Q1 2021 Blue Bird Corp Earnings Call
Greetings and welcome to Blue Bird Corporation fiscal 'twenty, one first quarter earnings conference call. At this time all participants are in a listen only mode for question answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad. Please note. This conference is being recorded I would now.
For the conference over to your host Mark Benfield Executive director of profitability and Investor Relations. Thank you you may begin.
Thank you and welcome to Blue Bird's fiscal 'twenty and 'twenty, one first quarter earnings conference call. The audio for our call and webcast live on Blue dashboard Dot com under the Investor Relations tab, you can access the supporting slides on our website by clicking on the presentations box on our IR landing page on.
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 and our latest earnings release and filings with the FCC.
Blue Bird disclaims any obligation to update the information on this call.
Afternoon, you will hear from Blue Bird's, President and CEO, Phil Boardwalk and CFO, Jeff Taylor.
I'll take some questions so let's get started Phil.
Thanks, Mark well good afternoon, everybody and thanks for joining us today for our first on this call fiscal 2021, well will cover off this quarter results.
Before I jump into our financial performance I'd like to give you an assessment on how I see our business environment today, and importantly, how we are adapting to the market conditions and prioritizing our plans going forward.
Turning to slide four.
And the headline says and a challenging market, we continue to drive business structure improvements and.
And pulled me for all future substantially increasing our focus on the growing electric vehicle business for.
And industry standpoint, not surprisingly the first quarter was another challenging one other adult with about 40 percentage students attending only virtual classes with the balance split fairly evenly between in classroom teaching on the hybrid program.
I think I've stated on previous earnings call. One factor is clear and obvious when schools are closed buses aren't being on the good news is that when schools are open and it's business as usual with school bus. All just been placed that's great for us to know as we move forward.
Following the recent holiday break however, we have been seeing more schools resuming and classroom teaching and that's led to increased quote activity for our new buses. This.
This is a leading indicator for the industry recovery is on the horizon bolstered by increase and deployment of the Covid vaccine and the New administration has declared intent to open all schools within the first hundred days of its tough.
And just consistently stated it's our expectation that the industry recovery will begin in the second half of fiscal 'twenty and 'twenty Walnut and support other next school year stock.
Shifting now to Blue book on first quarter results were solid despite dealing with COVID-19 as we continue to improve our business structure and underlying margins, we significantly improved working capital and the quarter compared with last year as we drove down inventory operating up much leaner levels and in prior years.
That's 46 percentage of total sales we had another first quarter record mix of alternative powered bus sales and maintaining our strong leadership position.
And we want number one and trailing 12 months and market share for both electric and propane powered buses.
Now today, you're going to hear a lot about our electric vehicle results on our plans on this earnings call, but needless to say, we're excited with the comments made by the New administration on supporting electrification of 500000 school buses and the transport on children every day.
We're significantly increasing our focus on resources and the electric bus segment, well, we are the market leader as customer interest and percentage growth and zero emissions vehicles is outpacing every other segment of our business.
And this regard I'm pleased to announce today, it's our intention to offer a blue bird electric chassis for the class three through seven truck market.
Now this is a new business opportunity for us that we will launch later in 'twenty and 'twenty, one and there's an obvious outcome from having the broadest range of alternative powered chassis and the business led by a zero emission electric and low emissions propane products all of which I should remind you are built at our factory.
So overall blue Budd is well positioned for profitable growth our school presuming classroom teaching and the industry recovery begins and we plan to remain a fall from the inevitable and exciting industry shift towards zero emission student transportation.
And I'll turn to slide five and.
And I'll cover the first quarter financial highlights.
Our first quarter is always a seasonally low quarter for the year, Paul and school starts and the prior quarter now despite the spot and the impact of COVID-19, our financial results were solid.
1200, and 55 buses our unit sales were down 205 from last year, representing a decline of 14% and Tyler due to the pandemic, but well below the 23% volume decline we saw on the fourth quarter of fiscal 'twenty and 'twenty.
Similarly, net sales and $130 million for 15% below last year.
Adjusted EBITDA of $5 $8 million was $2 $2 million below the same period last year more than explained by the lower unit sales.
Now while adjusted free cash flow was $13 nine months it was negative in the quarter, which reflects seasonal seasonality of our business.
This was a substantial $77 million improvement over last year.
We certainly saw the benefits of our stringent inventory and cash management controls that we've been deploying which we've now institutionalized and our company.
All three of these financial results and provide guidance, namely net sales adjusted EBITDA and adjusted free cash flow were in line with our plan.
And I talked about improving our business structure and underlying margins would you live and on many operational from which is summarized on the lower half of this slide.
And you can see these achievements reflect our three pronged margin growth strategy that we have communicated consistently on prior earnings calls, namely improving both selling price increases and makes them alternative powered vehicles and reducing structural costs.
So let's now go on to slide six and review on major operating achievements to date and importantly, see the specific results of the margin growth initiatives that I just mentioned.
We continue to drive transformational initiatives to improve efficiencies and quality and capacity. Let me give you a great example of this by the end of the first quarter, we substantially completed all of our plant upgrade actions necessary to ensure we can build as many vehicles on a single production shifts that we used to build on two shifts.
That's great for efficiency quality, and gross margins, especially as industry volume recovers.
As a reminder, we have now delivered more than $50 million savings from these transformational initiatives since we stopped at three and a half years ago.
