Q4 2020 Blue Bird Corp Earnings Call
Greetings and welcome to the Blue Bird Corporation fiscal 2024th quarter and full year earnings Conference call.
At this time all participants are in a listen only mode. A brief question answer session will follow the formal presentation.
No one should require operator assistance during the conference. Please press star zero on your telephone keypad.
Other line during this call conference is being recorded it is now my pleasure to introduce your host Mark. Thanks, Phil. Thank you Mark you may begin.
Thank you welcome to Blue Bird this goal 2024th quarter Conference call. The audio for call is webcast live on Blue Dash Bird dotcom under the Investor Relations GAAP.
You can access the supporting slides on our website by clicking on the presentations box.
Yeah, our landing page on.
Our comments today include forward looking statements that are subject to risks that could cause actual results to be materially different.
Those risks include among others matters, we have noted in our latest earnings release filings would that be sales.
Blue Bird disclaims any obligation to update information on this call.
Good afternoon, you will hear from Blue Bird, President and CEO, Phil Horlock CFO, Jeff Taylor.
We will take some questions so let's get started Phil.
Thanks, Mark well good afternoon, and thank you all for joining us today for our fourth quarter on full year earnings call for fiscal 2020.
Before I jump into our financial results I'd like to give an assessment of how I see our business environment today, and particularly the outlook for the school bus industry. So.
Let's turn to slide four.
Not surprisingly the fourth quarter was a challenge him on as we entered on second quarter dealing with the COVID-19 pandemic.
But other you'll see we continue to improve on business structure, while significant the impact from the pandemic on our fourth quarter results was less severe than we experienced in the third quarter and we all see positive signs that the interest recovery is on the horizon.
Nonetheless, we have to deal with some significant challenges about 50% of schools chose online teaching goal the classroom teaching on a significant portion of the balance what the hybrid program alternated between online and classroom teaching.
This approach was declawed throughout the fourth quarter on was largely in place at the start of the New school year. However, one thing that is clear on obvious when schools are closed buses on being on it. The good news is that when schools are open it's business as usual with school bus orders being placed.
Consequently, we don't certainty on the in classroom teaching on when you order intake and support the schools start was slow on this was seen in on a unit sales for this quarter, which was down 23% from a year ago.
Although this was a significant sales decline it was considerably lower than the 43% reduction we saw on the third quarter in fact fourth quarter sales were nearly 50% higher than what we achieved in the third quarter.
So the pace of decline was significantly lower than we saw on the third quarter a school that should begin to deal with the pandemic on refocused on the school bus needs.
On the supply chain from while we did experience from late costs on shortages. This did not cause interruption of production on overall material supply was significantly better on more consistent than in the prior quarter.
The outcome of all these factors is a full year industry estimate of 28500 school buses reflect a new vehicle registrations compiled by our old Polk.
That's a 17% decline from fiscal 2019 on more than a 30% decline in the second half of the year.
But we are seeing some positive trends in news that indicates an industry recovery on profitability a rebound that she'll be ahead of US later in fiscal 2021 in support of 2022 school stuff.
From Blue bird to from the standpoint, there are several factors worth noting.
Since the spending production for two weeks in April we have had an uninterrupted production where the rigorous deployment of COVID-19 safety measures throughout the company on a significantly improved supply chain.
We successfully moved to a single shift in June restructuring no work force and support teams on now seeing efficiency on quality games, particularly evident in the first quarter of fiscal 2021.
Turning to the three pronged margin improvement strategy that I've covered in detail in prior earnings calls despite the lower industry, we increased our average selling price on a fiscal 2019 by 7% in both the fourth quarter and the full year that's.
That's a significant increase on a strong adults when developed products.
It was another very from you ever know tenancy fuels with 53% mix of sales in the fourth quarter on a 48% mix for the full year equaling last year's record.
And finally, our third focus on lowering structural cost through our transformational initiatives delivered almost $15 million of savings and the full year.
So despite the severe volume in parts of COVID-19, we've continued to improve our business structure and sure on we are well positioned for when the interest or rebounds.
Now on the external from President elect Biden has declared school opening as one of the three key hundred debt deliverables being targeted by the new administration and together with a roll on to the COVID-19 vaccines, we have increased optimism about the industry outlook.
