Blue Bird Corporation

Good afternoon, and welcome to the Bluebird Corporation Fiscal 2022 Third Quarter Earnings Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing star then zero on your telephone keypad. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star, then two. Please note, this event is being recorded. I would now like to turn the conference over to Mark Benfield, Executive Head of Investor Relations of Bluebird. Please go ahead.

Thank you, and welcome to Bluebird's Fiscal 2022 Third 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, Rozvan Radulescu. Then we will take some questions. So let's get started. Matt?

Thank you, Mark, and good afternoon, everyone. As you can see on the left-hand side of the slide, our aggressive plan to improve our business operations is taking hold. And as we predicted on the previous earnings calls, Q3 was a defining quarter for us. We posted an adjusted EBITDA of $9 million for the quarter on revenue of $206 million with 1,726 units. Our volumes are still constrained by the ability of some key suppliers to provide components. Pre-cash flow was negative $40 million as we increased inbound material early at the beginning of the calendar year in anticipation of increasing production volumes. However, those increased volumes did not materialize due to the supply disruptions caused by the war in Ukraine and continued COVID lockdowns in China. We posted good results on lower-than-planned volumes by aggressively controlling costs, recovering economics and pricing, and adjusting our operations to improve efficiencies in a challenging environment. In the quarter and since our last earnings call, our business has made substantial progress. and we have launched several critical programs and initiatives. Our backlog at the end of Q3 stood at a stout 6,300 units worth nearly $700 million. That backlog is 63% alternative power, which is critical for Bluebird because customers using our exclusive Ford, Roush gasoline and propane solutions are more loyal given the performance of these excellent powertrains. Our EV backlog also ticked up to nearly 400 units. The Cummins-Bluebird partnership on EVs continues to be the preferred solution for electric school buses in the market. We also announced expanding our collaboration with Lightning E-Motors by announcing an EV repower solution for model year 2023 and newer Ford-powered Type C buses. This is important because school buses have a long life cycle. And many customers are coming to us and saying, we love your Ford Roush powertrains, but we want an option to convert them to EV at some point down the road. We expect this repower solution to be available in calendar year 2023. We also launched Bluebird Energy Services. This was, again, driven by customer requests. They want a turnkey approach to electric school buses. In many instances, customers do not have the time, or the desire to coordinate all the steps to successfully deploy electric buses, including working with the utility companies and designing and deploying charging infrastructure. With Bluebird Energy Services, we take the guesswork out of deployment and work hand-in-hand with school districts and fleet customers to provide turnkey solutions that make deployment of EV buses quicker and easier. During the quarter, we had the opportunity to attend the launch event for the Clean Bus School Bus Program, hosted by Vice President Kamala Harris. This is an exciting time for our industry, and we have been working with a large number of customers to submit applications on their behalf to secure a portion of the first $500 million of this $5 billion of funding. The applications close in the middle of August, with winners to be announced in October. We will touch on this more later in the call. Slide 7 reflects the key takeaways you will hear throughout our remarks. Unlike many industries experiencing a slowdown, demand for school buses couldn't be better. The entire industry has pent-up replacement needs, and the backlog for the industry stands at 10 months, and Bluebird is no exception. We have also taken aggressive actions to reduce our operating costs through 2022 calendar year. which allows us additional time for improvements in operations and supply chain to materialize and support increased build rates. Additionally, we have made significant progress in overcoming inflationary pressure by partially recovering pricing on the backlog, pricing new orders at 25% above last year, and implementing new policies to ensure we stay aligned with any cost increases in the future. Also, we are not just waiting for the supply chain to improve. We have implemented numerous internal measures to control our own destiny, resourcing suppliers, taking steps out of our material flow to better support production, and continuing our focus on reducing conversion costs and improving the quality of the finished product. As we already discussed, we continue our leadership in EV and are preparing for the onslaught of electric bus demand driven by the release of the infrastructure spending. With all this good news, we remain cautiously optimistic about the macro supply chain environment. However, we still have some concerns relative to the semiconductor availability that has impacted all auto manufacturers. For more details on the key takeaways, we turn to slide eight. The strength of the market demand is evident in the year-to-date order intake for the industry. which is 30% higher than the previous year and 19% higher than the pre-COVID levels of 2019. If you order a bus today from any manufacturer, your wait will be about 10 months. Bluebird has its relative historical market share of that backlog, with 6,300 units worth $700 million, and 63% of that being an alternative to diesel. The EV demand is robust and demand for the first round