceptive.
Buses and engineering team are amazing!
Might be better to wait when/if they survive shortages.