And finally, we have been seeing increased quoting activity on recent weeks on <unk> first quarter fiscal 2021 production slots are all Phil.
Always fun to suggest that we should see an interest recovery as we move through the second half of fiscal 2021, particularly in support of 2022 school year.
Let's now turn to slide five on a couple other fourth quarter and full year financial highlights.
Our fourth quarter financial results were significantly impacted by COVID-19, although we still made a solid profit.
At about 2900 buses our unit sales were down eight from him 50 units from last year, representing a decline of 23%.
This compares favorably however, with a 43% decline that we saw on the third quarter.
Similarly, net sales of two to day to $1 million for the quarter were 18% below last year.
The low decline in net sales revenue than it does in unit sales reflects a 7% increase in average, but selling price that I mentioned earlier.
This result is a really positive aspect of our fourth quarter performance on the cornerstone of on margin growth strategy, that's clearly working.
Adjusted EBITDA of $21.9 million was $11.5 million below the same period of last year fully explained by the lower unit sales of 850 buses.
Turning to the full year I'm pleased to say that our financial results were either better than guidance around the high end of the guidance range that we provided to you at the last earnings call.
We sold just under 8900 school buses in fiscal 2020, representing a 19% reduction from last year.
Incidentally prior to the COVID-19 impact we were on track to sell at least 11000 buses this year.
Net sales of $879 million on adjusted EBITDA of about $55 million were both above guidance, although 140 million on $27 million below last year, respectively.
Adjusted free cash flow for the year was slightly negative on that the high end of the guidance range.
Now on the previous slide on a couple of the operational improvements we continue to make to improve business structure on drive ongoing margin growth, namely higher prices increase mix of alternative fuels and lowest structural cost.
We also continue to drive efficiencies on quality improvements through our move to a single shift in the summer and we'll be expanding on single ship capacity in other 2021, a couple about more on detail later on.
We consistently have strong liquidity on its $180 million at the end of the fourth quarter, we can handle a difficult environment in which we are operating today.
We continue to drive crush improvements in the first quarter of fiscal 2021.
And finally as announced last week as many companies have done we successfully amended our loan agreement without banks, providing covenant relief over the next six quarters.
This provides us with the financial flexibility to operate our business during this unprecedented pandemic, while preserving future growth opportunities.
Overall, despite very tough business conditions, I'm really pleased with our focus on that progress this year.
Let's go to slide Steaks and review our major operating achievements in fiscal 2020.
First as a safety and well being of our employees, we've taken significant measures to protect our employees from call. It 19 on have established a rigid protocol that has served us well to date needless to say a safe and healthy work force is key to our business continuity and we've been incredibly loyal and dedicated team of professionals.
Second is annual price into recover economics on the introduction of new products and features with a 7% increase in average, but selling price on the last year, which includes pure pricing a richer vehicle makes on higher option take we are confident in our annual price and capability.
Third is our relentless focus on driving down structural costs through on transformational cost initiatives, which delivered nearly $50 million in savings in fiscal 2020 on more than $50 million in savings. Since we started three years ago. We also supplemented this program with targeted reductions in EPS Gionee specifically.
The area of organizational structure.
On force our continued growth in the mix of alternative fuel powered school buses, where we benefit from higher margins on the increased on a loyalty compared with conventional fuels.
Leadership position across all of these fuel types book, particularly in propane will be achieved a 76% market share on the electric at 59% share indicates that our strategy is working and we look for other continued strong growth in this area.
The rapidly growing interest from electric bus is a really exciting opportunity for us on should generate significant growth in the years ahead.
Not pursue these priorities is fundamental to achieving our EBITDA margin target of at least 10% in the near term on with setting the foundation to achieve this target despite the unprecedented impact of covert non team today.
So it's time to take a closer look at our alternative fuel bus sales performance on slide seven.
And we also have an exciting new product announcements to make in this space.
Despite the slowdown in bus orders on a mix of alternative fuel powered buses remains as strong as ever at 48% of our unit sales in fiscal 2020. This.
This was a record mix or blue bird tying last year's result, but it's all the more impressive when it's achieved during a pandemic that's impacting an entire industry.
Our north American market share in alternative fuels was 58% for the full fiscal year.