Next we increased for all be selling price to book by about $2000 or 2% over last year, primarily reflecting the impact of the annual pricing to recover economics that we took late in fiscal 'twenty and 'twenty.
And I'm, particularly pleased with this accomplishment and the lowest volume quarter of the year.
Now we have a lot of activity going on and alternative powered vehicles.
First announced publicly today, we've just renewed our exclusive partnership with Ford Motor Company for several more years for the supply of our market, leading gasoline and propane engines with Ford and Roush, we were enjoying and exclusive and successful three way partnerships. That's lasted more than 10 years, and we see no sign of identity.
And early spring as I mentioned on our prior earnings call, we'll be launching on next generation exclusive propane and gasoline engine for Ford and Roush. The all new seven points really to V eight engine.
And it brings more power, it's more compact and it's got more talk and it delivers more fuel economy as our tagline says the best just got better.
Our combined alternative power mix was a record 46% of unit sales for the first quarter down 7% above last year and with the higher on our loyalty and margin we generate from these unique products, it's great business for Blue Bird.
As I covered earlier, our rapidly growing interest for electric buses and a very exciting opportunity for us and will generate significant growth and they used to come.
On a trailing 12 months basis, which in this case covers calendar year 2020, our electric bus market share was net standing 63%. This compares with 25% market share and 2019, so I'm really pleased with this growth trajectory.
Fiscal year to date, we now have 107 electric buses, either sold or and a firm order backlog and that number is up 24% from the same time last year.
And that's really nice growth and a down industry and it's just the beginning for electric vehicles.
And finally, when you look at the total number of electric vehicles, we have either sold or a firm oldest fall since we started production just three years ago its more than 400 buses.
That killed US all school bus configurations high PE type C and type D. No one matches, our breath of EV products and market leadership and the school bus industry.
And summarizing our operating achievements and one word I would say that we have momentum.
Even and industry significantly impacted today by COVID-19.
Cost are down average selling price yourself alternative fuel mix is higher and we have exciting new growth opportunities ahead with electric vehicles and chassis.
Let's now take a quick look low.
I think we are heading on alternative powered vehicles on slide seven.
On the previous slide I mentioned on our alternative powered bus mix and the first quarter was a record 46% of total sales.
Well, that's growing it's now at 50%, reflecting second quarter bookings to date and our firm order backlog. That's another record mix for Blue Bird at this time of the year five points above a year ago.
But it's all the more impressive when he's achieved during the pandemic that's impacting on the entire industry.
I'll just cover it on prior earnings calls our range of buses attracts new customers, who have never tried and alternative powered bus and many on new to the Blue Bird family, we saw the speech and yet again and the first quarter.
These are compelling facts and with the highest customer loyalty we enjoy from these products. It's a great endorsement of our exclusive alternative powered buses for Bluebird brand and our great dealer network.
And we're off to a terrific start with electric buses this year.
As a reminder, we're not and knew what the EV business nor are we a startup is achieved only a handful of deliveries.
We've been building and delivering zero emission school buses for nearly three years now we have the broadest EBIT range and the industry with Taipei type C and type D offerings on the road today with number one and market share and are preparing to deliver a 400 electric bus in the coming months.
From a funding standpoint, the vast majority of the VW mitigation funding is still ahead of us and will help us boost sales over the next three years or so with many states earmarking specific funds for school bus purchases.
We've had great results, so far without proppant and electric buses from the funds that have been issued.
And the recently announced $100 million based on Earth from ground to the low Research Institute also provides a boost well this unique carve out for zero emission school buses.
In summary, I'm very proud of our stronger the undisputed leadership position and alternative powered bus sales we have the best partners the best products and the rest elusive to Blue bird and we.
Less than 20 percentage of school districts come and purchase and alternative public school bus today, we have plenty of runway ahead for continued growth.
Now I'll show the rights on box on our last earnings call and you can see how far we've come and the last for years.
And looking ahead, we don't see this growth stop and we project that for years from now between 60% to 70% of all Blue buses sold will be powered by a fuel and its not selling for diesel that's an increase of up to 3000 alternative powered buses over this year.
We're bullish about this growth opportunity and are investing and the business and we see electric and propane powered the way forward and alternative power as we drive towards low and zero emission products.
Because of its outstanding growth potential however, and the unprecedented interest and zero emission transportation electric power is a priority focus for us So let's take a deeper look at our EV strategy and plan turning to slide eight.
As we learned from a probe and success when we bring and entirely new product to market. It takes more than just a great product to win year after year comes.
Customers want turnkey solutions that take care of their issues on the questions and the case of propane. It was what do we buy propane fuel how do we lock and the fuel price what fueling infrastructure is required and what's the best vehicle configuration for about duty cycle, one of the Tcl benefits and so on.
And the case of electric vehicles, we call. This the EV ecosystem carefully selecting the best pumps and the business working with us to handle each aspect of the acquisition and the ownership experience to make it easy for our customers.
As a graphic on the left hand box shows we are well on our way to confirm and golf E V ecosystem, our partners and their participation with US we will be sharing this with you at upcoming earnings calls and E V conferences.
Turning to the right side of the slide we show our key growth initiatives first continued leadership and delivering electric powered school buses.
