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spk01: Hello all and welcome to Bluebird's fiscal 2024 third quarter earnings conference call. My name is Lydia and I'll be your operator today. After the prepared remarks, there'll be an opportunity to ask questions. If you'd like to ask a question during the Q&A, you can do so by pressing star followed by one on your telephone keypad. I'll now hand you over to Mark Benfield, Head of Investor Relations to begin. Please go ahead.
spk02: Thank you and welcome to Bluebird's fiscal 2024 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. So let's get started. Phil.
spk08: Thanks, Mark, and good afternoon to everyone on our call today. It's great to be here and to share with you our results for our fiscal 2024 third quarter. You'll recall that on our last earnings call, we reported an all-time record profit for our second quarter. Well, I'm very pleased to tell you that our momentum has not slowed down at all, with the Bluebird team doing a fantastic job in delivering a third quarter profit that is an all-time record for any quarter in our history. That surpasses our previous quarterly record that we achieved in the first quarter of this year. Razvan will be taking you through the details of our financial results shortly, So let me get started with the key takeaways for the third quarter on slide six. As the headline says, we recorded the best ever profit for a quarter. I am particularly proud of this achievement after breaking profit records in each of the past two quarters, and we have much more to come. Regarding the first line in the box, I'm very pleased to report that we achieved an outstanding adjusted EBITDA margin of 14.5% in the third quarter. That's more than four percentage points higher than a year ago. And once again, we're increasing four-year guidance on all three metrics that we provide, and we're also increasing our long-term financial outlook, as Razavan will show you later. As we look at the drivers for this terrific progress in Q3, It really is about maintaining and delivering the plan we laid out last year, which focuses on making significant improvements across every piece of our business. Market demand for school buses continues to be very strong. Our quarter-end backlog of firm orders for Bluebird buses stood at just over 5,200 units. That's a little more than at the same time last year. But importantly, our net orders for Bluebird buses through the first three quarters of this year were 10% higher than for the same period last year. Now, that's a great endorsement of the strength of the industry and the customer demand for Bluebird's buses. And this bodes well for pricing, production stability, and profit margins. Now, while supply chain issues are undoubtedly easing, as we have reported throughout this year, we do have select constraints on a couple of chassis components across the truck and bus industry that are limiting industry production and deliveries. But we're very engaged with those constrained suppliers, and with additional capacity being added in the balance of this calendar year, we should see some easing of those constraints as it moves through the end of this year and into 2025. Every bus we are selling today and those in our order backlog reflect current pricing, and we are priced competitively, which we can tell from our quote win rate and our incoming orders. This is an 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 round of $1 billion of funding from the EPA's unprecedented $5 billion Clean School Bus Program, our third quarter delivers electric buses were again over 200 units and nearly 40 percent more than last year and represented nine percent of our unit sales for the quarter and we ended the quarter with a record backlog of ev buses this is particularly impressive as we're approaching the end of deliveries for the first round of the clean school bus program and are just beginning to see orders from the second and third round of the epa's program These will really impact fiscal 25 and 26, and I will cover this timing of deliveries in more detail a little later. We also maintain our very strong mix of alternative powered vehicles and further strengthen our leadership position in this segment. The higher margins and higher owner loyalty from these products contributed to our profit improvement in the third quarter. We are continuing to invest back into the business by selectively upgrading facilities and installing lean manufacturing processes, and we are enhancing the plant working environment. Through the efforts of the best workforce in the business, strong leadership, lean process improvements, and just sheer hard work, we have been achieving some of the best manufacturing performance the company has ever seen. Bottom line, we are performing extremely well in a strong market. We are delivering a rich 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 third quarter adjusted EBITDA of $48 million with a margin of 14.5%. Now let's take a closer look at the financial and key operating highlights for the third quarter on slide seven. As I have said on previous earnings calls, our present year financial performance is transformed from a year ago with many record highs reported. We sold 2,151 buses in the third quarter fiscal 24, which is very slightly above last year. However, those unit sales drove a strong third quarter net revenue of $333 million, which is a very impressive 13% increase over last year. So with essentially flat volume compared with a year ago, up by only 14 buses, and net revenue of 13%, the impact of higher pricing and a richer mix of EVs is clearly evident in the revenue growth. Our record third quarter adjusted EBITDA of $48 million was $90 million above last year. That's almost 70% higher and well above the $25 to $35 million general guidance range for quarterly profits. that we showed at our last earnings call. And finally, while adjusted free cash flow for the quarter was slightly negative, that was more than explained by significant sales to the national fleets, where we provide extended payment terms. We won this business earlier in fiscal 24, and these units were delivered late in the third quarter and are now being paid for in the fourth quarter. They are recognized as receivables in Q3. Overall, we had exceptional third quarter financial results and achieved transformational improvements over 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 very strong, with our firm order backlog at the end of the third quarter worth about $775 million in revenue, respecting a backlog of over 5,200 buses. That's almost seven months of firm order backlog on our current sales rate. We raised prices considerably over the last two years, and the average third quarter selling price per bus in fiscal 24 was an outstanding 13% higher than a year ago. That's about a $17,000 increase in average selling