Blue Bird Corporation

Good afternoon, and welcome to the Bluebird Corporation Fiscal 2022 Fourth Quarter Earnings Conference Call. All participants will be in listen-only 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 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, head of investor relations. Please go ahead.

Thank you, and welcome to Bluebird's fiscal 2022 fourth 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 websites, 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 Radulescu. Then we will take some questions. Let's get started. Matt?

Thank you, Mark, and good afternoon, everyone. Razvan and I are incredibly excited to share an update on the progress of Bluebird. No doubt, fiscal year 22, which closed on October 1st, was a challenging year due to the residual effects of COVID that impacted our business, which included exhaustive supply chain disruptions and unprecedented industrial inflation. However, I am proud to say through the hard work of the Bluebird team, we have navigated these turbulent seas and have positioned the organization for significant success in this current fiscal year 2023. On slide six, you can see we did that by executing our plan in several key areas, along with the added benefit of strong market fundamentals. Overall, industry demand is robust and is driving a record backlog for Bluebird this time of year. We also continue to hold a leadership position in alternative-fueled and electric buses. Throughout the year, we aggressively increased forward pricing, and we partially recovered pricing on the backlog to match inflationary economics. In addition to raising prices, we dramatically drove costs out of the business, and not just for the short term. We reorganized our functional areas to be more efficient and leaner, and we eliminated several non-value-added operations across the business. Through strong leadership, tenacity, lean processes, and a host of operational changes, we improved parts availability and increased our throughput and quality. Missing parts at setup are down dramatically compared to previous quarters, and the vast majority of our parts are now installed in station, reducing rework costs and improving quality. This is by far and away the best position that Bluebird has been in since I joined the company 18 months ago. The financial performance for fiscal year 22 shown on slide seven reflects several headwinds that are now mostly behind us and does not capture the current state of the business. However, some key financial metrics are showing signs that we have turned a corner. Bookings at 6,822 were up only 2%, but revenue was up 17% to 801 million as our pricing started to take hold throughout the year. Adjusted EBITDA was negative $15 million, but free cash flow was up $39 million year over year as throughput increased in the back half of the year and we drastically reduced inventories. Even though the financial results were not ideal, we still had several key successes, as you can see on the right-hand side of the slide. As I mentioned, demand is robust. In fact, industry order intake in fiscal year 22 was up over 30% compared to the prior year. and even up 9% versus 2019. Bluebird is seeing this increase in demand. Our backlog is incredibly robust, with over 5,000 units worth over $600 million in revenue. Nearly 60% of that backlog is alternative power, demonstrating our continued leadership in the space. Included in that alternative power backlog is around $100 million of firm orders for electric buses, And we are only just starting to receive orders from the EPA's Clean School Bus Program. The strength in our EV business is evidenced by the fact our bookings are up 84% year over year. And we recently crested over 850 electric school buses on the road today, including type A, C, and D. As we have discussed in previous quarters, we have raised pricing by 25% since July of 21, which has aided in doubling our standard gross margins in the backlog since the start of our fiscal year. Part sales were another bright spot for us, up 30% year-over-year. With such a strong recovery and with our business back on track, we extended our term debt through the end of calendar year 2024. Now, the EV school bus revolution is just getting warmed up. The EPA recently announced the lottery winners for the first $1 billion in funding from the Clean School Bus Program, which provides $5 billion over five years for clean and cleaner emission school buses. Bluebird is poised to generate over $200 million in revenue from just this first round of this fantastic program. And this wasn't by chance. We offer the industry the leading electric school bus through our powertrain partnership with Cummins. We have proven to customers that our electric buses are not a novelty and can perform on their regular routes. Plus, with Bluebird Energy Services launch this year, we successfully assisted many end customers and dealers in applying for the lottery program. Through the other facets of Bluebird Energy Services, we are now helping these customers plan and secure their electric infrastructure. Slide 8 shows the focus areas we laid out nearly a year ago. We center everything we do on care, delight, and deliver. And in fiscal year 22, that included four main focus areas. Our people, lean transformation, expanding our total addressable market, and scaling EV. Now on slide 9, I want to highlight the progress of each of those focus areas. When it came to our teammates, we focused on several crucial elements. We laid out a clear vision to be the clean school bus transportation leader. We hired a nearly all-new leadership team to take this company to a higher level performance. We implemented numerous communication channels in our organization, everything from town halls to a mobile app to drive more engagement with our employees. That employee engagement included new opportunities for employees to provide feedback, interact more regularly with senior management, and share their ideas. We have also improved the competitiveness of our wage and benefit structure to reward employees, compensate for inflation, and reduce turnover. In addition, we have improved our employee onboarding, span of control, and talent review processes. The second focused area was lean transformation. We rolled out numerous initiatives across the plant focused on safety, material placement, teamwork, accountability, and reducing waste. For example, we are in the process of completing a rollout of cell production teams. These teams are accountable for a specific portion of the manufacturing process and include a dedicated leader for production, quality, materials, and manufacturing engineering. These teams work to deliver the best output at the lowest cost and focus on immediate problem resolution, accountability, training, and coaching. They have already made a significant impact on our business performance. Lean methodologies have also improved the layouts of our areas of the plant to make them safer and more efficient. An example of this is our final finish area pictured in the top right, where we increased our output by over 30%. We also made progress on our plan to increase EV school bus production from 4 to 12 per day by the end of the first half of calendar year 23, and to 20 per day by the end of calendar year 23. We are renovating an existing 40,000 square foot building on our campus for final EV chassis assembly and commissioning, and we expect it to be complete by the end of March. We also started down the path of expanding our total addressable market with a focus on the strip chassis market for last mile delivery vehicles. There is incredible demand for an additional OEM EV provider in this space, and the prototype strip chassis we debuted in May at the expo garnered much attention. We continue to progress on this product with the goal of having units in customers' hands by the end of calendar year 23. Overall, I am very proud of the accomplishments of the Bluebird team in a challenging external environment. Our progress in fiscal year 22 has set us up for an incredibly successful fiscal year 2023, even in a relatively supply chain constrained market. I will touch more on our fiscal year 23 outlook in a few minutes, but in the interim, I would like to hand it over to Rosalyn to walk through our fiscal year 22 financials in more detail as well as our fiscal year 23 guidance.

