Q2 2021 Blue Bird Corp Earnings Call
[music].
Greetings and welcome to the Blue Bird Corporation fiscal 2021 second quarter earnings Conference call. At this time all participants are in a listen only mode. A question and 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'll now turn the conference over to your host Mark Benfield, you may begin.
Thank you welcome to Blue Bird's fiscal 2020, one second quarter conference call.
Audio for our call and webcast live on Blue dashboard Dot com under the Investor Relations tab.
And can access the supporting slides on our website by clicking on the presentations box on the IR landing page.
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 and our latest earnings release and filings with SEC Blue.
Blue Bird disclaims any obligation to update the information on this call.
Good afternoon, and you'll hear from Blue Bird's President and CEO, Phil <unk> and CFO, Jeff Taylor and then.
We will take some questions so let's get started Phil.
Well, thanks, Marc So good afternoon, everybody and thanks for joining us today for our fiscal 2021 and second quarter earnings call now.
Now before I jump into the actual presentation I'd like to set the stage by giving you the themes you're going to hear about consistently on this call today as it really define our business and where we're heading.
So let's start with the second quarter volume was down versus last year's pre COVID-19 quarter and that shouldn't be a surprise to anyone and we really didn't see the impact of COVID-19 until the third quarter last year.
Schools are reopening and the industry is recovering and as a consequence second half volume is expected to be up significantly from last year.
Our gross margin percentage is up despite significantly lower second quarter volume and I know that's a key factor you'll all be interested in.
Average bustling price is up again, we have a strong alternative fuel mix and we are the clear leader.
With a market share leader and electric and propane on a trailing 12 months basis through March.
And our second water electric bus sales were up a significant and 50%.
Manufacturing efficiencies were up on structural cost savings were up and were very excited about the new administration stems on electrification of the school bus fleet this will be transformational.
In summary, we're well positioned for Bottomline profit and margin growth as the industry recovers.
So with that introduction lets turn to slide four for an update on how we see our business environment today and importantly, how we're dealing with the school bus market conditions.
As the headline size and a challenging market, we're continuing to drive business structure improvements and importantly for our future substantially increasing our focus on the growing electric vehicle business.
Now the second quarter was a challenging one for our industry and that we started in January with only about a third of schools fully opened frame classroom teaching.
In fact immediately following the holiday prudent and December many schools lets close and they'll owe delay the school reopening as COVID-19 cases was spiking at that time.
But bolstered by the increase and deploy them to the COVID-19 vaccine, however, and the new administration's declared intent to open schools within the first 100 days of its term we saw a sharp increase on the number of schools reopening for and classroom teaching, particularly later on our second quarter around starting mid February on running into March.
So today more than 60% of schools and are back to teaching fully in the classroom.
And notably only 10% of schools are still utilizing online teaching only.
The balance of 30% on deploying a hybrid program some days and the classroom and some day as virtual teaching.
And as I've said consistently on previous earnings calls one factor is clear and obvious when schools are closed bus is arent being awarded the.
The good news is that when schools are open and it's business as usual with school bus orders being placed and we received those on a consistent basis.
Consequently over the last two months, we've seen a substantial rise and quote activity and incoming orders significantly outpacing last year, resulting in our order backlog today of around 2700 buses.
That's about 15% above last year at this time clearly thats good news for the industry and it's great news for Blue Bird.
As we've consistently stated it's our expectation that the industry recovery will begin in the second half of fiscal 2021 in support of school start and we're seeing that right now.
Shifting now to Blue Bird's results, our second quarter results were solid despite dealing with COVID-19 and continued supply chain issues their impact and just about every industrial sector.
Such as micro chips, resins, and China supply chain and being a major factor is that we're seeing.
Importantly, despite the additional constant overtime caused by delays and pump supply we continue to improve our business structure and underlying margins in fact, our gross margin percentage was significantly higher than a year ago as we drove higher bus selling prices and plant efficiencies.
We also improved working capital and the first half compared with last year as we drove down inventory operating at much leaner levels and in prior years.
And at 43% of total sales we had another strong second quarter mix of alternative powered bus sales, maintaining our clear leadership position.
In fact, our alternative power makes it would've been a second quarter record of 50% had the EPA and California Air Resources Board or carb not delayed certification of our new seven points relate to gas and propane engine and the second quarter.
This meant we were holding 207 completed buses at the end of March bolted on new engine that will be sold and the third quarter.
And I'm really proud of the fact that we're number one and trailing 12 months market share for both electric and propane powered school buses as measured by our own pulp vehicle registration data.
Now Youll hear a lot today about our electric Bill for results and plans on this earnings call and Needless to say, we remain very excited by the administrations proposed infrastructure bills that would accelerate the transformation of today 600000 and school bus fleet to electric powered buses.
