Blue Bird Corporation Q2 2023 Earnings Call

During the call.

Speaker 1: We will talk about in detail during the call.

Speaker 1: Through the efforts of the best workforce in the business, strong leadership, lead process improvements, and just playing hard core tenacity, we are seeing some of the best performance the company has ever seen in the second quarter.

Speaker 1: And let us not forget the EPA's fantastic clean school bus program that recently closed this first phase and announced this direction for phase 2. The success of this program has led to a staggering number of EVs in our backlog.

Speaker 1: The business is performing well and the turnaround is ahead of schedule.

Speaker 1: Now let's take a look at some of the highlights from the second quarter.

Speaker 1: The financial performance for fiscal year 23 quarter two shows a massive improvement from a year ago.

Speaker 1: Our unit's gold were over 2,300, which drove record, second quarter revenue for Bluebird, up over 90 million from fiscal year 22.

Speaker 1: increase from the same time period last year.

Speaker 1: Adjusted EBITDA was 31 million better than this time last year and we posted 20 million for the quarter.

Speaker 1: As a result, adjusted free cash flow for the quarter was 23 million, up to 2 million compared to the second quarter of fiscal year 22. Overall, a fantastic second quarter for Bluebird.

Speaker 1: On the right hand side of the slide, you can see some of the ongoing highlights for the business.

Speaker 1: Our backlog is incredibly robust at roughly 50 hundred units worth over 775 million in revenue. Included in that backlog is 200 million of firm orders for 621 electric school buses, a large uptick from last quarter.

Speaker 1: due to the impact of the EPA's Clean School Buts program. In fact, we are incredibly proud of some of the recent large EV deployments, including Broward County and South Florida and the City of Boston. As we have discussed in previous quarters, we have raised pricing considerably since July of 2021. Our average selling price for the quarter is up 22%.

Speaker 1: percent year-over-year. The increasing average age of school buses on the road is having a material effect on our aftermarket sales.

Speaker 1: With our EV demands so high and more coming from the EPA's Clean School Bus Program, we had to increase EV chassis capacity.

Speaker 1: So we recently opened up our new EV build-up center, which we are thrilled about. We are ready for the increasing demand as the EPA's recently announced phase through the program, which is another 400 million this time through a grant program. Thank you.

Speaker 1: As you can see on slide 8, we are delivering some of the best operational performance in nearly two years in several critical areas.

Speaker 1: setups and throughput are up significantly as missing parts are down due to our efforts to improve material flow to the plant.

Speaker 1: Those have included adjusting or warehousing strategy, resourcing numerous problematic suppliers, and revising production constraints.

Speaker 1: This is also contributed to the lowest number of hours per bus in the best manufacturing efficiency in two years.

Speaker 1: In turn, this generated a number of all-time records for quarter two, including revenue, EV bookings, part sales, and adjusted EVA. Not only is this proof the company is back on track, but we are now exceeding some historic financial benchmarks for the organization.

Speaker 1: Slide 9 is a reminder of our key pillars around care, delight, and deliver. Our focus areas within those pillars include our people, lean transformation, expanding our total adjustable market, and scaling EV. I want to briefly touch on the progress of each of those since our last call. Regarding our teammates, in January , a large-scale wage increase took effect for our hourly teammates, including the

Speaker 1: We also continue to update our facilities to enhance the working environment, including putting massive air killers into our facility for the summer months. We are also in the final phase of rolling out a new cell manufacturing organizational structure designed to provide more resources for our frontline teammates by narrowing the span of control and offering essential support. Through continued focus on our lean transformation, we are seeing improvements in quality and throughput, even while the supply chain environment is still far from normal.

Speaker 1: The commercial chassis continues to progress while we stay focused on ramping up our EV school bus production.

Speaker 1: But on this call, we really want to focus on highlighting our all-new EV center. A lot of great work went into this and it's core to our future.

