Q4 2021 Blue Bird Corp Earnings Call

December 15, 2021

Greetings and welcome to the Blue Bird Corporation fiscal 2021 fourth quarter and full-year 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. Now I'll turn the conference over to your host, Mark Benfield, you may begin.

Please note this conference is being recorded.

Now I'll turn the conference over to your host Mark Benfield, you may begin.

Thank you welcome to Blue Bird's fiscal 2021 fourth quarter and full-year earnings conference call. The audio for our call is webcast live on Bluedashboard.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.

Audio for our call is webcast live on Blue dashboard Dot com under the Investor Relations tab.

To access the supporting slides on our website by clicking on the presentations box on our IR landing page are.

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 on the following two slides in our latest earnings release and filings with the SEC. Blue Bird disclaims any obligation to update the information in this call.

Those risks include among others.

Matters, we have noted on the following two slides.

In our latest earnings release and filings with the FCC.

Blue Bird disclaims any obligation to update the information in this call.

This afternoon, you will hear from Blue Bird's, President and CEO, Matt Stevenson and CFO Razvan Radulescu. Then we will take some questions so let's get started.

Then we will take some questions so let's get started.

Yeah.

Thank you, Mark. It is a pleasure to speak with everyone today during my first earnings call here at Blue Bird. In July I joined the company as President and assumed the CEO role in November 1st. I'm incredibly excited about the opportunity to lead such a great company with a phenomenal future in front of it.

It is a pleasure to speak with everyone. Today during my first earnings call here at Bluebird.

In July I joined the company as President and assumed the CEO role in November 1st.

I'm incredibly excited about the opportunity to lead such a great company with a phenomenal future in front of it.

Overall demand for more environmentally friendly school buses is strong. And our company's competitive position to provide those buses and serve those customers who operate them is unparalleled. On slide six you can see some of the major headlines of our fiscal year, which ended on October 2nd 2021. At the beginning of our fiscal year, a large number of schools are still closed or in a hybrid learning approach.

On slide six you can see some of the major headlines of our fiscal year, which ended on October <unk> 2021.

At the beginning of our fiscal year, a large number of schools are still closed or in a hybrid learning approach.

As school started to fully reopen in the second half of our fiscal year, it reignited the replacement demand for buses. We saw that market demand increasing through the second half to near pre-pandemic order levels. Our nation school bus fleet continues to age and the ongoing need to upgrade to safer lower emissions and more modern vehicles is inevitable.

Reignited the replacement demand for buses.

We saw that market demand increasing through the second half to near pre pandemic order levels.

Our nation School bus fleet continues to age and the ongoing need to upgrade to safer lower emissions and more modern vehicles is inevitable.

However, the well documented and publicized disruptions in the global supply chain environment made it difficult to fully realize those exciting fundamental trends. As volume in the automotive and commercial vehicle sector has ramped up, many of our suppliers had trouble keeping up with our demand.

As volume in the automotive and commercial vehicle sector has ramped up many of our suppliers had trouble keeping up with our demand.

Our tier-one suppliers face challenges, including a shortage of labor, COVID outbreaks of a scarcity of raw materials semiconductor shortages and other impacts from their tier two and three suppliers. In many instances, we're missing over 25 parts per bus in our production. The supplier disruptions dramatically slow down our production and caused us to take numerous unexpected down days.

In many instances, we're missing over 25 parts per bus and our production.

Supplier disruptions dramatically slow down our production and caused us to take numerous unexpected down days.

It also drove decreased efficiencies and productivity in our manufacturing operations. In addition to the supply chain disruptions, we saw the inflationary pressure everyone has seen and labor, raw materials, and minor or major components. While we pursued multiple strategies, the Razvan will discuss in more detail, the minimized escalating input costs and recover them in our pricing the macro challenges still masked a strong underlying fundamentals of our business this past quarter.

In addition to the supply chain disruptions, we saw the inflationary pressure, everyone has seen and labor raw materials and minor or major components.

While we sued pursued multiple strategies, the Roswell and will discuss in more detail the minimized escalating input costs and recover them in our pricing the macro challenges still masked a strong underlying fundamentals of our business this past quarter.

However, I'm credibly proud of the operations team at Blue Bird for powering through these unprecedented times and producing the number of units that we did. Our estimate is more than 2000 additional units should have been produced and delivered in fiscal '21. If not for all the supply chain disruptions and shortages. These delays in sales dramatically impacted our revenue and profitability for the year.

Our estimate is more than 2000 additional units should have been produced and delivered in fiscal 'twenty, one if not for all the supply chain disruptions and shortages.

These delays in sales dramatically impacted our revenue and profitability for the year.

The good news is our backlog is at record levels with over $400 million of revenue customers are patiently waiting for buses. They understand what is happening in the global economic market and we have not seen cancellation. Again, these are delays in sales rather than permanently lost opportunities. Slide seven highlights a number of accomplishments for Blue Bird in fiscal year '21.

Slide seven highlights a number of accomplishments for bluebird in fiscal year 'twenty one.

And as I assess our company's prospects, I remain extremely confident and optimistic about the fundamental drivers of our business and how it lines to the market demand for cleaner emissions school buses. Our alternative powertrain sales mix is now over 50%. We have built our 20000 propane bus and are well-positioned to capture accelerating demand for EV buses and have delivered are taking orders for over 550 electric school buses this past year.

