Blue Bird Corporation

Hello and welcome to the Bluebird Corporation fiscal 2024 second quarter earning call. My name is Natasha and I will be your moderator for today. If you would like to ask a question on today's call, please do so by pressing star 1 on your telephone keypad. I now have the pleasure of handing you over to your host, Mark Benfield. Mark, please go ahead.

Thank you and welcome to Bluebird's fiscal 2024 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 our 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 our filings with the SEC. Bluebird disclaims any obligation to update the information in this call. This afternoon, you will hear from Bluebird CEO, Bill Horlock, and CFO, Rosvon Radulescu. Then we will take some questions. Let's get started. Bill.

Thanks, Mark, and good afternoon, everybody. It's great to be here and to share with you our results for our fiscal 2024 second quarter. You'll recall that on our first quarter earnings call, we reported an all-time record profit for a quarter. Well, I'm pleased to tell you that our momentum has not slowed down at all, with the Bluebird team doing a great job in delivering an all-time record profit for any second quarter in our history, and our second best quarter ever after the last quarter. Razvan will be taking us through the details of our financial results shortly, so let me get started with the key takeaways for the second quarter on slide six. As the headline says, we achieved best ever financial results for a second quarter, only surpassed by our 2024 first quarter profit performance. As shown in the first line in the box, while we achieved a second quarter record for adjusted EBITDA, our net sales revenue was a record for any quarter. So with record profits and record revenue, I am very pleased to tell you that we achieved an outstanding adjusted EBITDA margin of 13% in the second quarter, And importantly, we are once again increasing our full year guidance. As we look at the drivers for this terrific progress in Q2, it really is about maintaining and delivering the plan we laid out last year, which focused on making significant improvements across our entire business. Market demand for school buses continues to be very strong. Our quarter-end backlog of firm orders for Bluebird buses grew by nearly 30% from the first quarter to an outstanding 5,900 units. Now that's a great endorsement of the strength of the industry and the customer demand for Bluebird buses. This bodes well for pricing, production stability, and profit margins. Now while supply chain issues are undoubtedly easing, there are still select constraints on a couple of chassis components across the truck and bus industry that are limiting industry production and deliveries. Now, while supply chain issues are undoubtedly easing, there are still select constraints on a couple of chassis components across the truck and bus industry that are limiting industry production and deliveries. But we are very engaged with those constrained suppliers, and with additional capacity being installed for the second half of this year, we expect some easing of those constraints as we move through this year and beyond. As I mentioned last quarter, the legacy price backlog, which hurt us in fiscal 22 and partially in the second quarter of last year, is fully behind us. All those low margin units have been sold. Every bus we are selling today and those in our order backlog reflect current pricing and we are priced competitively, which you can tell from our quote win rate and incoming orders. This is entirely different Bluebird bus revenue and gross margin structure compared with just a year ago, with bus prices up significantly. On the EV front, thanks largely to the first phase of $1 billion of funding from the EPA's unprecedented $5 billion clean school bus program, our second quarter deliveries of electric buses were a best-ever result in a quarter, more than 50% higher than last year, and represented 9% of unit sales. And we ended the second quarter with a very strong backlog of EV orders. We maintained our strong mix of alternative powered vehicles and further strengthened our leadership position in this segment. The higher margins and higher owner loyalty from these products contributed to our profit improvement in the second quarter. We'll continue to reinvest back into the business by selectively upgrading facilities and installing lean manufacturing processes and enhancing the plant working environment. And as Razvan will show you later, we're nearly doubling our engineering spending this year as we embark on several exciting new product programs that will hit the market in the next two to three years. Through the efforts of the best workforce in the business, strong leadership, lean process improvements, and sheer hard work, we have been achieving some of the best manufacturing performance that companies ever achieved. Bottom line, we are performing extremely well in a strong market. We're delivering a greater mix of higher margin, alternative powered vehicles. We are priced competitively and appropriately for today's economic environment and manufacturing efficiencies are improving. As a result of all these accomplishments, we achieved an outstanding second quarter profit for Bluebird of $46 million with an adjusted EBITDA margin of 13%. Now let's take a closer look at the financial and key operating highlights for the second quarter on slide seven. I want to begin by saying that our second quarter financial performance is transformed from just