In total and that's an addressable market of around $120 billion and the indicated funding support between 20 and 25 billion over the next eight to 10 years or so what's really jumpstart. This change not surprisingly, we're very engaged with many political committees and advocacy groups on this topic, including the world Reef.
Force Institute that is being funded by the base US Earth fund to help progress this initiative.
We're significantly increasing our focus on resources and the electric bus segment as customer interest and percentage growth in zero emission vehicles is outpacing every other segment of our business.
On the previous quarterly earnings call I mentioned, and our intention to provide electric and other alternative powered chassis to customers and bodybuilders.
I can confirm that were nil and discussions with a number of customers who are very interested and are in our OEM electric chassis.
Wed obviously for confidential and competitive reasons I cant provide any more news on this today, but we will keep you posted as we make progress.
So overall blue bird is well positioned for profitable growth as schools continue to reopen the industry recovers and we capitalize on our improved margin structure.
As previously anticipated, we announced seeing significant volume growth in the second half of the year in support of next year's school start.
The major risk to those bus deliveries is continued supply chain disruption that is impacting virtually all industrial companies will work and this every day with our suppliers to maintain business continuity and our team is doing a great job.
I want to stress that this disruption could delay fulfillment of orders, which means that our buses will be delivered after the school start importantly, we don't expect to lose any orders at all that said, we are reaffirming our guidance range with adjusted EBITDA between 40, and $65 million, which covers the supply chain.
Risk.
Let's now turn to slide five and discuss our second quarter financial highlights.
On our second quarter is a second seasonally low quarter of the year after the first quarter.
Now with so many schools being closed from classroom teaching from most of the second quarter not surprisingly our volume was down significantly we sold just under 500 buses, which was about 130 more than and the first quarter, but 43% below last year's quarter, which is not impacted as we know by COVID-19.
Incidentally last year's volume wasn't near record for the second quarter.
Similarly, net sales of $165 million were down about 36% from a year ago.
Despite a substantial drop in volume we were profitable with adjusted EBITDA of $7 $5 million, which is $4 7 million below last year.
It is important to note however that the lower volume accounted for almost $60 million of the decline, but improved efficiencies and structural cost savings generated $11 million profit in the quarter versus last year.
These ongoing structural cost improvements have been a cornerstone of our margin growth strategy and they haven't stopped during the pandemic.
Adjusted free cash flow was $1 $6 million negative and the quarter.
Now while this was $45 million worse than last year's second quarter. The more important measure for cash flow is our first half performance. This was $36 million better on a year ago. Despite significantly lower volume as we recorded substantial working capital improvements during the first quarter and maintain them through the second quarter.
Yes.
All three of these financial results on which we provide guidance, namely net sales adjusted EBITDA and adjusted free cash flow were in line with our plan.
As I talk to all of you about improving our business structure and underlying margins. We delivered on many operational fronts, which is summarized on the lower half of the slide.
As you can see these achievements reflect our three pronged margin growth strategy that we've communicated consistently on previous earning calls, namely improving bus selling price.
Increasing mix of alternative powered vehicles and reducing structural costs.
The bottom line is that we improved gross margin by one seven percentage points over last year. Despite a 43% volume reduction I am really pleased with this result, and a tough market.
So, let's now turn to slide six and review our major operating achievements this quarter and importantly, let's look at the specific results of the margin growth initiatives that I just mentioned.
We continue to drive transformational initiatives to improve quality efficiencies and capacity as an example, during the second quarter. We completed all our planned to upgrade actions necessary to ensure we can now build as many vehicles on a single production shift that we used to build on two shifts and that's great for efficiency.
But quality and for gross margins.
In fact, the result, and gross margin of 11, 2% was 170 basis points above last year's result, despite 43% lower volume.
That bodes really well for bottom line margins as the industry continues to recover.
As a reminder, we've delivered more than $50 million of savings from these transformational initiatives since we started almost four years ago.
Next we increased our average selling price per bus by a substantial $9000 or 10% over a year ago, primarily reflecting the impact of richer mix of higher price electric and propane powered buses a higher option take and the annual pricing to recover economics that we took late in fiscal 2020.
And particularly pleased with this accomplishment and the second lowest volume quarter of the year.
And I mentioned earlier, the improved productivity from our manufacturing team well, that's translated into $9 million from higher efficiencies and the second quarter, we have a lot of activity going on to and alternative powered vehicles.
We have launched on new and exclusive propane and gasoline engine from Ford and Roush and March the only seven points related to engine has more power. It's more compact it's got higher torque and has better fuel economy.
Our tagline says and it couldnt be more true the best just got better.
And we're seeing that too and our oldest with more than 1500 units already sold our and our firm order backlog, which is significantly above our launch targets.