Our alternative powertrain sales mix is now over 50% we have built our 20000 propane bus and are well positioned to capture accelerating demand for EV buses and have delivered are taking orders for over 550 Electric school buses this past year.

As stated previously, at the end of our fiscal year, we have a record number of units in the backlog with over 40 to 100 vehicles worth over $400 million. As further evidence of our bright future, six of our major dealers are investing in all new dealerships to continue to enhance our customer service level tour operators.

As further evidence of our bright future six of our major dealers are investing in all new dealerships to continue to enhance our customer service level tour operators.

Slide eight highlights our results for Q4 and fiscal year 2021. When you consider how disrupted the supply chain was this year, especially where we saw the worst of it in our fiscal year Q4, which is historically, our highest volume and most profitable quarter. The solid results we are presenting here a testament to the tenacity of the Blue Bird team. We sold over 1900 buses in the quarter and posted nearly $200 million of revenue, resulting in an adjusted EBITDA of $8 million.

The tenacity of the Bluebird team, we sold over 1900 buses in the quarter and posted nearly $200 million of revenue, resulting in an adjusted EBITDA of $8 million.

As you can imagine the supply chain disruptions and missing parts contributed to increased inventory levels of raw material as we delayed setting up planned buses. [And grew a working process of] over 500 units significantly impacting free cash flow in the quarter. The results of fiscal year 2021 are characterized by first half with soft demand and a second-half fraught with supply chain disruptions when volume recovered. However, there is clear evidence of exciting longer-term trends in demand and we are going to be ideally positioned to capture a profitable share.

Andrew will work and processed over 500 units significantly impacting free cash flow in the quarter.

The results of fiscal year 2021 are characterized by first half with soft demand and a second half fraught with supply chain disruptions. When volume recovered. However, there is clear evidence of exciting longer term trends in demand and we are going to be ideally positioned to capture a profitable share.

The unprecedented situation in the world around us is only temporarily delayed what I see is a remarkable opportunity ahead for our company and its investors. I would now like to turn it over to Razvan to discuss our financial results in more detail.

I would now like to turn it over to <unk> to discuss our financial results in more detail.

Okay.

Thanks, Matt and good afternoon. It is my pleasure to share with you the financial highlights from Blue Bird fiscal 2021 fourth quarter and full-year results. We filed the 10-K today December 15 after the market closed. Our 10-K includes additional material and disclosure regarding our business and financial performance. We encourage you to read our 10-K and the important disclosures that it contains.

Well they filed the 10-K today December 15 after the market close at our 10-K includes additional material and disclosure regarding our business and financial performance.

We encourage you to read our 10-K and the important disclosures that it contains.

Slide 10 is a summary of full-year results for fiscal 2021 and fiscal 2020. It was a tough year for Blue Bird, especially in fiscal Q4 with a difficult operating environment as a result of supply chain disruptions that have impacted many industries. Especially those that use microchips and the resident in their products. Further compounding the challenge raw material prices rose during 2021, especially steel up 300% and aluminum up 150%. The cost of overseas transportation increased nearly tenfold.

It was the top theater for Bluebird, especially in fiscal Q4 with a difficult operating environment. As a result of supply chain disruptions that have impacted many industries, especially those that he was microchips and the resident in their products.

Further compounding the challenge raw material prices rose during 2021, especially steel up 300% and aluminum.

150% the cost of overseas transportation increased nearly tenfold.

Blue Bird unit sales volume of six to 700 units was significantly lower than prior year. However, as Matt described, there are about 2000 units that could not be shipped in the third and fourth quarter as a result of part shortages. Supply issues were experienced for multiple components across a number of suppliers. Although disruptions continue, our team works tirelessly on a daily basis to find outside relative sources for products, where possible, and to engage with all of our impacted suppliers in order to find solutions and expedite delivery of vital parts of our factory.

Supply issues, we had experienced for multiple components across a number of suppliers.

Although disruptions continue our team works tirelessly on a daily basis to find outside relative sources for products, where possible and to engage with all of our impacted suppliers in order to find solutions and expedite delivery of vital parts of our factory.

Despite the supply disruption, there is good news. Demand for our buses is up significantly versus last year and total order received in the period were 49700 units. If we would have had received all of the parts on a timely basis, the sales for the year would have been more than 8500 unit. Almost at the same level as fiscal 2020.

Almost at the same level as fiscal 2020.

In addition, Blue Bird had a backlog of over 4200 units at fiscal year-end, 3000 units more than the end of fiscal 2020. At this time, our supply-constrained production capacity for the first half of fiscal 2022 is full and Q3 is filling up quickly. Our ability to complete and deliver all of these units on a timely basis will depend on supply stability of key components.

Our ability to complete and deliver all of these units on a timely basis will depend on supply stability of key components.

Consolidated net revenue of $684 million was $195 million lower than prior year due to the delayed sales already mentioned. Of that, bus net revenue of $625 million, which was down by $197 million versus prior year. Average bus revenue per unit increased from 92007 hundred 93600, which was largely the result of annual pricing taken in the summer of 2020.