As a measure of our strength in this area. Let me give you. Some details we were number one in propane with 76% market share. We went from one electric growing from 50 per cent market share last year to 59% in fiscal 2020.
Importantly, our electric bus share on the United States with a substantial 77% and we were number one in compressed natural gas bus sales with 50% market share.
Now that's leadership across the board so.
Significantly 309 customers purchased new types of alternative fuel buses from us for the first time in 2020, that's on top of more than 400 customers, who tried on alternative fuel options last year for the first time import.
Importantly, these alternative fuel choices have enabled us a conquest new business from our competitors, bringing in 157, new customers to the Blue Bird family This year.
These are compelling facts and with a high customer loyalty, we enjoy from these products. Its a great endorsement of our exclusive alternative fuel buses, the blue bird brand and our dealer network.
And we sold on delivered 150, I'd electric powered school buses compared with 56 last year on or off to a great start in fiscal 2021 with more than 80 orders in our backlog.
Now were not new at this electric business with other startup has achieved only a handful of deliveries we have been building on delivering zero emission school buses for over two years from now on announced early this quarter that we had expanded on electric bus capacity sixfold to a thousand buses a year in anticipation of meeting the growing demand.
And.
We have the broadest EBIT range in the industry with Taipei type C. N type d. offerings on the road today on with them on the market share. This year I'm not prepared to deliver on 300 electrical school bus in the coming weeks.
We're very excited about our EBIT growth opportunities going forward and we'll keep you posted on our progress.
Looking ahead, the vast majority of the VW mitigation funding is still ahead of us to and will help us to boost sales over the next three years or so with many states earmark in specific funds. The school bus purchases. We've had really good results. So far without propylene electric buses from this program based on the funds that have been issued.
On the recently announced 100 million dollar basis, if on DRAM to the World Research Institute also provides a boost with this unique carve out the zero emission school buses.
In summary, I'm very proud of our strong an undisputed leadership on alternative fuels, we have the best partners with that we have the best products on the rest flow sit to blue bird.
With less than 20% of school districts have been purchased an alternative fuel private school bus today, we have plenty of runway ahead, but continue to look for continued growth.
So as we look ahead, what do you see this segment going from Blue Bird.
As I write on book shows you can see on file with come in the last four years from a 26% mix a blue bird sales to a 48% mix. This year, that's extending growth anyway, you look at it.
But looking ahead, we don't see this growth stumping in fact, we project that four years from now between 60% to 70% of all Blue Bird book, you sold will be powered by a fuel as an alternative to diesel that's.
Thats, an increase of up to 3000 alternative fuel powered buses over this year.
We are bullish about this growth opportunity on we're investing in the business and we see electric on propane power as the way forward in alternative fuels.
So lets show you how we are investing in this growing segment, we have some really exciting news to tell you, we're bringing yet another alternative fuel engine to the school bus market, let's turn to slide eight.
I'm pleased to announce for the first time in public that we will be launching a brand new propane on gasoline engine and a blue bird vision.
The nine amazing years of growth using our 6.8 liter propane and gasoline engine that has defined alternative fuels in the school bus industry, we are replacing it with an all new 7.3 liter eight cylinder engine.
The Sandy was introduced by four this F series line up just over a year ago on already has tens of millions of miles of experience on the road its class leading on a winner.
Now looking at our partners at Foton Roush, we've been developing a school bus application for other send you an over the past two years, however, launching a new product in early 2021 once.
Once again, it's a unique offering by Blue bird. Thanks to an exclusive three way partnership that's now approaching 10 years. The new engine means a lot of great attributes best horsepower and talk in the industry improve fuel economy, better quality and ease of service and the smaller dimensional paki, so with ease it to work on it.
On the engine compartment as a tag line says the best just got better on will be open for orders in the next few days.
This is just another example of our commitment to best in class alternative fuel products, focusing on zero emissions on low Nox engines on.
We have much more to come in this space stay tune.
I'll now turn it over to our CFO, Jeff Taylor, who will take you through the financial results in more detail than other back later to cover our outlook on fiscal 2021 guidance.
Moving to you Jeff.
Thanks, Phil and good afternoon, it's my pleasure to share with you on the financial highlights from Blue birds fourth quarter and full year 2020.
The quarter and year end are based on a close date of October 32020, whereas the prior year was based on a September 28, 2019 close day.