Speaker 1: with the ultimate goal of 20 units per day whenever demand warrants it. Plus, it is a great example where we are headed with our entire production footprint rooted in the foundational principles of the Bluebird Production System in Lean. Slide 11 is again a reminder of the EPA's Clean School Bus Rebay Program. This program allocates five billion over five years for clean and cleaner emission school buses. Approximately 2,500 buses were funded in the first phase of this program with an average rebate of 375,000 per electric bus.

Speaker 1: But we have already seen many orders come in for this program and fully expect to go on a well over 500 orders for the first phase when it is all set and done. The long-term impacts of this program will be well over a billion dollars in revenue to our organization. The EPA recently launched Phase 2 of their program and on slides 12 you can see the details. As we expected in Phase 2 announced in late April it is a competitive grant program. We have an anticipated 400 million to be awarded in this round.

Speaker 1: awards. The applications will have a scoring process and priority districts will be given preference in the evaluation criteria.

Speaker 1: We expect this second phase to fund 900 electric buses, and we conservatively estimate that we'll get at least 200 degrees.

Speaker 1: We continue to remain excited about the Clean School Bus Program and look forward to working with our dealers and customers on Phase 2 to deploy more industry-leading electric buses. I would now like to hand it over to Razvan to walk through our fiscal year 23 quarter 2 financial results in more detail as well as our updated fiscal year 2020.

Speaker 2: based on a closed date of April 2nd 2022. We will file the thank you today May 11th after the market closes.

Speaker 2: Our PENQ includes additional material and disclosure regarding our business and financial performance.

Speaker 2: We encourage you to read the 10-2 and the important disclosure of that it contains. The appendix attached to this presentation includes the reconciliation of differences between gap and non- GAAP measures mentioned on this call, as well as important disclaimer. Slide 14 is a summary of the second quarter and

Speaker 2: We have exceeded the revenues and adjusted EBDA of our conservative quarterly guidance provided in the last earnings call. And in fact, we deliver the Q4 expected results to quarter-ze earlier.

Speaker 2: The team has done a fantastic job and generated 2,304 unit cells volume, which was 373 units or 19% higher than prior year.

Speaker 2: Consolidated net revenue of $300 million was $92 million or 44% higher than prior year, driven by higher units, higher parts sales, improved mix of electric buses, and pricing actions that took hold significantly in this quarter. The adjusted free cash flow was positive at $23 million and $2 million higher than the prior year.

Speaker 2: given our high volume of now profitable buses, increased parcels and margins, offset by increased labor costs.

Speaker 2: Given the transitional nature of our fiscal 23-K1 results, which included still a large portion of all backlog low margin buses.

Speaker 2: Our year today performance is still solid, but 4,261 units sold, there are 227 EVs.

Speaker 2: With 536 million in revenues, adjusted EBDA of 16 million, an excellent 3K slow of 43 million.

Speaker 2: Moving on to slide 15, as mentioned before by Matt, our backlog at the end of Q2 continues to be extremely strong at nearly 5,800 units, with the vast majority of these units at much higher price levels compared to the fiscal 22 built units.

Speaker 2: Breaking down the second quarter 300 million in revenues into our two business segments. The Basneck revenue was 273 million up by 85 million versus prior here.

Speaker 2: Our average bus revenue per unit increased from 98,000 to 119,000 or 22%, which was largely the result of pricing actions taken over the past 18 months, as well as a higher mix of electric buses. For more information, visit www.fema.gov

Speaker 2: EV sales in the second quarter were at the level of 135 units or 86 more than last year, 176 percent increased.

Speaker 2: Part revenue for the quarter was 26 million, representing a growth of 7 million or 37% compared to the prior year.

Speaker 2: This extraordinary performance was in part due to a large pass backlog reduction due to improved supply chain in aftermarket and we expect the future fiscal 23 quarters to be in the low 20 million. Growth margin for the quarter was approximately 12%.

Speaker 2: or 10.4 percentage points higher than last year due to our improved operational performance and our pricing catching up with the inflationary costs over the last 18 months. In fiscal 23 second quarter, adjusted net income was positive $9 million or $19 million higher than last year. Adjusted EBITDA of approximately $20 million or 7%

Speaker 2: are evidence that our turnaround is working, and it sets a new base for our future performance towards our long-term goal of profitable growth.