Thanks, Matt, and good afternoon. It's my pleasure to share with you the financial highlights from Bluebirds fiscal 2022 and fourth quarter results. The quarter end is based on a close date of October 1st, 2022, whereas the prior year was based on a close date of October 2nd, 2021. We will file the 10-K today, December 12th, after the market closes. Our 10-K includes additional material and disclosures regarding our business and financial performance. We encourage you to read the 10-K and the important disclosures that it contains. The appendix attached to today's presentation includes reconciliations of differences between GAAP and non-GAAP measures mentioned on this call, as well as important disclaimers. Slide 11 is a summary of fourth quarter and full year results for fiscal 22. I will start with the fourth quarter results summary and I will focus on the full year results for fiscal 22 and guidance for fiscal 23 for the remaining of the presentation. It was another challenging quarter for Bluebird with some persistent supply chain disruptions limiting our throughput and impacting our efficiency and overtime of the plant and delayed inflationary cost pressures that became effective on July 1st. We also had extremely high working process at the beginning of the quarter and we work through still a large number of all backlog low margin units with older pricing. Despite all these challenges, the team has done a fantastic job and generated 2016 unit sales volume, which was 105 units or 6% higher than prior year. Consolidated net revenue of $258 million was $66 million or 34% higher than prior year. driven primarily by a higher mix of electric buses and pricing actions that are starting to take hold. The adjusted free cash flow was $30 million positive, $70 million higher than the prior year fourth quarter. This outstanding performance was driven by the reduction in inventory back to normal levels during the quarter and supports our great liquidity position at the end of fiscal 22. Adjusted EBITDA for the quarter was negative $16 million, And it includes a non-cash inventory charge of negative $9 million, which we took at the end of the year. Excluding this charge, the adjusted EBITDA would have been negative $7 million due to supply chain-driven operational inefficiencies that were incurred in working down the inventory. Additionally, we experienced in this quarter increased material costs and still a relatively large amount of old backlog units. Looking back at the total year, fiscal 22 was an incredibly difficult year for Bloomberg. We started in Q1 with a supplier allocation that cut our volumes approximately in half, followed by unprecedented inflation and still prices that almost tripled by Q2. We had fixed pricing on all backlog during the entire first half and an unsuccessful production increase in Q3 and the respective inventory accumulation. However, the current trends are encouraging. with all the operational metrics starting to improve during Q3 and continuing in Q4. As a result, we sold 6,822 buses in the year, 143 units higher than prior year, so slightly above fiscal 21. Consolidated net revenue of 801 million was 117 million or 17% higher than prior year, given by pricing actions that started to take hold, especially in the second half of fiscal 22. The adjusted free cash flow was negative $23 million and still $39 million higher than the prior year, driven by the reduction in inventory back to normal levels by the end of Q4. Adjusted EBITDA was negative $15 million or $49 million below prior year. This includes a year-end $9 million non-cash inventory charge. Excluding that, the adjusted EBITDA for the year would have been negative $6 million. Moving on to slide 12, as mentioned before by Matt, our backlog at the end of the year continues to be extremely strong, at over 5,000 units, with the vast majority of these units at much higher price levels compared to the fiscal 2022 built units. More on this later on. Breaking down the $801 million in revenues into our two business segments, The bus net revenue was $724 million, up by almost $100 million versus prior year. Our average bus revenue per unit increased from $94,000 to $106,000, which was largely the result of pricing actions taken over the past 12 months, as well as a higher mix of electric buses, 3.9% versus 2.2%. Supply-constrained EV sales were at the level of 269 units, or 123 more than last year, an 84% increase. Parts revenue for the year was $77 million, representing an improvement of $18 million, or 30%, compared to the prior year. Over the past few quarters, we have seen improvement in parts sales, which is an indicator that the normal work for school districts is getting back to pre-COVID