Average bus revenue per unit increased from 92007 hundred 93600, which was largely the result of annual pricing taken in the summer of 2020.

Alternative fuel vehicles sales comprised a record 50% of our sales in the year up by two points due to the outstanding success of the new 7.3-litre engine in our gasoline and propane unit. EV sales of 146 units were slightly down due to supply chain disruptions. However, far more there is exiting the year, we're at more than 250 EVs, up almost fivefold from the 52 last year. Product revenue for the year was $59 million, representing an improvement of 2 million compared to the prior year.

<unk> sales of 146 units were slightly down due to supply chain disruptions. However, far more there is exiting the year, we're at more than 250 eat up almost five fold from the 52 last year.

Product revenue for the year was $59 million, representing an improvement of 2 million compared to the prior year.

The improvement in part sales we saw in the third and fourth quarter is an indicator that the normal work for school districts are starting to get back to pre COVID-19 levels. Although there has been some disruption due to supplier shortages. Gross margin for the year was 10.5% or 40 basis points lower than the same period last year. The decline was driven mainly by three areas.

Gross margin for the year was 10, 5% or 40 basis points lower than the same period last year.

Decline was driven mainly by three areas.

First, incremental costs for freight and production due to supply disruption. Second, the fixed cost absorption impact on building 2000 less units. And third, higher raw material and input costs. I will discuss this more on the following slide. As noted on the third-quarter call, we expected to see raw material and component cost increases in the fourth quarter due to steel and other commodities as well as the continuation of higher costs that are being experienced in all modes of freight cars.

Second the fixed cost absorption impact on building 2000, unless you're in it.

Third higher raw material and input costs I will discuss this more on the following slide.

As noted on the third quarter call, we expected to see raw material and component cost increases in the fourth quarter due to steel and other commodities as well as the continuation of higher costs that are being experienced in all modes of freight cars.

As Matt mentioned, we have implemented a total of 11% price increase to help offset these headwinds. However, this will fully materialize in the second half of fiscal 2022 because we have to work through the current backlog first. In fiscal '21, adjusted net income was $8.7 million. Adjusted EBITDA of $34.1 million was down compared with prior year, while adjusted EBITDA margin was 5%, a year over year decrease of 1.2 percentage points.

In fiscal 'twenty, one adjusted net income was $8 7 million.

Adjusted EBITDA of $34 1 million was down compared with prior year, while adjusted EBITDA margin was 5%.

You're a decrease of one two percentage points.

Adjusted diluted earnings per share of 31 cents was down from the prior year. Overall, it was a tough year with our first half impacted by schools being partially closed and with remote learning due to COVID-19 and the second half impacted by supply chain disruptions and the rapidly rising raw material prices and freight cost.

Overall, it was a tough year with our first half impacted by schools being partially closed and with remote learning due to COVID-19 and the second half impacted by supply chain disruptions and the rapidly rising raw material prices and freight cost.

Slide 11 shows the walk from fiscal year 2020 adjusted EBITDA for the fiscal year 2021 result. Starting on the left at $54.7 million, lower bus volume in the year of 2199 units, partially offset by higher part of the volume of $1.3 million resulted in a negative $33.1 million impact. Pricing net of economics of negative $4.2 million. It was mainly the result of higher steel and commodity costs as well as higher cost of resin.

I think on the left at $54 7 million lower box volume in the year of 2199 units, partially offset by higher part of the volume of $1 3 million resulted in a negative $33 1 million impact.

Pricing net of economics of negative $4 2 million.

It was mainly the result of higher steel and commodity costs as well as higher cost of resin.

The team however was able to offset approximately half of these headwinds year over year. Our ongoing procurement initiatives continues to show positive results at $5.3 million. Efficiencies and lower operating expenses were favorable year over year by $11.4 million, despite the lower production volume and higher input costs of the plant.

Our ongoing procurement initiatives continues to show positive results.

$5 3 million.

Efficiencies and lower operating expenses were favorable year over year by $11 4 million, despite the lower production volume and higher input costs of the plant.

On the far right, we have shown the overall impact of supply disruption lost volume and efficiency. As you can see, due to part shortages were not able to ship about 2000. These delayed sales were worth approximately $38.6 million, including the impact on plant efficiencies and ongoing trade issues. These headwinds are a profit for the year would have been about $72.7 million or approximately 8% of revenue in line with the 2019 profits and on lower volume. This is a result of the cost structure improvements we have been implementing the past several years.

Can see due to part shortages were not able to ship about 2000.

These delayed past waterworks, approximately $38 6 million, including the impact on plant efficiencies and ongoing trade issues.

Absent. These headwinds are a profit for the year would have been about seven to $2 7 million or approximately 8% of revenue in line with the 2019 profits and on lower avoided. This is a result of the cost structure improvements we have been implementing the past several years.

Moving onto the balance sheet and liquidity on slide 12. We ended the year with cash of $11.7 million down $32.8 million from the same time last year. That was $209.4 million, $35.3 million higher than last year due to a higher a draw on our [inaudible] fund working capital requirement. Net debt of $197.7 million was $68.1 million higher versus prior year. It is worth noting that they were in compliance with all the covenants at the end of the fiscal year.