We are filing the 10-K Tomorrow December 17th which includes additional material and disclosures regarding our business and financial performance we.
We encourage you to read the 10-K in the important disclosures that contained.
The appendix attached in todays presentation reconciles differences between GAAP and non-GAAP measures mentioned on this call as well as important disclaimer already mentioned by Mark.
With that please refer to slide Dan and I will review the key results for the fourth quarter.
Overall, it was a strong quarter for blue bird, especially considering the challenging operating environment due to the global pandemic.
Let me say first and foremost our number one priority was and will continue to be protecting the health and safety of our employees.
While operating conditions were tough they improved significantly over the third quarter and supply shortages and disruptions lessened in the fourth quarter and we maintain production without any unplanned plant shutdowns.
Furthermore, as we discussed on our third quarter earnings call, we implemented additional cost control measures in the fourth quarter with the goal of protecting the balance sheet and liquidity, while preserving the ability to recover quickly when schools reopen in school bus demand returns to pre pandemic levels.
Fourth quarter volume of 2876 units was down 23% compared to the prior year period on lower industry volumes due to the cobot pandemic.
However, it increased 48% sequentially as expected and consistent with our guidance.
Net revenue of $281 million was $62 million or 18% lower year over year for the quarter.
Bus net revenue of $269 million was down $57 million on lower volume.
Bus average selling price or ASP was 93400 per unit a year over year increase of 5900 per unit due to price increases to offset inflationary cost pressures and favorable product mix, including strong growth in electric buses.
Parts revenue for the quarter was $12.9 million, representing a decrease of $4.9 million as a portion of maintenance facilities were shut down due to the virus. However.
However, parts revenue increased sequentially by $4.3 million or 50%.
Gross margin was 10.5 per cent about 310 basis points lower than the prior year period the day.
Decline in margin in the fourth quarter was almost entirely the result of lower efficiency due to lower volume and higher cost associated with it.
Selling general and administrative or EPS, DNA was $16.1 million, which was down $12.1 million on reduced spending on cost control actions in our management and engineering areas as.
As discussed last quarter, we are targeting 50 million of annualized cost reductions we are delivering on that commitment.
GAAP net income of $11.9 million in the fourth quarter was 0.3 million higher than the prior year period.
On an adjusted basis net income was $13.3 million down $6.7 million versus last year.
Adjusted EBITDA of $21.9 million was strong, but down by $11.5 million compared to the prior year quarter, which I will cover in more detail on the next slide.
However, the operations group executed very well to deliver the solid fourth quarter result.
Our adjusted EBITDA margin was 8% a decrease of approximately 190 basis points.
Diluted earnings per share of 44 cents was one cents better than the prior year consistent with our GAAP net income as our number of diluted shares outstanding was essentially unchanged.
Weighted average diluted shares were $27 million during the fourth quarter versus $26.9 million in the same period last year.
Fourth quarter adjusted diluted earnings per share.
49 cents were 25 cents lower than the prior year consistent with adjusted net income.
Liquidity was approximately $180 million on October threerd as our revolver was fully paid down from the third quarter.
Note that quarter end liquidity was prior to the third amendment on our credit agreement, which I'll cover momentarily.
Looking at the fourth quarter adjusted EBITDA bridge year over year bridge on slide 11.
Moving on the left of the chart lower bus volume of 850 units, partially offset by mix and lower freight and warranty expense decreased adjusted EBITDA by $11.6 million.
Pricing and transformational initiatives, such as strategic sourcing added $8 million.
Lastly, higher manufacturing costs due to lower efficiency uncovered specific cost, partially offset by lower EPS DNA expense lowered adjusted EBITDA by 7.9 million, resulting in the quarter of 21.9 million.
Sequentially adjusted EBITDA was up by $9.4 million on higher unit volume of 928 iron.
Higher manufacturing efficiencies from running on a single shift operation on cost control initiatives, which impacted the quarter.
Slide 12 shows a summary of our full year 2020 result.
Overall, the 2020 year was a tale of two halves.
The first half of the year started exceptionally strong with financial results higher year over year.
In the second half of the year was negatively impacted by store closures lower school bus demand, resulting from the cobot pandemic.
Full year net revenue of 879 million was down $140 million or 13.7%.