Our combined alternative power mix was 43% of unit sales for the second quarter that six points below last year as I mentioned earlier delays and the certification of our new engine by the EPA and carb meant that we were able to able to deliver 207 buses that we built in March with the new engine, how we deliver them or alternative power.
And it makes would've been a record 50% for the second quarter.
The good news however is that our order backlog is now running at well over 50% mix of alternative powered buses 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 the rapidly growing interest from electric buses is a very exciting opportunity for us and will generate significant growth in the years to come.
On a trailing 12 months basis through March based on the RL Polk registrations data our electric school bus market share and North America was an outstanding 62%. This compares with 33% market share and the prior period, So I'm really pleased with our growth trajectory.
And the second quarter, we sold and delivered 58 electric buses, which is a 50% increase from a year ago again, great percentage growth shown on the interest and a blue bird electric bus.
Fiscal year to date, we have 127 electric buses, either sold or and a firm order backlog and we expect to deliver about 200 units by fiscal year and representing about a 25% growth from the same time last year.
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 that we have either sold or up oldest fall. Since we started <unk> production just three years ago. It's now approaching 500 buses and that covers all school bus configurations type a type C type D. In fact, no one matches our breath of <unk>.
<unk> on market leadership, and the school bus industry.
And summarizing our operating achievements and one word I would say, we have momentum even and industry significantly impacted by COVID-19.
Costs are down selling prices out 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 and what do we think we're heading on alternative powered vehicles on slide seven.
On the previous slide I mentioned on our alternative powered bus mix and the second quarter was 43% of total sales.
Well less grown since to 48%, reflecting our bookings to date and a rich mix of alternative powered vehicles and our firm order backlog.
This is another record mix of blue, but at this time of the year three points above a year ago.
But it's all the more impressive when it's achieved during the pandemic this impacting and entire industry.
On prior earnings calls we've covered the point that our best in class range of buses attracts many new customers, who have never tried and alternative powered bus and many of them are in fact, new to the Blue Bird family.
And while we're seeing this feature again this year with a 151, new alternative fuel customers and 78 conquest customers were new to the Blue Bird brand joining us since the start of the fiscal year.
These are compelling facts and with a high customer loyalty and joined from these products. It's a great endorsement of our exclusive alternative powered buses the blue bird brand and our dealer network.
Now on the EV front went on a startup company.
We don't have unrealistic goals, we'll focus on delivering buses and we have been building and delivering zero emission school bus. It for nearly three years now we have the broadest EBIT range and the industry with Taipei type C and type D offerings and are on the road today, we're number one and market share with sales and 19 states and we expect to deliver.
Our 500th Electric School bus this summer.
And late March we delivered the nation's first operational DC fast charge fully vehicle to grid enabled school bus to a customer and Pekin, Illinois now.
Now this was on a test nor was it a demo our bus transmitted energy back to the power companies grid from a battery storage system at a high power of 60 kilowatts.
This innovation provides customers with the opportunity to generate revenue by selling back to the grid at times of peak usage. When school buses are idle. It's a significant total cost of ownership benefit for school districts and operators and it comes standard on every single Blue Bird Electric School bus.
From a grant funding standpoint, the vast majority of the VW mitigation funding is still ahead of us and will help to 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 I'd like to come propane buses from the funds that have been issued to date.
And of course, the new administration's plan to convert the U S School bus fleet to electric power is transformative epitomised by the proposed clean commute for Kids Act, which will provide $25 billion over 10 years to accelerate the conversion of the school bus fleet to electric powered buses.
In fact, the calling of the Bill U S. Senator Raphael Walnut from Georgia, but this is our plan and just last week on rolled and our blue, but all American electric bus.
And a subsequent remarks, he confirm his commitment to electrification bill and his support to the Blue Bird team.
In summary, I'm very proud of our strong and undisputed leadership position and alternative powered bus sales. We have the best partners, we got the best products and the exclusive to Blue bird and with less than 20% of school districts, having purchased and alternative public school bus to date, we have plenty of runway ahead for continued growth.
Now I'll show the rights on Bulks and on our last earnings call and you can see how far we've come and the last four years.
And looking ahead, we don't see this growth stopping and.
We project that four years from now between 60% to 70% of all Blue Bird buses will be powered by a fuel and alternative to diesel.
And with the support of administration, our expectation is that this will grow to 100% by 2030 with virtually all of those vehicles being zero emission buses by then.
With over 7000 customers actively purchasing a blue Bird school buses today supported by a first class franchise dealer network that is built relationships with those customers. We are bullish about this growth opportunity on investing in the business the shift to zero emissions is a priority focus for us.