price per bus. Part sales totaled $25 million in Q3, representing a strong 6% growth over the last year, and that's also consistent with the growth we saw in the first half of 24. Turning to alternative powered buses, they represented about 59% of our total unit sales in the third quarter, and we are running at a very strong 60% of sales mix through the first nine months of the fiscal year. We continue to be the clear leader in this space. no other major school bus manufacturer comes even close to those numbers ev bus is a part of that alternative power mix and in the third quarter ev bookings increased by 38 percent over last year once again we sold over 200 evs in a quarter that represents a very strong mix at nine percent of our total sales compared with seven percent in last year's third quarter Additionally, we left the quarter with a record Q3 backlog of 567 EVs, which is a very strong 11% share of our total backlog. Now, that's worth more than $180 million in revenue and the impressive 17% higher than the backlog we had at the end of the second 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, and we expect significant orders and deliveries from those two rounds in fiscal 25 and fiscal 26. On the labor front, I am really pleased with the outcome of our first collective bargaining agreement with the United Steelworkers Union, which now represents our hourly employees and was completed in just less than a year. Russell will summarize the details of the program a little later, but this is truly a win-win for Bluebird and for employees, and we look forward to a collaborative and stable partnership that benefits all. In regard to future investment expansion plans, I'm very excited with being awarded an $80 million grant by the Department of Energy to increase EV and overall production of our Type D bus. allowing us to expand single shift capacity of school buses from 10,000 buses annually to 14,000 buses. I will cover the significant growth initiative in more detail a little later. And finally, on the back of our third quarter results, we are once again raising four-year guidance for adjusted EBITDA, net sales revenue, and adjusted free cash flow. Most notably, we're increasing adjusted EBITDA at the midpoint of range by $20 million, with guidance now at $175 million for the full year. That represents a really strong margin of 13.3%, which is an outstanding 5.5 percentage points higher than last year. This is our sixth quarter in succession that we have beaten and raised our guidance. with the expected outcome being record full year results in fiscal 24. In fact, at midpoint of guidance, we are now at double the profit we achieved in 2023, which was a then record. Importantly, too, we have raised our longer-term margin outlook from 14% to 15% as we continue to solidify and build on our recent operating and financial performance. With an all-time quarterly record profit in the third quarter, reflecting a 14.5% adjusted EBITDA margin, I'm incredibly proud of our team's accomplishments. Let me now walk you through the highlights of our plans for the $80 million DOE grant that we were awarded just last month. Turning onto slide eight. Bluebird is one of 11 companies to be awarded a grant by the DOE under the MESC program. That is the Manufacturing and Energy Supply Chain's office of the DOE. Awards were based on converting a facility that produced combustion engine-based products to one that produces EV products. In our case, we're converting our former WonderLodge RV production site. The grant award of $80 million represents 50% of the capital required to build a 600,000 square foot Type D and EV production facility located right across the street from our existing plant. So the total investment is around $160 million with Bluebird funding the other 50%. The build out will span around two years with production launch expected by the end of 26 or early 27. Adding this facility would raise our total production capacity to around 14,000 buses on one shift and would provide for increased volume upside for the commercial chassis production when needed. The new plant would create approximately 400 new jobs, and the project includes a number of community benefits. The project generates a great return on investment with a projected IRR of 28% and payback less than two years after start of production. Now, grant deployment is subject to finalized contract negotiations with the DOE through December this year, which are underway today, and final board approval. We are very excited about the opportunities that this award presents as another pillar for our long-term profitable growth outlook. We will apprise you of our progress at our next earnings call. I'd now like to hand it over to Razvan to walk through our fiscal 24 third quarter financial results and updated guidance in more detail. we'll also be providing our first look at guidance for fiscal 25. Over to you, Razvan.
spk07: Thanks, Phil, and good afternoon. It's my pleasure to share with you the financial highlights from Bluebird's fiscal 2024 third quarter record results. The quarter end is based on a close date of June 29, 2024, whereas the prior year was based on a close date of July 1, 2023. We will file the 10-Q today, August 7, 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 10 is a summary of the fiscal 24 third quarter and year to date record results. It was another outstanding operating quarter for Bluebird with somewhat limited and very well managed supply chain and labor challenges and with high margin units driving both our top line and our bottom line results. We significantly beat the adjusted EBITDA general quarterly guidance provided in the last earnings call and in fact we delivered the best quarter ever for Bluebird. with 48.2 million adjusted EBITDA margin. Additionally, on a year-to-date basis, we tripled the results of last year for a new record year-to-date of 141.6 million. The team continued to push hard and did, again, a fantastic job and generated 2,151 unit sales volume, which was just above prior year Q3 volumes, but with more complex type D and a higher number of EV buses. Record Q3 consolidated net revenue of $333 million was $39 million or 13% higher than prior year, driven by a slightly higher number of units, higher part sales, improved mix of type D and electric buses, and pricing actions that continue to materialize also in this quarter as expected. Adjusted EBITDA was an all-time quarterly record of $48 million, driven by high margins, increased part sales and margins, partly offset by increased labor and material costs. The adjusted free cash flow was negative $4 million, a $46 million reduction versus the prior year's third quarter. This was due to increased investment in working capital, mainly finished goods and accounts receivables, as we sold a larger number of buses to fleets and GSA in this quarter. We expect many