That's net revenue of $823 million down $130 million driver driven by lower volume of 2139 units.
That's net revenue per unit. However was 92700, which represented a 6200 per unit increase from the prior year due to price increases to offset inflationary cost pressures and favorable product mix, including a strong year over year growth in electric buses as Phil mentioned.
Parts revenue for the year was 57 million, representing a decrease of $10 million and some maintenance facilities were shut down either partially or entirely during 2022 due to schools non operating and normal schedule.
Full year gross margin of 10.9% about 220 basis points lower than the prior year.
The deterioration in margin in 2020, it was almost entirely the result of two items.
First one time launch cost incurred in the first half of fiscal 2020.
And secondly on more notably the impact of inefficiencies on our plant caused by carbon related items.
Cobot impact included a three week on plant shutdown loss.
Lost absorption from lower volume supplier disruptions.
Our labor costs from overtime in absenteeism other.
And additional costs related to employee safety that we took in response to Cove it.
GAAP net income of $12 million in fiscal 2020 was 12 million lower than the prior year.
Adjusted net income of $22.1 million was lower by $21.3 million year over year largely.
Largely due to lower gross profit for the year.
Adjusted EBITDA of 55 million was down by $27 million compared to the prior year, which I will cover in more detail on the next slide.
The EBITDA margin was 6.2% a decrease of 180 basis points.
Diluted EPS of 45 cents was 45 cents lower than the prior year consistent with the year over year decline in net income.
And full year adjusted diluted EPS at 82 cents was 79 cents below the prior year once again consistent with the year over year decline in adjusted net income.
Weighted average diluted shares were $27.1 million versus $27 million last year.
Slide 13 shows the year over year change in adjusted EBITDA from 2019 to 2020 Star.
Starting on the left of the chart lower volume of 2139 units, partially offset by favorable mix and lower freight and warranty expense decreased adjusted EBITDA by 24.9 million.
Pricing and transformational initiatives combined added 20.1 million.
And lastly, higher manufacturing cost per driven by impacts from Covance on operating leverage and efficiency as well as launch costs, partially offset by lower EPS DNA expense decreased adjusted EBITDA by 22.3 million, resulting in the full year of $54.7 million.
Moving on to free cash flow on slide 14 the.
The stable sales, both fourth quarter and full year free cash flow in a just in addition to adjusted free cash flow.
The fourth quarter is normally a seasonally strong quarter for free cash flow due to the lowering of working capital in 2020 was no exception.
I'm very pleased to report that fourth quarter adjusted free cash flow was $81.3 million driven by a $68 million reduction in working capital largely inventory.
While free cash flow was $79.6 million as I mentioned on the third quarter call. We launched the cash conservation initiatives to capture 40 million of cash by year end and we were successful.
For the full year adjusted free cash flow was just below breakeven at negative zero point $9 million and free cash flow was negative $15.5 million.
While our overall free cash flow for the year was negative I am very pleased with the actions we took to minimize our cash use in 2020.
Looking at net debt leverage and liquidity net.
Debt of $129.6 million was 17.4 million higher versus the prior year due to less cash on the balance sheet.
Our net leverage ratio for the fourth quarter and year end was 3.1 times, which was still meaningfully below the net leverage ratio covenant of less than 3.7 times and our credit agreement prior to the third Amendment, we announced on December nine.
With our business entering the seasonally slow period and the cobot endemic expected to persist into 2021, we felt it was prudent to see covenant relief for our fiscal 2021 in the first half of 2022 day.
During the relief period from fiscal 2021, the net leverage covenant is removed and replaced with a trailing 12 month EBITDA test measured quarterly and liquidity test measured monthly.
In fiscal 2002, the net leverage ratio Covenant is reinstituted at four times during the first two quarters on.
Also our revolver availability is limited to $100 million during the relief period, along with other conditions, which are described in the 8-K that we filed on December nine.
Liquidity was $179.5 million at year end, and we had fully paid down on the revolver balance since the end of the third quarter.
Since completing the credit agreement Amendment. The revolver has remained unutilized and our liquidity has remained strong.
We are continuing our cost control initiatives to further protect our cash and liquidity into the foreseeable future.
In conclusion.
The fourth quarter was a strong finish to a tough year the.