of EV funding from the Clean School Bus Program is strong. We are constantly evaluating the supply base and preparing for increased production volume when we see stabilization. As we sit here today, we have seen some significant improvement in the last 30 days based on changes we have made to our operation with our suppliers. We took aggressive cost mitigation actions in the quarter to right-size the organization to the supply-constrained production volume, including reductions in force and short-term executive pay cuts. Also, we delayed projects not critical to our core growth initiatives, but kept moving forward with key programs to scale EV production capacity and launch our electric commercial chassis. Through all our cost-saving measures, we reduced our operating costs by $7 million for the second half of the calendar year. We also work diligently on recovering economics through pricing. We partner with our dealers to partially recover pricing on all the backlog units, which were not at current market pricing levels based on when they were ordered. Bluebird has the best dealers in the school bus business. and I greatly appreciate the partnership and their collaboration with us on this unprecedented initiative. Pricing on new orders has also been increased by 25% since July of 2021 and 20% since October of 2021. Through these efforts, we've been able to double the standard gross margins of the backlog since October of 2021. We have also implemented pricing recovery mechanisms such as PPI indexes on longer-term deals. Now, we're beginning to see softening in the global commodity market. If that holds, it should begin to impact our cost base in the first quarter of fiscal year 2023. Our business fundamentals are strong, with robust demand, an optimized cost structure, and margins dramatically increased since the beginning of our fiscal year. As I mentioned, we're not sitting idly by waiting for supply chain to normalize. And on slide nine, you can see we are continually improving our operations. We have made significant enhancements of the ability of parts for production through focused leadership, new processes, and increased resources for operation. We also re-engineered most of our material flow from our suppliers to go directly to our production facility to reduce time and handling costs. As we have discussed in previous earnings calls, we have also resourced components from problematic suppliers and dual or even triple stores where suppliers have production constraints. We have even helped our suppliers source critical components for our own production needs. Missing parts remain elevated at roughly two dozen per bus throughout the quarter. However, we are starting to trend favorably. And in the last month, we trended closer to a dozen per bus. And in the last few weeks, over 50% of our buses had all the parts at the start of production. Now that is something we haven't seen at Bluebird since the spring of 2021. In a challenging supply chain environment, we're also making progress on reducing defects per unit, seeing a 50% reduction since quarter one. We're also elevating expectations of first-pass yield in areas of our operations, such as our paint shop, and have shown dramatic improvements in our results with focus and root cause analysis. As we have discussed over many quarters, reducing production hours per bus by 30% by 2025 is a clear focus for us. We have already reduced our standard by 20 hours. This reduction has not necessarily flowed through to the financials yet, given the number of offline hours still required to complete a bus due to missing parts in production. As the supply chain improves, we continue to adjust our production schedules to optimize work-life balance for our teammates, throughput, and cost. There is a tremendous amount of activity occurring on our path to developing a fully electric future. Some of the highlights are on the right-hand side of the slide. As I mentioned, we announced a future ED repower solution in collaboration with Lightning E-Motors to help our customers create a bridge to a fully electric future. Customers want to purchase our cleaner emissions propane and gasoline powertrain products now. But in some states, they may need to operate a fully electric fleet later in the lifecycle of the buses they purchase today. We are helping our customers bridge that gap. Also, we are becoming partners in larger EV school bus deployments. Our customers are demanding turnkey infrastructure solutions, and we are here to serve them. That is why we created Bluebird Energy Services, which will help design the proper charging infrastructure for the needs of today and the future. We will work with utilities to ensure the grid can supply the customer's needs, whether for power or V-to-G capability. We also continue to make progress on our Class 5-6 electric commercial chassis, and interest with potential end users and body companies continues to build. With such a strong backlog in electric school buses and being on the verge of substantial order increases due to the infrastructure funding bill, we need to increase our EV capacity beyond the current four units per day. Therefore, we are progressing on the renovation of an existing 40,000 square foot facility dedicated for final EV powertrain installation and commissioning. We expect this facility to be online by the end of calendar year 22. With this new facility, we will increase volume to 20 units per day by the end of the calendar year 2023. Overall, we've made a lot of progress on our recovery plan this quarter. and it's starting to come through in our financial results. At the same time, we're approving our operations and continuing our leadership in alternative fuels and EVs. I would now like to hand it off to Razvan to walk through our financials in more detail.