levels. Gross margin for the year was 4.6%, or 590 basis points lower than last year due to the old backlog fixed pricing, increased material costs, and supply-driven operational inefficiencies. In fiscal 22, adjusted net income was negative 36 million, or 45 million lower than last year. Adjusted EBITDA of approximately negative 15 million was down compared with prior year by 49 million. Adjusted diluted earnings per share of negative $1.15 was down $1.46 from the prior year. Slide 13 shows the walk from fiscal 21 adjusted EBITDA to the fiscal 22 result. Starting on the left at $34 million, slightly higher BUS volume of 143 units and increased parts margins generated a positive $8 million improvement year over year. The next three bars need to be analyzed together. Pricing improvements of approximately 10% lifted our standard gross margin by $80 million. However, the material costs, including steel, increased by $72 million year-over-year, and supply chain disruptions and higher freight-in costs generated operating inefficiencies of $51 million. Bottom line, due to the old backlog and fixed pricing, we were able to cover only two-thirds of the extra costs incurred during the year. SG&A and engineering expenses, excluding restructuring expenses, were each $4 million higher than last year due to labor cost increases versus extraordinary COVID-related cuts in prior year and Bluebird reinvesting in engineering projects to ensure our future growth in EV and chassis and to maintain our leading product competitiveness. Additionally, our JV results from MicroBird were close to 5 million lower versus prior year, but they have been also affected by supply chain shortages, predominantly the microchip shortage, which is impacting the chassis allocation from Ford and GM. As of today, the chassis supply has been improving, and we expect the JV to return to profitability in fiscal year 23. Looking at the total year result, if you add back the operational inefficiencies given by the supply chain of 51 million, and the year-end non-cash inventory charge of $9 million, our results would have been $45 million or $11 million improvement versus the prior year. Moving on to slide 14, we have all across the board positive developments year over year on the balance sheet. We ended the year roughly with $10 million in cash and reduced our debt by almost $40 million. The improvements in operating cash flow and adjusted free cash flow were primarily driven by trade working capital due to our inventory reduction in the last quarter. I will discuss this more on the next slide. As a subsequent event, at the end of November, we entered into the Sixth Amendment to our credit facility, extending the maturity date to December 31st, 2024. The Sixth Amendment provides for revised governance, modifications to the revolving credit facility, and a new pricing grid. The amended covenants and extended maturity of our loan provide Bluebird with both flexibility and stability as our business continues to recover from the COVID-19 pandemic and associated global supply chain disruption. On slide 15, you'll see the fantastic progress done by our operations team to reduce raw material inventories and working process, returning to a normal level by the end of the quarter, as indicated in our last earnings call. As a reminder, our end of Q3 inventory levels were elevated due to the unsuccessful steep production ramp-up we kicked off before the Ukraine and China lockdowns happened earlier in the year. As mentioned before in the presentation, at the end of Q4, certain robust segment inventory had an approximately $8.8 million cumulative cost in excess of net realizable value that was recognized as a loss in fiscal 22 with no similar activity in fiscal 21. We are also continuing our strategic pre-buy of major components, Ford engines and EV components, to ensure smooth production levels in fiscal 23. We are very happy to report that the positive inventory reduction trend continued through October and November in fiscal 23 Q1, and our liquidity sits at approximately 100 million as of December 1st. with the revolver balance at zero. So our balance sheet is in great shape for fiscal 23. In the next few slides, we will share with you why we are very confident that the worst is behind us, our turnaround is working, and we are on track to return Bluebird to historical profitability during fiscal 23. On slide 16, you see how after the steel spot prices shot back up 300 to $500 per ton in March and April, that bubble reversed itself by July. The favorable trend continued through December 1st, and this is a very good development for our future results, especially for second half of fiscal 23 and into fiscal 24. One is to take