We'll work to fund working capital requirement net debt of $197 7 million was $68 1 million higher versus prior year.

It is worth noting that they were in compliance with all the covenants at the end of the fiscal year.

There are two active financial covenant in our credit agreement for the period. First, the trailing 12 months EBITDA as defined under the credit agreement. It was $30.8 million versus a minimum requirement of $27.5 million. Second, liquidity, as defined under the credit agreement, was $60.4 million at year-end versus a minimum covenant of 15 million. Therefore, we remained in compliance with our credit agreement covenants.

It was $30 8 million versus a minimum requirement of $27 5 million.

Second liquidity as defined under the credit agreement was $60 4 million at year end versus a minimum covenant of 15 million. Therefore, we remained in compliance with our credit agreement covenants.

As we evaluated the risk associated with supply chain and our throughput ability to build and sell buses, we deemed it prudent to seek additional flexibility on our term loan covenants. We are pleased to report that we have concluded the credit amendment with our bank Syndicate led by bank of wanted out. So it provides covenant relief through the first half of fiscal year, 2023, and access to additional $10 million revolver liquidity. Additionally, we have filed a form S3 shelf registration for 200 million, which will provide us with the flexibility to raise additional capital over the next three years should this become necessary to further support our growth.

So it provides covenant relief through the first half of fiscal year, 2023, and access to additional $10 million revolver liquidity.

Additionally, we have filed a form S3 shelf registration for 200 million, which will provide us with the flexibility to raise additional capital over the next three years should this become necessary to further support our growth.

Moving on to slide 13. We have already covered the cash and debt on the previous slide. The significant deterioration in operating cash flow and adjusted free cash flow was primarily driven by higher working capital and secondarily by lower profits due to lower volume. Traditionally Q4 is our strongest cash-generating quarter for the company.

The significant deterioration in operating cash flow and adjusted free cash flow was primarily driven by higher working capital and secondarily by lower profits due to lower volume.

Traditionally Q4 is our strongest cash generating quarter for the company.

However, in fiscal year '21 Q4, we finished the year with record levels of working process and almost finished goods, which impacted our liquidity. On slide 14 going into the fiscal year 2022, our margins are temporarily under pressure. We are facing increased costs for raw materials freight labor and generally supplier disruption. And while we have a substantial backlog for school buses, many of them will not benefit from the pricing actions we took in July and October of 2021.

On slide 14 going into the fiscal year 2022 our margins are temporarily under pressure, we are facing increased cost for raw materials freight labor and generally supplier disruption.

And why do we have a substantial backlog for school buses many of them will not benefit from the pricing actions. We took in July and October of 2021.

These effects combined with the current low throughput due to supply chain constraints will create low first half of fiscal '22 profitability, even by historical seasonally adjusted comparisons. We are taking actions as outlined on this slide in order to improve our costing stability over the medium term and reduced our pricing exposure going forward. Those actions will start to show results in the third quarter of 2002 and become fully effective in the fourth quarter of '22 due to the time lag, especially on the pricing side given the current backlog.

We are taking actions as outlined on this slide in order to improve our costing stability over the medium term and reduced our pricing exposure going forward.

Those actions will start to show results in the third quarter of 2002 and become fully effective in the fourth quarter of 'twenty two due to the time lag, especially on the pricing side given the current backlog on.

On the costing side, we are increasing our hedging program and the extended toward key suppliers. We are engineering second and third source suppliers for key components in order to increase our throughput and we are resourcing components where needed. We are also selectively exploring vertical integration options, where it make by analysis.

We are engineering second and third source suppliers for key components in order to increase our throughput and we are resourcing components where needed.

We are also selectively exploring vertical integration options, where it make by analysis.

On the pricing side, we have implemented 11% price increase to recover cost increases. We'll monitor our win-loss rate in the marketplace and adjust as needed. To reduce our exposure, we already reduced our quote guarantee from 90 to 60 days. Additionally, we will watch raw material price developments and adjust our pricing as needed. However, the most important change is introducing a variable pricing structure for our dealers and customers, while maintaining a high at a fixed price option if desired.

The monitor our win loss rate in the marketplace and adjust as needed.

To reduce our exposure, we already reduced our quote guarantee from 90 to 60 days.

Additionally, we will watch it almost video price developments and adjust our pricing as needed.

However, the most important change is introducing a variable pricing structure for our dealers and customers, while maintaining a high at a fixed price option if desired.

Let me walk you through this on the next slide. Moving onto slide 15. The traditional school bus pricing model with guaranteed fixed pricing for up to 12 months or sometimes even longer it's not working anymore in the current inflationary environment. We want to be the leaders not only in alternative powertrain offerings but also in introducing new business mechanisms that provide customer flexibility and ensure proper market dynamics and risk-sharing.

Moving onto slide 15.

Traditional school bus pricing model with guaranteed fixed pricing for up to 12 months or sometimes even longer it's not working anymore. In the current inflationary environment, we want to be the leaders not only in alternative powertrain offerings, but also in introducing new business mechanisms that provide customer flexibility and ensure proper.

The market dynamics and risk sharing.