Speaker 2: Moving on to slide 16, we have positive development year over year also on the balance sheet.

Speaker 2: Our liquidity is that's strong above 100 million at the end of fiscal 23Q2 with a zero balance on our revolver. The improvements in operating cash flow and adjusted free cash flow were primarily driven by improved operations and margins.

Speaker 2: extended the maturity days to December 31, 2024.

Speaker 2: Slide 17 shows the walk from fiscal 22 Q2 adjusted EBITDA to the fiscal 23 Q2 result. Starting on the left at negative 10.7 million. The impact of the bus segment gross profit in total was 27.1 million. Split between volume and pricing effects, net of material cost increases of 23.3 million and operational improvements of 3.8 million. The operational improvement consists of year-over-year manufacturing efficiency improvements and lower freight costs. The favorable development in the part segment gross profit.

Speaker 2: On to slide 18, looking ahead, we are happy to reiterate that we are now largely past most of the old backlog units with fixed pricing from fiscal 21 orders. And we will continue to benefit in the second half of fiscal 23 from pricing mix improvement based on the age and price level of our current backlog.

Speaker 2: Our production schedule is now virtually full for the rest of the fiscal 2023, with some other type B for example going already into fiscal 2024.

Speaker 2: However, supply chain and labor inflationary cost pressure still exists and not all of the upcoming pricing increases were slow to the bottom line in fiscal 23.

Speaker 2: Given our large backlog, we already announced for fiscal 24 a model year price increase of $2500 per bus net for all bus types built after October 1st, 2023 to cover expected inflationary and raw materials cost increases.

Speaker 2: On slide 19, you can see the spot market development for steel prices over the last two years.

Speaker 2: After the initial reduction in early 2022, still spot prices shot back up in March and April after the Ukraine war started.

Speaker 2: However, the Bible reversed itself by August .

Speaker 2: The favorable trend continues to December 2022, and we benefit it from this in fiscal 2023-22.

Speaker 2: Please keep in mind that we have now a comprehensive still buying strategy, and we are entering in future locked contracts for still prices with certain tonnages up to 12 months forward minimizing our exposure. On flight 20, looking at fiscal year 2023, we want to share with you our updated forecast by quarter, which serves as basis for our fiscal 23 total year guidance. But the reminder, we are taking a more transparent and conservative approach this year, as it will still be a somewhat uncertain year from a supply chain perspective. However, we have improved already all the other business levels that we put address.

Speaker 2: Putting it all together, for the total year, we expect revenues in excess of $1.1 billion and an increased midpoint adjusted EBITDA of $60 million with a range of $55 to $65 million in E spots for $BoE and parallel growth greater inforested feed.

Speaker 2: Moving to slide 21, in summary, we are forecasting a significant improvement year over year in all aspects.

Speaker 2: with revenues up more than 35% to approximately $1.1 billion, adjusted EBITDA in the range of $55 to $65 million and positive free cash flow of $30 to $40 million.

Speaker 2: On slide 22, we wanted to reiterate our long-term outlook.

Speaker 2: We are very happy about the results of our turnaround taking hold and our prospects ahead. And we are looking forward to share with you in our next earnings call our first indications regarding fiscal year 24. Looking a bit beyond that, once the supply chain normalizes, which has not happened yet, we are looking forward to share with you in our next earnings call our first indications regarding fiscal year 24.

Speaker 2: We expect to sell 9,500 units, including 1500 units EVs, and generate 100 million or 8% adjusted EBDA from 1.25 billion in revenue.

Speaker 2: Looking farther to the medium-term, our EV growth and operational improvement can support volumes of 10,500 to 11,000 units.

Speaker 2: including EVs in the range of 2,500 to 3,500 units, generating revenues of 1.5 to 1.75 billion with adjusted EBITDA of 150 to 200 million for 10 to 11 percent.

Speaker 2: Our room turn target remains to drive profitable growth towards 2 billion in revenues comprising of 12,000 units of which 5,000 are EVs and generate EBITDA of 250 million or 12%. We are incredibly excited about global future and now I will turn it over back to Matt to further expand on this.