one year ago with many record highs reported. We saw 2,254 buses in the second quarter fiscal 24, which is down slightly from last year and 6% above last quarter. Those unit sales drove second quarter net revenue of $346 million. That's an all-time quarterly sales record for Bluebird and a very impressive 15% increase over last year. So, with essentially flat volume compared with a year ago, down only 50 buses, and net revenue up 15%, the impact of higher pricing and a richer mix of EVs is clearly evident in the revenue growth. Quarter 2 adjusted EBITDA of $46 million was $25 million above last year, almost double, and well above the $25 to $35 million general guidance range for quarterly profits that we set at our last earnings call. And finally, adjusted free cash flow for the second quarter was an outstanding $54 million as we drove trade working capital improvements along with strong profits for the quarter. That's an impressive $30 million improvement compared with the same quarter last year. Overall, we had exceptional second quarter financial results and made transformational gains from last year. We are on a great trajectory. On the right-hand side of the slide, you can see some of the operating highlights for the business. As I mentioned earlier, demand continues to be exceptionally strong, with our firm order backlog at the end of the second quarter worth about $850 million in revenue, reflecting a backlog of over 5,900 buses. Importantly, that's almost 30% higher than the backlog we had at the end of the first quarter. Now, as an indication of the strength of the industry and the strength of our brand, we measured the ratio of incoming orders against our units sold for the quarter. This year's second quarter was a great quarter for us, with our incoming orders exceeding units sold by 60%. And that compares to 20% at the same time last year. That's great confirmation of the strength of our order pipeline and, again, illustrates our confidence in the continuing order and sales momentum we're experiencing. We raised prices considerably over the past two years, and the average second quarter selling price per bus in fiscal 24 was an outstanding 19% higher than a year ago. That's worth about $22,000 per bus. Part sales totaled $28 million in Q2, representing a strong 6% growth over last year, and we're up 7% through the first half. Turning to alternative powered buses, we represented about 55% of total unit sales in the second quarter. And we are running at a very strong 60% of sales mix through the first six months of the fiscal year. We continue to be the clear leader in this space. No other school bus manufacturer comes close to these numbers. EV buses are part of that alternative power mix. And in Q2, EV bookings increased by 56% over the last year as we sold a quarterly record of 210 electric school buses. That represents a very strong mix at 9% of our total sales compared with 6% in last year's second quarter. Additionally, we left the second quarter this year with almost 500 firm EV orders in our backlog, which is around an 8% share of our total backlog. That's worth approximately $155 million in revenue and 17% higher than a year ago. Incidentally, it's also 15% higher than the end of the first quarter. Clearly, we're benefiting substantially from the first year of funding from the EPA's $5 billion Clean School Bus Program. I'll cover later the status of the second year of this program, which comprises of two rounds. We also have some very exciting news regarding additional funding from the Inflation Reduction Act, which will significantly benefit EV adoption in the school bus industry. Continuing with our clean school bus successes, I am proud to report that during the second quarter, we received the second largest single order ever of propane-powered school buses. That's 255 units for Omaha Public Schools. We will build and deliver these in time for the start of the new school year later this summer. Incidentally, the largest propane order ever was also for Omaha Public Schools, where we delivered 440 propane buses back in 2013. It's great to see a repeat business of this magnitude, and it's also, and importantly, a great endorsement of the performance over time of our propane-powered buses. Staying with propane, I'm also very pleased to announce that in Q2, we renewed our exclusive engine contracts with both Ford and Roush until 2030. By that time, we will have partnered exclusively for almost 20 years, providing us with our industry-leading propane and gasoline engines. Bluebird introduced these products to the school bus market, and throughout that time, we have been the undisputed market leader. We are fast approaching 40,000 propane and gasoline-powered school buses deployed, which is a testament to our exceptionally successful partnership. And finally, on the back of our second quarter results, we are once again raising full-year guidance for net revenue, adjusted EBITDA, and adjusted free cash flow. This will be the fifth quarter in succession that we have beaten and raised our guidance. Importantly, too, we have raised our longer-term margin outlook from 12% plus to more than 14% as we continue to solidify and build on our recent operating and financial performance. With an all-time record profit for a second quarter, reflecting a 13% adjusted EBITDA margin, I am very proud of our team's accomplishments. I'd now like to hand it over to Razvan to watch our fiscal 24 second quarter financial results and updated guidance in more detail. Over to you, Razvan.

