Blue Bird Corporation

Hello, and welcome to the Bluebird Corporation Fiscal 2022 Second Quarter Earnings Conference Call. All participants will be in the Sonali mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on your touchtone phone. To withdraw your question, please press star, then two. Please note, today's event is being recorded. I would now like to turn the conference over to Mark Banfield, head of investor relations. Sir, please go ahead.

Thank you. Welcome to Bluebird's fiscal 2022 second quarter earnings 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 the IR landing page. Our comments today include forward-looking statements, that are subject to risks that could cause actual results to be materially different. Those risks include, among others, matters we have noted on the following two slides and in our 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, Matthew Stevenson, and CFO, Razvan Ravulescu. Then we will take some questions. So let's get started. Matt?

Thank you, Mark. And good afternoon, everyone. The second quarter of our fiscal year 2022 began on a positive note, with an improving supply chain environment and softening futures on commodities. But these early gains were disrupted by world events in the Ukraine and in China, which led to considerable disruptions in our supply base and high material cost inflation. Overall, it continues to be a challenging environment. but the team is still making considerable improvements in our operations, as well as our strategic initiatives to drive the company forward. The overall fundamentals of our customer base remain strong, and the new grant funding mechanism for clean and cleaner emission school buses are creating a very exciting future for us. On slide six, you can see, though, that demand remains high for our products. Our order intake for Q2 was up 30% year-over-year, supporting a record backlog of approximately 6,600 units worth over $700 million. Given supply chain is limiting our production, we price-protected units we built and delivered in Q2 in order to safeguard our dealer and customer relationships. Many of these buses were priced and ordered prior to June of 2021. We continue to make improvements in our underlying operations to prepare for higher throughput when supply chain disruptions ease and look forward to reaping the benefits of these improvements in the future. We were hopeful in the quarter we would see improvements in the supply base, but numerous shortages and delays in critical parts impacted production. Throughout the quarter, we saw part shortages worsen, and although we built an annual run rate of nearly 10,000 buses in the month of March, It came at a high cost in labor, rework, and expedited freight. Many suppliers continue to have labor shortages at their facilities that seem to grow as gas prices soared in the quarter, and many employees decided they could no longer afford to commute to their jobs. The supply base is generally fatigued, as it's been a long two years with numerous challenges. We drive deviations or resource parts wherever possible to maintain production capacity. But in many cases, there are limited viable suppliers for key components. Previously, we were forecasting material improvement in the supply base in the back half of our fiscal year. Given the world events, we no longer see these improvements coming in the near term and now expect to see stability in the supply chain pushed out into our fiscal year 2023. As I mentioned, we price protected customer orders placed in the middle of 2021 that were delayed due to supply constraints. Given the delayed production and the inflationary environment on materials and labor inefficiencies due to part shortages, our margins were compressed in our second quarter. Previously, we were forecasting a softening commodity market, but due to the Russian invasion of Ukraine, we saw commodities again spike, impacting our cost base, including freight, driven by record prices of diesel fuel. We are aligning pricing to future costs and proactively have taken numerous price increases, including an additional 10% we announced this week, for a total of 25% since June of 2021. However, you do not fully see these actions in our results yet, as the majority of what we are currently producing was priced prior to June of 2021. However, their average revenue per unit in our backlog has increased nearly $9,000 since the start of our fiscal year as we burn off the old backlog and the new pricing takes hold. On slide seven, you can see many of the challenges I just referenced. However, our team is tenacious, and the mentality we have is we can always improve and adapt to the current situation. On the supply chain side, we hired a new leader for the group. and increased resources in the purchasing materials and warehousing teams. We've also hired an outside firm to assist the team during this tumultuous environment to improve processes and eliminate waste. We also are putting more boots on the ground at problematic suppliers to ensure they are bringing the same intensity to these issues as we are in delivering on their promises. Regarding the inflation we are seeing in our cost base, we are passing along significant price increases to align to our current and future build costs. We are also continuing to adjust our steel hedging strategy. Also, due to the push to get last-minute parts for production, premium freight was increasing, and we have developed better insights to the financial tradeoffs of those decisions. There is great work being done at the manufacturing facilities, to adjust to the constant reality of all the parts not being there when we start production. We have made considerable changes to our manufacturing footprint to improve offline throughput and reduce the number of hours per bus. Offline is where we put on the majority of the parts that were missing throughout the normal production process. We are also adjusting our labor model accordingly based on the limitations of our supply base to support production. and are now going to a six-day, eight-hour shift pattern to allow an extra day for the supply base to produce parts versus the normal four- or five-day pattern we would typically run. Overall, I am very proud of the team and the improvements in the operations we are making in a very difficult environment. Slide 8 has our financial results and our ongoing business highlights. In the second quarter, we booked 1,931 units with sales of $208 million. This was 442 units more than the second quarter of fiscal year 21 and $43 million more in revenue. But producing those buses came at a high cost due to increasing material costs, rapidly rising freight costs, and production inefficiencies due to the park shortages. as well as being compounded by buses priced in the first half of the calendar year 21, but built nearly a year later. Now, we consciously chose to price protect the contracts our dealers have with our customers to preserve these longstanding relationships. Our adjusted EBITDA was negative $11 million, $18 million less than the second quarter of fiscal year 21, and our adjusted free cash flow was positive $22 million. $23 million better than the prior year. In the quarter, and since our last earnings call, a number of key programs and initiatives have moved forward to continue our leadership in alternative powertrains. In late April, the EPA announced the details surrounding the release of the first $500 million of the $5 billion Clean School Bus Rebate Program, which is part of the infrastructure spending bill. This first tranche should fund approximately 1,200 to 1,600 school buses. This is a great opportunity for Bluebird, and we intend to get our full share of these buses. We will touch on this program more in a few minutes. Also, just this week, we debuted our prototype electric commercial chassis at the Advanced Clean Transportation Expo, which will open up new markets for the company. We also continue to build a backlog of type C and D EV school buses with over 360 on order. In the quarter, we also received CARB vehicle certification for our gasoline engine bus. Bluebird is the only CARB-compliant gasoline school bus today in the industry, giving us a competitive advantage in states such as California. Our alternative power presence continues to grow with 62% of our backlog now comprised of non-diesel powertrain. And with our dominance in propane, we are well positioned for the Clean School Bus Rebate Program, which also applies to buses powered by propane, in which we are the leader. Overall, in a difficult quarter, we are still finding ways to drive operational improvements as well as new strategic initiatives to propel the company forward. I will discuss additional programs in our focus areas later in the call. But first, I'll hand it over to Razvan to walk through our financials in more detail. Razvan?