of these units to turn into cash by the end of fiscal 24. Our liquidity position at the end of this quarter was also at a record Q3 level with $232 million, and we had close to zero net debt position. On a year-to-date basis, in nine months, we generated revenues close to $1 billion, tripled the prior year-to-date adjusted EBITDA result to $142 million, and we delivered significant steps forward on our profitable growth path. Moving on to slide 11, as mentioned before by Phil, our backlog at the end of Q3 has grown and continues to be very strong at over 5,200 units, including over 11% EV. Breaking down the Q3 record, $333 million in revenue into our two business segments, the BASnet revenue was $308 million, up by $38 million versus prior year. Our average bus revenue per unit increased from 127,000 to 143,000, or 13%, which was largely the result of pricing actions taken over the past year, as well as a higher mix of Type D and electric buses. EV sales in Q3 were also strong at 204 units, or 56 more than last year, a 38% increase year over year. Parts revenue for the quarter was $25 million, representing a growth of $1 million, or 5%, compared to the already very strong prior year levels. This great performance was in part due to increased demand for our parts of the fleety steel aging, as well as supply chain-driven pricing actions and throughput improvements. Growth margin for the quarter was a record 20.8%, or 5.3 percentage points higher than last year. due to our sustained operational performance and our pricing overtaking the inflationary cost in the last four quarters. In fiscal 2014-2023, adjusted net income was a record $31 million, double the level of the prior year, a $16 million improvement year-over-year. Adjusted EBITDA of $40 million, or 14.5 percent, was up compared with the prior year by $19 million, an increase of over four percentage points. Record adjusted diluted earnings pressures of 91 cents was up 47 cents versus the prior year, more than doubled. Slide 12 shows the walk from fiscal 23 Q3 adjusted EBITDA to the fiscal 24 Q3 results. Starting on the left at 29.7 million, the impact of the BUS segment gross profit in total was 22.3 million. Split between volume and pricing effects, net of material cost increases of $25 million, offset by labor cost increases of negative $2.7 million. The favorable development in the past segment gross profit was $1.2 million, driven by higher sales at very good 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 personnel related, of negative 5 million as discussed in the last turning scope. The sum of all of the above mentioned developments drives our record fiscal 2014 reported adjusted EBITDA results of 48.2 million or 14.5%. Moving on to slide 13, we have extremely positive developments year over year also on the balance sheet. We ended the quarter with $88 million in cash and reduced our debt significantly by $39 million over the last four quarters. In fact, our net debt position was once again close to zero at the end of this quarter. Our liquidity is very strong at $232 million at the end of fiscal 2043, a $98 million increase compared to a year ago. The operating cash flow was $1 million in this quarter, driven by an improvement in operations and margins, offset by an increase in finished goods and account receivables due to the large number of fleet and GSA units built this quarter. For the fleet and the government GSA units, the working capital flow is different than the dealer business in two main ways. First, the boxes are in finished goods inventory for an additional two to six weeks while they are transported and inspected for delivery before they get into customer hands. which is when we recognize the sale. Second, fleet and GSA buses generally have longer payment terms than our dealer business, which could be 30 days or more, depending on the contract. A detailed comparison chart of these flows is available in the appendix of today's presentation. Slide 14 shows the sustainable results achieved by our team over the last four quarters, generating over 180 million in adjusted EBITDA, or 14%. Our revenues have been consistently above 300 million every quarter, partially due to pricing realization, combined with a strong increase in EV sales versus last year. We have beat and raised our conservative guidance for the last six quarters in a row due to the outstanding execution of our plans by our team, and despite the still difficult supply chain environment with select suppliers. The last four quarters have been in the 13 to 15% adjusted EBITDA range, demonstrating that we are delivering now consistently double-digit performance and at best-in-class levels. Finally, it is important to note that our pricing curve has been ahead of our costing curve in the last four quarters, preparing us for the significant investments lined up for 2025 and the contractual inflation factors expected ahead of us, some of which already impacted our margins in fiscal 2043 as expected. Before we talk about the updated guidance for fiscal 24 and our updated mid- and long-term outlook, on slide 15, we wanted to share with you the results of our year-long negotiations with the USW on our first collective bargaining agreement. Overall, we believe we have achieved the win-win result, which makes Dubois an even more attractive place to work in Middle Georgia and will give us the talented and stable workforce required for our profitable growth plan. We have now a three-year contract from June 2024 to June 2027 with approximately 1,500 people in scope. The average wage increase in the first year is 12%, followed by 4% in year two and another 4% in year three. We are also introducing profit sharing at 4% of net income once certain thresholds for profitability are met each year. We also strengthened the company 401 contributions for the employees. In total, the increased cost equals approximately 1% of the company revenues on a run-rate, go-forward basis, and we intend to pass this to our customers over time through pricing actions. In Q3, we recorded a number of one-time expenses, including the ratification bonus of $750 per employee paid in June and the throw-up of our profit-sharing accruals. In summary, we believe our CBA provides us with the necessary workforce and stability to continue to grow profitably in the years to come. On slide 16, we want to share with you our updated fiscal 24 guidance. We are increasing our revenue to 1.315 billion, and we are significantly increasing our adjusted EBITDA by 20 million to 175 million, or 13%, with a range of 170 to 180 million. This is an increase of 100% over the prior year record results, doubling our prior best year ever. We are reducing our EV sales outlook for the year by about 100 units due to the timing of EPA orders and requested delivery timing. Phil will cover this in more detail in the outlook. Given this and cost