Blue Bird Corporation

Hello, everyone. Thank you for joining Bluebird's physical 2024 fourth quarter and full year earnings conference call. My name is Sierra, and I'll be your moderator for today. All lines have been muted during the presentation portion of the call, with an opportunity for questions and answers at the end. If you would like to ask a question, please press star 1 on your telephone keypad. I'd now like to pass the conference over to our host, Mark Benfield, Head of Investor Relations with Bluebird. Please proceed.

Thank you and welcome to Bluebird's fiscal 2024 fourth quarter and full year 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 to SEC. Bluebird disclaims any obligation to update the information in this call. This afternoon, you will hear from Bluebird's president and CEO, Phil Horlock, and CFO, Razvan Radulescu. Then we will take some questions. So let's get started. Phil?

Thank you, Mark, and good afternoon to everyone. First, let me say the Bluebird team has done an incredible job and delivering continually improved results as we have moved through each quarter in 2024. As you will see shortly in Razvan's section, the fourth quarter was no exception to that, where we achieved outstanding financial performance and another quarter record for Bluebird. For the full year, we delivered record financial results across the board, and once again, we beat our guidance range for each of the three metrics on which we report. So let's get started with the key takeaways for the full year on slide six. As the headline says, fiscal 2024 was an all-time record year for Bluebird. Referencing the first line in the box, I'm very pleased to report that we more than doubled our prior record profit achieved in 2023 and delivered an outstanding adjusted EBITDA margin of 13.6%. That's an impressive six percentage points higher than a year ago. As I just mentioned, we beat full-year guidance once again and we're also increasing our long-term profit outlook on the back of the structural improvements we are making. Importantly, on this call, we were providing you with fiscal year 2025 guidance above the preliminary guidance we showed at our last earnings call. Razvan will be covering these in detail later. Market demand for school buses continues to be very strong, and the backlog for Bluebird school buses at fiscal year end was over 4,800 units, and that's 6% above the same time last year. Importantly, net orders for Bluebird buses in fiscal 24 were 16% higher than last year. Now, that's a great endorsement of the customer demand for Bluebird's expansive range of buses, and this bodes well for pricing, production stability, and profit margins. Supply chain issues are undoubtedly easing, and we've done a great job in managing through a couple of constraints on some chassis components this year. We expect to see more easing as we move through 2025. Through a combination of pricing and richer vehicle makes, we increased our average bus selling price by 14% through 2024. And every bus we are selling and those in our order backlog reflect current pricing at today's economic conditions. And we are priced competitively, which we can tell from our quote win rate and incoming orders. On the EV front, we produced and delivered more than 700 electric buses, nearly 30% more than a year ago. thanks largely to the first round of a billion dollars of funding from the EPA's unprecedented $5 billion clean school bus program. Throughout the fiscal year, we maintained our very strong mix of alternative powered vehicles and further strengthened our leadership position in this segment. The higher margins and higher owner loyalty from these propane, gas, and electric buses contributed to our outstanding full-year profit improvement. We're also reinvesting back into the business, too, by selectively upgrading facilities and installing lean manufacturing processes, and we continue to enhance the plant-looking environment. And we're seeing the results of this investment in achieving some of the best manufacturing performance the company has ever seen, with higher efficiencies and increased throughput. As a result of all these accomplishments, we achieved an outstanding full-year adjusted EBITDA of $183 million with a margin of 13.6%. Now let's take a closer look at the financial and key business highlights for the full year on slide seven. As I've said on previous earnings calls, our fiscal 24 financial performance is transformed from a year ago with many record highs reported. We sold exactly 9,000 buses in the full year, which is a solid 6% above last year. Now those unit sales drove a very impressive 19% increase in sales revenue over last year. The impact of higher pricing and a richer mix of EVs is clearly evident in the revenue growth. Our full year adjusted EBITDA of $183 million was more than double last year. That's an outstanding increase of $95 million, representing a six percentage point increase in margin to 13.6%. And finally, Adjusted free cash flow of $99 million was well above the 50% of EBITDA target that we strive for. The $22 million decline versus last year is more than explained by the substantial one-time inventory reductions we took in the second half of 2023. Overall, we had breakthrough full-year results and achieved transformational improvements over last year. We are on a great trajectory. Going to the right-hand side of the slide, you can see some of the key operating highlights for the business, and there were many firsts for Bluebird. As I mentioned earlier, demand is exceptionally strong, with a firm order backlog at the end of the fiscal year, and with about $735 million in sales. That's 4,800 buses, or almost seven months of production, are the current sales rate. The full year average selling price per bus in fiscal 24 was an outstanding 14% above last year, and that's about a $17,000 increase per bus. And at $104 million, our part sales grew by 6%, and we broke the $100 million barrier for the first time in our history. With gross margins at over 50%, the parts business is a significant contributor to our results. Turning to alternative powered buses, They represented 58% of our full-year unit sales. Now, we