And now the opportunity afforded by the proposed bill to electrify The school bus fleet cannot be overstated, let me discuss it a little more on slide eight.
This is and extract the press release, we issued earlier this month and supported a proposed clean commute for Kids Act and summary, this bill provides $25 billion and funding over 10 years equalizing the price of and electric powered school bus with that have a combustion engine bus and providing necessary Cha.
<unk> infrastructure and training.
Our estimate is that this will allow conversion of about 12 to 15000 and school buses a year to electric power, representing just under half of the typical annual New school bus demand and the United States.
And that was battery costs come down over time, we expect conversion rate to rise so that by 2030 virtually all New school bus is produced and sold will be electric powered.
Under this scenario by 2030, approximately 20% and 600000 units School bus fleet will be electric powered that's 120000 electric powered school buses on the road by then.
Bottom line. This is the most transformative initiative that the school bus industry has seen since its inception.
Now as a clear leader and pioneering and selling alternative powered school buses from more than 10 years, we intend to stay at the forefront.
With this in mind and announcing today that we plan to expand our electric bus production capacity from 1000 buses and it was a day to 3000 electric buses next year.
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 a little bit later to cover our outlook on fiscal 2021 guidance.
Over to you Jeff.
Thanks, Phil and good afternoon, it's my pleasure to share with you the financial highlights from Blue Bird second fiscal quarter of 2021.
The quarter and is based on the close date of April <unk> 2021, whereas the prior year second quarter was based on on April four 2020 close date.
We will file the 10-Q today may 12, after the market closes which includes additional material and disclosures.
Regarding our business and financial performance.
Encourage you to read the 10-Q and the important disclosures that it contains.
The appendix attached to today's presentation reconcile differences between GAAP and non-GAAP measures mentioned on this call as well as other important disclaimers.
Moving to slide 10.
And I will review the second quarter key result, overall, it was a solid quarter for blue bird with volume increasing sequentially as expected, but down year over year.
As I mentioned on the prior earnings call the supply chain environment became more choppy, which persisted throughout the quarter. Our supply chain team is actively managing this situation and has done a tremendous job.
Second quarter volume of 1489 units was down 43% year over year as the 2000, Twenty's and second quarter was minimally impacted by the pandemic and as we discussed a year ago included some pull ahead of units from the 2023rd quarter.
While the 2021 second quarter was more significantly impacted by the pandemic with only 36% of schools operating and person at the start of the quarter, resulting in lower demand for new school buses.
Additionally, we have 200 plus buses that were in inventory at the end of the quarter, which we did not book due to the delayed certification of the new engines.
Okay.
Consolidated net revenue of $165 million was $91 million or 36% lower year over year for the quarter, primarily due to lower Boston parts volume.
Bus net revenue of $150 million was down $88 million on 1105 fewer best sales than the prior year quarter.
Bus average selling price or ASP.
It was 109000 per unit a year over year increase of 9000 per unit due to the favorable mix and option content and additions of price increases to offset inflationary cost pressures.
And alternative power mix was 43% and the second quarter, which is down six percentage points over the same quarter last year, primarily as a result of transitioning to the new seven three liter engine, resulting in a lower mix of propane and gas engine buses.
Parts revenue for the quarter was $14 4 million, representing a decrease of $2 3 million compared to the prior year quarter as many school districts, we're operating in a virtual or hybrid mode.
Gross margin of 11, 2% was 170 basis points higher than the prior year period, despite lower volume during the quarter.
This is a great result, and a great job by the team.
The increase in gross margin is due to higher average selling prices improved manufacturing efficiency as a result of structural improvements and our plant, including transitioning to a single shift operation Debottleneck and manufacturing constraints and lower manufacturing overhead from cost controls, partially offset by lower fix.
Cost absorption on lower volume and higher raw material and component cost.
We expect to see raw material and component inflationary cost pressure through the end of the year and we're evaluating our price increase to pass along these added costs.
Selling general and administrative or SG&A was $17 4 million, which was down $2 5 million or 12, 6% on reduced spending and cost control actions and our management and engineering areas.
GAAP net loss was <unk> 6 million is effectively flat on a year over year basis.
On an adjusted basis net income was $1 4 million and on approximately $1 1 million versus last year.
Adjusted EBITDA of $7 5 million was down by $4 7 million compared to the prior year quarter, which I will cover in more detail on the next slide on.
Our adjusted EBITDA margin of four 6% a slight year over year decrease of approximately 20 basis points.
Diluted EPS of negative <unk> <unk> per share was flat with the prior year, while adjusted diluted EPS was <unk> <unk> per share or <unk> <unk> per share lower and the prior year quarter.
Weighted average diluted shares were $27 1 million versus $26 9 million and the same period last year.
And liquidity was approximately $116 million at the end of the quarter as our revolver balance was untapped and available at quarter end.