factor headwinds anticipating in Q4, we expect in the last quarter revenues of 300 to 330 million and increased adjusted EBITDA in the range of 30 to 40 million or 10 to 12%. Moving to slide 17, in summary, we are forecasting a significant improvement year over year, with revenue up 16% to over 1.3 billion, adjusted EBITDA in the range of 170 to 180 million, and adjusted free cash flow of 80 to 90 million, in line with our typical target of approximately 50% of adjusted EBITDA. As a reminder, we are moving from accelerated filer to a large accelerated filer status at the end of fiscal year 2024, which will reduce our Form 10-K filing requirements from 75 to 60 days. As a result, we plan to file our 10-K and hold our fiscal year and earnings call on Monday, November 25, 2024, as announced in the last earnings call. On slide 18, we wanted to give you a first look at fiscal 25 in terms of preliminary guidance. We have a number of both tailwinds and headwinds, and they maintain a cautious stance, yet maybe a bit less conservative than in the prior years. As tailwinds, we have strong demand, stable pricing, and still very high industry backlog. We have now the only propane fuel school bus in the industry with clean fuel and best-in-class total cost of ownership. We are also leading in the EV segment with close to 2,000 buses on the road, and the orders from round two and three of the EPA Clean School Bus Program will significantly improve our sales mix in the second half of fiscal 25. As headwinds, supply chain is still fragile at times while improving overall, and we have made great progress in removing bottlenecks for some key components. The material costs and supplier inflation pressures are still present. And finally, we expect still relatively low EV production and sales to the first half of fiscal 25, but the infrastructure plans are being worked on and with many customers requesting EV delivery before school starts in the summer of 2025. While it's still very early, we are modeling the range of scenarios as follows. Units in the range of 9,000 to 9,500 units. EV sales in the range of 1,000 to 1,300 units, back-end loaded in the second half. Revenues in the 1.4 to 1.5 billion, or approximately 10% increase over fiscal 24, also back-end loaded. And adjusted EBITDA of approximately 13%, and in the range of 180 to 200 million, approximately 10% year-over-year improvements. We'll provide more insight into fiscal 25 during our next earnings call on November 25th. On slide 19, we wanted to also update you on our RAISE long-term outlook and our expected path to get there. Looking at fiscal 24 updated guidance, Through hard work from all our teams and great execution of our strategy, we already delivered way ahead of schedule the 13% adjusted EBITDA margin we had highlighted in the past as our long-term aspiration. Therefore, today we are raising the bar again for our outlook as follows. Fiscal 25 shows 190 million and 13% plus adjusted EBITDA margin and replaces the previous short-term outlook. Looking to the medium term in fiscal 26 or fiscal 27, our EV growth and operational improvements on one shift with the existing plan 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 $225 million or 14%. Beyond 2027, our long-term target remains to drive profitable growth now to even higher levels, towards $1.5 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 $270 to $300 million, or 14.5% to 15% at best-in-class levels. We are incredibly excited about Bluebird's future, and now I'll turn it back over to Phil.
spk08: Well, thanks, Razvan. As usual, that was a great explanation of our quarterly results and our forward year outlook. So let's move on to slide 21. I covered this slide at our two prior 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, taking care of our employees, delighting our customers and our 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 look at the margin accomplishments in fiscal 23, we transformed the business from losses in fiscal 22 to record profitability in 23, achieving a full-year margin of 8%. FISCAL 24, WE JUST INCREASED OUR FULL YEAR EARNINGS GUIDANCE MIDPOINT OF RANGE TO A 13% ADJUSTED EBITDA MARGIN. THEN OVER THE NEXT FEW YEARS, WE PLAN TO GROW THE MARGIN TO 14% AND THEN TO 15% AND BEYOND. FOLLOWING THESE CORE STRATEGIES HAS BEEN KEY TO OUR MARGIN TRANSFORMATION AND WILL CONTINUE TO DRIVE OUR FOUR YEAR PLANS. ON THIS POINT, WE HAVE HIGHLIGHTED OUR LEADERSHIP AND SAFETY STRATEGY ON THIS SLIDE IN RECOGNITION at the significant move we announced just a couple of months ago to make three-point seat belts a standard feature on all of our Type C and Type D school buses. This will take effect in the fourth quarter of this calendar year, and we will be the first school bus manufacturer to provide three-point seat belts as standard equipment. Now, we are following this with the standardization of a driver's airbag in mid-2025 on our Type C bus, with the Type D bus coming a little later. We will be first to market with this safety feature, and both actions show our commitment to the safety of our children and the safety of our drivers. We intend to lead, and we have many more safety initiatives in our product development pipeline that will differentiate us. Let's now turn to slide 22 and look at the latest status of federal funding for clean school buses, which is so important in helping us accelerate the adoption of electric and propane vehicles in fiscal 24 and beyond. As a reminder, we are just starting the second year of this bipartisan five-year program, which provides $5 billion of funding of electric and propane-powered school buses. There is still over $4 billion to be deployed after the first year of funding. The second year, which is referred to by the EPA as a 2023 program, provides for two more rounds of funding, totaling almost $2 billion. That's close to $1 billion 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 are confirmed at $965 million. In fact, that's a $565 million increase from the original plan due to the high level of grant applications submitted. Now, about 2,700 electric and propane buses were awarded these grants earlier this year, which cover type A, C, and D school buses. And the winners will have until April 26 to take delivery of their buses using these awards. Looking now at the middle chart, immediately after announcing the RAN 2 award results, the EPA announced its RAN 3 rebate program, which is also part of the 23 program. totaling $940 million, and again, about $500 million more than had been anticipated due to the sheer volume of applications. Approximately 3,600 school buses will be awarded these rebates, which covers all body types again, and the winners will have until June 26 to take delivery of these buses. So in total, Rounds two and three will help to fund around 6,300 EV and propane-powered buses, and virtually all this is ahead of us in