With more than 500000 and school buses on the road, that's and addressable market of more than $100 billion and the years ahead as we move along the inevitable journey to zero emissions.
You may have seen recently, both the state of California, and General Motors have risked declared their intent to phase out combustion and used by 2035 those are bold statements, but on the shift is happening.
Second using our strengths and chassis manufacturing and breath of powertrain choices, we can provide E. B chassis to producers of commercial vehicles, who seek a prudent OEM chassis and factory installed electric powertrain.
With bolt on and 150000 buses on the road today Blue Bird bus and chassis cover about 1.5 billion miles annually and we have now accumulated and go over 2 million miles each year with our EV buses that experience and know how it gives confidence to our customers well.
We're looking forward to our UV growth journey, and we'll fill you in on our progress as we move ahead.
And we look to expand beyond school buses, let me just show you how we match up against the truck industry classification possesses turning to slide nine.
From a large for small buses all chassis fit the requirements for truck classification and suites and seven.
That covers GB WR demand from 10000 pounds, just 33000 pounds, which is an extensive range.
And with a factory installed electric powertrains addressing every one of these truck classes today, we're well positioned for this growth opportunity and chassis sales I would also be remiss if I didn't mention but we can also provide propane CMG gasoline and diesel power for these classifications, where and a great position.
I'll now turn it over to our CFO, Jeff Taylor, who will take you through the financial results in more detail and I'll be back later to cover our outlook on fiscal 2000, and 'twenty one guidance.
And to you Jeff.
Thanks, Phil and good afternoon, everyone.
My pleasure to share with you the financial highlights from Blue Bird's first quarter Phil.
For 2021.
The quarter and is based on the close date of January 2021 for the prior year first quarter was based on the January for 2020 clubs state.
We will file the 10-Q Tomorrow February 11th which includes additional materials and disclosures regarding our business and financial performance.
We encourage you to read the 10-Q and the important disclosures that it contains.
The appendix attached to today's presentation reconciles differences between GAAP and non-GAAP measures mentioned on this call as well as other important disclaimers already mentioned.
With that please refer to slide 11, and I'll review the key results for the quarter.
Overall, it was a solid quarter for Blue bird, especially considering it was a seasonally slow quarter, which was further impacted by lower demand due to the global pandemic.
Everyone across the company executed well on our operations areas deserve to be highlighted for their outstanding performance.
First quarter volume for 1255 units was down 14% compared to the prior year period on lower industry volumes due entirely to the Covid pandemic.
Net revenue of $130 million was 23 million or 15% lower year over year for the quarter.
<unk> net revenue of 118 million was down $17 million on lower volume.
Thus average selling price for AFP was 93900 per unit and year over year increase of 1006 hundred per unit due to favorable product mix and option content.
In addition to price increases to offset inflationary cost pressures.
Our alternative fuel mix was 46% and the first quarter, which is up seven percentage points over the same quarter last year for.
Very strong performance.
Parts revenue for the quarter was $12 6 million, representing a decrease of $5 8 million year over year as many maintenance facilities were shut down due to the virus and consistent with lack of in person schooling.
Gross margin of 11, 1% was 280 basis points lower than the prior year period.
The deterioration in margin and the first quarter was almost entirely the result of lower fixed cost absorption due to lower volume.
Higher cost associated with Covid and.
And lower mix from the parts segment.
Selling general and administrative was $14 7 million, which was down $5 8 million on reduced spending and cost control actions and our management and engineering areas.
Once again very strong performance.
GAAP net loss was $1 6 million as compared with 0.4 million for the first quarter of 2020.
On an adjusted basis net income was 0.1 million down approximately $2 million versus last year.
Adjusted EBITDA of $5 8 million was down by $2 2 million compared with the prior year quarter, which I will cover in more detail on the next slide.
Our adjusted EBITDA margin was four four per cent decrease of approximately 80 basis points.
Diluted EPS of negative six cents per share was for cents per share lower than prior year.
While adjusted diluted EPS was 0.00 per share or seven cents per share lower than the prior year quarter.
Weighted average diluted shares for $27 1 million during the first quarter versus $26 5 million and the same period last year.
Yeah.
Liquidity was approximately $121 million as our revolver balance was untapped and fully available and at quarter end.
Looking at the first quarter on slide 12 year over year adjusted EBITDA Bridge.
Starting on the left of the chart.
Lower bus volume of 205 units and lower parts volume of approximately 32% were partially offset by favorable mix and lower freight and warranty expense.
All of these factors combined to decrease adjusted EBITDA by $4 2 million with volume being the primary factor.
Pricing and transformational initiatives, such as strategic sourcing and product redesign projects.
Added $1 8 million combined.
And lastly, operating expenses were lower due to cost controls while manufacturing costs were unfavorably impacted by lower fixed cost absorption on lower volume, partially offset by improved efficiency.
It resulted in adjusted EBITDA of $5 $8 million and for the quarter.
Moving on to free cash flow slide 13.
The table shows both first quarter free cash flow and addition to adjusted free cash flow.
The first quarter is normally a seasonally low quarter for free cash flow due to low demand and building working capital.
First quarter adjusted free cash flow was negative $13 9 million a.
Our year over year improvement of $77 million, largely on $64 million lower trade working capital.
While free cash flow was negative $14 8 million and $80 million improvement year over year.
I couldn't be happier with the control of trade working capital this quarter, and particularly the supply chain organization, and managing inventory and a difficult environment.