We're implementing a variable pricing model for all of the multi-year deals and for all the high volume orders that go beyond six months from the quoting time. For high volume water inside six months, we will offer the highest fixed priced option. The same applies for small volume orders that are expected to be billed and shifting inside 12 months. For the low volume quick turnaround quotes and orders with bill's inside six months from the quote, will it keep the existing model of fixed pricing. The dealer and customer can choose which model they prefer based on their risk profile and flexibility.

But high volume water inside six months, we will offer the highest fixed priced option.

The same applies for small volume orders that are expected to be billed and shifting inside 12 months.

For the low volume quick turnaround quotes and orders with Bill's inside six months from the quote will it keep the existing model of fixed pricing.

The dealer and customer can choose which model they prefer based on their risk profile and flexibility.

We're confident that the new variable pricing model will be understood and accepted by the school bus industry and having the higher fixed price option where needed will support adoption. On slide 16, looking at fiscal year 2022. As previously discussed, we are expecting a difficult first half due to supply constraints and temporary margin pressure.

On slide 16, looking at fiscal year 2022.

Scott, we are expecting a difficult first half due to supply constraints and temporary margin pressure.

We expect to see gradual relief beginning in the third quarter, our supply chain constraints are resolved due to new suppliers coming on board and the 11% price increase begins to take effect. In the fourth quarter, we expect to be at higher production levels and was normalized margins of that price increase goes into effect. At this point, we are not able to provide the exact quarterly guidance due to higher uncertainty.

In the fourth quarter, we expect to be at higher production levels and was normalized margins of that price increase goes into effect.

At this point, we are not able to provide the exact quarterly guidance due to higher uncertainty.

Nevertheless, with the premises outlined before, our full-year guidance is at revenues of $750 to $850 million with adjusted EBITDA range of 30 to 50 million or 4 to 6% of revenues. And with adjusted free cash flow of $35 million to $55 million. The significant improvement on free cash flow year over year is driven by the expected normalization of inventory, at year-end of fiscal '22. With that, I'll now turn the discussion back to Matt who will walk you through our business priorities and long term outlook.

The significant improvement on free cash flow year over year.

Oh and by the expected normalization of inventory, but you Randall fiscal 'twenty two.

With that I'll now turn the discussion back to Matt who will walk you through our business priorities and long term outlook.

Alright. Thank you, Razvan. I would now like to talk about the team. We are building here at Blue Bird, our priorities and outlook for the company. I learned a long ago the secret to success is surrounding yourself with outstanding talent.

I learned a long ago the secret to success is surrounding yourself with outstanding talent.

And on Slide 18, you can see two great additions to our Blue Bird leadership team. You had an opportunity to hear from Razvan today. When we conducted our search for the next CFO of Blue Bird. It was imperative, we not only got an experienced results-driven CFO, but they also need to have a deep understanding of commercial vehicles. The ideal candidate had to have a great appreciation for our franchise dealer network and be incredibly passionate about taking care of employees. Razvan checks all those boxes and more and I'm proud to have him on our team.

You had an opportunity to hear from Roslyn today.

When we conducted our search for the next CFO of Bluebird. It was imperative, we not only got an experienced results driven CFO, but they also need to have a deep understanding of commercial vehicles.

The ideal candidate had to have a great appreciation for our franchise dealer network and be incredibly passionate about taking care of employees.

<unk> checks, all those boxes and more and I'm proud to have him on our team.

We also recently hired [Vijay Bouba], our new Senior Vice President of lean transformation of quality. We're lucky to find someone who practiced as a servant-leadership philosophy and has spent his entire career living lean transformations and implementing world-class production systems. We look forward to the great contributions Vijay will make to our team.

We're lucky to find someone who practiced as a servant leadership philosophy and has spent his entire career living lean transformations and implementing world class production systems. We look forward to the great contributions Vijay will make to our team.

Overall, I'm confident that we're putting in place the right team to lead Blue Bird into an exciting future and to fully capture the exceptional opportunities ahead of us. Slide 19 covers our three foundational objectives. My personal leadership philosophy is rooted in service leadership. So for me, everything starts with our teammates. The three core objectives for our company, our care delight and deliver. Care means taking care of our employees with a goal of truly creating a premier place to work in our sector.

Slide 19 covers our three foundational objectives.

My personal leadership philosophy is rooted in service leadership. So for me everything starts with our teammates.

Three core objectives for our company, our care delight and deliver.

Care means taking care of our employees with a goal of truly creating a premier place to work in our sector.

My team is laser-focused on ensuring the safety of our employees raising their engagement level and reducing the levels of attrition and absenteeism. Delight centers around consistently exceeding the expectations of our customers and dealers. Both of which have a high standard for the quality of our vehicles and the timing of our delivery.

The light centers around consistently exceeding the expectations of our customers and dealers.

Both of which have a high standards for the quality of our vehicles and the timing of our delivery.

Our goals will be to surpass their expectations and enable their success. Our customers' exceptional experience will ensure that we are able to earn a premium pricing and market share, reflecting the value and innovation we consistently deliver. The last objective, deliver, it's pretty self-explanatory. We need to deliver profitable growth through our core business by selling more buses and increasing our percentage of alternative power as well as improving our operations, but we also must execute on incremental growth opportunities in front of us such as capturing the EV opportunity, expanding our aftermarket and growing our chassis business, which I'll touch on in a minute.