into account that we are also entering in future locked contracts for steel prices with certain tonnages up to 12 months forward. Therefore, the favorable impact will be a third step function of blending log tonnages with period spot prices. However, this is an upside at this point for our fiscal 23 results, assuming that spot prices remain relatively low in the future. On slide 17, we are showing a simplified production versus backlog age and pricing structure as an update of how we are working through the backlog result pricing. You can see that the first half of fiscal 22 was comprised entirely of old backlog units. By Q3 and into Q4, we started to build some better priced units, but still with a gap versus the current economics. This explains a large portion of our losses during fiscal 22. Together with our dealer partners, we also were able to increase partially the prices for backlog units beginning with May production and recover about half of the missing pricing for each respective price level. However, during fiscal 23 Q1, we still have approximately one third of our production with very old units and some of the worst margins. We estimate this headwind to be approximately 10 million for fiscal 23 Q1, or 5% on approximately 200 million in revenues. Nevertheless, starting with fiscal 23Q2 in January, we will have put the vast majority of the old backlog units behind us and have locked in pricing and backlog units at increasingly better margins. In fact, our production schedule is almost full through the end of fiscal 23Q3, with some production slots left open for EPA easy orders. While on some models, type D for example, we have sold out for the entire year, Currently, we are filling the remaining slots open for fiscal 23 Q4 for type C NDVs at very good margins. On slide 18, looking at fiscal year 23, we want to share with you our forecast by quarter, which serves as the basis for our fiscal 23 total year guidance. 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. yet we are confident that we have course-corrected all of the other business levers that we could address. Looking at fiscal 23 Q1, our normal year historical results are around 5 million, as this quarter has a lower number of production days and sometimes seasonally labor-related higher expenses related to calendar year-end. Taken into account a headwind of 10 million from missing pricing, we expect to end fiscal 23 Q1 around negative 5 million. All of our quarterly forecasts are plus minus 2.5 million. So the range we expect is negative 7.5 to negative 2.5 million adjusted EBITDA for this quarter. Moving to fiscal 2023 Q2 and Q3, we have higher prices taking hold, higher revenues, small improvements from lower material costs, partially offset by increased labor costs due to cost of living adjustments. Therefore, we forecast $220 to $240 million in revenues and $10 million in adjusted EBITDA for Q2, and $230 to $260 million in revenues and $15 million in adjusted EBITDA for Q3, each with a margin of plus-minus $2.5 million. Finally, in fiscal 2023 Q4, with higher volume, increased EV mix, best pricing, and lower material costs, we expect to generate 250 to 280 million in revenues with adjusted EBITDA of 20 million plus minus 2.5 million. Putting it all together for the total year, we expect revenues in the range of 900 million to 1 billion and adjusted EBITDA of approximately 40 million with a range of 35 to 45 million. Moving to slide 19, we expect in summary a significant improvement year over year in all aspects. with revenues up approximately 20% to $900 million to $1 billion, adjusted EBITDA of $35 to $45 million, and positive free cash flow of $0 to $10 million. However, if you look at the second half expected results from the prior page, it shows a full year run rate of $70 million of adjusted EBITDA on revenues just above $1 billion, which is back to the pre-COVID top level of performance, and set us up for taking it to the next level in fiscal year 24 and beyond. Moving on to slide 20, we want to provide you with a refreshed look at our outlook beyond 2023. Once the supply chain further normalizes, we expect to sell approximately 9,500 units, including 1,500 units EVs, and generate 100 million or 8% adjusted EBITDA and 1.25 billion in revenues. This could be as early as fiscal year 24 if the business environment is stabilizing by then. Looking beyond that, in the medium term, our EV growth and operational improvement can support volumes of 10,500 to 11,000 units, 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, or 10% to 11%. Our long-term 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 Bluebird's future, and now I will turn it over back to Matt to further expand on this.