The company acted quickly and decisively to contain cost when the pandemic yet in the results of our actions are evident.
We adjusted our operations to a single shift lowering our manufacturing costs and flexed up inventory early to protect our production plans, but flex down later when supply stabilized in order to recover the working capital.
We amended our credit agreement to provide flexibility with the covenant structure and protect liquidity.
We continue to execute our margin growth strategy and finally, there are positive trends regarding the cobot vaccine, which should allow schools to reopen for a fall 2021 school start if not sooner.
So while the first half of 2021, we'll still be impacted by covet. We are optimistic that the recovery will begin sometime in the second half.
I will now turn the discussion back to Phil Horlock, who will describe the outlook for 2021 and give his closing remarks.
Thanks, Jeff So let me now summarize the outlook that we see for both our operating performance and the school bus industry, which are the basis for our fiscal 2021 guidance.
Turning to slide 17.
I'll focus on Blue Bloods on delivering superior operating performance, we can't change the industry outcome. This year, but we can focus on improving every element of our business. So that we are well positioned when the industry rebounds as it inevitably will so that we also rebound that means executing on margin growth strategy by improving.
But selling price alternative fuel mix and cost structure.
An example of a structural change that drive superior operating performance was on move to a single ship production schedule in June.
We know we build a bus more efficiently and with better quality when all of our team is working together on the same single shift is proven and the fact.
The next step for US was to break specific line bottlenecks, which we started during our October shutdown and when complete and on December holiday shutdown. So from early 2021, we will be able to build as many units on non shift that we used to build on two shifts in straight time now that's a smart move.
Turning to the external environment. There are a number of factors that will influence the industry outlook. The most important being the return to in classroom teaching.
We know that when children in the classroom school bus that needed transport children safely and we see orders for new buses.
The positive recent developments and Colbert vaccine distribution on present delight buys us hundred day goal to open schools should impact the school bus and should favorably.
Additionally, with 25% of the 600000 unit North American School bus fleet being 15 years, our old debt and aging more when schools are closed there is great demand for new buses from school districts.
It's not a question of if the industry rebounds, but a question of when and we expect to see improvements later in fiscal 2021 in support of the New School style.
The most recent next on forecast by HCT is from an industry of 29000 buses in fiscal 2021 similar to fiscal 2020 now this can be significantly influenced by the external initiatives that I just covered.
Now with so much uncertainty on speculation on when schools will fully resuming classroom teaching we believe it prudent to provide a wide guidance range on to be prepared for a surge in orders so the industry recover faster.
Guidance range is shown on slide 18.
This slide shows the key metrics, which we provide guidance for net sales revenue. We are forecasting a range of between 750 and non returned $75 million.
Adjusted EBITDA between 40 and $65 million.
And adjusted free cash flow between 5 million negative and $20 million positive.
Our guidance reflects industry assumptions ranging from 26000 to 30000 buses with a lower end, assuming colby causes increased disruption the classroom teaching a minimal industry recovery in the second half of fiscal 2021.
The higher industry outlook of 30000 units reflects resumption of in classroom teaching later in fiscal 2021 on.
An increase in orders in support of 2022 schools stock.
As the heading safe, we believe it's important to plan prudently and somewhat conservatively, while aggressively pursuing operational improvements, we will narrow guidance as a control of the pandemic becomes clearer.
I'd now like to share our thoughts with you on when we expect to be back on track to achieve on declared goal of at least a 10% EBITDA margin in the near term.
Turning to slide 19.
This slide illustrates the adjusted EBITDA impact of COVID-19 on fiscal 2020 results and on the 2021 forecast.
We were on track to achieve our original guidance fiscal 2020 until the pandemic hit in the third quarter as Jeff told you earlier, we had a great first half of fiscal 2020. Then the then we were hit with some bad news in the second half caused entirely by Kobin.
Now, while we do expect some interest recovery in the second half of fiscal 2021, we expect a significant industry rebound to on pre co lead levels in fiscal 2022 commencing with school start.
And as volume recovers, we expect to resume on glide path towards at least a 10% adjusted EBITDA margin in the fiscal 2022 on 2023 timeframe.
So despite the Colby challenges on this impact on todays school bus industry, we haven't lost sight of our mission to.