Thanks, Phil, and good afternoon. It's my pleasure to share with you the financial highlights from Bluebird's fiscal 2024 second quarter record results. The quarter end is based on a close date of March 30th, 2024, whereas the prior year was based on a close date of April 1st, 2023. We will file the 10-Q today, May 8, after market close. Our 10-Q includes additional material and disclosures regarding our business and financial performance. We encourage you to read the 10-Q 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 other important disclaimers. Slide 9 is a summary of the fiscal 24 second quarter and first half record results. It was another outstanding operating quarter for Bluebird with somewhat limited and well-managed supply chain challenges and with high margin units driving both our top line and our bottom line results. We significantly beat the adjusted EBITDA general guidance provided in the last earnings call, And in fact, we delivered the best second quarter ever for Bluebird with 13% adjusted EBITDA margin and second best ever quarter only after fiscal 24 Q1. The team continued to push hard and did again a fantastic job and generated 2,254 unit sales volume, which was just shy of prior year Q2 volumes, but with more complex type D and EV buses. All-time record consolidated net revenue of 346 million was 46 million or 15% higher than prior year, driven by a high number of units, higher part sales, improved mix of Type D and electric buses, and pricing actions that materialized in this quarter as expected. Adjusted EBITDA for the quarter was a Q2 record of 46 million, driven by high margins, increased part sales and margins, partly offset by increased labor and material costs, as expected and mentioned in our previous earnings score. The adjusted free cash flow was very strong at $54 million and $30 million higher than the prior year's second quarter. This result was due to increased profitability and improved working capital. Our liquidity position at the end of this quarter was also at a record level with $236 million and almost zero net debt. This performance was outstanding for both the top line and the bottom line. All-time record for quarterly revenue of 346 million, all-time record for quarterly EV sales with 210 units, record Q2 adjusted EBITDA of 46 million and 13%. On a year-to-date basis, in only six months, we already exceeded the entire adjusted EBITDA of last year, which was the best year ever, and we delivered significant steps forward on our profitable growth path. You could safely say we had a great start for this fiscal year, but more on this later on today in our updated mid- and long-term outlook. Moving on to slide 10, as mentioned before by Phil, our backlog at the end of Q2 has grown and continues to be very strong at over 5,900 units and $850 million, including 8% EVs. Breaking down the record Q2 346 million in revenue into our two business segments, the bus net revenue was 318 million, up by 45 million versus prior year. Our average bus revenue per unit increased from 119,000 to 141,000, or 19%, which was largely the result of pricing actions taken over the past 12 to 18 months, as well as a higher mix of Type D and electric buses. EV sales in Q2 are also at a record level of 210 units, or 75 more than last year, a 55% increase year over year. We'd like to remind you that we have announced in this fiscal year two price increases for new orders, one in last October and one for the end of March, of $2,500 net per bus each, in order to cover inflationary cost factors and significant long-term strategic investments. These price increases will start to materialize mainly in fiscal 2025, given the timing of orders received and our current production backlog. Parts revenue for the quarter was $28 million, representing a growth of $2 million or plus 6% compared to the already very strong prior year level. This great performance was in part due to increased demand for our parts as the fleet is still aging, as well as supply chain-driven pricing actions and throughput improvements. Grosmargin for the quarter was a very strong 18.4% or 6.5 percentage points higher than last year due to our sustained operational performance and our pricing overtaking in the last three quarters the experienced inflationary costs. In fiscal 2042 adjusted net income was 29 million or 21 million higher than last year. Adjusted EBITDA of approximately 46 million or 13% was up compared with prior year by 25 million and 6 percentage points. Adjusted diluting earnings per share of 89 cents was up 62 cents versus the prior year. Slide 11 shows the walk from fiscal 23 Q2 adjusted EBITDA to the fiscal 24 Q2 results. Starting on the left, the $21.1 million, the impact of the BAS segment gross profit in total was $26.5 million. Split between volume and pricing effects, net of material cost increases of $33.1 million, offset by labor cost increases of negative $6.6 million. The favorable development in the BAS segment gross profit was $1.5 million, driven by higher sales and improved margins, as mentioned earlier in the call. These great improvements were slightly offset by increases in our other expenses and fixed costs, mainly engineering and personal related, of negative 3.3 million, as discussed in the last earnings call, and with more to come in the second half of fiscal 24. The sum of all the above-mentioned developments drives our record fiscal 24 Q2 reported adjusted EBITDA results of 45.8 million, or 13%. Moving on to slide 12, we have extremely positive development year-over-year also on the balance sheet. We ended the quarter with $93 million in cash and reduced our debt significantly by $42 million over the last four quarters. In fact, our net debt position was close to zero at the end of this quarter. Our liquidity stood very strong at a record $236 million at the end of fiscal 2014, a $135 million increase compared to a year ago. We also paid down the revolver balance to zero during this quarter, following our capital allocation strategy outlined in our previous earnings form. The operating cash flow was very strong at 55 million in