Speaker 1: All right, thank you, Razvan. On to slide 24. As detailed in the fiscal year 23 guidance that Razvan just walked through, we are again now raising guidance based on the strong performance of the business.

Speaker 1: All the hard work the Bluebird team has put in for nearly two years is paying off. We plan on booking at least 8,350 units, a 22% increase over fiscal year 22 and driving a top line of $1.1 billion. That's a 37% increase year-over-year. Part sales will be ahead of plan delivering at least 88 million revenue, up 15%.

Speaker 1: in the ACT retail sales forecast for fiscal year 23. It continues to be supply chain constrained across the industry, and our targeted bookings will put us right where we want to be around that 30% market share.

Speaker 1: As other industries are slowing down, we're just heating up with incredible demand in front of us. As we have touched on in past calls, industry retail sales have been off from their average of 32,000 units per year for the past three years in a row. And the national school bus fleet is aging.

Speaker 1: The market was first constrained by COVID and school closures, and it has been held up more recently by the supply chain.

Speaker 1: This aging fleet must be replaced, and we expect substantially robust years ahead of us to address this pent-up demand.

Speaker 1: ACT is forecasting a compound annual growth rate of 10 percent from our fiscal year 23 to our fiscal year 27. Our business is performing well after two long years and we look forward to executing on the robust market ahead.

Speaker 1: The future is incredibly bright for Bluebird, so let's turn to slide 25 as a summary reminder of the strong investment highlights around our company.

Speaker 1: by the slowdown in consumer spending. Plus, not only are the fundamentals of our industry strong, it is just starting to heat up with this 10% compound annual growth rate expected over the next five years.

Speaker 1: Second, there is commitment from the highest level government to electrify this country's school bus fleet. In addition to the $5 billion from the federal government, there is another $5 billion in other federal, state, provincial, and local programs. Ten billion in total to accelerate this transition to electric school buses. Bluebird will be a direct beneficiary of this as we have more electric buses.

Speaker 3: Columbianresso. Tickets on Corona Poor's

Speaker 1: on EV. Our collaboration with Cummins offers a proven partner investing billions in alternative fuel

Speaker 1: Something no other electric school bus manufacturer has to offer.

Speaker 1: And as impressive as the outlook is for school buses, we are still looking for more growth opportunities and want to expand our total addressable market. The commercial strip chassis offering could eventually add a few thousand units.

Speaker 1: per year on top of our projected long-term forecast. And with our lean transformation efforts, we're removing non-value-added processes and reducing standard production hours per bus. We are continuously looking for ways to take out costs and at the same time increase quality.

Speaker 1: As we touched on today, our pricing is now aligned to market economics and we are through the majority of legacy price buses. All these factors will provide us with 10% plus adjusted EBITDA margins in the midterm normalized operating environment.

Speaker 1: As you saw in the guidance we provided for the fourth quarter of fiscal year 23, we get to approximately 9% adjusted EBITDA on supply constrained volume, proving that in a normalized operating environment double digit adjusted EBITDA margin will be in reach.

Speaker 1: As I mentioned at the beginning of this call, the hard work by the Bluebird team is paid off. And the business is ahead of plan and even exceeding historical performance benchmarks.

Speaker 1: I want to thank the nearly 1800 teammates for all their hard work as well as our outstanding dealer body who sacrificed with us over the last two years. We couldn't have done it without them and they are and will always be critical to our success.

Speaker 4: We now would like to open up the line for questions. Thank you. Thank you. If you would like to ask a question today please do so now by pressing star followed by the number one on your telephone keypad. If you change your mind and would like to be removed from the queue that's star followed by two. When preparing to ask your question please ensure that your device is unmuted locally.

Speaker 4: We will just take a brief pause to compile our Q&A roster.

Speaker 1: I mean, obviously supply chain still an issue. Seeing it use a little bit, I guess I'll start with probably a near impossible question to answer, but I mean, is there, do you have any thoughts about, you know, this kind of seem the light at the end of the tunnel or is this kind of a new dorm? It's just going to drag on and it's something...