terms of orders and deliveries. Now, our expectation is that Bluebird should win approximately 30% of these bus orders, talking around 1,900 buses with deliveries in fiscal 25 and fiscal 26. Now, with the deadline of bus deliveries from these two rounds being as late as June 2026, Significant deliveries likely won't begin until the second quarter of 2025 calendar year, as end customers deal first with finalizing their charging and utility infrastructure needs prior to ordering. However, the EPA's timing plan indicates that purchase orders for the round three rebates must be placed by year end 2024, so we are expecting an order surge late this calendar year. Finally, looking at the right-hand chart, At our last earnings call, I introduced the 2024 Clean Heavy Duty Vehicles Program, which amounts to $932 million. Now, this is funded by the Inflation Reduction Act, and the great news is that 70% of that EV funding is being allocated to school buses. That's up to $650 million of additional funding to accelerate the adoption of EV school buses, and that's beyond the $5 billion from the EPA's Clean School Bus Program. Now, we estimate that orders from this program should total around 2,300 EV school buses. Awards should be announced in February 2025, with the winners having until January 2027 to take delivery of their buses. The EPA's focus on school buses is great news for our industry, great news for our customers, and great news for our school children, with school buses recognized as having the perfect duty cycle for EV adoption. So we have a total of $2.6 billion approved and about to be deployed over the next two years to fund around 8,600 EV and propane school buses. With our expectation on winning around 30% of these orders, These programs represent a great opportunity for Bluebird, totaling around 2,600 EV school buses of all body types over the next two years or so. Beyond that, we have another $2 billion in clean bus funding still to go and state and local funding, too, to accelerate the adoption of clean EV and propane-powered school buses. And let's remember the mission. The Clean School Bus Act was a bipartisan agreement signed in 2021 designed to keep our children and communities safe from air pollution by removing harmful, older emissions diesel powered buses from the road and replacing them with clean powered buses. What can be more important than safe student transportation? So let me wrap up the earnings call and a wrap up for the business on slide 23. Razvan took you through the RAISE guidance of fiscal 24, and I'm showing you some of those key metrics at the midpoint of guidance here. Our volume outlook of 880 buses is 3% over fiscal 23. Net revenue, $1.3 billion, will be a new record for Bluebird, up 15% from fiscal 23. Adjusted EBITDA guidance of $175 million is double the $88 million profit we made last year, which was a record at that time. Importantly, we are planning on a 13% EBITDA margin in fiscal 24, up 5.5 percentage points from fiscal 23, which is several years ahead of the plan we had been sharing with you just a couple of years ago. We have confidence in achieving this margin after recording an impressive 14% adjusted EBITDA margin in the first three quarters of fiscal 24. Now, it should be noted that the first nine months 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. The extended time granted by the EPA for customers to deploy buses from the new round two and three funding awards has slowed the recent pace of orders and is impacting deliveries late in fiscal 24. Consequently, we have lowered our forecast preview bookings this year from 800 buses to 700 buses. This is purely due to order timing with these 100 deliveries now being moved from fiscal 24 to fiscal 25 and still represents a healthy 28% growth over last year. As I mentioned earlier, however, we do expect an order surge towards the end of this year as round three rebate bus orders must be submitted by December 24 per the EPA's timing plan. As you can see on the right chart, there was a lot of pent-up demand following the low industry sales in 2020, 2021, and 2022, and the bus fleet has aged by a couple of years over that period. ACT is forecasting a compound annual industry growth rate of 7% from the end of fiscal 23 through 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, the ability to build all these units near term is not a given, but clearly the demand is there. After executing a substantial transformation across our business, the company's performing exceptionally well. We'll continue to improve operating performance and look forward to sustained profitable growth in the robust market ahead. You will recall that just a couple of years ago, our stated long-term objective was to achieve a 12% EBITDA margin. Well, with guidance of fiscal 24 now reflecting a margin of 13%, we have updated our long-term outlook to reflect an EBITDA margin at least two percentage points higher than this year at 15%. I want to thank our nearly 2,000 employees for all their hard work and dedication in delivering an all-time record profit in the third quarter. as well as our outstanding dealer partners who are critical to our success. Now, before I pass it back to our moderator for the Q&A session, I would like to move to slide 24 and briefly cover the CEO and Chairman Transition Plan that we announced after market closed today. After 14 years as CEO of Bluebird, I will be stepping down at the end of this fiscal year. It's been an honor and a privilege to lead this great company for so long and to work with the best team in the business. Now, I'm very pleased to confirm that our president, Britton Smith, will be taking over from me as CEO with his appointment effective September 29th, which is the start of our new fiscal year. We have been working together on a very thorough transition plan over the past year, with Britton taking on increasing responsibilities during that time. Britton will be joining the board immediately and I will also be staying on the board. I have to say, this is how a leadership transition should be run. Promoting from within with a leader who knows the business and ensuring continuity. Also transitioning is our chairman. After almost nine years in the seat, Kevin Penn is stepping down and will be succeeded by Doug Grimm, effective immediately. Now, Doug knows our company very well, having been on the board since 2017, and will be a great successor to Kevin, who will be staying on the board as a director. From a personal standpoint, I'd like to thank Kevin for all the support he has given me during my time as CEO and for the great friendship we have built over those years. Again, the chairman's transition couldn't be better, coming from within the board and ensuring continuity. So, this will be my last earnings call of Bluebird CEO, and I'd now like to hand it back to our moderator for one final Q&A session.