Moving to slide 11, and looking at the second quarter year over year adjusted EBITDA Bridge.
Starting on the left of the chart lower bus volume of 1105 units and lower parts volume of approximately 14% and account for almost all of the year over year adjusted EBITDA decreased before accounting for the partial recovery from the other factors.
Pricing net of economics was slightly favorable while transformation initiatives, such as strategic sourcing and a $2 $3 million.
Most notably, though the $8 6 million dollar improvement and efficiencies, which includes the improvement and manufacturing efficiencies and operating expenses, partially offset by higher freight expense and other expenses were.
We are extremely pleased with the improvement and operating efficiencies and the second quarter.
All of these factors combined to decrease adjusted EBITDA by $4 7 million, which resulted in adjusted EBITDA of $7 5 million for the quarter.
Moving on to free cash flow slide 12, the second quarter is normally a low quarter for free cash flow due to seasonally lower demand and building working capital to ramp up production for the second half of our fiscal year.
Second quarter, adjusted free cash flow and free cash flow or negative $1 6 million and negative $3 4 million respectively.
Compared to the prior year quarter, adjusted free cash flow and free cash flow were both lower due to a large decrease and trade working capital and 2020, which did not recur in 2021.
On a related note our quarter ending inventory was lower by approximately $52 million this year as compared to last year consistent with our current demand level and as Phil mentioned, our first half free cash flow has increased by $36 million.
Moving on to slide 13.
Net debt of $150 million was 24 million lower versus prior year due to lower total debt of $40 million, resulting from lower borrowings on the revolver of roughly $30 million and lower term loan balance of approximately $10 million is a required as a result of required payments made during the past year.
Which were partially offset by less cash flow balance of approximately $15 million.
We have two active financial covenants and our credit agreement for the period.
First the trailing 12 months EBITDA as defined under the credit agreement was $44 1 million versus a minimum requirement of $19 3 million.
And second liquidity was $116 million at quarter end versus a minimum capital net of $15 million and therefore, we remain in compliance with our credit agreement covenants.
In conclusion, and the second quarter was a solid quarter for Bluebird and overall the entire blue bird team executed well during the quarter as evidenced by the year over year increase in gross margin.
And the improvements in our manufacturing efficiencies and our lower SG&A costs, resulting from cost controls.
Looking ahead, we saw orders pick up sequentially and on our backlog expanded during the second quarter as many school districts have increased and personal schooling and or are planning for a return to school and the fall.
We expect a strong performance and our manufacturing operations to continue however, the supply chain situation, which grew more difficult later in the second quarter and has persisted into the third quarter will continue to be challenging.
The team is focused on the task at hand, and has consistently delivered and tough situations.
With that I'll now turn the discussion and back to Phil who will describe the outlook for the third quarter and give his closing remarks.
Thanks, Jeff So, let's now summarize the outlook that we see from the balance of this year and beyond.
Turning to slide 15.
As we have consistently stated on prior earnings calls our emphasis at Blue Bird is on delivering superior operating performance in order to drive margin growth.
After a tough first half of the fiscal year the industry is beginning to recover.
Now we cant change the industry outcome. This year, but we can focus on improving every element of our business. So that we are well positioned as schools Fuller resuming classroom teaching and the industry fully recovers.
That means executing our margin growth strategy by improving bus selling price alternative powered bus mix and cost structure.
As Jeff discussed along with many other industries, we're seeing rising commodity costs and supply chain disruption.
As we've done for the past several years, we will be taking pricing to recover our increased costs and we expect to do this within the next 45 days.
As I mentioned earlier and an example of a structural change that drive superior operating performance was our move to a single shift production schedule.
We know we build a bus more efficiently and with better quality when all of our team is working together on the same single ship, that's great news for us as the industry recovers.
We have established electric vehicle leadership and growth is a top priority on and organize the EV business as a focused dedicated team within blue bird.
And I'm working with a number of commercial vehicle customers on the opportunity to supply them with electric powered chassis built fully at our Blue bird plant and full tally.
We're in early stage of discussion, but it is clear there interest lies and receiving and OEM electric powered chassis and not a modification of a combustion engine chassis, which has been the norm to date.
Turning to the external environment, there are a number of positive factors impacting our industry outlook.
First the returned to and classroom teaching and let's see and that progressively increase.
And we know the one children and the classroom school buses and needed to transport children's safely and we're seeing a significant increase in orders for new buses on this point I will cover our second half volume outlook. After this slide.
Second 25% of North American School bus fleet is 15 years or older and aging more when schools are closed there is great demand and desire for new buses from our school districts and school bus operators.
Now with property taxes being the principal funding mechanism to school buses and as the press reported this morning housing prices continuing to rise we expect the new bus industry to rebound significantly from the pandemic impact.