The last objective deliver it's pretty self explanatory.

We need to deliver profitable growth through our core business by selling more buses and increasing our percentage of alternative power as well as improving our operations, but we also must execute on incremental growth opportunities in front of us such as capturing the EV opportunity expanding our aftermarket and growing our chassis business, which I'll touch on in the <unk>.

<unk>.

Slide 20 highlights our four main focus areas for fiscal year '22 to deliver on our foundational objectives. The first centers around the details of taking care of our employees re-engaging the workforce post-pandemic and beginning their journey on creating a premier place to work. PJ is spearheading the second focus area, leading the way in creating a world-class lean manufacturing environment. Our leadership team is relentlessly focused on improving our cost structure, throughput, efficiency, and quality.

P. J is spearheading the second focus area, leading the way in creating a world class lean manufacturing environment.

Our leadership team is relentlessly focused on improving our cost structure throughput efficiency and quality.

The third incremental focus area will be to harness our established capabilities in order to seize the opportunity of expanding the total addressable market for Blue Bird beyond school buses. We are receiving significant interest from a number of players in the commercial vehicle space to provide OEM engineered and certified chassis for class five to seven vehicles.

We are receiving significant interest from a number of players in the commercial vehicle space to provide OEM engineered and certified chassis for class five to seven vehicles.

And not only are people looking for an experienced chassis builder, but also one with the after sales support that Blue Bird dealers can provide. As we all know, EV is a huge part of our future. We are the leaders in battery-electric school buses and we will continue that leadership. Our fourth area of focus is preparing our operations to scale for the rapid rise in demand for electric school buses. The $5 billion earmarked in the bipartisan infrastructure spending bill for the upgrade of our nation's bus fleet will serve to significantly accelerate existing demand for the most environmentally friendly school buses to safely transport students.

As we all know <unk> is a huge part of our future where.

We are the leaders in battery Electric school buses and we will continue that leadership, our fourth area of focus is preparing our operations to scale for the rapid rise in demand for electric school buses.

$5 billion earmarked in the bipartisan infrastructure spending bill for the upgrade of our nation's bus fleet will serve to significantly accelerate existing demand for the most environmentally friendly school buses to safely transport students.

Slide 21 is an overview of our ecosystem for EV. For our continued success in EV, we must bring a full ecosystem to our dealers and customers that includes understanding how a battery-electric school bus meets their needs, providing financing alternatives infrastructure partners to provide charging and potentially even vehicle to grid revenue.

For our continued success in EV, we must bring a full ecosystem to our dealers and customers that includes understanding how a battery electric school bus meets their needs, providing financing alternatives infrastructure partners to provide charging and potentially even vehicle to grid revenue.

We are also there at time of delivery, training their drivers and technicians on the products. Tracking the vehicles through telematics to reduce downtime and providing the best in class aftermarket sales support through our Blue Bird dealers as well as helping customers recycle batteries at the end of the lifecycle of the school bus.

Tracking the vehicles through telematics to reduce downtime and providing the best in class aftermarket sales support through our bluebird dealers as well as helping customers recycled batteries at the end of the lifecycle of the school bus.

The next slide covers a couple of examples of this ecosystem and there are the partnerships we've created with Nuveen [inaudible]. [Nuveen] software is standard on every Blue Bird EV school bus and enables bust discharge of communication for management of bi-directional energy flow from the batteries to the grid. What that does is it creates an opportunity for the operators so back energy to the grid.

<unk> software is standard on every blueberry EEV school bus and enables bust discharge of communication for management of bi directional energy flow from the batteries to the grid.

That does is it creates an opportunity for the operators so back energy to the grid.

The software also contains smart charging a lower charging cost and also lengthens battery life. Now our partnership with [Levo] offers an alternative to high upfront capital investment in EV buses and infrastructure. Providing districts in operating leases spread the cost over multiple years.

Yeah.

Now our partnership with Levo offers an alternative to high upfront capital investment in EV buses and infrastructure.

Providing districts in operating leases spread the cost over multiple years.

Levo Leverages <unk> VTG technology to drive additional revenue to generate a return on their investment and consequently, lowering districts lease payments. We will continue to look for every opportunity to bring innovation and creativity to meet our customers' needs and accelerate the adoption of electric school buses.

We will continue to look for every opportunity to bring innovation and creativity to meet our customers' needs and accelerate the adoption of electric school buses.

Slide 23 reinforces the positive long term outlook for our business. As production volumes continue to ramp up in supply chain disruption subsides. The challenges we have faced have only made us stronger and have helped us identify opportunity areas normally masked by higher volume. As our manufacturing ecosystem returned to more normal footing. The 11% in pricing, we have put in place will increasingly flow through to the bottom line as we enter the second half of fiscal year '22.

The challenges we have faced have only made us stronger and have helped us identify opportunity areas normally masked by higher volume.

As our manufacturing ecosystem returned to more normal footing.

The 11% in pricing, we have put in place will increasingly flow through to the bottom line as we enter the second half of fiscal year '22.