spk01: Thank you. Please press star followed by the number one if you'd like to ask a question. And ensure your device is unmuted locally when it's your turn to speak. Our first question today comes from Mike Schliske with DA Davidson. Please go ahead. Your line is open.
spk06: Good afternoon. Thanks for taking my question. And of course, Phil, congrats on your retirement.
spk08: Thanks, Mike.
spk06: Hey, there's a lot to cover here. Sure, yeah, of course. Hey, there's a lot to cover here. Robert Marlayson, Well, I start with the question to about the long term guidance, looking at what you're doing now what your long term guidance is you know it implies also $100 million worth of additional revenues, but even. Robert Marlayson, Up about 125 million you know that's less than 20% if no margins actually about 18% this past quarter, you just did 50% five zero. I guess I would have expected more in EBITDA given the EB mix going forward, the 50% higher revenues on the top line in general. I'm sure the fixed cost base won't grow anywhere near that much. So I guess I'm curious, I know you just put this guy in doubt, but do you think there's potential to go above 15% if you do in fact hit $2 billion and the EB mix plays out as you expect?
spk07: Yes, Mike, thanks for the question. This is Razvan. So as Phil alluded in his comments, he mentioned 15% and beyond. And obviously, as we are executing on this journey, as we firm our plan for the future, we are going to look potentially at higher numbers. However, there are also factors that are part of this strategic long-term plan. We are modeling over time a lower price for the EV buses in conjunction with lower costs. which in the end will drive a lower margin per bus compared to what we are making today. And definitely, this will drive the adoption and increase the mix, which then goes hand in hand with our increased mix of EVs. So we are working on that journey. And as we have more updates that we can give you, we'll be happy to share those with you at that time.
spk06: OK. Sure. On a somewhat similar note, looking at the 4Q outlook, and given what you did the first three quarters, just backing into it, you're suggesting that the revenues may be down from the 3Q that you just put up here. Outside the pandemic, does a lower 4Q than 3Q really have any precedent? Is it maybe just a mix, again, of the EVs being a little bit lower, or are you having a hard time figuring out how you're going to have lower revenues just before school starts and everyone wants their deliveries than you did in the previous quarter.
spk07: Yeah, so the fourth quarter, Mike, has one less work week than the third quarter because of the July 4 shutdown, which we put in place two years ago. So there is less number of work days. However, this particular fourth quarter, as mentioned both by me and Phil, has a lower number of EV units by about 100. And definitely this drives significantly lower revenues given the average selling price for EV buses.
spk06: Robert Marlayson, got it got it maybe one last one for me and that's on the political environment. Robert Marlayson, Can the EPA or other federal funding for buses be reversed or taken away, starting on you know January 2025 if a certain candidate wins the presidency or you feel like what has been passed is passed and will be allocated. Robert Marlayson, i'm just kind of trying to figure out whether there's any kind of risk to some of the programs that are out there today.
spk08: Yeah, Mike, well, it's Phil here. I mean, a lot of things can happen, obviously, but, you know, we look at it this way. I mean, those amounts have already been awarded. They've actually allocated them. Certainly one of the second round we talked about has been allocated to customers. It's right out there. They know what they're getting. They just finalize their infrastructure plans. Remember, that was a bipartisan agreement in 21. Both parts, there was no objection to it. It went through pretty easily. And, you know, I think it was all around the fact, talking about school children, school transportation. So, I think it'd be very difficult to, that's what we feel, very difficult for that to be reversed. There's so much support for it, and it's doing so much good for the environment for our children.
spk06: Okay. Well, thanks for that answer, and again, congrats. I will leave it there. Thanks, Mike.
spk01: Our next question comes from Craig Irwin with Roth Capital Partners. Please go ahead.
spk00: Hey, guys. It's actually Andrew on for Craig. And Phil, congrats on the retirement. First question is on gross. Yeah. First question on gross margins. You know, posted some really strong margins in the quarter with the strong revenue. You guys are still kind of seeing cost inflation. And you guys are engaged with your suppliers that are kind of seeing some constraints here. So just any update you could provide. on the cost inflation and kind of where you can see long-term margins going would be great.