Speaker 1: but there still is volatility in the supply chain. And really, is it one specific component kind of across the board? Of course, it is, you know, we use the same set of suppliers, the commercial truck industry uses and that industry is still going pretty strong. And most of the challenges reside around our tier ones and tier two is getting frontline labor. So.

Speaker 1: You know, we, we, the team have just gotten a lot better dealing with it. So we remain optimistic on our ability, you know, to continue to deliver. I guess you can have follow up on that, you know, the time looks fast. I think back a couple years. I mean, the norm was certainly not to carry this much back on which obviously related to splicing.

Speaker 1: I mean, do you envision a scenario where if you play this out a while that you kind of catch up and you get back to more normal levels? Or again, I mean, is this, do you kind of think that this is the norm where you've got this elevated level of backlog, which I mean, I guess is a good problem to have, you know, but it'd also be nice to be able to work that down.

Speaker 1: Yeah, you know, based on the pen of demand that we reviewed there, what a CTs forecasting a lot of robust years in front of us, you know, we expect to still have a healthy backlog. We of course monitor the situation, you know, weekly, not daily in terms of our ability to ramp up production.

Speaker 1: you're almost through the low price backlog and you're putting through the price increase for fiscal 24. Do you feel like, I mean the market's basically conditioned for that? I mean are you sensing any pushback? I know steel prices are...

Speaker 1: have started to turn higher again. What's your thought on price going forward?

Speaker 2: Hi, this is Razvan. Thank you for the question. We are monitoring carefully the cost development and as long as there is still inflationary pressure whether it's from labor costs or still prices going back up.

Speaker 2: we will consider pricing actions to offset for this upcoming increasing cost. It's a bit too early to know very long-term how the situation will develop, but at least for fiscal 24, we took the first step in order to cover for this inflationary cost. The next step is to consider pricing actions to offset for this upcoming increasing cost. It's a bit too early to know very long-term how the situation will develop, but at least for fiscal 24, we took the first step in order to cover for this upcoming increasing cost.

Speaker 5: Yep. Okay. That's great. I'll take the rest offline. Thanks. Thank you, Eric.

Speaker 6: Our next question comes from Mike Schliske with DA Davidson. Mike, please go ahead. Hello, good afternoon and thanks for taking my questions. I guess I want to ask first of all the comments you made on EV, Matt, and the EPA awards.

Speaker 6: Some of your comments around for example the 2022 awards you mentioned you get at least 500 out of the Full amount and the 2023 awards that are already out there so far You think you get about 200?

Speaker 6: And it's just sound like that's below the historical third percent sure you had the overall school bus market So if you comment on what might be driving your market share there or it's just constricted him or just like rounding Just kind of curious whether you're all caught that you can actually match or beat your your share on EVs You have on the overall bus market Hey Mike and this is Matt. Thank you

Speaker 1: and that has a reduced amount of money. You know, that's anticipated to be only 400 million versus the roughly billion that was in the first phase. But still, again, it's really just the conservative nature of our approach and, you know, our target is to go after and get at least that 30% or more. But, you know, for these purposes, we say, you know, 200 or more.

Speaker 6: Great. Can you guys just hear me okay?

Speaker 6: Great. Can you guys just hear me okay? Yep, we got your mic.

Speaker 6: Next question I want to ask about kind of last two weeks you had announced in California the advanced clean fleet rule where private fleets of all types that includes buses have to be 10% EV by the end of next year. I assume it includes school buses because you confirm that one and maybe secondly you have a lot of private fleets that you work with.

Speaker 1: know, we don't see that being difficult for the customers or that market out there, just given how they had first mover advantage and putting eb's in for well over close to five years now.

Speaker 6: Great, just as a quick follow up there, I think your comment should mention the coming non-bus products, the V5-6 strip chassis.

Speaker 6: I'm here to you can use an update as to some of the timeline specific there because obviously there's a big opportunity coming in California and possibly 12 13 14 of the states. Here should feel as something that could be um, sellable by the first part of next calendar year.

