Blue Bird Corporation

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.

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.

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.