Blue Bird Corporation

Greetings and welcome to the Bluebird Corporation Fiscal 2020 Fourth Quarter and Full Year Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief 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. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mark Banfield. Thank you, Mark. You may begin.

Thank you. Welcome to Bluebird's fiscal 2020 fourth quarter conference call. The audio for our call is webcast live on blue-bird.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. Our comments today include forward-looking statements that are subject to risks that could cause actual results to be materially different. Those risks include, among others, matters we have noted in our latest earning release and filings with SBC. Bluebird disclaims any obligation to update information on this call. This afternoon, you will hear from Bluebird's President and CEO, Phil Horlock, and CFO, Jeff Taylor. Then we will take some questions. Let's get started. Phil?

Thanks, Mark. Well, good afternoon and thank you all for joining us today for our fourth quarter and full year earnings call for fiscal 2020. Before I jump into our financial results, I'd like to give an assessment of how I see our business environment today and particularly the outlook for the school bus industry. So let's turn to slide four. Not surprisingly, the fourth quarter was a challenging one as we entered our second quarter of dealing with the COVID-19 pandemic. But as you'll see, we continue to improve our business structure. And while significant, the impact of the pandemic on our fourth quarter results was less severe than we experienced in the third quarter. And we are seeing positive signs that the industry recovery is on the horizon. Nonetheless, we have to deal with some significant challenges. About 50% of schools chose online teaching over classroom teaching. And a significant portion of the balance elected a hybrid program alternating between online and classroom teaching. This approach was deployed throughout the fourth quarter and was largely in place at the start of the new school year. However, one fact is clear and obvious. When schools are closed, buses aren't being ordered. The good news is that when schools are open, it's business as usual with school bus orders being placed. Consequently, with uncertainty over in-classroom teaching, our new order intake in support of school start was slow, and this was seen in our unit sales for this quarter, which were down 23% from a year ago. Although this was a significant sales decline, it was considerably lower than the 43% reduction we saw in the third quarter. In fact, fourth quarter sales were nearly 50% higher than what we achieved in the third quarter. So the pace of decline was significantly lower than we saw in the third quarter as school districts began to deal with the pandemic and refocused on their school bus needs. On the supply chain front, while we did experience some late parts and shortages, this did not cause interruption of production and overall material supply was significantly better and more consistent than in the prior quarter. The outcome of all these factors is a full year industry estimate of 28,500 school buses, reflecting new vehicle registrations compiled by RL Polk. That's a 17% decline from fiscal 2019 and more than a 30% decline in the second half of the year. But we are seeing some positive trends and news that indicate an industry recovery and profitability rebound that should be ahead of us later in fiscal 2021 in support of 2022 school start. From a Bluebird performance standpoint, there are several factors worth noting. Since suspending production for two weeks in April, we have had uninterrupted production with a rigorous deployment of COVID-19 safety measures throughout the company and a significantly improved supply chain. We successfully moved to a single shift in June, restructuring our workforce and support teams and now seeing efficiency and quality gains, particularly evident in the first quarter of fiscal 2021. Turning to the three-pronged margin improvement strategy that I covered in detail in prior earnings calls, despite the lower industry, we increased our average bus selling price over fiscal 2019 by 7% in both the fourth quarter and the full year. That's a significant increase and a strong endorsement of our products. It was another very strong year in alternative fuels, with 53% mix of sales in the fourth quarter and a 48% mix for the full year equaling Last year's record. And finally, our third focus, lowering structural costs through our transformational initiatives delivered almost $15 million of savings in the full year. So despite the severe volume impact of COVID-19, we continue to improve our business structure, ensuring we are well positioned for when the industry rebounds. Now on the external front, President-elect Biden has declared school opening as one of three key 100-day deliverables being targeted by the new administration. And together with the rollout of the COVID-19 vaccines, we have