this quarter, driven by an improvement in operations and margins, and an improvement in our working capital of 22 million. Slide 13 shows the sustainable results achieved by our team over the last four quarters, generating almost $165 million in adjusted EBITDA, or 13%. Our revenues have been growing every quarter, partially due to pricing realization, combined with a quarter-by-quarter increase in EV sales. We have beat and raised our conservative guidance for the last five quarters in a row due to the outstanding execution of our plans by our teams, and despite the still difficult supply chain environment with select suppliers. The last four quarters have been in the 10 to 15% adjusted EBITDA range, demonstrating that we are now delivering consistently double-digit performance. Finally, it is important to note that our pricing curve has been ahead of our costing curve in the last three quarters, preparing us for the significant investments lined up for 2024 and the contractual inflation factors expected ahead of us, some of which already impacted our margins in fiscal 2042 as expected. Before we talk about the updated guidance for fiscal 24 and our updated mid and long term outlook, on slide 14 we wanted to remind you about some significant investments that we have started in fiscal 24 to ensure that our profitable growth strategy is successful. Our updated engineering expenses planned for fiscal 24 are approximately 1.5 times the level of fiscal 23. and we expect them now to be at the level of approximately 20 million in fiscal 24, as we began the integration work for the next generation of Ford gas and propane engines for the next level of emission regulation. We also expanded our exclusive partnership with Ford and Roush to 2030, as announced last week. We also continue to evolve our EV offering and plan new product safety enhancement features across our product lines. Stay tuned for exciting news this summer. Finally, we will continue to ramp up our investment in bringing to market the commercial EV chassis by the end of calendar 2024. We are also expecting now to more than double year-over-year our capital investments into capacity expansion, production facility upgrades, quality improvements, and our supply chain capability and tooling towards our target of 50 buses per day or 12,000 buses per year. Expected capex is now approximately 20 million for this year. On the people's side, we experience inflationary pressures both externally from our supply base and internally, and we continue to provide very competitive benefits to our employees. We are also launching in June a complexity reduction initiative and have begun the upgrade of our ERP system, as well as modernization of our business intelligence and financial planning and analysis tools. All these costs combined can add up to 3% of our revenue on a run rate basis later in fiscal 24 and beyond. On slide 15, we wanted to share with you our updated fiscal 24 guidance. As a reminder, we are continuing to take a transparent and conservative approach also this year, as it is still a somewhat uncertain supply chain environment we are facing. Looking forward at fiscal 24, we are increasing our revenue to approximately 1.3 billion, and we are significantly increasing our adjusted EBITDA to 155 million, or 12%, with a range of 145 to 165 million. This is an increase of 75 percent over the prior year record results. Due to supply chain volatility, at this point, we are only providing general quarterly ranges with every remaining fiscal 24 quarter expected now to have higher revenue between 300 to 350 million and maintain adjusted EBITDA in the range of 25 to 35 million for 9% to 11%. We will provide further updates in the beginning of August after we close the fiscal Q3 and gather further insight into our supply chain capabilities to support our strong backlog and increasing type D and designate. Moving to slide 16, in summary, we are forecasting a significant improvement year over year, with revenue up 15% to approximately $1.3 billion, adjusted EBITDA in the range of 145 to 165 million, and adjusted free cash flow of 70 to 80 million, in line with our typical target of approximately 50% of adjusted EBITDA. As a timing update, based on public flow test that is required to be performed as of the end of Q2, we'll move from accelerated filer to a large accelerated filer status at the end of fiscal year 2024, which will reduce our form TK filing requirement from 75 to 60 days. As a result, we plan to file our 10K and hold our fiscal year-end earnings call on Monday, November 25, 2024. On slide 17, we wanted to also update you on our significantly raised long-term outlook and our expected path to get there. First of all, we updated the slide layout as we believe the recent sustained performance and profitable growth demonstrated in the last several quarters is more relevant for the type of company we are today and as a baseline from where we are planning to go forward. Second, through hard work from all of our teams and great execution of our strategy, we already deliver way ahead of schedule the 12% adjusted EBITDA margin we had previously highlighted as our long-term aspiration. Therefore, today we are significantly raising the bar for our outlook as follows. The 12.5% adjusted EBITDA margin is now in our updated short-term outlook, and once the supply chain further normalizes, we expect to sell approximately 9,500 units, including 1,500 units EVs, and generate 180 million adjusted EBITDA on 1.45 billion in revenue. Looking to the medium term, our EV growth and operational improvements on one shift can support volumes of up to 10,000 units, including EVs of 2,500 units, generating revenues of 1.6 billion and with adjusted EBITDA of 210 million or 13%. Our long-term target remains to drive profitable growth now to even higher levels, towards 1.85 to 2 billion in revenue, comprising of 11,000 to 12,000 units, of which 4,000 to 5,000 are EVs, and generate EBITDA of 250 to 280 plus million, or 13.5 to 14% plus. We're incredibly excited about Bluebird's future, and now I'll turn it back over to Phil.