Looking at net debt and leverage and liquidity on slide 14.
Net debt of $147 million with 61 million lower versus prior year.
Due to lower borrowing on the revolver approximately $35 million.
Significantly improved trade working capital.
Required term loan payments over the past year, approximately $10 million and increased cash balances year over year approximately $16 million.
Our net leverage ratio for the first quarter was three one times.
While the net leverage covenant is suspended for 2021 under the amended credit agreement and then.
Phil relevant to set the rate of interest on our outstanding borrowings.
We have two active financial covenants for the period.
First the <unk>.
Selling 12 months EBITDA as defined under the credit agreement was $48 7 million versus a minimum requirement of $24 5 million.
Second liquidity for 121 million at quarter end versus a minimum covenant of $15 million.
Our liquidity continues to remain strong as our cost controls working capital discipline and structural margin improvements are clearly paying dividends.
Furthermore, we're continuing all of these activities for the foreseeable future for <unk>.
Further protect our cash and liquidity.
In conclusion for first quarter was a good start to the year and a smooth quarter from the perspective of supplier disruptions and COVID-19 impacts.
However, the operating environment has gotten more choppy on the second quarter for the higher level of supplier issues and disruptions as well as high levels of absenteeism.
For our team is rising to the challenge and addressing these on a daily basis.
We continue to execute our margin growth strategy as Phil discussed.
And finally, there are positive trends regarding COVID-19 vaccinations.
And it allows schools to reopen for a fall 2021 school start if not sooner.
We continue to be optimistic for school bus demand will recover and the second half of the year.
I will now turn the discussion back to Phil who will describe the outlook for the second quarter and give his closing remarks Phil.
Phil.
Thanks, Jeff So let me now summarize the outlook that we see for the balance of this year and beyond turning to slide 16.
We all want to see the resumption of safety and classroom teaching and.
It's good for students it's good for parents and it's good for our industry. We have the vaccine being distributed and we are seeing more schools gradually reopening. These are great signs that the industry recovery is beginning.
I thought it would be worth reminding all of US however, other new administrations stance on this topic.
See the supportive comments highlights from various speeches given by President Biden and recent weeks.
Yeah.
It's clear that the administration's commitment to reopening schools safely within 100 days and convert to get Americas largest mass transportation system of more than 500000 buses for electric power is great news for our industry and for our business.
So now, let's turn to the outlook for Blue book business on Slide 17.
Our emphasis on Blue bird is 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're well positioned when the industry rebounds and.
Inevitably will so that we also read that.
That means execute and got margin growth strategy by improving bus selling price alternative powered bus mix and cost structure.
As I mentioned earlier on example of structural change that drive superior operating performance was on moved to a single shift production schedule and.
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 that's great news for us as the industry recovers.
We have established electric vehicle leadership and growth as a top priority and they're organized and the evening business as a unique division within Blue Bird.
We'll be operating loss chassis for the commercial vehicle and this relates to this year without factory installed electric powertrain at the forefront.
Moving 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 and the classroom school bus and needed to transport children and safely and we see orders for new buses.
The positive recent developments and Covid vaccine distribution and president by those 100 day goal to open schools should impact the school bus industry favorably.
Additionally, with 25 per cent of the North American School bus fleet being 15 years or older and aging more when schools are closed there is great demand for new buses from school districts.
And there's another question on if the industry rebounds, but a question of when and we expect to see improvements later in fiscal 2021.
With so much uncertainty and speculation on when schools will fully resume and classroom teaching. However, we are maintaining the wide guidance range, we provided and the last earnings call we on.
Ill prepared however for a surge in orders for the industry recover faster.
Let's turn to our guidance range now on slide 18.
This slide shows the key metrics on which we provide guidance on is unchanged.
Net sales revenue, we are forecasting a range of between 750 $975 million.
And EBITDA between 40 and $65 million.
And adjusted free cash flow between $5 million negative and $20 million positive.
Now my guidance reflects industry assumptions, ranging from 26000, 30000 buses with a lower and assuming COVID-19 causes increased disruption to classroom teaching and am.
Minimal interest recovery and the second half of fiscal 2021.
The higher industry outlook of 30000 units, reflecting resumption of in classroom teaching later in fiscal 2021, and an increase in August and supports a 2022 school staff.
And the heading says we believe it is important to plan prudently and somewhat conservatively, while aggressively pursuing operational improvements will narrow guidance as a control and the pandemic becomes clearer and keep you informed.
As I did on the prior earnings call I'd now like to share our view on when we expect it back on track to achieving our goal of at least 10% EBITDA margin.
Moving to slide 19.
This slide illustrates adjusted EBITDA impact of COVID-19 on fiscal 2000, and 'twenty and 'twenty 'twenty. One we were on track to achieve our original guidance last year until the pandemic hit and the third quarter.
While we do expect some interest recovery and the second half of fiscal 2021, we expect a significant industry rebound towards pre COVID-19 levels in fiscal 2022 commencing with school start.
And as the volume recovers, we plan to resume our glide path towards at least a 10% adjusted EBITDA margin and the fiscal 2022 and 2023 time frame.
So despite the COVID-19 challenges and its impact on today's school bus industry, we haven't lost sight of our mission.
The growth profitability.
