Blue Bird Corporation

Hello and welcome to the Bluebird Corporation Fiscal 2023 Third Quarter Earnings Call. My name is Lauren and I will be coordinating your call today. There will be an opportunity for questions at the end of the presentation. If you would like to ask a question, then please press star followed by one on your telephone keypad. I will now hand you over to your host, Mark Benfield, Head of Investor Relations, to begin. Mark, please go ahead.

Thank you and welcome to Bluebird's fiscal 2023 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 CEO, Phil Horlock, and CFO, Razvan Radulescu. Then we will take some questions. Let's get started.

Phil. Well, thank you, Mark, and good afternoon, everybody. First, let me say it's great to be back at Bluebird and the team here is doing a fantastic job in delivering results ahead of schedule, which will be evident as Razman and I cover the third quarter financial results today. To set the stage, at our last earnings call, you saw the 180 degree shift in our second quarter financial results compared with last year. Well, in the third quarter, I'm pleased to say that we've improved on those second quarter results and have an outstanding quarter. So let's get started with the key takeaways for the third quarter on slide six. Market demand for school buses continues to be strong, and the backlog for Bluebird school buses was at 5,200 units at the end of the third quarter. Now, we are still dealing with supply chain constraints across the industry, which, although easing, is limiting industry production and deliveries, but we are managing this very well. As reported last quarter, we are now largely through the legacy price buses in our backlog that significantly impacted profitability last year and earlier this year. The vast majority of our buses now and in our third quarter bookings and backlog is at current price levels. As a reminder, we define these legacy price units as those at contractual price levels prior to October 2021. This, along with operational improvements, drove a substantial increase in our third quarter financial results compared with last year. On the EV front, thanks largely to the EPA's unprecedented $5 billion Clean It School Bus program, we had more than 550 EVs in our backlog at the end of the third quarter. And EV deliveries in the quarter increased by nearly 150% compared with a year ago. We also reinvested back into the business by selectively upgrading facilities and processes, enhancing the plant working environment, and adding electric bus capacity through our new EV production center. Through the efforts of the best look force in the business, strong leadership, lean process improvements, and sheer hard work, the third quarter saw some of the best performance the company has ever achieved. As you'll see shortly, the impact of these actions shows in our outstanding third quarter financial results, where we significantly beat guidance. Bottom line, the business is performing extremely well. The turnaround we have been executing is completed and ahead of schedule, and profits and margins have improved substantially. Now let's take a look at the financial and business highlights from the third quarter on slide seven. I want to start by saying that our third quarter financial performance is massively improved from a year ago. We sold over 2,100 buses, which is a substantial 24% of 411 buses above last year. Those unit sales drove third quarter revenue of almost $300 million, which is an exceptional 43% above fiscal 2022. That's an increase of $88 million. The impact of the pricing increases we took up of up to 25% to recover hyperinflation together with higher unit sales and a richer mix of EVs contributed to this impressive revenue growth. Adjusted EBITDA of $28 million was $19 million better than a year ago. Incidentally, our third quarter result exceeded this year's second quarter by $8 million, despite selling 150 fewer buses. Although not shown on this slide, that translated into an outstanding adjusted EBITDA margin of 9.5%. And finally, adjusted free cash flow for the quarter was $43 million. That's an impressive increase of $83 million over last year's third quarter. Overall, fantastic third quarter financial results that build on the improvements we saw last quarter. Razvan will take you through the details later. On the right-hand side of the slide, you can see some of the ongoing operating highlights for the business. As I mentioned, demand continues to be strong. Our firm order backlog is extremely strong at 5,200 units with over $750 million in revenue. We raised prices considerably over the past two years, and the average selling price per bus in the third quarter was up more than 17% from a year ago. Part sales also continues to be a bright spot for us, up 23% year over year. The increasing average age of buses on the road is having a material positive impact on our aftermarket business. Turning to alternative powered buses, they represented 63% of our unit sales in this quarter, and that's eight percentage points higher than last year. We continue to be the clear leader in this space. No other manufacturer comes close to these numbers. Part of the third quarter volume growth was in EV buses, with bookings up nearly 150% from last year and up over 150% through the first three quarters of the year. Additionally, we left the quarter with more than 550 firm EV orders in our backlog, which is more than a 10% share of our total backlog. That's worth around $180 million in revenue. Clearly, we're benefiting substantially from the first phase of the EPA's Clean School Bus program. And lastly, our EV business. In the third quarter, we launched an all-new extended range battery, providing around a 30% increase in range on a single charge over our standard battery. That's an expected range of about 130 miles on one charge, which is a terrific value offering for our customers by meeting the sweet spot for daily school bus use. On the leadership front, in June, we appointed Britton Smith as president of the company. Britain has done a terrific job leading our EV business over the past 18 months, and his appointment reflects the increasing importance of