Similarly, we have been working hard on continued efficiencies through a lean transformation program managed volumes recover the margin implications of those efforts will become more apparent. When we look a little further out we see the tailwind of at least $5 billion earmark for clean Technology School bus and the receipt lead passed bipartisan infrastructure Bill $2 5 billion for battery Electric school buses and another two and a half building for clean emission school buses, which include <unk> <unk>. N G and propane.

When we look a little further out we see the tailwind of at least $5 billion earmark for clean Technology School bus and the receipt lead passed bipartisan infrastructure Bill $2 5 billion for battery Electric school buses and another two and a half building for clean emission school buses, which include <unk> <unk>.

N G and propane.

We lead the market in propane buses and are confident in our growing capabilities in EV.

In addition to that funding there is another $5 billion being proposed in the build back better program.

Focused on class six and seven vehicles for electrification if that goes through a large portion of that will also be used for school buses.

As I mentioned today, we are also in discussions to provide our OEM engineered and certified chassis to other manufacturers further vehicles in the class five through seven segment.

We are going to be well positioned when the market normalizes in the beginning of the EV funding kicks in.

Slide 24 provides a long term outlook and which we see a path to $1 $72 billion of revenue with 11% to 12% EBIT margin generating $200 million to $250 million in EBITDA.

Those projections do not even take into consideration the incremental opportunity provided by expanding the total addressable market for bluebird through becoming an OEM chassis providers the class five through seven market.

Even at a normal year of 11 to 11 and a half thousand units, we see our revenue of $1 two five to $1 5 billion with $100 million to $150 million in EBITDA fueled by EV volume of one to 2000 units.

In the near term, we are still working through supply chain disruptions that we believe will persist through the first half of 2022 impacting our fiscal year 'twenty two guidance, we are conservatively, providing a sales range of seven to 8000 school buses.

Those volumes should generate $750 million to $850 million of revenue and an EBITDA range of $30 million to $50 million.

As frustrating as it continuing supply chain disruptions are they will be mitigated and we will emerge from this challenging period with enhanced abilities to execute through our continued focus on our people and lean transformation.

The intermediate and longer term outlook for Bluebird is very strong we have a record backlog and a strong tailwind on EV and clean emission buses in which we are the leader.

As we capture that strong secular demand opportunity with an increasingly efficient sales and manufacturing engine. We are confident the bottomline results for investors in our companies will see new heights in the years ahead.

Moving on to slide 25.

We are also very excited to welcome a new anchor investor back to Bluebird.

Coliseum capital management has taken a $75 million steak and bluebird at $16 per share.

Adam Gray the cofounder of Coliseum capital management is no stranger to Bluebird and it was a prior investor from 2015 to 2017.

Adam has extensive knowledge of our business and the tremendous opportunities in front of US we look forward to having Adam on the board as well.

We would now like to open up the line for questions.

Thank you.

And at this time, we'll be conducting a question and answer session.

Next to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue.

You May press star two if you'd like to remove your question from the queue.

For participants using speaker equipment, it may be necessary to pick up your handset before questions Darkies.

One moment, please while we poll for questions.

And our first question comes from the line of Eric Stine with Craig Hallum. Please proceed with your question.

I'm at Horizon.

Hey, Eric how are you hearing well doing well so maybe just wanted to start with the outlook a little bit you talked about the first half.

Being blocked out I would assume that that is booked in the context of what you've been allocated from suppliers and I know, we're already part of the way through the first quarter here, but is that something where there is the potential for that to to improve or when you look at it are you basically.

We locked in for the first half.

And then second half is where you know that's where maybe the variability in the guidance might come from.

Yeah, Eric Yeah. Thank you for the question. So when you look at that first half I mean, we're seeing some modest improvement in the supply base, we're trying to temporary our excitement around that to make sure. It's consistent but at the same time be prepared if the supply chain improves we are prepared to take up volume accordingly.

Got it so there is I mean, there there are some but it's it's it's still probably more second half I mean are you are you able to give some thoughts I know you can't on the first quarter, but some thoughts on you know maybe a maybe a split between first half second half you know whether its revenues.

Our EBITA.

So under this is roz one on the on the volume side as we mentioned previously.

The volumes are relatively low even by historical standards.

Our business is seasonal with Q1, and Q2, usually being around 35% of the yearly volume.

And due to the supply chain constraints, we see a similar picture this year in terms of units. So our volume for the first half would be around 30% to 35%.

Okay.

That's helpful.

Maybe just you mentioned some are that you are seeing significant interest on the chassis side I mean I'm just wondering if you can provide any detail there whether it's.

A number of people you're talking to depths of conversations.

Along those lines would be helpful.

Yeah, Eric you know at this point.

Not going to comment on specific conversations but.

As you know the space, there's just a lot of interest in every everyone from last mile delivery vehicles to motor homes, and all through that gamut of class five through seven vehicles and we built a great chassis with a great aftermarket is important network and people realize that.

Got it I mean is it is it still yeah I know, it's a little bit longer term I mean is this something that we should think about as more of a.

'twenty fiscal 'twenty three contributor rather than later this year.

Yes, correct fiscal 'twenty three.

Okay.