And an increased EBITDA margin to at least 10% and the near term to this and we'll continue to drive improvements across all elements of our business, thereby improving our underlying margins and will report on our progress to you each quarter.
That concludes our formal presentation I'm not going to pass it back to our moderator to begin the Q&A session.
At this time, we will be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is and the question queue. You May press start till two luxury and move your question on from the queue for participants using speaker equipment and moving that showed a pickup your handset before pressing the star keys.
One moment, please as we pull for questions.
Our first question comes from the line of Eric Stine with Craig Hallum proceed with your question.
Hi, everyone.
Hi, Eric.
And maybe just starting on the commercial.
Truck opportunity and then clearly you are making this move with with.
Insight and to the market opportunity curious what kind of interest levels, you're seeing from Oems.
And maybe how the pipeline is developing and various end markets and I'm curious.
And is this because this is chassis only as this.
Kind of above and beyond the 1000 or so electric buses that you can produce a year.
Yeah, good questions Eric.
Thanks.
This is early days and we wanted to let you know what for Cerner test volume at a bunker telling you. It's like for in 2021, when you look on the Clos through seven entire interest for them.
And you're looking at a terrific 2000 vehicles and more and I'll be slow.
And those are.
A complete Oems and to provide their own chassis. They put it on to their products. They may or may not on electric drivetrain. So well, we're looking at a subset of that obviously not for 250 level something significantly below on.
And the and the discussions we've had with a number of.
Potential customers and I'm, not telling you that I'm going to ride for a robust pipeline and I can share with you, but what we're here and as they really want.
What I call it on OEM solution for it for what for electric drivetrain and fully installed by no way.
Too many conversions for taking place on that.
A relatively small company has taken a gasoline chassis has taken and you are now putting electric drive train and and that's fine too and look we like where its been talking to you and meeting with you because we think.
We know it's gonna be robust cities built on the factory and you certainly got the chassis business figured out with all of US who got on the road today and obviously, we've got a significant electric vehicles on the old today. So I think what I'm, telling you is Eric at this point, it's a little early to be.
Sure and pipelines with you like I said, we specifically said Axa and specifically we're looking at launch and this later on the option we'll have more to tell you on the next earnings call.
But we're optimistic about it now when it comes from a capacity, we can scale up pretty easily.
On the thousand and as I talked about before were very much in the school buses and mine, but we have a lot of shots and capacity and we're able to ramp up very easily with our with well over that number and we haven't got the demand for it so I'm trying to get one of them.
Okay, that's great and I realize it is early but.
Maybe just on the topic of on.
On that capacity number just for school buses.
I mean, I know, it's another quarter that has gone by and as you look at.
Whether it's developments and vehicle to grid or third party ownership potentially of buses.
Who would then lease to a school district at the same price diesel or utility doing that.
And when you add all that up.
Any thoughts on when.
The timeframe might come where you would reach that level.
Or kind of how you're thinking about it maybe from a high level.
Well suddenly you're on the charts, you'll give on air on our own.
The ecosystem show on me with Blue Bird and the Central Bank, we are heavily working on that and a lot of different partners now and just you touched on and like visa for Judy I mean, virtually every bus. We saw for example on the state of California is if BTG capable.
So I was walking and utility companies to take advantage of that wasn't for the benefit of the school district for a third party and all things we on working on with those partners ecosystem.
Financing as shown on that.
Right now per day.
Actually both of the solvent drums for available.
And it had been background has been provided.
And particularly in California, but all across the nation and people like that.
And just to get into and electric vehicle and you know they want from a special and there's a nice brand support behind it.
But on the financing side too we were talking with several different partners, but we want to align with who can maybe on a creative way of reducing upfront acquisition price.
By taking some risk on some of the assets that are and that vehicle and other.
I'm excited by it and then when you look at BTG opportunities announcing the opportune as soon as they try and take the acquisition sticker shock a little bit of where right now for.
Battery costs do come down to levels and expected during the next 567 or so years.
We're excited about those opportunities.
And so we're going to keep working with those partners and we're going to solidify relationships with them and I expect some will be exclusive to us we like being on average lucidity and good for us and good for our customers on the.
And we'll keep you apprised as we move along.
Got it.
No that's great and then maybe just the last one for me and I do want to drill down a little bit into <unk>.
And Jeff's comment about <unk> and the <unk>.
Second quarter, you've seen higher levels of supplier disruptions and.
Absenteeism at the plant and then.
Is this something you can give some color where it stands today I mean do you feel like it's something that you've got your arms around or is it something that might be a factor and that wide guidance range.
And I think there's something within our own Brian maybe Jack and speaking about when I give you the highlights for you and Jack.
Selling it.
On a specific comment there.
Look I think we all know that the COVID-19 cases across the country. They escalate to later in the fall on right I mean for November December and we came back after Christmas after the holidays and people got together and we saw the case.
Peak.
And on that suppliers, but we're also seeing some of them getting to all without Pete you've seen as things have settled down and they had a problem.
And what I mean by problem as you know we're watching these we know we want to our proppant suppliers on me talk these guys every day we're on.
And constantly in discussion to make sure they can supply from get parts to it might be an expert and I keep freight we've got used to get a pop to it because it's the allocation and cut down for a couple of days and their production selling but we've been able to work on we're through that with minimal interruptions, so far but I think the term that Jeff Museless shopping.
