Blue Bird Corporation

Hello everyone and a warm welcome to the Bluebird Corporation's fiscal 2023 second quarter earnings call. My name is Emily and I'll be coordinating your call today. After the prepared remarks there will be the opportunity for any questions which you can ask by pressing start followed by the number one on your telephone keypads. I'll now turn the call over to our host Mark Benfield, Head of Investor Relations at Bluebird Corporation. Please go ahead.

Thank you and welcome to Bluebird's fiscal 2023 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 subjects 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?

MATTHEW STEPHENSON Thank you, Mark. Good afternoon, everyone. Razvan and I are extremely excited to update you on our results for quarter two, which was probably the most pivotal quarter for the company in years and begins to highlight the real potential of our business. This quarter, we're to show 180 degree turn in our financials as we've been forecasting for some time. I'm pleased to say that we not only delivered as promised, but once again, delivered results ahead of schedule. a testament to the hard work that our teammates have been doing every day. On slide six, you can see some of the key takeaways for the quarter. Overall, industry demand continues to be robust, and the backlog for Bluebird school buses is at nearly 5,800 units. We are now through most of the legacy price buses in our backlog. As a reminder, we define these legacy price units at those at price levels prior to October of 2021. This, along with operational improvements, drove the significant inflection in our financials. We also reinvested back into the business, putting in over $3 million in wage increases for our frontline teammates this year, starting this quarter, while continuing to improve processes throughout our operation, upgrading our facilities, and even opening an all-new EV center, which we will talk about in detail during the call. Through the efforts of the best workforce in the business, strong leadership, lean process improvement, and just plain hardcore tenacity, we are seeing some of the best performance the company has ever seen in the second quarter. And let us not forget the EPA's fantastic Clean School Bus Program that recently closed its first phase and announced its direction for phase two. The success of this program has led to a staggering number of EVs in our backlog. The business is performing well and the turnaround is ahead of schedule. Now let's take a look at some of the highlights from the second quarter. The financial performance for fiscal year 23 quarter two shows a massive improvement from a year ago. Our units sold were over 2,300, which drove record second quarter revenue for Bluebird, up over 90 million from fiscal year 22. This was a 373 unit increase from the same time period last year. Adjusted EBITDA was $31 million better than this time last year, and we posted $20 million for the quarter. As a result, adjusted free cash flow for the quarter was $23 million, up $2 million compared to the second quarter of fiscal year 22. Overall, a fantastic second quarter for Bluebirds. On the right-hand side of the slide, you can see some of the ongoing highlights for the business. As I mentioned, demand continues to be strong. Our backlog is incredibly robust at roughly 5,800 units worth over $775 million in revenue. Included in that backlog is $200 million of firm orders for 621 electric school buses, a large uptick from last quarter. due to the impact of the EPA's Clean School Bus Program. In fact, we're incredibly proud of some of the recent large EV deployments, including Broward County in South Florida and the City of Boston. As we've discussed in previous quarters, we have raised pricing considerably since July of 2021. Our average selling price for the quarter is up 22% year over year. Our sales for the quarter were 63% Alternative Power. demonstrating our continued leadership in the space. Part of that was our EV growth, up 175% year-over-year. Now, part sales continues to be another bright spot for us, up 37% year-over-year. The increasing average age of school buses on the road is having a material effect on our aftermarket sales. With our EV demand so high and more coming from the EPA's Clean School Bus Program, we had to increase EV chassis capacity. So we recently opened up our new EV build-up center, which we are thrilled about. We are ready for the increasing demand. As the EPA has recently announced phase two of their program, which is another $400 million, this time through a grant program. As you can see on slide eight, we are delivering some of the best operational performance in nearly two years in several critical areas. Setups and throughput are up significantly as missing parts are down due to our efforts to improve material flow to the plant. Those have included adjusting our warehousing strategy, resourcing numerous problematic suppliers, and revising production constraints. This has also contributed to the lowest number of hours per bus and the best manufacturing efficiency in two years. In turn, this generated a number of all-time records for quarter two, including revenue, EV bookings, part sales, and adjusted EBITDA. Not only is this proof the company is back on track, but we are now exceeding some historic financial benchmarks for the organization. Slide 9 is a reminder of our key pillars around care, delight, and deliver. Our focus areas within those pillars include our people, lean transformation, expanding our total adjustable market, and scaling EV. I want to briefly touch on the progress of each of those since our last call. Regarding our teammates, in January, a large-scale wage increase took effect for our hourly teammates. We also increased our paid vacation days to 14 this year, unheard of in most manufacturing environments. We also continue to update our facilities to enhance the working environment, including putting massive air chillers into our facility for the summer months. We are also in the final phase of rolling out a new cell manufacturing organizational structure, designed to provide more resources for our frontline teammates by narrowing the span of control and offering essential support. Through continued focus on our lean transformation, we are seeing improvements in quality and throughput, even while the supply chain environment is still far from normal. The commercial chassis continues to progress while we stay focused on ramping up our EV school bus production. But on this call, we really want to focus on highlighting our all-new EV center. A lot of great work went into this and is core to our future. On slide 10, you can see photos of our new 40,000 square foot EV center. Previously, this was actually an old coding facility on the Bloomberg campus. Through relatively minimal investment and a lot of hard work by our team, we turned it into a modern EV commissioning center. It's where we install the EV batteries along with some of the final components on the thermal management system and bring up the state of charge for the batteries. This new facility will help us meet the EV demand forecasted over the next five years. As we've mentioned in previous earnings calls, this will allow us to take EV production from 4 to 12 units per day by the middle of this year, with the ultimate goal of 20 units per day whenever demand warrants it. Plus, it is a great example of where we are headed with our entire production footprint rooted in the foundational principles of the Bloomberg production system in lean. Slide 11 is again a reminder of the EPA's Clean School Bus Rebate Program. This program allocates $5 billion over five years for clean and cleaner emission school buses. Approximately 2,500 buses were funded in the first phase of this program with an average rebate of $375,000 per electric bus Customers had until the end of April to submit payment request forms to the EPA demonstrating that new buses as well as eligible infrastructure have been ordered. Some of our customers have asked for an extension beyond the April 30th deadline due to delays on the final quotes for their charging infrastructure. But we have already seen many orders come in for this program. and fully expect to garner well over 500 orders for the first phase when it is all said and done. The long-term impact of this program will be well over a billion dollars in revenue to our organization. The EPA recently launched phase two of their program, and on slide 12, you can see the details. As we expected in phase two, announced in late April, it is a competitive grant program. than anticipated 400 million to be awarded in this round. Applications will be taken from now through the end of August. And we can expect those grant award winners to be announced in late 23 with orders in the first calendar quarter of 24. We have established substantial resources both internally and externally to work closely with our dealers and end customers in supporting them in this grant writing process. The focus of this grant program will be larger deployments, and we expect the EPA to fund only 25 to 50 awards. The applications will have a scoring process, and priority districts will be given preference in the evaluation criteria. We expect this second phase to fund 900 electric buses, and we conservatively estimate that we'll get at least 200 of these. We continue to remain excited about the Clean School Bus Program. and look forward to working with our dealers and customers on phase two to deploy more industry-leading electric buses. I would now like to hand it over to Razvan to walk through our fiscal year 23 quarter two financial results in more detail, as well as our updated fiscal year 23 guidance.