To grow profitability and increased EBITDA margin to at least 10% in the near term to this end, we will continue to drive improvements across all elements of our business, thereby improving our underlying margins on a reported on our progress each quarter.
Well that concludes our formal presentation ill now pass it back to our moderator to begin the Q on a session.
Thank you we will now be conducting a question and answer session.
I would like to ask a question. Please press star one on your telephone keypad a confirmation total indicate that your line is on the question queue.
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One moment, please while we poll for questions.
Thank you. Our first question comes from Eric Stine with Craig Hallum.
Please proceed with your question.
Hi, Ron.
Hi, Eric.
Hey, so I mean, obviously.
A lot of uncertainty here heading into fiscal year 21.
But just curious what are you hearing from school districts related debt funding availability related to release of funding.
Moving purchase plan and just what kind of confidence that it does give you.
Debt when things hopefully return to normal in I guess in fiscal 22.
You know what kind of strength that you see I mean is it something where you see that this industry can snap back pretty fast.
Or other factors, where you think potentially it's a little more gradual on that.
It's a good question, Eric I mean, let me tell you thoughts on unless some of the best experience to in those schools that have reopened.
The ones that have reopened I'd say, we are seeing volumes in the region up from 95% of what we previously be maybe 90% to 95% of when we were back in 2019, so thats encouraging for us.
You go back to our funding mechanism principally.
Property taxes, that's a principle funding mechanism for school buses property value still high property taxes is still robust and so on the view is that the funding certainly from traditional funding for school buses looked pretty strong we've seen consistently over the years that.
When districts need to add school buses, which are all about safety of children.
I will now puts on bond money out there they'll it'll be unique a funding mechanism for doing it and thats been successful in the past I think the other thing too to recognize two is trying to get political here, but we certainly have a presence like biden talking about it.
The electrification of the school bus fleets and.
And I think certainly he's total this agenda is getting kids back to school in the classroom and I certainly think that do not effectively you've got to have a robust school bus fleet to let's say buses that can we can handle it so.
I guess, what I'm, telling you is based on experience of districts, who we've actually gone back to school, we'll see in August.
Do I think I am I don't necessarily think when I think of 2022, we're going to see as balance immediately back at 35000, which was like the peak we've been running at for the last 30 is on we have we enjoyed three or four years of that price to the cold and pandemic revenue will be close to that I don't think we'll be far off but nothing will be in the.
33, 34000 is on a range, let me bounce back.
Okay.
That's great color on maybe just turning to this fiscal year.
I mean, you mentioned that first quarter was full.
In that context, I mean should we think about typical seasonal seasonality this year.
Or other.
Could it potentially be a fair amount sticker on I guess in the back half of the year Kols that as a big bearing on that but maybe just how we should think about or get our minds around first quarter.
Well, obviously, we don't give guidance by quarter, but I can tell you. When I said were full obviously, we are little down from last year. The decline from a year ago. It's a lot less from what we saw in the third quarter and on in the fourth quarter fiscal 2020.
Well much neera.
Getting into double digit decline I mean, thats, where we are as we look at the 2020.
2021 first quarter on his versus a year ago. So I think that's a point we've been trying to make here is that.
We talk about the rate of decline is seems to be slowing down and so on we evidenced on in the first quarter and let me give you those results you'll see that.
Okay.
Got it and then yeah.
Yes.
This is Jeff I think you're going to see the first half is going to continue to be impacted by Covidien and then on.
Honestly, we've we've commented that we're optimistic on the second half so that could play into the seasonality as we look at the full year as well.
Okay got.
Got it lastly, just on the electric bus side I know you you recently.
[laughter] capacity by six times I believe over 1000 units and that's pretty significant and I know you enter with I think Andy coming into the year I mean, what you obviously didn't and that capacity.
Taking that you wouldn't need it soon so is that is that a level that you think whether it's in the next fiscal year or two that you could be approaching on the electric bus side.
Well be capacity this year, but I do think you certainly look over the next couple of years I think you know I think we'll start to see a significant based on capacity being used just to clarify Phil we talk about capacity, we talk about what weve facilitized to we talked about on equipment. Our plan our automation, obviously I'm not I'm not meaning to 1000 buses to that went on I'm going to use.
The backlog, so we're being prudent on that but we put the capability in place that when it's there we can easily ramp up so I just look at.