Okay. Thank you, Razvan. On to slide 22. As detailed in the fiscal year 23 guidance that Razan walked through, we still have another quarter before we start firing on all cylinders as we navigate through some older priced units in the first quarter. Still, we are forecasting fiscal year 23 results that are dramatically better than fiscal year 22. We plan on booking at least 8,000 units, a 17% increase over fiscal year 22, and driving a top line of nearly $1 billion. a 19% increase year-over-year. Parts revenue will continue to be a bright spot, and we see line of sight to at least $84 million in revenue, up 10%. The EBITDA performance, we expect to be up over 350% compared to fiscal year 22, and to be approximately $40 million. EV bookings will be a significant component of those results, and we plan to double our EV bookings to over 500. On the right-hand side of the slide, you can see 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. What is extremely exciting is the demand in front of us. With many other industries slowing down, school buses are a great place to be. Retail sales have been off from their average of 32,000 units per year for three years in a row now, and the national school bus lead is aging. The market was first constrained by COVID and school closures, and has been held up more recently by the supply chain. These buses must be replaced, and we expect substantially robust years ahead of us to address this pent-up demand. ACT is forecasting a compound annual growth rate of 10% from our fiscal year 23 to 27. The last two years have been challenging, but our business is back on track and we look forward to the robust market ahead. On slide 23, you can see another critical component of our outlook, which is the EPA's Clean School Bus Rebate Program. As we have discussed, this program allocates $5 billion over five years for clean and cleaner-emission school buses. We applaud the EPA's execution of this program as it went off without a hitch. It was straightforward to apply, and the timeline from inception to identification of the lottery winners was extremely quick. Applications were taken from May through August, and the winners were announced at the end of October. The demand was so strong that the EPA allocated nearly $1 billion in this first round. Almost all of this funding went to electric buses, and 99% of this funding went to priority districts. Approximately 2,500 buses will be funded, with an average rebate of $375,000 per bus. Customers will have until the end of April to place their orders. Bluebird and our dealer partners put on a full court press to help customers apply for this lottery program. Through our collective efforts, we assisted in directly securing approximately 300 buses, and we have identified loyal Bluebird customers who applied for funding themselves who account for at least another 200 buses. Therefore, we expect the impact on Bluebird to be at least $200 million in revenue based on securing 500 to 700 additional EV orders. The long-term impact of this program will be well over a billion dollars in revenue to our organization. The next round of the EPA's Clean School Bus program is expected to start in early 2023 as a competitive grant program, and we will be right there with our customers supporting their applications. Please keep in mind, though, that this is not the only program out there funding the purchase of EV school buses. California, New York, New Jersey, and Colorado collectively have billions allocated to this purpose. There are so many exciting things in front of Bluebird. Let's turn to slide 24 to summarize the strong outlook ahead. First is the market demand for Bluebird school buses. With our record backlog for this time of year, we are a great counter-cyclical play that many companies and industries being affected by the slowdown in consumer spending. Plus, not only are the fundamentals of our industry strong, it's just starting to heat up, with a 10% compound annual growth rate expected over the next five years. Second, there is commitment from the highest level of government to electrify this country's school bus fleets. Not only will this reduce greenhouse gases, it'll help reduce particulates that are found to be a contributor to childhood asthma. Electrifying school buses is a mission that makes sense to everyone. And Bluebird will be a direct beneficiary of this as we have more electric school buses on the road today than anyone. We have a proven reputation as a leader in alternative powered school buses for over a decade. as evidenced by the 20,000 plus propane-powered Bluebirds that are on the road today. Our partnership with Cummins on EV offers something no other electric school bus manufacturer provides, and that is a powertrain partner with over 100 years of experience and who knows the school bus industry inside and out. Razvan walked through our long-term forecast, and as impressive as the outlook is, it does not even factor in our efforts to expand our total addressable market. The commercial strip chassis offering could add thousands of units per year to the long-term forecast. Also, we implemented measures to reduce costs in the short term, and we restructured the organization to be leaner, removing non-value-added processes and reducing standard production hours per bus. And the work never stops, as we are constantly looking for ways to take out costs and in the same time increase quality. As we touched on today, we have not only aligned pricing to the economic inflation in the market, but we have also revised our pricing model to be more nimble and reduce risk in an inflationary environment. All of these factors will provide us with a 10% plus adjusted EBITDA margin in a midterm normalized operating environment. As you saw in the guidance we provided for the second half of fiscal year 23, we get back to historic levels of 7% adjusted EBITDA on supply-constrained volume, proving that in a normalized operating environment, double-digit adjusted EBITDA will be in our reach. As I mentioned at the beginning of this call, we were extremely excited to update you on the progress at Bluebird, and I hope you now understand why. Our team has worked incredibly hard to get the business back on track and prepare for a bright future. I would like to thank all of our teammates for their efforts this past year. We would now like to open up the line for questions. Thank you.