And that's what it is.
<unk>.
Ourselves even on we saw.
Quite a spike initially and the first week after we got back after the after the holidays, which is significantly subsided, but we had an eye on higher absenteeism and the first two weeks in January and now we're back down to what I'll call much more normal levels. So it was a choppy period for us and I think Jack with just highlighted.
Add to this yet I mean, no on Covid still around the book I think not to use and a great job and dealing with it.
Jeff do you want to give any more commentary on that.
Phil I think you hit all other key points there.
The first quarter, which was October through December was actually a pretty smooth for us and it was really when we return from the holidays that we did see some choppiness increase so I think you've covered all of the parts. There I mean suppliers are seeing the same things, we're seeing and so there are things that we do to keep our plant running.
And we've been able to effectively do that up to this point.
But we will expedite parts, which increases our cost we do.
And rework from time to time, when things like that happen and then obviously.
Absenteeism as a direct hit on our manufacturing costs.
And when it slows down and our production a little bit. So the team has done a fantastic job managing through it like I said on the call.
We deal with these issues every day, but just certainly wanted to.
Put that out there that the second quarter has been a little more choppy and what we saw on the first quarter.
Okay. Thanks, a lot.
Thanks, Eric.
And once again it feels like to ask a question. Please press star one on your telephone keypad once again and people like to ask a question. Please press star one on your telephone keypad. Our next question comes from the line of Craig Irwin with Roth Capital Partners. Please proceed with your question.
And good evening and thanks for taking my questions. So your class III to class seven and chassis, so you're going to supply and to the market.
Cummins and efficient drivetrain.
And drivetrain and the right the electric drivetrain.
Can you maybe frame out for us what you've been doing on the marketing side to launch us into the market.
And what other types of customers that you're directly marketing these too and a lot of easy companies out there and getting really granular around around expectations and Evs can you maybe share with us boundaries that would be reasonable for short term and maybe long term.
Volumes of the chassis and then also on the traditional electric school buses for hundreds of great number but.
But can you can you maybe set some boundaries on.
Electric School bus deliveries in your fiscal 'twenty, one versus last year.
What are the growth rates what are the units that we should be looking for.
Yeah, let me spell it out in order for US I mean, I think we're up about 24% right now.
Year to year, especially in our <unk>.
Bookings and I'll call it the backlog for the year on that day, we are on that and I'll just just in the middle of February other.
And that sort of number but maybe it would be and 25 per cent out sort of a good numbers and to plan on right now as we look forward to suit and we got 158 last year.
Of our large buses type CS and DS smaller number for our type of things.
But unexpected ought to be in that region I don't know why it wouldn't be and the reason about 25%.
Vs versus where it was last.
Last year.
First of all the question you asked me for more granularity on that.
Right right now we put it out and we've done and what we've done on our research in terms on what can it be and the strength.
Looking at who is providing what are these wearables cut and the chassis from these days and electric powered shops as I mentioned before many of them today happens to be conversions are low.
Other smaller companies that do on these conversions.
And you can be talking about.
Stepping vans you could be talking about.
Standard commercial and deliberate.
There are some pretty big play a part and there I think we all know who they are.
But what we what we've heard from our researchers.
Gosh can we find and OEM that would do this and standby and he's got a lot of extra.
Periods and building a shaft and that's tough and robust and one thing we don't have to do and blue, but still a pretty tough chefs.
I mean, I mentioned before 150000 school buses on the road and many of them for 15 20 years old with three parts.
And a thousand miles on them and more and.
And we don't have to do that.
We're three years and electric business.
I Love. The fact that we have a tie K electric product, we have a type C and we have a type D. So we meet a lot of those requirements.
Those are all.
Operators might want.
And it took COVID-19 in fact and price you electric we did a lot of we did a lotta research.
And this particular area.
And with some more conventional products like gasoline and not for electronics book to the electrics and propane I thought on longer because we didnt selling people and the market and it's just giving us some optimism that we think we can take this now across our across a lot of the a lot of different industries and the <unk>.
Sure.
I think one thing I would love for now appointed by the way they build on shops and.
You know on chassis and a lot of complexity and a lot of people tell me about that and lot of truck comes and I'll tell you that we have a lot of complexity, it's federal complexity steak complexity and things.
And it's down on the school district level and.
And we've shown on the ability to be able to modify and change.
Quick changes satisfy unique customers needs through many many years and I think that's why we feel confident that we can that we can really do a good job.
And alternative industry, because we can were very adaptable and we're able to do and give our customer what they want and what they see and the parallels.
And I'll, just sort of struck losses against.
For the three from selling against the Taipei type C and D. These remarkable it's it's right on the money I mean, its just a its a direct comparison for two different industries.
Okay.
Can you maybe talk about what your capacity would be if we really did see the blue that blue Sky scenario, where.
We have and aggressive change out of the legacy School bus fleet, how many units of electric Drivetrains can you produce a year how many.
Can come into Adi supply to U and so that you can deliver.
Finished electric school buses into the market and are we.
Talking and the range of maybe several hundred do we have the opportunity maybe to flex and thousands and what sort of some commitments do you have around capacity from your primary battery supplier.
Well I think we have plenty of capacity about primary battery supplier and we just.
And obviously I think when you look on what we sold for.
