Blue Bird Corporation

Greetings and welcome to Bluebird Corporation's fiscal 2021 first quarter earnings conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note, this conference is being recorded. I would now like to turn the conference over to your host, Mark Benfield, Executive Director, Profitability and Investor Relations. Thank you. You may begin.

Thank you and welcome to Bluebird's fiscal 2021 first quarter earnings conference call. The audio for our call is webcast live on blue-bird.com under the investor relations tab. You can access 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 earnings release and filings with the SEC. Bluebird disclaims any obligation to update the information in this call. This afternoon, you will hear from Bluebird's president and CEO, Bill Horlock, and CFO, Jeff Taylor. Then we will take some questions. So let's get started. Bill?

Thanks, Mark. Well, good afternoon, everybody, and thanks for joining us today for our first earnings call for fiscal 2021, where we'll cover our first quarter results. Before I jump into our financial performance, I'd like to give you an assessment of how I see our business environment today, and importantly, how we are adapting to the market conditions and prioritizing our plans going forward. So let's turn to slide four. As the headlines say, in a challenging market, we're continuing to drive business structure improvements, and importantly for our future, substantially increasing our focus on the growing electric vehicle business. From an industry standpoint, not surprisingly, the first quarter was another challenging one, as we dealt with about 40% of students attending only virtual classes, with the balance split fairly evenly between in-classroom teaching and the hybrid program. As I have stated on previous earnings calls, 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. That's great for us to know as we move forward. Following the recent holiday break, however, we have been seeing more schools resuming in-classroom teaching, and that's led to increased quote activity for our new buses. This is a leading indicator that industry recovery is on the horizon, bolstered by increasing deployment of the COVID vaccine and a new administration's declared intent to open all schools within the first 100 days of its term. As we've consistently stated, it's our expectation that the industry recovery will begin in the second half of fiscal 2021 in support of the next school year start. Shifting now to Bluebird, our first quarter results were solid despite dealing with COVID as we continue to improve our business structure and underlying margins. We significantly improved working capital in the quarter compared with last year as we drove down inventory, operating at much leaner levels than in prior years. At 46% of total sales, we had another first quarter record mix of alternative powered bus sales, maintaining our strong leadership position. And we were number one in trailing 12 months market share for both electric and propane powered buses. Now today, you're going to hear a lot about our electric vehicle results and our plans on this earnings call. But needless to say, we're excited with the comments made by the new administration that on supporting electrification of 500,000 school buses that transport our children every day. We're significantly increasing our focus and resources in the electric bus segment where we are the market leader as customer interest and percentage growth in zero emissions vehicles is outpacing every other segment of our business. In this regard, I'm pleased to announce today it's our intention to offer Bluebird electric chassis to the Class 3 through 7 truck market. Now this is a new business opportunity for us that we will launch later in 2021 and is an obvious outcome from having the broadest range of alternative powered chassis in the business, led by our zero emissions electric and low emissions propane products, all of which I should remind you are built in our factory. So overall, Bluebud is well positioned for profitable growth, our schools resuming classroom teaching and the industry recovery begins. and we plan to remain at the forefront of the inevitable and exciting industry shift towards zero emission student transportation. Let's now turn to slide five and we'll cover the first quarter financial highlights. Our first quarter is always a seasonally low quarter of the year, following school start in the prior quarter. Now despite this fact and the impact of COVID-19, our financial results were solid. At 1,255 buses, Our unit sales were down 205 from last year, representing a decline of 14% entirely due to the pandemic, but well below the 23% volume decline we saw in the fourth quarter of fiscal 2020. Similarly, net sales of $130 million were 15% below last year. Adjusted EBDR of $5.8 million was $2.2 million below the same period last year, more than explained by the lower unit sales. Now while adjusted free cash flow was $13.9 million negative in the quarter, which reflects seasonality of our business, this was a substantial $77 million improvement over last year. We certainly saw the benefits of our stringent inventory and cash management controls that we've been deploying, which we've now institutionalized in our company. All three of these financial results on which we provide guidance, namely net sales, adjusted EBITDA, and adjusted pre-cash flow were in line with our plan. As I talked earlier about improving our business structure and underlying margins, we delivered on many operational fronts, which is summarized on the lower half of this slide. As you can see, these achievements reflect our three-pronged margin growth strategy that we have communicated consistently on prior earnings calls, namely improving bus selling price, increasing