spk07: Andrew, this is Razvan. I'll take this one. So in terms of gross margins, we highlighted some of the tail headwinds that we are seeing into fiscal 25. We have the just finalized new collective bargaining agreement with the USW, and that is going to cost us about 1% of revenues on a run rate basis going forward. We do see continued inflation pressures from our suppliers in terms of material costs, also driven by some labor factors, but also the general economic environment that is still not entirely stable at this point in time. So we have material inflation and we have labor inflation that will put pressure on margins. At the same time, we are continuing to, on a regular cadence, increase our prices to the market. and we're trying to balance the two factors there so at this point in time we provided the general guidance for fiscal 25 with a range and we'll be happy to provide more insight in the next earnings call when we have more visibility into our exact built-in backlog for entire fiscal 25. great thank you uh second one for me i know we're kind of still early days in the chassis business um but i think you said last quarter you had you had one on the ground um
spk00: We're engaging some customers there. So is there any kind of update now after the fiscal third quarter?
spk08: Not really, Andrew. I think what we said last quarter is still the same. We're in development mode now, developing a prototype. We have a prototype. We showed at the ACT show, big truck show back in May. Well-received, well-recognized, a very active customer group. Come and walk through that and see that chassis. So right now, our goal is that we want to get this product in the hands of customers later this year. We've got several customers extremely interested who want that product. They do their own validation tests. They give feedback to us, and then we'll be looking later into 2025, getting a commercial product out on the road to those customers. But as I said, we're very optimistic about it. We like what we're doing, and it's going to be a great chassis when it becomes a market, that's for sure.
spk00: Awesome. Well, it's great to hear. Congrats on the strong results, and I'll hop back in the queue. Thank you.
spk01: Our next question comes from Chris Pierce with Needham. Please go ahead.
spk05: Hey, good afternoon, everyone. I just wanted to ask on the national fleet business, you're talking, you know, we had this bump up in accounts receivable that we don't see in prior years, but admittedly my model doesn't go back that far. I'm just curious, are you winning more business with these national fleets? And is EV and propane driving that? Or are you winning your share of diesel engines as well? What's the right way to think about the national fleet business for Bluebird?
spk08: Yeah, I mean, it's really all of the above. We are definitely participating more in national fleet business than we have recently. Propane has been a fantastic product for us this year. As we said before on prior earnings calls, our competitors don't have a propane product. It's a fantastic total cost of ownership vehicle for these fleet operators, and they know that. So we've had great success there. Electric is the same thing, very excited about our product. I think the third thing is we have a very good delivery time versus the rest of the market in terms of getting products in customers' hands. And that's been great news for us, for fleets who want those products for school start. So I think we've done very well with that. Oh, by the way, we intend to keep this business. We intend to keep this business. This isn't a one-off event for us. I said this isn't a one-off year for us in that we've turned up the capability this year for us. We intend to retain this business going forward. It's good business for us.
spk05: Perfect. You just answered my follow-up because I know one of the three players in the market has had trouble delivering a diesel bus at this point in time. Okay. Perfect. And then I was at ACT Expo recently, and I sat in on a presentation, come in to talk to some of the other competitors. Can you talk about your, you know, you guys have been talking about diesel emissions and, you know, I just didn't pick up the same level of concern from other players in the industry, but I just didn't know if that's something that, you know, I didn't know how to frame that from not having looked at the industry for a long time. Is it just that diesel emissions get tighter over time and everyone sort of adjusts? Or is there something specific to these 2027 diesel emissions that gives you confidence in alternative fuel buses taking increased share?
spk08: It's absolutely the second one you raised there. In 2027, the emissions get very stringent on the requirements. So it's very difficult for a diesel engine to meet it without a lot of hardware support. Very costly. It'll significantly increase the cost of a diesel engine. Now, our propane product today meets the 27 emissions engine. Even our gasoline engine is quite a small putt, I'll call it, to try to get there to meet the emissions requirements. Obviously, electric is zero emissions and fully meets all those requirements. Our competitors don't have a propane engine. They don't have a gasoline engine. All they have is a diesel engine and an electric vehicle. So I think you're going to get a different comment from them. And when I talk about our leadership, just remind them, 60% of the vehicles that we sell today are non-diesel. That's quite a different story for our competitors. They're up at the 90% level of diesel sales, diesel mix for their business. So it's 10% non-diesel, so to speak. So for them, it's quite a different story. For us, We're very excited about it. We're well positioned for it. We have exclusive products in propane and gasoline and even electric. We have exclusivity by default because we get it from Cummins and the only one with variety by Cummins. So I think we're in a very good position.
spk05: I appreciate the detail. Talk soon.
spk08: Thank you.
spk01: The next question comes from Eric Stein with Craig Hallam. Please go ahead.
spk03: hi everyone i've been on multiple calls jumping around so i apologize if i uh repeat any questions um just curious you mentioned for q4 um just that you're tempering your outlook for electric buses um you know just given some of the funding push out or or the dates being pushed out for the clean school bus funding um You know, wondering, have you given an update on the timing of the labor agreement? Is that also a reason for the EBITDA, I guess, implied EBITDA guide to be down versus the first three quarters of the year?