Thank you, Razvan. As always, that was a great explanation of our Q2 results and our financial outlook. Let's now move on to slide 19. I covered this slide at our prior two earnings calls, so I won't spend much time on it today as our priorities and our strategy are unchanged, as they should be. The chart on the left illustrates the three priorities that continue to drive us every day, taking care of our employees, delighting our customers and dealers, and delivering profitable growth. The chart on the right provides more texture around the specific strategies that we are pursuing that both align with our priorities and drive our four-year growth plans. At the center is our ultimate objective to drive sustained profitable growth. As you recall the accomplishments in fiscal 23, we transformed the business from losses to record profitability, achieving a full year profit margin of 8%. For fiscal 24, we just increased our full year earnings guidance at midpoint of range to a 12% adjusted EBITDA margin. That's a full four percentage points higher than last year. And then over the next couple of years, We plan to grow the margin to 13% and then to 14% and beyond in the longer term. Our specific strategies focus on delivering these financial goals and are spelled out in this chart. Namely, leadership and safety, both in the workplace and with our products, is paramount to us. And we are investing in both engineering and CapEx in these areas in fiscal 24. Best products and features. As always, we seek to differentiate ourselves, providing more value to our customers. As a reminder, our buses are purpose-built from the ground up for transporting children safely, with many unique features. They're not a derivative of a truck chassis like most of our competitors, and our customers understand the value of this. That's why we were the first to move on propane, gasoline, and EV power among our major competitors. We focused 100% on school buses. We saw the need in the school bus market for them, and we delivered them. Leading in quality, durability, and alternative power is the cornerstone of our product planning and development, and we will continue to differentiate. Having competitive costs through lean manufacturing and efficient throughput, strong supplier relationships, and smart product design are essential to compete in a business where competitive bids are required. And after the sale, we need to provide great service and ensure vehicle uptime throughout the 15 years or more that our buses need to run. This means partnering with our exclusive dealer network that covers every corner of the United States and Canada, with our dealers having an average tenure with us of over 30 years. As I have said many times, In both these earnings calls and at various conferences, you cannot make it in the school bus business without a fully capable and experienced dealer network that can reach more than 10,000 school districts that operate their own bus fleets and 3,400 independent owner-operators of school buses. Following these core strategies has been key to our transformation and will continue to drive our four-year plans. Let's now turn to slide 20 and look at the latest status of federal funding for clean school buses, which is so important in helping to accelerate the adoption of electric and propane vehicles in fiscal 2024 and beyond. As a reminder, we're just starting the second year of this five-year program, which provides $5 billion of funding of electric and propane powered school buses, but we're still over $4 billion available after the first year of funding. The second year, which is referred to by the EPA as a 2023 program, provides for two rounds of funding, totaling at least $1.5 billion. That's about $500 million more than was anticipated and appears to be an acceleration by the EPA to deploy the $5 billion in total funding. As the left chart shows, Round two awards for the 2023 grant program were increased from $40 million to $965 million due to the high level of grant applications submitted. A total of 2,737 electric and propane buses were awarded grants early this year, and the winners will have until December 25 to purchase their buses using these awards. We expect Bluebird buses to represent around 30% of the ultimate orders, amounted to approximately 800 electric and propane school buses. Looking at the middle chart, immediately after announcing the Round 2 award results, the EPA announced its Round 3 rebate program, which is also part of the 2023 program, told to get at least $500 million and potentially much higher based on the number of applications. Award winners should be notified later this month and will have until April 26 to purchase their buses and close out their awards. If our win rate holds at about 30%, Bluebird should expect to receive at least 450 electric and propane school bus orders from this third round. Together, both of these funding rounds should generate orders through 2025 for at least 4,300 electric and propane school buses and associated infrastructure, which is great for the industry, and particularly for Bluebird, with about 1,250 orders anticipated. With the deadline for bus purchases from these two rounds being as late as April 2026, orders and corresponding deliveries could be pushed back later than 2025, as end customers deal first with finalizing their charging and utility infrastructure requirements prior to ordering. Now let me turn to the exciting new news shown in the right-hand chart. On April 24th this year, the EPA announced the all-new 2024 Clean Heavy Duty Vehicles Program, which is being funded by the Inflation Reduction Act. Funding for Class 6 and 7 electric vehicles is up to $1 billion, and the outstanding news is that 70% of that funding is being allocated to school buses. That's up to $700 million of additional funding to accelerate the adoption of EV school buses. which goes beyond the $5 billion from the EPA's Clean School Bus Program. Applications have been accepted through July 26th of this year, and awards are expected to be announced in February 25, followed by up to two years to purchase the buses. The EPA's focus on school buses is great news for our industry, our customers, and our school children, with school buses recognized as having the perfect duty cycle for EV adoption. So let me now wrap up the earnings call and outlook for the business on slide 21. Razvan took you through the RAISE guidance of fiscal 24, and I'm showing some of those key metrics at the midpoint of guidance here. We are being prudent in our bookings outlook. We're only increasing volume by 3% over fiscal 23 at this time. As I mentioned earlier, we're still dealing with two specific suppliers of constrained chassis components that are impacting the broader truck and bus industries. But we did manage them very well in the first half of this year, and we have line of sight to additional capacity from them later this year. And if we can build more in fiscal 24, we will, just as we did last year. Net revenue, $1.3 billion, will be a new record for Bluebird, up 15% from fiscal 23. Adjusted EBITDA guidance of $155 million is a 75% increase from last year's then record, $88 million. Importantly, we're planning on a 12% EBITDA margin in fiscal 24, up four percentage points from fiscal 23, which is at least a couple of years ahead of the plan we have been sharing with you. We have confidence in achieving this margin after recording an impressive 14% adjusted EBITDA margin in the first half of this year. It should be noted that first half did benefit from an exceptional mix of EVs at 9% of unit sales. within a strong total mix of alternative fuel vehicles at 60% of sales. This mix may not repeat through all quarters, especially with the extended time granted by the EPA for customers to complete their purchase and deployment of the new EV funding awards. You'll recall that's as late as April 2026. Further, as Razvan pointed out, we are nearly doubling our engineering work in fiscal 24 in support of many new product programs. which is contained within our 12% margin outlook for fiscal 24 full year, along with the potential economic impact of our very first collective bargain agreement with the United Steelworkers later in the year. Finally, as I mentioned earlier, we are looking to grow EB unit sales to 800 buses in fiscal 24. That's a 47% increase over fiscal 23 sales, similar to growth we saw in Q2. As you can see on the right chart, there's a lot of pent-up demand following the low-end sales in 2020, 21, and 22. And the bus fleet has aged by a couple of years. ACT is forecasting a compound annual industry growth rate of 7% from the end of fiscal 23 through to fiscal 27. And that's great news for our business and great news for our profit outlook. With residual supply chain challenges still impacting the auto industry today, The ability to build all these units near term is not a given, but importantly, the demand for school buses is clearly there. After executing a substantial transformation across our business, the company is performing exceptionally well. We'll begin to improve operating performance and look forward to sustained profitable growth in the robust market ahead. The future is incredibly bright for Bluebird, and we're confident in achieving this year what have been our longer-term goal of 12% EBITDA margin. Consequently, we have updated our longer-term outlook to reflect an EBITDA margin at least 2% points higher with a minimum of 14%. I want to thank our nearly 2,000 employees for all their hard work and their dedication in delivering a record profit for a second quarter at Bluebird. On top of an all-time record profit that we delivered in the first quarter. I also want to recognize our outstanding dealer partners who are critical to our success. That concludes our formal presentation today, and I'd now like to hand it back to our moderator for the Q&A session.