Maybe last one for me then I'll jump back into queue, but just curious what has the reception been to the variable pricing I know it's different than what the market has done in the past I would think that others are kind of moving in this direction.

Any pushback there or is it pretty well understood that that's kind of the new reality, given what's going on in the supply chain with materials.

Yeah. This is Rob so we had a very good dialogue with our dealer network and our dealer meeting a couple of weeks ago. We introduced a new concept and also the first signs for them from the market that are positive I think everybody understands that in the current inflationary environment, we cannot keep the old business model is just not sustainable.

And we try to offer a balanced approach whereby the suppliers to longer term deals or high volume deals, while still offering shorter term a fixed price option you desire. So we try to offer the flexibility. Our early signs are positive, but it's still a bit too early to tell how it's going to play out fully.

Got it thanks a lot.

Thank you Eric.

Okay.

And our next question comes from the line of John Lopez with vertical group. Please proceed with your question.

Oh.

Hey, thanks very much.

Have a couple of quick if I could the first one.

Just wanted to come back to the topic of inventory I've. Obviously heard you guys talk about the constraints in the tightness I don't think that's conceptually surprising but your finished goods inventory has doubled in two quarters and that does surprise me why why is that.

Okay.

So coming out of the previous fiscal year.

We had a large amount.

Parking process or what I call. It almost finished goods.

So these are buses, which are almost finished the thorough missing a couple of parts for example.

So in that sense, we are working through a high level of inventory whether it it all working process or these type of almost finished goods.

As we receive parts from the key suppliers in this type of work is down we expect a normalization towards the end of the fiscal 2022.

However, Additionally, we are.

Having to pre buy some of the key components some of the major components, but we expect higher growth in the second half of fiscal 'twenty, two and for 2023 as you probably imagine we are in a location with some major component suppliers.

So therefore, it's a combination of working down the inventory.

But at the same time, ensuring our supply stability for the major components.

Yeah.

I see okay, just sorry, just to clarify it sounds like that finished goods line item is actually inclusive of some buses that aren't technically finished they they're just they probably graduated past the whip stage, but you're still waiting on excuse me I have all the components to actually make them shippable.

Yeah, John just for clarity all when it comes to finished goods that delta that youre seeing GSA.

GSA buses they have in a lengthy inspection process and we had a much more.

Through that time period then.

Previous year, so that's that delta that you're seeing.

I see.

I see okay. That's helpful.

The second sorry, just knickknack one the one of the things you guys add back and then in the non-GAAP EBITDA as product redesign charges that that went back up it spiked above a million and half dollars I think it was last at high end like late 2019, what what's driving that line item back up and is that expected to continue or is there. Some one time stuff that working there.

Yeah, Jonathan that's that's mostly timing.

So those are things that are so what that project is we're finding some of the last charges that'll flow through that line.

As you as you think about 2022.

You'll see very very minor numbers there.

Just some of the last work that's being completed on or a new engine launch.

Gotcha.

Got you Okay, sorry, the last one I guess I'm just wondering if you could help us think through the market. So if you look at the registration data.

For 2021, let's say the market was down very slightly like.

A couple of percent low single digits due deliveries dropped 25% I know there's generally some.

You know variation in those numbers like in terms of production versus delivery space, but how do we think about that conceptually a market that was sort of unchanged your deliveries down as much as they were.

Yes, John I'll take that first a registration data also was in line with the industry.

Right. So so it hasn't caught up with the the way to the <unk>.

Supplier shortages timed out in the fourth quarter it didn't really impact the year's registrations. So you'll see that as we as we go into fiscal 'twenty, two with the lag that happens between bookings and registrations.

Okay.

Gotcha understood sorry, but just conceptually does that mean like is it registration data then get a pull the big hitter in FY 'twenty, two kind of market wide.

Okay.

We expect that the other our.

Key competitors.

Also our having a supply chain constraints and the Q4 of fiscal 'twenty one.

Therefore, we expect a decline across the board now to what extent each one was impacted.

Yeah.

Okay understood. Thanks, very much for the thoughts.

Thank you John.

And again as a final reminder, if anyone has any questions. You May press star one on your telephone keypad to join the question and answer queue.

And it looks like we have reached the end of the question and answer session now I'll turn the call back over to President and CEO Mathew Stephenson for closing remarks.

Alright, Thank you sure Molly and thank you to all those joining us on the call. Today. We appreciate your continued interest in Bluebird and look forward to updating you again on our progress next quarter as you can see the demand for school buses is strong and with the tailwind of the $5 billion and the infrastructure Bill for environmentally.

Mainly school buses and which we're the leader our intermediate outlook is incredibly positive.

While we face a temporary supply chain issues, we are focused on improving our operations growing our margins and driving leadership in alternative power as well as scaling up our electric vehicle and chassis business.

Like to give special recognition to our incredible employees for their commitment and dedication to Bluebird this past year.

Now should you have any follow up questions. Please don't hesitate to contact our head of profitability and Investor Relations Mark Benfield. Thank you again from all of US at Blue Bird and have a great evening, and a wonderful and safe holiday season.

And this concludes today's conference and you may disconnect. Your lines at this time. Thank you for your participation.

Okay.

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Okay.

Yes.

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Q4 2021 Blue Bird Corp Earnings Call

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