increased optimism about the industry outlook. And finally, we have been seeing increased quote activity in recent weeks, and our first quarter fiscal 2021 production slots are all filled. All these factors suggest that we should see an industry recovery as we move through the second half of fiscal 2021, particularly in support of 2022 school year. Let's now turn to slide five and cover the fourth quarter and full year financial highlights. Our fourth quarter financial results were significantly impacted by COVID-19, although we still made a solid profit. At about 2,900 buses, our unit sales were down 850 units from last year, representing a decline of 23%. This compares favorably, however, with a 43% decline that we saw in the third quarter. Similarly, net sales of $281 million for the quarter were 18% below last year. The lower decline in net sales revenue than in unit sales reflects the 7% increase in average bus selling price that I mentioned earlier. This result is a really positive aspect of our fourth quarter performance and the cornerstone of our margin growth strategy that's clearly working. Adjusted EBITDA of $21.9 million was $11.5 million below the same period of last year, fully explained by the lower unit sales of 850 buses. Turning to the full year, I'm pleased to say that our financial results were either better than guidance or at the high end of the guidance range that we provided to you at the last earnings call. We sold just under 8,900 school buses in fiscal 2020, representing a 19% reduction from last year. Incidentally, prior to the COVID-19 impact, we were on track to sell at least 11,000 buses this year. Net sales of $879 million and adjusted EBITDA of about $55 million were both above guidance, although $140 million and $27 million below last year, respectively. Adjusted free cash flow for the year was slightly negative and at the high end of the guidance range. Now, on the previous slide, I covered the operational improvements we continue to make to improve business structure and drive ongoing margin growth, namely higher prices, increased mix of alternative fuels, and lower structural costs. We also continue to drive efficiencies and quality improvements through our move to a single shift in the summer. and we'll be expanding our single shift capacity in early 2021. I'll cover that more in detail later. We consistently have strong liquidity and at $180 million at the end of the fourth quarter, we can handle a difficult environment in which we are operating today and we continue to drive crash improvements in the first quarter of fiscal 2021. and finally, as announced last week, as many companies have done, we successfully amended our loan agreement with our banks, providing covenant relief over the next six quarters. This provides us with the financial flexibility to operate our business during this unprecedented pandemic while preserving future growth opportunities. Overall, despite very tough business conditions, I'm really pleased with our focus and our progress this year. Now let's go to slide six and review our major operating achievements in fiscal 2020. First is the safety and well-being of our employees. We've taken significant measures to protect our employees from COVID-19 and have established a rigid protocol that has served us well to date. Needless to say, a safe and healthy workforce is key to our business continuity, and we have an incredibly loyal and dedicated team of professionals. Thank you for watching. Third is a relentless focus on driving down structural costs through our transformational cost initiatives, which delivered nearly $15 million in savings in fiscal 2020 and more than $50 million in savings since we started three years ago. We also supplemented this program with targeted reductions in SG&A, specifically in the area of organizational structure. And fourth, our continued growth in the mix of alternative fuel-powered school buses, where we benefit from higher margins and increased owner loyalty compared with conventional fuels. Our leadership position across all of these fuel types, but particularly in propane, where we achieved a 76% market share, and electric, a 59% share, indicates that our strategy is working, and we look forward to continued strong growth in this area. The rapidly growing interest for electric buses is a really exciting opportunity for us and should generate significant growth in the years ahead. Now pursuing these priorities is fundamental to achieving our EBITDA margin target of at least 10% in the near term. And we're setting the foundation to achieve this target despite the unprecedented impact of COVID-19 today. So it's timely to take a closer look at our alternative fuel bus sales performance on slide seven. and we also have an exciting new product announcement to make in this space. Despite the slowdown in bus orders, our mix of alternative fuel-powered buses remains as strong as ever, at 48% of our unit sales in fiscal 2020. This was a record mix for Bluebird, tying last year's result, but it's all the