spk07: That's Eric. This is Razvan. I'll take that. So for Q4 guidance, in addition to having lower EV units, as mentioned several times by me and Phil in the prepared remarks, we... We have also the USW, which concluded in June. So we will have the full impact of the USW agreement starting to hit in Q4. And the run rate impacts about 1% of revenue. So indeed, there will be an impact full run rate in Q4 from that.
spk03: OK. Yep. See, there is an example of me asking a question that you'd already addressed. So sorry for that. Well, maybe this one. For fiscal 25, Um, you know, your run rate, the last three quarters would put you above where you're guiding for fiscal 25. And I know the headwinds, you know, just curious, are you also being conservative on the EV side? Um, simply because of what you talked about, even though you're going to see or expect an order pickup here, uh, before December of this year, but those buses likely wouldn't be deliveries for you until late fiscal 25 or early fiscal 26. Is that the right way to think about it?
spk07: Um, Yes, Eric, so definitely we will see lower EV volumes in the first half of fiscal 25, as we indicated, with a higher more back unloaded for the second half. We provided a range of guidance of 1,000 to 1,300. And as we said, going forward, we are becoming a bit less conservative in our guidance that we give. So right now, we feel pretty good about the ranges we preliminarily put out for fiscal 25, both in terms of units, EV, and revenues and EBITDA. But obviously, as things develop, we'll give you an update in the next earnings call, and we'll fine-tune the look for fiscal 25 then. Okay.
spk03: Thank you.
spk01: Our next question is from Sharif al-Sabahi with Bank of America. Please go ahead.
spk04: Sharif al- Good afternoon. Just given the significant balance sheet optionality that you now have, how should we think about capital allocation going forward?
spk07: Actually, this is Razvan. So we outlined our capital allocation strategies two earnings calls ago. However, since then, we've been awarded the Department of Energy Mass Grant for $80 million. And once it's approved by the board and finally negotiated with the DOE, we will fund $80 million over the next two years from that. So we will evaluate all the opportunities to deploy capital. This project has a great internal rate of return, so we have a great opportunity to deploy that for our long-term growth. But at the same time, we expect to continue to generate significant free cash flow. And as we find in our capital allocation strategy, we'll give you an update in the next earnings call and probably the following as well.
spk06: You still there, Cherie? Thank you. Okay.
spk01: We have no further questions, so I'll turn the call back over to Phil Horlop for any closing comments.
spk08: Okay. Well, thank you, Lydia, and thanks to all of you for joining us on the call today. Before I close this earnings call, for my final time, I'd like to summarize where I believe we are today, where we stand today, and where we are going. Last year, you saw momentum growing throughout the year. Profitability increasingly moved through each of the quarters. And we continue to be on the same path this year, delivering an impressive all-time quarterly record profit in the third quarter with a 14.5% margin. With this very strong base behind us, we've raised guidance for the sixth quarter in a row and a guide into a full year adjusted EBITDA of $175 million and a margin of 13.3%. And as I mentioned earlier, that's a full 5.5 percentage points above last year's then record profitability. In fact, it's worth pointing out and reminding us again that our absolute EBITDA is double last year's result, which was then a record for the company. And as we look to going forward from here, I mean, we've outlined a few of our forward year financial plan, but I think it's worthwhile just reminding ourselves of the extremely favorable factors we have right now, these tailwinds we have that help and drive profitability and grow shareholder value that we're seeing right now and we think we'll see moving ahead. Number one, We've got an unprecedented backlog of firm orders and a strong market demand of edibles with an aging bus fleet. That's shown by the ACT data and confirmed by all the industry experts that are out there. Supply chain constraints are easing, and we're seeing that a little bit, albeit there's still some way to go. And again, that's why you see the increase in trend on the ACT volume chart we showed you of the industry projections growing. Upcoming 2027 emission standards We'll definitely increase the need for alternative powered vehicles, and that is our sweet spot. We can deliver on that. Number four, we have strong bipartisan federal and state support and customer demand for electric buses. The demand is there. Look at the applications that we receive for round two and round three of these grants by customers who never had an electric bus before. They want electric powered buses. That's our sweet spot. Number five, we've been awarded a significant investment grant by the DOE that will allow us to increase our Type D EB production capacity, and importantly, our total capacity to 14,000 units on a single shift. That's a fantastic opportunity for us to improve our sales outlook in the forward years and obviously build very competitively as we move forward. And number six, the base we have, we're achieving record profits, record margins, record cash, and record liquidity today. And these are structural improvements we've made that will stay with us as a great baseline as we move forward. So with these very positive tailwinds, we provided our first look at guidance fiscal 25. We took EBITDA midpoint of range up to $190 million, and that's $15 million higher than fiscal 24. And we are confident in achieving a 14% margin within a couple of years as the industry supply chain constraints ease and then go on to 15% in the long term. Bottom line, I have to say that Bluebird has never been stronger, and we have great momentum. So we appreciate your continued interest in Bluebird, and Brittain and Razvan look forward to taking you, to update you all again on our progress at the next earnings call. If you have any follow-up questions, please don't hesitate to contact our Head of Investor Relations, Mark Benfield. And thanks again from all of us at Bluebird. Have a great evening.
spk01: This concludes today's call. Thank you for joining. You may now disconnect your line.
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