Again, what I mentioned earlier, the new administration part of their campaign other going to get this by the way through Congress on everybody's going to approve it but he did talk about.
Electric find some 500000 school buses over the next five years, we've seen phenomenal on let's be honest and sort of.
See you can think about.
Putting 500000, New school buses on the road I think is indicative of maybe the support we're going to see for school buses. So it's pretty exciting certainly electric buses to.
Yep, Okay. Thanks, everyone.
Thank you. Our next question comes from Craig Irwin with Roth Capital Partners. Please proceed with your question.
Hi, good evening and congratulations on tight execution this quarter.
Alright choppy environment, Yes, you guys did a great job. Thank you.
[music].
So what are the things I like in your in your slides sorry.
On the in the waterfall you include a 7.9 million dollar headwind so.
Stepping from Port Q 19 to pork you 20 that.
That headwind you say is primarily from Covidien can you share with us what portion of that.
Probably hit the gross margin line given that gross margins were quite a bit lower.
Then debt where things have been over the last couple of years I know a lot of the spending for Colgate does come from sales spacing out your employees and putting in additional ENHANZE sanitization stations and other expense isn't inconveniences.
Can you maybe share with us an approximation of.
The margin impact item and dollar share basis points.
Yes, Hi, Craig this is Jeff.
What I would say is on that 7.9 million dollar headwind that we saw there.
In the fourth quarter.
The vast majority of that certainly hit us and in gross profit that was.
That was in specific areas that do impact cost of goods sold its in labor and overhead.
And just overall manufacturing efficiencies, including.
On a lot of operating leverage from lower volume and so all of those impact our cost of goods sold and subsequently flow down to gross profit. So it's it's certainly the largest portion of it.
Great. Thanks.
Question I guess in almost every phone call where someone mentioned Blue bird is why are you guys not leaning in.
The way that some Andy spec IPO companies are laying out a growth path for investment.
And pursuing the explosive growth since available any these from diversification. So you've got a proven technology out there with your school buses you are one of the top two guys on the market.
And your experience in.
In alternative fuels is unsurpassed.
I was talking to another leader in alternative fuels today and take on 70%, they're going to grow 30% and 2021 plus potential upside to 50%.
It's got to be available to you why not invest for that why not laid that out as a plan for investors is its a conversation at the board level.
All right or if it's not why not.
No it's definitely a conversation we're having on the board level. Craig obviously, we are invest in terms of the capacity increases we put in place and.
On the products on we have a very robust product cycle plan to that.
Next from a product today to a superior products for the future that I think customers are going to love on the going to value.
I can't get into it today, but certainly it's something we recognize on cash bottom line. We've seen on spec sales there we've seen their projected growth rates. We know the valuations we've seen that so certainly its something we are talking talking to our board about we're just not ready at this meeting to tell you what we're going to do what on next steps, but I take.
Good point, Craig it's a good one and we have a great. We have a great platform a great chassis its.
They can apply for different applications different applications. So we're talking to our board about when we take it from here.
I saw on that.
That is a big piece of news. So we will stay tuned and look forward to future.
Future updates thank.
You bet Craig Thanks.
There are no further questions at this time I would like to turn the floor back over to Phil Horlock for closing comments.
Okay, Thanks, Paul and I want to thank everyone on the phone today for joining us on the call and I really appreciate the questions that will flow to us we do appreciate into interest in Blue Bird and we look forward to updating you again on.
On our progress next quarter before we sign off I just want to leave you with a final message.
We do believe we're well positioned to handle this unprecedented pandemic, we've got ample liquidity as you as you heard and as Jeff talked about we are improving our business structure you heard about a three prong strategy moving into whatever it takes on a restructuring standpoint to make sure. We get through this period. We are confident we will see a rebound on the industry and we want to be there to capitalize on it.
I just want to give special recognition to our incredible employees for their commitment to dedicate to blue bird. During this pandemic theyve been amazing when you look at our absenteeism rates on our low that is coming from traditional manufacturing industry. So on credit to our team. So if you have any follow up questions don't hesitate to call it a profitability investor relations.
Ben fully you all know well and thanks again from all of US at Blue Bird have a great evening be safe and happy holiday. Thanks.
This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation and have a wonderful.