And so it's a nice number the way, it's growing and the scheme of things, it's still a relatively small clinic on the rest of our business. So from a blue bird standpoint and when.
And I talk about chassis and school buses.
And if it comes from our plant and you'll see where our very manual operations operating plan and that's why we have a pretty good free cash flow and Mark we don't spend a lot of money every day or on Capex.
We're very much lots of flexibility. So in all cases, a lot of the time and we want to increase capacity on a one particular product line. It's a case of putting men and the plants running it and getting it moving with the move and just makes a single ship to be able to minimal significantly more units on the market share.
And we built prior to Covid I think is a good pessimist and we're in it.
Pretty good shape and Albert on the adult chassis and installed electric drivetrains and it and to be able to build Bobbie Sue for the school buses.
And when you talk about our Cummins partnership and having the same boat companies and terrific organization.
And for demand.
Demand is where it is right now and they scale for it but they are already on willing when we are sort of pulling on all of us and started for the oldest that way they'll step up and and so case, we got to just bring it down more and more resources again.
And what they do on that drivetrain and on to buying them.
A lot of assemble kept low components, you pre buying as you know and electric vehicle business, Okay. So putting it all together and.
And I'm, putting a control system to handle it all and debt they have lots of capacity to do that so what do I think going forward and I think we're talking I mentioned before we have a thousand unit capacity right now that's readily available for us So Phil bus.
Buses and we could easily flex up we think too.
For a few thousand about that on several thousand chassis for bulk chassis only sorry.
Great. Thanks for taking my questions.
You bet thanks for touching.
Our next question comes from the line of John Lopez with vertical group. Please proceed with your question.
Hi, Thanks, so much can you guys hear me all right.
Yeah, John Yeah over here.
Great. Thank you thanks for Tun I.
Three questions I, just wanted to do them one at a time if that's okay.
The first one is I'm just wondering if you guys can talk a second about what a market recovery could look like.
And and I guess, what I mean, when I say that is obviously the industry was doing a couple of dozen busses more per year pre COVID-19.
So on the one hand, it would seem like kind of a natural upward.
Tendency when when Covid clears, but on the other hand, just between budgeting cycles and sort.
Any other logistical issues.
Imagine like on a direct snapback is somewhat more complicated and that so could you just talk for a second about like as the market comes back just kind of how quickly would you think we can get back to kind of on.
I don't know 2017 2018 levels just procedurally.
Yeah look I think I think the snapback.
Wait for this year, which I do expect as we get into 'twenty and 'twenty two school staff.
As we think about more vaccinations being available schools reopening.
Protocols are really in place to handle it I do think we're going to see.
Get a surge in August and.
And I'm, just sort of 2022 schools, Phil I've got Jeff and industry range, you have looked at that.
On the 26 to 30000, and so that's quite a bit below on the third.
And 5000, and we've been rolling out for about three years prior to Covid and I think it's probably about right. That's about the Peacock and see this year there probably isn't just there just isn't enough time, and frankly I don't think.
And to get everything back and all of it to get much above that 30000 level that would be correct.
Now when Youre looking for 'twenty two and.
You got the buses and schools are open and you have to remember that.
And your funding mechanism for school buses and property taxes and municipalities. So if property values remain high.
And with which they are helpful and those from Tobias remained high and that's the funding mechanism for school buses and for education.
And I mentioned, a couple of other calls that people when they look on the average look at the average number of buses bought by a school district and alert.
Moving down from school districts for her.
Fox that was named the strength and sort of two to three bucks a year and show them. The big decides to buy a hunger for them.
Most cases these are three times I went for buses I'll take two buses and.
The Florida book is another.
And that's probably people think because in this context on the phone, let detention and budget for a for a across North America. It's about 3% other total education capital expense budget expense each year on school buses.
And so it often and I think so.
And when I was saying as you look at it.
School bus and getting a year old.
There's a lot of interest and a lot of excitement and as we come out of this pandemic and making sure our children and safe.
There was a sandwich macerich transportation and the school book, It's a fact, it's approved 50 times safer and any other method of transportation and look at accidents injuries and so on.
We just got confirmation. This week. This is a great and he is an example.
On a stage.
And don't want.
Mani.
Proposed for two to accelerate the replacement of Old School bus from the state of Georgia. That's on top of the property taxes are typically phones.
Most of the on replacements, and that's about 50% more actually a 100% more and it was a year ago funding more than 500, Boston is on top of the traditional.
And so what level of book.
And so what I'm, telling you and there's a lot of excitement I think about getting kids back in school and I think that's all on there's a lot of desire and interest at the upgrade that school bus fleet, we treat each other very resilient.
And just for when you looked at it over and over a long cycle.
Got you that's really helpful.
Thanks for all that.
And two other real quick when and if you wouldn't mind. The first one is I'm wondering.
<unk>.
Yeah.
Sort of bite and stuff is relatively recent I mean, I know conceptually it's been discussed for a couple of months, but I think it probably is more for US now and I think the thing I'm wondering is as you're engaging with customers is there perhaps a rethink that's happening.
As people are thinking about a recovery and I E. We thought we were going to do some portion diesel some portion of propane now we're thinking of different portion EV is that a potential I don't Wanna say impediment, but does that does that complicate the recovery to any great degree.
Well no I don't think so I think I think and just looking at on the near term, there's still a lot of funding.
<unk> for EV DW brands.