And third the new administration's proposed infrastructure related bills, which provide funding to convert the 600000 unit School bus fleet and the United States to electric powered buses now that's transformative.
On the risk side, we and many other industries and dealing with supply chain disruption issues to date through sheer hard work and tenacity. We stayed on track on our production schedule is now filled through the third quarter and we're on the profit of filling our fourth quarter production slots.
But should the material supply situation worse, and however, there is a risk the timing of deliveries to customers and therefore bookings could be delayed until after school start.
Needless to say we're aggressively following up on this issue and our intention is to fulfill every order.
Let me now turn to our second half volume outlook on slide 16.
And so heading phase, we anticipate a strong increase in second half deliveries based on the increased quote and order rate, we've been experiencing and the higher backlog of new orders compared with a year ago up about 15% right now.
And so let talk shows our first half sales this year were down 32% from the pre COVID-19 levels of last year.
Importantly, though we operate and a highly seasonal business environment, where typically 60% to 62% and buses are delivered and sold and the second half of the fiscal year to meet school staff.
Even last year and our COVID-19 impacted second half our second half unit sales represented 54% of the full year volume.
So if you look at the right hand box you can see we're projecting a strong increase in sales of at least 15% from last year's second half our schools reopen and the industry recovery progresses.
The significant expected growth and this year's second half sales is a positive sign for our strong industry recovery and the next school year.
Let's now turn to our guidance range on slide 17.
This slide shows the key metrics, which we provide guidance and is unchanged from prior reports.
So net sales revenue, we're forecasting a range of between 750 and $175 million.
Adjusted EBITDA range is between 40 and $65 million.
And adjusted free cash flow is between $5 million negative and $20 million positive.
Our guidance reflects industry assumptions, ranging from 28000 units to 30000 units with a lower and assuming supply chain issues could disrupt the ability to deliver buses and time to school staff and lingering concerns and some school districts over the safety of and classroom teaching.
As the heading safe, we believe it's important to plan prudently and somewhat conservatively, while aggressively pursuing operational improvements, we will narrow guidance at the supply chain issues on confidence and schools stealing with COVID-19 become clearer.
Now as I did on our prior earnings call I'd like to share our view on when we expect it back on track to achieving our goal of at least a 10% EBITDA margin but.
Let's turn to slide 18.
Yeah.
This slide illustrates the adjusted EBITDA impact of COVID-19 on fiscal 2020 and 2021.
It is clear we were on track to achieve our original guidance of fiscal 2020 until the pandemic hit and the third quarter of last year.
And while we're seeing strongest recovery beginning in the second half of fiscal 2021. Following a very low first half we do expect a significant industry rebound towards pre COVID-19 levels in fiscal 'twenty, two commencing with school start.
We also achieved as you know a significant increase in gross margin of 170 basis points and the second quarter, despite a more than 40% reduction and volume.
This really bodes well for our future financial performance and as volume recovers, we plan to resume on glide path towards at least a 10% adjusted EBITDA margin and the fiscal 'twenty, two and 'twenty three time frame.
So despite the COVID-19 and supply chain challenges and their impact on today's school bus industry, We haven't lost sight of our mission to.
And to grow profitability and increase EBITDA margin to at least 10% and the near term to this and we will continue to drive improvements across all elements of our business, thereby improving our underlying margins just as you saw and the second quarter and we reported on our progress each quarter.
Well that concludes our formal presentation I'll now pass it back to our moderator to begin the Q&A session.
And at this time and will be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad and consummate some tone will indicate your line is and the question queue.
You may price start to if you like to remove your question from the queue for participants using speaker equipment and may be necessary to pick up on your hand handset before pressing and starkey.
One moment, please while we poll for question.
Our first question is from Eric Stine with Craig Hallum.
Proceed with your question.
Hi, everyone. Thanks for taking the questions.
And Eric.
Okay.
So maybe I mean, I know you've spent a lot of time on the guide and I can certainly appreciate the reasons why you would have it be quite wide.
But please.
About it I mean is it fair that the supply chain issues are the bigger.
Reason of the two rather than cold it because it certainly sounds like your order book.
Would support whether it means.
Without supply chain issues at the high end of the range.
Is that a fair assumption and also knowing and when do you expect that would I would assume you'd have pretty decent visibility soon and.
And that giving you need some time.
To fill and those slots and get deliveries done by the end of the fiscal year.
Yes, Eric I think it's a great point and you're absolutely right. I mean, there's no question between last earnings call on this call we feel a lot more confident and schools opening and then the order the order the order rates coming in from our customers No question.
And the real reason, we've got this wide guidance now is all about supply chain and other week day goes and Goodbye you hear about.