electrification to our present and our future growth strategy. We've expanded Britain's responsibilities, and it's great to have him in his executive leadership role. I'm pleased to tell you that based on our exceptional third quarter financial results, together with the continued progress we are seeing in the fourth quarter, we are again raising full year guidance on all three metrics that we report on. Razvan will cover this thoroughly in his section later, but as a preview, we are increasing midpoint of guidance for adjusted EBITDA, up from $60 million to $73 million. That's an incredible increase of $88 million from fiscal 2022. Clearly, our turnaround has worked. We are delivering results, and we have momentum across the entire business. Turning now to 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 successful efforts to improve material flow to the plant and to the production line. Those have included adjusting our warehousing strategy by delivering supplier parts directly to the plant, resourcing numerous problematic suppliers, and breaking production constraints. This also contributed to the lowest number of hours per bus and the best manufacturing efficiencies in two years. As an example of our measurable progress, in June of last year, we took more than 40 days from initial production setup of a bus to booking the sale. We are now running at less than 20 days, which is great for plant efficiencies and even better for cash flow. Not only is this proof that Bluebird is back on track, but we are now exceeding some historic financial benchmark company. Moving on to slide nine. This is a reminder of our key pillars around care, delight and deliver. Our focus areas within these pillars include our people, lean transformation, expanding our total addressable market and scaling EVs. I want to briefly touch on the progress on each of these. Regarding our people, On our last call, we covered the actions we'd already implemented this calendar year, namely company-wide pay increases, additional paid vacation days, plant working environment improvements, and narrow span of control in the plant. All have been very well received by our team members. In Q3, our newly formed We Care team in our Fort Valley plant launched an employee suggestion ideas program that has got off to a great start. with over 850 suggestions captured and more than 90% actioned in just the first two months of operation. You will also recall that in May, our plant employees voted in favor of unionization by the United Steelworkers. I can tell you they are working together well and are in the early stages of negotiating our first collective bargaining agreement. We want a collaborative relationship with the union and an outcome their employees embrace, and it's also great for the company going forward. Through continued focus on lean transformation, we are seeing improvements in quality and throughput, even while the supply chain environment is still far from normal. Our commercial EV chassis development continues to progress toward having running prototypes early next calendar year, while we stay focused on ramping up EV school bus production. With that in mind, let's now take a close look at our progress in ramping up our all new EV build up center that we told you about in our last call. Turn into slide 10. We have doubled EV production from two to four units per shift since we began using our dedicated EV center last quarter. Later this year, we've been building up to six units per shift with the opportunity to double its capacity to 12 EV buses on two shifts. As demand grows and supply chain capabilities improve and expand, we will be all able to support throughput of 20 EVs per day with our new footprint. That's an annual capacity of up to 5,000 electric school buses, plenty enough to meet the growing EV demand in the years ahead. This dedicated facility is a great example of a lean production system and efficient manufacturing within Bluebird. Let's move on now to slide 11. This is a reminder of the EPA's Clean School Bus Program. This program provides $5 billion over five years in rebates or grants to customers for the purchase of clean emission school buses, covering EVs and propane-powered buses. About 2,500 buses were awarded rebates in the first phase of this program, which totaled $1 billion. It's estimated that about 2,000 buses will ultimately be ordered from phase one, as some school districts have elected not to move forward with their EV orders amidst concerns over infrastructure readiness and overall preparedness at the district level. The good news is that the result of rebate savings of about $185 million will be reallocated to future phases of the program. We have received hundreds of EB orders from this program and fully expect to garner well over 550 orders for this first phase when all is said and done, with at least $165 million in sales. The long-term impact of this program should be well over a billion dollars in revenue to Bluebird, representing more than 3,000 orders. Now, the EPA recently launched phase two of this program, which is summarized on slide 12. Phase 2 is a competitive grant program with $400 million anticipated to be awarded in this round. Applications for Phase 2 grants will close at the end of this month. To ensure we were well represented in application submissions, we established substantial resources, both internally and externally, to work closely with our dealers and our end customers in supporting them in the detailed grant writing process. Following an extensive review and selection process by the EPA, we anticipate all this to begin in January 2024. We expect the second phase to fund approximately 1,000 buses, and we conservatively estimate that we will get at least 250 of these. Later this year, we anticipate the EPA will announce a further $63 million phase three program, which will complete the billion dollars a year program funding commitment for 2023. I would now like to hand it over to Razvan to walk through our third quarter financial results in more detail, as well as our updated full year fiscal 23 guidance. In addition, we will be providing you with the first look at our fiscal 2024 guidance. Over to you, Razvan.