more impressive when it's achieved during a pandemic that's impacting an entire industry. Our North American market share in alternative fuels was 58% for the full fiscal year. As a measure of our strength in this area, let me give you some details. We were number one in propane with 76% market share. We were number one electric, growing from 15% market share last year to 59% in fiscal 2020. Importantly, our electric bus share in the United States was a substantial 77%. and we were number one in compressed natural gas bus sales with 50% market share. Now that's leadership across the board. Significantly, 309 customers purchased new types of alternative fuel buses from us for the first time in 2020. That's on top of more than 400 customers who tried our alternative fuel options last year for the first time. Importantly, these alternative fuel choices have enabled us to conquest new business from our competitors, bringing in 157 new customers to the Bluebird family this year. These are compelling facts, and with the higher customer loyalty we enjoy from these products, it's a great endorsement of our exclusive alternative fuel buses, the Bluebird brand, and our dealer network. and we sold and delivered 158 electric powered school buses compared with 56 last year and are off to a great start in fiscal 2021 with more than 80 orders in our backlog. Now we're not new at this electric business. We're not a startup that's achieved only a handful of deliveries. We've been building and delivering zero-emission school buses for over two years now, and announced early this quarter that we'd expanded our electric bus capacity six-fold to 1,000 buses a year in anticipation of meeting the growing demand. We are the broadest EV range in the industry, with Type A, Type C, and Type D offerings on the road today, and we're number one in market share this year, and are preparing to deliver our 300th electrical school bus in the coming weeks. We're very excited about our EV growth opportunities going forward and we'll keep you posted on our progress. Looking ahead, the vast majority of the VW mitigation funding is still ahead of us too and will help us to boost sales over the next three years or so with many states earmarking specific funds for school bus purchases. We've had really good results so far with our propane electric buses from this program based on the funds that have been issued. and a recently announced $100 million Bezos Earth Fund grant to the World Research Institute also provides a boost with its unique carve-out for zero-emission school buses. In summary, I'm very proud of our strong and undisputed leadership in alternative fuels. We have the best partners, we have the best products, and they're exclusive to Bluebird. and with less than 20% of school districts having purchased an alternative-powered school bus today, we have plenty of runway ahead for continued growth. So as we look ahead, where do we see this segment going for Bluebird? As the right-hand box shows, you can see how far we've come in the last four years, from a 26% mix of Bluebird sales to a 48% mix this year. That's outstanding growth anywhere you look at it. But looking ahead, we don't see this growth stopping. In fact, we project that four years from now, between 60% to 70% of all Bluebird buses sold will be powered by a fuel that's an alternative to diesel. That's an increase of up to 3,000 alternative fuel-powered buses over this year. We are bullish about this growth opportunity, and we're investing in the business. And we see electric and propane power as the way forward in alternative fuels. So let's show you how we're investing in this growing segment. We have some really exciting news to tell you. We're bringing yet another alternative fuel engine to the school bus market. Let's turn to slide eight. I'm pleased to announce for the first time in public that we will be launching a brand new propane and gasoline engine in the Bluebird Vision. After nine amazing years of growth using our 6.8-liter propane and gasoline engine that have defined alternative fuels in the school bus industry, we are replacing it with an all-new 7.3-liter eight-cylinder engine. This engine was introduced by Ford in its F-Series lineup just over a year ago and already has tens of millions of miles of experience on the road. It's class-leading and a winner. Thank you for watching. Best horsepower and torque in the industry, improved fuel economy, better quality and ease of service, and a smaller dimensional package so it's easy to work on in the engine compartment. As the tagline says, the best just got better, and will be open for orders in the next few days. This is just another example of our commitment to best-in-class alternative fuel products, focusing on zero emissions and low-nox engines. And we have much more to come in this space. Stay tuned. I'll now turn it over to our CFO, Jeff Taylor, who'll take you through the financial results in more detail. Then I'll be back later to cover our outlook and fiscal 2021 guidance. Over to you, Jeff.