Full motor company, a GM and all these guys are and issues Packer I saw their earnings call.
I think on our side like I said, we all work and this every day I can tell you we meet on this constantly to see what we are and so far we've been we've been getting through it but it's a challenge and that's why we are keeping the wide guidance at this point I expect next earnings call I do expect we'll bill with one more quarter to go we'll narrow that significantly and.
And give you a better update.
Okay.
Okay, No that's great.
Maybe then just turn and <unk>.
Electrification and vehicle to grid, and then clearly an area and that you are very focused and every bus enabled with that do you feel like the market understands that understands that the.
And how that's a key piece to the solution on the cost side and does.
Does the market understand that there are third party financing.
Structures starting to pop up.
Because I would think that that would greatly accelerated adoption and that area.
And I don't think they do yet I think that's one of the things we have to dig it out and teach and train and educate and honestly I think if you go back on the Gulf and talk about propane and our experience. We have to do that then I mean now we have to pioneer propane by teaching educate and talking about Tcl and we're doing that now on this point you know this is a brand new product and obviously we.
Launched our first.
High energy and its really pull and by the way when I talked about the 60 kilowatt because while we've been demos out there and the past by all the manufacturers no. One has done it on the 60 kilowatt level and I think that's the exciting thing and so we want to show the districts.
All the time the reliance on grants is going to reduce because this service will come into the equation. They can make serious money office and suddenly help reduce that tcl along the way. So it's something we've got to do and where we're at slightly at about it and we've got partners who are also pretty skilled index. It's certainly how you reduce overtime.
One of them.
And so on requiring have this on the grants to help you afford initial acquisition price.
Yes, and all helpful.
Last one from me just on the electric powertrain side and the plans and I can appreciate you certainly can't give details at all but maybe just in terms of a revenue contribution.
And I think that this is and will there be any revenue contribution or do you think.
Anticipate and fiscal 'twenty, one or is this more of a fiscal 'twenty two of them.
From a fiscal 'twenty, two item really and here's why I mean, I think obviously, there's a lot of excitement around this not just from us but from other parties, who see US Hey, why and you saw on the SaaS. The third parties well you have to meet the specifications of a customer wants to them and they have their own desire needs. So whatever we end up doing here when we do get into the business and we are ready.
To pull the trigger on and sell to get to that point, we've got a we've got to make some tweaks and modifications and customize it for their needs, which is what we're very good at doing and that's what we do every day on school buses school buses assay and we we.
And we customize east for an average school district, that's one on the things I think that while we excel in this space, but we will have to do that as we went through customers theyre going on and see a prototype let me put a body on it let me try it out let me make sure I like it.
A few months, but I.
I'm really encouraged by the discussions we're having so far and I can't tell you enough about how we get this comment that.
We're tired of buying from a modifier and we want this from a real OEM, who builds that chassis and the plant from the ground up with and electric drivetrain. So we feel good about it but I think youre right its going to be more of a 'twenty two type of thing and then result in 'twenty one.
Okay. Thanks, a lot.
You bet Thanks, Eric.
Yeah.
Again, and remind me if you have any questions you May press star one on your telephone keypad doing so will ensure your spot and the Q&A session.
Our next question is from Craig Irwin with Roth Capital Partners Police Force.
And with your question.
Good evening and thanks for taking my questions. So I should apologize upfront I've been juggling a couple earnings calls I might've missed this if it was addressed.
But the.
The impact of commodities, particularly steel and running steel prices is a question that a number of your shareholders are brought up and the number of people.
Looking at potentially becoming holders and equity have brought up.
Can you remind us.
And how you purchased your major commodities.
How you look to lock in price and what the potential impact could be.
And with the options to offset that and as far as our profitability.
Yeah, Thanks, Craig and good afternoon.
Didn't get into that and detail I'll give a little more color on <unk>.
Color on that and.
So in regards to the way we purchased steel I mean, we have our supply partners that we purchased steel from.
Those agreements allow us to.
To purchase from them and there's generally a lag from the spot pricing that you're seeing and the market and.
When that price flow through to us so we're a little bit delayed by about a quarter.
When you see the pricing and the market place.
We do hedge a portion of our steel position, we don't hedge all of it and.
And so to that extent you know we've got some exposure there on raw steel, we only by $60 million to $70 million a year of raw steel most of.
On the steel costs that we incur comes through.
On the components that we purchase and so it's driven more on the component side than it is on the on the raw steel side.
And your confidence and passing through that that increased cost and <unk>.
Customers can you maybe talk about on.
Obviously, you had great pricing this quarter.
Do you see this as something that that's manageable as far as.
The profit impact over the next number of quarters.
Yes, let me talk about that Craig and it's absolutely, yes, I do because we're actually we've already talked to our.