Thank you. If you would like to ask a question, please press Start followed by 1 on your telephone keypad now. If you change your mind, please press Start followed by 2. When preparing to ask your question, please ensure your phone is unmuted locally. We will take our first question from Eric Stein of Craig Hallam. Eric, your line is now open. Please go ahead.

Hi, everyone. Thanks for taking the questions. Hey, so last quarter, you talked about pricing being ahead of materials prices and that You thought you might have a step down sequentially in EBITDA, which did not come to fruition. You know, curious, did you see that? And that was offset by, as you said, high mix of EVs and type D school buses, or is that something that for whatever reason, that's more of a second half rather than second quarter? I didn't like it.

Yeah, Eric, thank you for the question. This is Razvan. So definitely, as I mentioned, we have been much more proactive in our pricing actions in the last several quarters than we were in the past. We started to see some inflation factors into our costs, both in the cost of goods sold from the material cost as well as in our SG&A through labor inflation. But definitely we expect more increases in the second half of this year. So overall, yes, we saw a bit of margin compression in the end. But in the end, the bulk of it is still to come in the second half of fiscal 24.

Got it. And you're not necessarily implying a lower or, you know, a noticeably lower mix of EVs. You're just guiding in that way as a not to being conservative given some of the uncertainties that are still out there, supply chain and others.

Yeah, so we are maintaining our guidance of approximately 800 EVs for this year. But yes, in any given quarter, the mix can vary a little bit. But overall, yes, we are confident and our guidance continue to remain conservative.

Okay, great. Maybe just turn into the federal funding. I know that the deadlines have been pushed out versus clean school bus round one. Just curious, you talked about some pretty strong EFE order trends. I know it's still early. Are you seeing anything from round two, or is that something that you expect throughout the remainder of the year and into 25?

Hi, Eric. It's Phil here. Yeah, I mean, I think obviously when you get these grant awards, you know you're a winner. They take the time worrying about the infrastructure that they need, the utility companies, the charging infrastructure too. You know, that's all now in progress because the award winners, certainly that first, what I call the first round of the second year, that's what they're working on. We are starting to receive orders, though. I think we got, I can tell you, I know we got 50, more than 50 to date have just come in from the second one, second round, if you like, of our total program to date. So that's promising. That's good. So I expect during the course of the year we'll receive more. It'll pick up pace. as people figure out their, uh, charging infrastructure needs, you know, and many of those customers, we work with them on that to try and accelerate our orders. So we feel, we feel very confident in, uh, in that we're going to have a nice, uh, order book continuing through this year and a good, uh, you know, data read numbers. So that's what I mentioned to you.

Yep. That's good to hear. You're starting to see it, even though it's still early days. Um, maybe last one for me, you, you mentioned the EV chassis, um, and I think you kind of hinted at some things or to stay tuned here over the remainder of 24, just wondering if you can give a little more details there or if it's something we need to wait on.

Yeah, okay. So obviously we haven't gone too public in this yet, but I can tell you that we're in the pilot stage of that program. We have chassis on the ground here that we're working with, testing out, It's time to put through their rigors, and we will at a future date this year be bringing customers in to take a look at it, give us feedback, and I think there's a couple of shows down the road that we'll probably exhibit it at too. So, yeah, it's well under development, and we're already generating customer interest, and we'll take that further this year.

Okay. Thanks a lot. You bet. Thanks.

We take our next question from Mike Schliske of DA Davidson. Mike, your line is now open. Please go ahead.

Yes. Hi. Good afternoon. Thanks for taking my questions. Why don't you want to touch first on market share in the quarter? Seeing somewhat flat shipments is pretty good. I mean, you think about the overall industry, but most accounts are down quite a bit, over 20%, depending on who you ask. So I guess I was wondering what you, I was wondering what you ascribe what looks like some decent market share gains in the quarter. Were you able to better work with those suppliers who were having challenges? Do you think the other players were just a little cut up with other issues with other vehicles during the quarter or just less patience to how you got such a great share here in your fiscal Q2?