mix of alternative powered vehicles and reducing structural costs. So let's now turn to slide six and review our major operating achievements to date, and importantly, see the specific results of the margin growth initiatives that I just mentioned. We continue to drive transformational initiatives to improve efficiencies, quality, and capacity. Let me give you a great example of this. By the end of the first quarter, we substantially completed all of our plant upgrade actions necessary to ensure we can build as many vehicles on a single production ship that we used to build on two shifts. That's great for efficiency, quality, and gross margins, especially as industry volume recovers. As a reminder, we have now delivered more than $50 million savings from these transformational initiatives since we started three and a half years ago. Next, we increased our average selling price of us by about $2,000, or 2% over last year, primarily reflecting the impact of the annual pricing to recover economics that we took late in fiscal 2020. I'm particularly pleased with this accomplishment in the lowest volume quarter of the year. Now we have a lot of activity going on in alternative powered vehicles. Just announced publicly today, we've just renewed our exclusive partnership with Ford Motor Company for several more years for the supply of our market leading gasoline and propane engines. with Ford and Roush, we're enjoying an exclusive and successful three-way partnerships that's lasted more than 10 years and we see no sign of it ending. In early spring, as I mentioned in our prior earnings call, we'll be launching our next generation exclusive propane and gasoline engine from Ford and Roush. The all new 7.3 liter V8 engine. It brings more power, it's more compact, it's got more torque and it delivers more fuel economy. As our tagline says, The best just got better. Our combined alternative power mix was a record 46% of unit sales for the first quarter. That's 7% above last year. And with the higher owner loyalty and margin we generate from these unique products, it's great business for Bluebird. As I covered earlier, the rapidly growing interest for electric buses is a very exciting opportunity for us and will generate significant growth in the years to come. On a 12-month basis, which in this case covers calendar year 2020, our electric bus market share was an outstanding 63%. This compares with 25% market share in 2019, so I'm really pleased with this growth trajectory. Fiscal year to date, we now have 107 electric buses either sold or in our firm order backlog, and that number is up 24% from the same time last year. That's really nice growth in a down industry, and it's just the beginning for electric vehicles. And finally, when you look at the total number of electric vehicles, we have either sold or are firm orders for since we started EV production just three years ago. It's more than 400 buses. That covers all school bus configurations, Type A, Type C, and Type D. No one matches our breadth of EV products and market leadership in the school bus industry. In summarizing our operating achievements in one word, I would say that we have momentum. Even in an industry significantly impacted today by COVID-19, costs are down, average selling price is up, alternative fuel mix is higher, and we have exciting new growth opportunities ahead with electric vehicles and chassis. Let's now take a quick look at where I think we are heading on alternative powered vehicles on slide seven. On the previous slide, I mentioned that our alternative pallet bus mix in the first quarter was a record 46% of total sales. Well, that's grown. It's now at 50%, reflecting second quarter bookings to date and our firm order backlog. That's another record mix for Bluebird at this time of the year, five points above a year ago. But it's all the more impressive when it's achieved during a pandemic that's impacting an entire industry. As we've covered on prior earnings calls, our range of buses attracts new customers who have never tried an alternative powered bus, and many are new to the Bluebird family. We saw this feature yet again in the first quarter. These are compelling facts, and with the higher customer loyalty we enjoy from these products, it's a great endorsement of our exclusive alternative powered buses, the Bluebird brand, and our great dealer network. And we're off to a terrific start with our electric buses this year. As a reminder, we're not new at the EV business, nor are we a startup that's achieved only a handful of deliveries. We've been building and delivering zero-emission school buses for nearly three years now. We have the broadest EV range in the industry with Type A, Type C, and Type D offerings on the road today. We're number one in market share and are preparing to deliver our 400th electric bus in the coming months. From a grant funding standpoint, The vast majority of the BW mitigation funding is still ahead of us and will help us boost sales over the next three years or so with many states earmarking specific funds for school bus purchases. We've had great results so far with our propane electric buses from the funds that have been issued. And the 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 position in alternative-powered bus sales. We have the best partners, 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 are plenty of runway ahead for continued growth. Now, I showed the right-hand box in our last earnings call, and you can see how far we've come in the last four years. And looking ahead, we don't see this growth stopping. We project that four years from now between 60 to 70 percent of all blue buses sold will be powered by a fuel that's not alternative diesel. That's an increase of up to 3,000 alternative powered buses over this year.