Dealer Council price dealer council about that and.
And they understand that prices are going out there read the newspapers they know what's happening and we've been successful and the last few years and in passing that through just like every other business does ride the truck business, the cob business and were in the automotive business too and and yes, we.
And we plan on doing that so we feel really confident.
And I just want I just want to just cover this a little bit to what Jeff said.
I think it is important to mention and when we buy we buy raw steel and it's a fairly modest amount and thats. What you see on the sheet metal on the product and we bend and we put on our products most of the by far the major and we actually do hedge that.
Or we buy a we agree on a volume quantity right at the beginning of the year with our providers and we looked at pricing and we've been very successful at doing that and on the second thing is when you think about what is our steel come from MX engines transmissions is frame rails, which we all bought from our supply base.
And that's always a that's all based on a bunch of indices that they have and.
And typically as looking back so you get these adjustments once or twice a year and that and thats still in negotiation for us to have with many of those folks. So I think we have a good process.
Handling that.
Understood understood. Thank you for that so then my other question is very big picture right.
Got a couple of dozen.
Companies out there that are that are going to produce vehicles.
Many of them have never produced anything before.
And you know Bluebird is out there with an iconic brands.
Lot of assets.
Written on our way to school back and the day.
Executing well in the in the and the EV bus market you know from.
On my perspective on <unk>.
Manufacturing do you feel that many of the new entrants out there underestimate.
And the challenges and manufacturing and things like commodity pass through and we've just just covered.
Do you feel that maybe there is.
And there's more to be said for experience and knowledge.
And then the quality of on marketing plan or the number of press releases.
How would how would you.
And yourself versus the south this new crop of balance so called competitors.
Yeah, that's a great question and I and I hate to I hate to put a premarket thereabout folks who are trying to enter this business, but I actually look back to what Elon Musk set about Tesla. When he said we had a great idea and a great vision. He didnt realize the out of manufacturing is going to be so difficult and it took them a while to convince everybody that was a real business here on the track.
And then a lot of problems I mean, I've heard Elon Musk talk about it at length. He said I completely underestimated what it took to manufacture vehicles sure I've got the team in place I don't see drawings ready from my buses were.
And his K. So yeah, I think it is and I think selling school buses.
I mean and school bus is some.
Between 9012 thousand parts on it we have a parts have been of 23000 parts, which we call from.
The actual customization of our school bus is incredible after school district.
So you know they drive a different topography, there weather conditions are different and they want their unique requirements.
So we have a federal level of standard we have a state level of standard and we have a school district level of standard that has a lot to handle and even.
And even after all these years, we sometimes can stumble from time to time, but we get through it because we've been doing a long time, but yes, I think it's I think that's the biggest challenge for any of these startup companies are out there.
Told a few hundred vehicles are actually not even sole any when we say we're going to sell several thousand and in the next few years, that's a big challenge. So yes, I would agree I think it's probably the biggest hurdle on any of these folks have gone.
I'm pleased that we can.
We built 11000 units and the year before COVID-19 and we've been doing that on a regular basis and we feel good about our capabilities.
Great well, thanks for taking my questions.
And the rest offline. Okay. You bet. Thanks, Greg good to talk to you.
Yeah.
And we have reached the end of the question and answer session and I'll now turn the call over to our President and CEO Phil <unk>.
And for closing remarks.
Alright, Thanks, Jim Overcapacity and back to me and thanks to everyone for joining us on our call today.
I hope as you believe like we do that our results clearly demonstrate we're focused on driving business structure improvements on and really with the ultimate goal of improving our margins and I feel really good about I can't come back to that point the second quarter results.
We're seeing the full impact of thing here now and a nice impact of what we've done on the on the shift change what we've done in terms of improving on.
Our operating efficiencies we are on a fully a brand new paint shop and operation.
18 months now all delivering and guess what you see and is on a significant improvement in gross margin. Despite.
On a substantial drop in volume and that's when I think you show that things are working secondarily as I think as you know we are intent on maintaining our leadership and alternative power we're.
The leader, we intend to stay the leader and we're especially excited obviously about the interest and the opportunities that the EV affords us and the years ahead. So the bottom line is I want to thank you all for joining us today.
Appreciate your interest and Blue Bird and obviously, we'll break the update you on the progress every quarter I do want to US and also on these calls I want to give special recognition to our incredible team of employees here for their commitment and dedication, particularly of achieving these results during a pandemic and if you have any follow up questions don't hesitate to give a give a call to our head of profitability.
And on Investor Relations on Smart Benfield and on.
Thank you all again from from all of US here at Bluebird have a great evening.
And this concludes today's conference and you may disconnect. Your lines at this time. Thank you for your participation.
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