Yeah, hey, Mike. This is Ravan. So thanks for the question, and good to hear from you today. So at this point, we are focusing on our deliveries, and we managed to maintain the pace of deliveries despite still some select supply challenges that we see in the market. I can't speak for the other competitors. You have to ask them. But from our point of view, we maintain the speed, and we improve the profitability, and that's what we are focusing on.

William Boschelli, Ph.D.: : Perhaps put. William Boschelli, Ph.D.: : Another way. William Boschelli, Ph.D.: : At this point in amazing think of the supply chain challenges that you've been doing anything you're in have improved at all or. William Boschelli, Ph.D.: : You do you feel that there's a risk of thinking worse and you would have a quarter this this quarter probably down 20% what we just saw, even though it's seven months closer to the start of the of the next few.

Yeah, well, you know, let me just talk about this. I mean, when you say we're down 20%, I guess I don't recognize that number. I mean, I can tell you this. Our orders for the quarter were terrific that we just went through, and we delivered the plan we had for the quarter. We more than delivered, as you know. So we came in line. We beat our plan, and we're seeing very strong orders. Our orders for the quarter were 60% more than our bookings for the quarter. You know, an order is a leading indicator of what you're going to book. I certainly down the road. I mean, some of those vehicles will be built in 25, some will be built this year. So we're feeling, you know, we're feeling good. I don't see we're thinking there's going to be anything negative along the way for us, frankly. And that's what our guidance reflects.

Well, the guidance reflects a 20% downturn in this quarter or next quarter. So I'm surprised that would be possible than what you just said. So I want to make sure I'm square. How can revenues be down 20% or down some big number, double digits, despite what sounds like a relatively stable, if not perfect environment, but stable? Are there other issues, other supply chain challenges that popped up more recently? I'm just trying to figure out how you can guide to a lower number in a quarter than what we just saw. Yeah, so in terms of...

So in terms of revenue guidance, again, we are not giving specific quarterly guidance at this point in time for the remaining two quarters. But we raised the range from $300 to $350 million. which is in line with the recent performance on the revenues that we had for the quarter. In terms of EBITDA, it is a conservative guidance, as I said also in the prepared remarks. And we have and we expect to have some inflationary cost factors hitting the second half with increased engineering expenses, additional labor inflation cost factors, as well as some contractual price increases from select suppliers. So overall, That is what drives the EBITDA guidance for the second half. But the revenue, as well as the units at 8,800 units for the years, essentially model the maintained speed of our throughput right now.

Great. Hey, I'm not complaining. Everything sounds fantastic. Maybe one last one for me about the EPA program. One other EV maker earlier today described Most of their activities from the EPA come to a halt or at a very sluggish pace because of the ability of their customers to get the full package of the charger and the electricity, et cetera, all set before they can get the whole check from the EPA. Every company's got their own way of approaching that. I was curious if you could tell us if you're seeing any delays at Bluebird from some similar factors.

yeah you know obviously i'm not going to comment on what uh someone else in our industry just told you or what the what the point of view is but i can tell you this but we we obviously know this this system works right we've been through the first round first in 2023 we've got the second second round now uh for 2024 and and when i look at this you know we we know for a fact that when an order is granted to someone then people start to work to finalize their infrastructure requirements charging infrastructure requirements and we work with our customers on that i mean we don't we don't put an application in unless that cost we believe is extremely well qualified we showed that in the first year when we did this for the first round of the program so we do that we ensure it and we're confident that uh during this year we'll start getting orders i think i mentioned earlier we've already got over 50 from the one that was just announced what two two to three months ago and that's pretty good and it's on track with the first year we had. So we expect to continue to receive that, continue to see it grow with orders coming through from our customers throughout the year.

Outstanding. That sounds great. I'll leave it there. Thank you.

You bet. Thanks, Mike.

Thank you. We now take our next question from Chris Pierce of Needham. Chris, your line is now open. Please go ahead.

Hey, good afternoon, everyone. Just to, on the doubling of engineering spend that you had mentioned and new product, are these new products or new iterations of existing tool types that you have? And is the chassis that you referred to, the EV chassis, sort of part of that? And kind of, I'm just kind of curious how to think about the net benefits from the spend.

Yeah, let me just take a quick one of that, and Razvan can jump in too. Yeah, I mean, we look at engineering spend. There are certainly new features we're introducing that we haven't announced those yet because we don't announce too far before we launch them. And they'll be coming to the market, new things for us, new features for us, new innovations, if you like. There's also a lot of work we talk about on there supporting the emissions program. You know, there's a big emissions change coming forward in 2027. And that's caused requirements to do modifications on some of the emission controls on those products of ours. Just a reminder, our propane product does completely meet the NOx requirements of 2027 without any changes, but there are further, I call it, control systems on those vehicles as we move into it. The gas needs a little bit of work, but it's well on its way. And then, of course, we take a diesel engine, too, on our product. So when we look at all that, there's a bit of work there. And then there are some... of our buses, we're putting, like I said, in addition to new features, some cosmetic changes coming on there and some functional changes too. So they're all covered among other things in our engineering bill.