And the South Coast Air quality Management group, and California is making money and available.
The other CEC grants thing to wrap it up right now.
A lot of there and a lot of unique funding available and we're talking to every day and the prospects of all across the country, who are interested and be able to utilize that VW brand and I think there's still something like that's.
That's at least.
And so at least I'll think about $400 million left about $600 million. That's been carved out for school buses to apply to low emission type vehicles, which we should come from.
When it comes to.
The first quarter, you know I was pleased about it and I think this is I'm trying to answer your question here.
We still on a terrific we have a terrific quarter for all fueled vehicles.
And I've got for the electrical and also about propane and a low emissions problems, which is incredibly affordable product from a tcl standpoint, and from a school district and.
And it held up at a time when people are probably scrutinizing, what we're spending money on thinking path, but our resources before.
Rooms, and look for fully back in the classroom I think it just bodes well for this.
And the success of that business I mean, what we're seeing right. Now is we're seeing increased demand from our quote activity cordless I should say this and increased quote activity, we have some and seen some increase them on listening and pockets when schools are going back and yes, we're clearly seeing increased orders coming in and so I think I always and excitement about.
What President Biden has said on two points right schools reopening, but also on its electric robustly and we all have.
And when I for further during the campaign trail and that's pretty impressive and you've reiterated the expense.
I think it's exciting for every book, but it's a journey, it's not going to happen overnight I mean that is a multiyear journey I think that we can all enjoy.
Got you okay. Thanks for that as well sorry, the last one I hope I have these numbers right and if I'm wrong.
Please forgive me and correct me, but I think two years ago. Your fiscal 19, you did something on the order of 50 electric buses delivered and last year I think you and the ballpark of $1 50. So you did about an incremental 100 buses.
If you were to do 25 per cent more this year.
200 buses and that ballpark that would only be sort of an incremental 40.
It seems like not a particularly large step up relative to some other things you've discussed before I'm wondering if on processing that number right are there other complications whether this be.
Fire related manufacturing related is it just time to sort of educate ecosystem like why I guess my question here is why wouldn't you do kind of at least as many incremental buses.
But as you did last year in the context of the environment.
Well I think that said, how you summed it up and the context for the environment. When you look at 100 buses, we got last year.
Got a lot of those and the first half of last year.
So we expect we actually expected more well what happened this COVID-19 different from a little damper on the back and the ball yet from that.
Now middle of March onward.
That really put a damper on what we already have very much and have that book backlog and orders already.
We're in that and for the most without yet so that's actually lectures and slow down a little bit towards the backend of parts here as people were dealing with COVID-19 and classrooms were closed.
And I think it does seem a little bit like it's operating a little bit prudent being aggressive on the business and on the cost side that would be prudent on Mike on our volume projections.
We are on the first half of the year, which is heavily influenced by Covid and 20 pumps and above last year first half when it wasn't influenced by Covid, but the big thing is looking out and the second half I think look I think what you said is a great point and something.
And obviously question there and what do I think the numbers are going to be and I think we saw a sudden and online.
Five percentage were up about 25% now, but I think it's possible. We could we can be seen as break wells for 200, and let's just say I would go on with I'll keep updating everybody on that.
Each quarter Gotcha, Gotcha, Hey, listen thanks, so much for all the help I really appreciate it.
Okay.
And with that we wish you and the board question and answer session and I would like to turn the call back over to Palmer for any closing remarks.
Okay, well, thanks, Devin and I will thank everybody for joining us on the call today and what they were great questions by the lack of a salt and getting the really appreciate that and your interest.
And you too on our progress next quarter and certainly can see what you're interested in and so we'll make sure we cover as best we can the topics are on your mind.
Hope you can see we are dealing really well I think with this unprecedented pandemic and Theres no question that keeps its inevitable industry will rebound.
And we'll rebound so a lot of school district, and they run their own fleets, it's tough to get to school mom and dad have to get to work and need the school bus for them.
Temporary blue give you lots of people and with a temporary blip and we're going through that we won't recover from.
And in the meantime, just remind us what are we doing we're improving our business structure, we are growing what I call. Our underlying margins you don't see it yet because our volumes law.
Overhead absorption issue that Jack mentioned, but believe me our real underlying margins are improving and we'll capitalize on that as the volume bounces back and I think for driving leadership on alternative power that's exciting because we've been we've led this race for the last 10 years, and we aren't stopping and got we got on new tool now and our tool set.
And the way I look at it would let on propane, we'd let on gasoline it might cause and whats gasoline on that alternative power is an alternative to diesel.
And as an alternative for diesel and that's what we've been focused on now we're looking at zero emissions and electric vehicles and electric shafts and they are top of mind for US now as we see the incredible growth potential that have and the changing aspect of our landscape and transportation sector.
And I felt wasn't a focus on what we're going to talk about in our next earnings call for you I'll just do I wanted to give us that would be.
Recognition to our incredible employees and that and full value and making and draw on bill and Quebec, and the and Columbus, Ohio, and the Pops that with a great set of Bulks and and we couldnt be and what are we all would happen. So again follow up questions. Please don't hesitate and give a call to our other profitability and Investor Relations, Mark Benfield and well.
And thanks for getting on the Blue, but have a great evening.
This concludes today's teleconference. You may now disconnect. Your lines at this time. Thank you for your participation and have a wonderful day.
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