We will now begin the question and answer session. To ask a question, you may press star then one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star, then two. At this time, we will pause momentarily to assemble our roster.

Our first question is from Eric Stein with Craig Hallam.

Please go ahead. Hi, Matt. Hi, Rob.

Hey, Eric. How are you doing? Good.

I'm doing all right. Thanks. So thanks for all the details, especially per quarter. Very helpful. I'm curious, just on the EV side, at first I just want to confirm, did you say that you are, you know, you're pretty much sold out or your production slots are full for fiscal 23? So I guess that would be first. But then secondly, I mean, is your goal that you would satisfy that? You mentioned another, what, for the 600 units that you may get in terms of awards as part of the EPA program, and then fiscal 24, that's when you'd be able to, you know, be more timely in terms of satisfying order flow?

Yeah, Eric, this is Matt. I'll take that. So, in terms of the EV production, so we're actually reserving slots. through the back half of our fiscal year for these orders that will be coming in from this Clean School Bus Act program. So as of right now, we're reserving slots. We have about 350 EVs in the backlog right now, but as we stated in our prepared remarks, our goal is to book well north of 500 of that for the fiscal year. And then regarding the Clean School Bus Program, our estimates are we'll get an additional 500 to 700 orders out of the awards that are yet to come in. And the customers have until the end of April to get those orders in.

Okay. And it was good to see the award that you put out last week. I mean, I would think then, I mean, do you think it's kind of weighted or back in towards April when that deadline comes, or do you think there's kind of a steady pickup between now and then?