Speaker 1: You know, our goal, Mike, as we stated previously, is to have prototypes by the end of this calendar year on the road. And so that's, you know, that's where our focus is right now.

Speaker 6: Okay, sure. Appreciate that. I'll pass it along. Thank you.

Speaker 7: First, congratulations on the solid result. It's really nice to see that pricing working so well for you guys. Slide 11, where you give some details about the 22 lottery results, it's nice to see you guys tracking this very, very closely. I wanted to just dig in, if we can, a little bit on this 1,200 unallocated units. Can you talk about the different parties that maybe received these vouchers, when they need to place their orders by, and whether or not any of them actually have prior experience with Bluebird and the alternative fuels markets?

Speaker 7: how they need to issue those RFPs and ink the necessary contracts to book that, for you to book that as an order.

Speaker 1: Thank you for the question, Craig. It's Matt Stevenson. So on that graph on 11, you see that kind of top right corner is approximately that, you know, five to 700 of ones we either had a hand in directly working with our dealers and the customers on applying for the rebate or were loyal Bloomberg customers or channel partners.

Speaker 1: did this as well, is they submitted for an extension. Some of them 60 days, some of them 90 days, as are waiting for the final quote to their infrastructure because the infrastructure and the buses have been submitted together. So, you know, we're still hopeful there's opportunity on those unallocated ones as well.

Speaker 1: There's still a lot left up for grabs here over the next 30 to 60 days.

Speaker 7: Okay, excellent. So if I could ask another question related to the EPA vouchers. Last year, they started off saying that they were going to do $500. The chatter that you're getting from talking to a bunch of people at Act Expo could be increased to $750. Some people were saying it could be increased to a billion.

Speaker 7: And then lo and behold, they gave us just under a billion dollars in vouchers, which was a fantastic move. The official number is 400. We were hearing potential that this could be upped. But would you be surprised if EPA maybe went to a bigger voucher list this year, maybe did more than those 25 to 50, uh,

Speaker 1: you know that could be quite possible they up that amount and we're also you know there's potential for more of a rebate program for that other you know roughly half of the billion per year that they're allocating for this year so you know we just stay in close contact with the EPA and work closely with our dealers and customers in anticipation.

Speaker 7: of what may happen. Got it, got it. And then, you know, as we look sort of out on the horizon, you've had 22% price. You know, you did put through 25% with your new price increase of $2,500 for fiscal 24.

Speaker 7: It looks like we'll be back to pretty much normalized margins. What do you see as the biggest risk to gross margin and cash flow outside of...

Speaker 2: the steel items that you identified in your presentation on the call. Hi Greg, this is Raz and I'll take this question. So we addressed a lot of levels on the pricing side as far as the de-risking the margin profile going forward for the quotes that we have out there. There is, as you mentioned, some optic risk control materials.

Speaker 7: Got it. Got it. That makes complete sense. All right. I'll take the rest of my questions offline. Congratulations on the progress here. We look forward to successful execution on President Biden's priority and EB school bus. All right. Thank you, Craig. We appreciate it. At this time, we have no further questions registered, so I'll turn the call back over to Matthew Stevenson for closing remarks.

Speaker 1: All right, thank you, Emily. And thank you to all those joining us on the call today. As you heard during our prepared remarks, Hoover is in a great position with extremely positive momentum. Through massive improvements in how we operate this business across the board, we close Q2 with record revenue and adjusted EBITDA. And I have again raised our four-year guidance.

Speaker 1: As we have forecasted for nearly a year, the Clean School Bus program is generating meaningful orders for us and has produced a large backlog of EVs. To capitalize on this demand, we recently opened our new EV center to fuel our growth now and into the future.

Speaker 1: And we are doing all this while investing back in our most important asset, our teammates. For nearly two years, we have focused on our first pillar, taking care of teammates. We did this through increasing communication, transparency, leadership visibility on the floor, and listening more. All while making facility improvements and increasing wages and benefits.

Speaker 1: We are reinvigorating our front-line teammates. The future is electric for Bluebird in more ways than one.

Speaker 4: Have a great evening. Thank you everyone for joining us today. This concludes our call and you may now disconnect your lines.