Okay. And is that something that sort of helps you, I don't want to use the word justify the price increase, but helps kind of ease the price increases that you've been putting through, or is that kind of just the way the industry operates where there are consistent upgrades to features of buses, just like consumer cars?

Well, a couple of things, obviously we price for inflation. I mean, we have to recognize our material costs go up or labor costs go up. We got to, just like any industry does, we price to recover that. And that's the cost of doing business. And, uh, but on top of that, when we bring an exciting new features, we all talk about, we want to appreciate features our customers want and they value. So we would expect, uh, to, you know, price for those features as appropriate based on the value they bring to the customer. Um, sometimes they roll it into an annual price increase or, Paul, sometimes we might, you know, do it separately in the middle of the model year. So, you know, we'll figure that out as the time comes.

Okay, perfect. Thank you. And then on the EPA timeline, can you just talk about the right way to think about this? Because we're talking about a 2023 grant, but the final application was just put through. There was an increase of over $500 million, but those orders don't come until 2025. So, On the surface level, it might look like we're halfway through the program dollar-wise, but the amount of buses that have hit your income statement is not close to halfway through. Is that the right way to think about it?

Yeah, yeah. I mean, basically it is. Yeah, they're given that long timeframe the EPA has given because there's an exceptional number of buses here, obviously, being sold through these grants. And they know that people have to stagger that out over the period of time, put charges in place, infrastructure in place. But we've got used to the rhythm of that, the way it comes in. And, you know, the EPA has put that out there, but obviously we look to install these as quickly as we can and get the buses out there, and we'll work with our customers to do that. But the extended time frame just recognizes, you know, there's a lot of work to be done. If a customer, a brand-new customer gets a fleet of electric buses, let's say, they have quite a bit of work to do to prepare. There's the bus depot, if you like, for installing that and making sure it can run correctly. And that's what allows them time to do.

Maybe just to build on that, what Phil said, and looking at the slide 20 of our presentation. So for example, on the round two 2023 grant program on the left, December 2025 is the deadline for these buses to be on the ground and put in operation. So deliveries will be between now and then as the orders comes in, as our backlog develops. So those dates are kind of the end points for the buses to be up and running on the ground.

TAB, Mark McIntyre:" Perfect Thank you and then just lastly on Michael whiskey question, I just want to understand, you know we're talking about cost increases, the second half of the year, but it. TAB, Mark McIntyre:" As someone newer to the story is it correct that the second half of the year tends to be the seasonally strongest time of year from a revenue perspective as well.

Yeah, so before COVID, for sure, there was a cyclicality into the production levels, where two-thirds of the volume was done in the second half of the fiscal year and about one-third in the first half. However, after several years of undersupply, and we're still being constrained on our supply chain at this point in time, we are now at a much more steady state. So that is not a factor anymore, short of number of weeks and a few holidays here and there. We don't see the big gaps anymore. Okay. I appreciate the time.

Thank you. Thank you.

As a reminder, to ask any further questions, please press Start, followed by 1 on your telephone keypad now. We have no further questions, so I would like to turn the call back to Phil Horlock for closing remarks.

Well, thank you, Natasha, and thanks to everyone for joining us on the call today. Before I close this call, I'd like to summarize where I believe we stand today and also where we are going in the years ahead. It's fair to say last year we saw, you saw, and we saw our momentum growing throughout the year, with profitability increasing as we move through every quarter. And we've continued on the same path by delivering impressive record profit for second quarter with a 13% margin. That's on top of an all-time record profit for any quarter that we delivered in Q1. So with this solid base behind us, we raised guidance once again, projecting a full year adjusted EBITDA margin of 12% for the fiscal year, which, as we know, is a full 4 percentage points above last year. So we're in a very, very strong position, you think, when we look at it versus where we were a year ago and certainly two years ago. Going forward from here, our plan to drive profitability and grow shareholder value is due to a number of extremely favorable factors. We have an unprecedented backlog of firm orders and strong market demand ahead of us with an aging bus fleet out there. Two, supply chain constraints are easing, albeit there's still some way to go. But nevertheless, we're starting to see what I call the light at the end of the tunnel, at least on some near-term issues that we are experiencing. Three, upcoming 2027 emission standards will increase the need for alternative powered vehicles. There is no question of that in our mind. which is our sweet spot. Four, we have strong federal and state support and customer demand for electric school buses. As I said before, this is a perfect industry for deploying school buses. Our duty cycle is absolutely perfect for it. And that's one of our sweet spots as well. And five, we're achieving record profits, margins, cash, and liquidity today And that's a really strong base to grow from. So with these very positive tailwinds, we're confident in achieving a 13% margin within a couple of years and then getting to 14% and beyond in the longer term. So we appreciate your continued interest in Bluebird. We look forward to updating you again on our progress next quarter. Should you have any follow-up questions, please don't hesitate to reach out to us or contact our head of investor relations, Mark Benfield. Thanks again from all of us here at Bluebird and have a great evening.

This concludes today's call. Thank you for joining. You may now disconnect your lines.