I think with the holidays here coming up, it'll be a little slower. We've already gotten some in, but we expect really the crutch of these to come in after the new year.

Got it. And then maybe last one for me, you just mentioned the steel prices that have come down pretty substantially, and And, you know, you're almost, I guess, one more quarter before you really start to feel the positive impact of the price increases. As you play it out longer term, how do you feel about being able to hold price? Obviously, your customers can see the same thing that steel prices have come down. And I know you've taken a lot of steps on the pricing side. So maybe how you think that push and pull plays out.

Yeah, thanks for the question. I'll take that one. This is Razvan. So pricing is obviously a competitive aspect of our position in the market. So we are always watching our competitiveness and we will adjust accordingly going forward. On the other hand, as mentioned in our prepared remarks, we have taken steps to limit our exposure on the forward quotes and sales that we have. So we are now much more flexible than in the past. As it relates to steel, there is a time lag until the time when we can benefit from these reductions because of the forward locking that we put in place. So we'll have to take into account all these three factors and then monitor our competitiveness and our order intake. But overall, we feel very positive that our margins are very strong in the backlog, and we are collecting orders today for Q4 fiscal 23, also a very good margin.

Okay, thank you.

All right.

Thank you, Eric.

The next – pardon me. Again, if you have a question, please press star, then 1. The next question is from Mike Schliske with DA Davidson. Please go ahead.

Hi there. This is David Johnson on for Mike. Just a couple questions. You discussed an expansion plan for your EV manufacturing, putting it in a dedicated space on the last call. But since then, the EPA doubled the subsidies for this tranche, essentially accelerating the pace of its grants. Will Bluebird be able to keep up with all this? Can you accelerate your capacity expansion if you need to?

Yeah. Hi, David. This is Matt Stevenson. So we had line of sight in terms of, you know, the funding and the subsequent buses that it would eventually provide. provide over this, you know, time period. So this is what we took into consideration when we developed our ramp-up plan. So you think of that, you know, 12 per day puts us roughly around that 2,500 units a year. And then we're also expanding to 20 per day by the end of calendar year 23. So we'll have plenty of capacity there based on the needs of this program.

Great. And then one more for me. Can you provide an update on your non-bus program through Lightning eMotors? How's that been going? And do you have an updated timeline for development and a product launch?

Yeah, thanks, David. So I think you're referring to the strip chassis targeted, you know, at those last mile like box delivery vans. And we're continuing to progress with Lightning. And our goal is to have, you know, demonstration units in customers' hands by the end of calendar year 23.

Great. Maybe if I could slip one more in there. Can you confirm whatever EV buses you're getting from the EPA program, they're going to take an order away from your diesel business? In other words, the net deliveries you expect to make in fiscal 23 is unchanged?

Yeah, David, this is Razvan. I'll take that question. At this point, our throughput is constrained by the supply chain primarily. So, indeed, an EV new order takes out an old diesel bus off the road. But this doesn't necessarily mean that it's a one-for-one stop on our total volume. Our total volume currently is constrained by the supply chain.

Great. Thanks a lot. I'll pass it along.

Thank you, David. This concludes our question and answer session. I would like to turn the conference back over to Matthew Stevenson for any closing remarks.

All right. Thank you, Gary. And thank you to all those joining us on the call today. As you heard during our prepared remarks, the fundamentals of our market are strong and our demand is robust. And our business is back on track. And by Q2, we start firing on all cylinders. Plus, we remain the leader in electric school buses with more on the road than anyone else. We have also driven costs out of our business, increased parts availability, throughput, and quality. The business has turned the corner, and our bookings in the first quarter we are currently in will be the highest in over 10 years. We are very confident and excited about where the company is headed, and we look forward to updating you again on our progress next quarter. Should you have any follow-up questions, please do not hesitate to contact our Head of Investor Relations, Mark Benfield. Thank you again for your time. We here at Bluebird want to wish you a very happy and safe holiday season. All the best.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.