continue to be the undisputed leader in this space, with our major competitors running at less than a 10% mix. EV buses are part of that alternative power mix, and full-year EV bookings increased by almost 30% over last year, with more than 700 sold, exactly in line with the plan we showed to you last quarter. That represented a strong and growing mix of 8% of our total sales, compared with 6% in fiscal 23. Additionally, we left the year with a record EV order backlog of about 630 buses. And that's a very strong 13% share of our total backlog. That's worth more than $200 million in sales. And remember, the vast majority of orders from Rams 2 and 3 of the Clean School Bus Program, providing more than $1.9 billion in funding, are all ahead of us. On the labor front, we completed our first collective bargaining agreement with the United Steelworkers Union earlier this year. We have a three-year contract in place, and we're off to a great start working together, and we look forward to a collaborative and stable partnership that benefits all. To help execute a $160 million expansion plan at our Fort Valley, Georgia location, in the third quarter, we were awarded an $18 million investment grant by the Department of Energy to increase EV and overall production of our Type D bus. This will create up to 400 new jobs by expanding single shift capacity from 10,000 to 14,000 school buses annually and is a significant profitable growth initiative. In the second quarter, you might recall we renewed our exclusive propane and gasoline engine contract with both Ford and Roush until 2030. By that time, we will have partnered exclusively for almost 20 years Now that's what you call a successful business partnership. And finally, we beat guidance on each of net sales, adjusted EBITDA, and adjusted free cash flow by quite a margin too. Including our updated fiscal 25 guidance being delivered today, this will be the seventh consecutive quarter in which we have beaten and raised our guidance. With a record full year profit and margin, which is more than double the previous record we set just last year, I'm incredibly proud of our team's accomplishments. I'd now like to hand it over to Razvan to walk you through our fiscal 24 fourth quarter and four-year financial results detail. We'll also be providing you guidance for fiscal 25 and an updated long-term outlook. 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 fourth quarter and year-end record results. The year end is based on a closed date of September 28, 2024, whereas the prior year end was based on a closed date of September 30, 2023. We will file the 10-K today, November 25, after the market closed. Our 10-K includes additional material and disclosures regarding business and financial performance. We encourage you to read the 10-K and the important disclosures that it contains. The appendix attached to today's presentation includes reconciliations of differences between gap and non-gap measures mentioned on this call, as well as other important disclaimers. Slide nine is a summary of the fiscal 24 fourth quarter and full year record results. It was another outstanding operating quarter for Bluebird. We significantly improved volume and with high margin units across all power trains, driving both our top line and our bottom line results. We beat the adjusted EBITDA quarterly guidance provided in the last earnings call. And in fact, we delivered the best Q4 quarter ever for Bluebird with 41 million adjusted EBITDA margin. The team continued to push hard and did again a fantastic job and generated 2,466 unit sales volume, which was 350 units above prior year Q4 volume. All-time quarterly record consolidated net revenue of 350 million. was 47 million or approximately 15% higher than prior year, driven by a higher number of units and higher part sales. Adjusted EBITDA was a Q4 record of 41 million, driven by higher volumes, increased part sales and margins, improved microboard joint venture results, partially offset by increased labor, SG&A, and engineering costs. The adjusted free cash flow was a very strong 50 million, a 15 million increase versus the prior year fourth quarter. This was despite an increase in working capital, mainly accounts receivables, as we continue to sell a significant number of buses to fleets and GSA also in this quarter. All of those receivables have already turned into cash during fiscal 25 Q1. Phil covered already the record fiscal 24 year and key figures with 9,000 units, 1.35 billion in revenue, 183 million or 13.6% in adjusted EBITDA, and a very strong 99 million in free cash flow, more than 50% of the adjusted EBITDA. I will provide more details on our full year results later in the presentation. Moving on to slide 10, as mentioned before by Phil, our backlog at the end of Q4 has grown and continues to be very strong at over 4,800 units, including over 600 EVs. Breaking down the quarterly record $350 million in revenue into our two business segments, the bus net revenue was $323 million, up by $46 million versus prior year. Our average bus revenue per unit was flat, but $131,000 per unit, which was largely the result of pricing actions taken over the past year, fully offsetting lower EV product mix. EV sales in Q4 were 84 units, was guided in our last call, for 87 units left in last year, due to the requested delivery dates on our backlog EV units, placing them in calendar year 2025. This gives us already almost half of our fiscal 2025 EV expected volume already in backlog. Parts revenue for the quarter was $27 million, representing a growth of $1.4 million, or 6%, compared to the already very strong prior year levels. This great performance was in part due to the increased demand for our parts as the fleet is still aging, as well as supply chain-driven pricing actions and throughput improvements. Growth margin for the quarter was 17%, or 0.5 percentage points higher than last year, due to our sustained operational performance and our pricing overtaking the inflationary costs, including the effects of the new USW labor agreement. This is a testament to our strong product position and diversification across all school bus types and powertrain, with approximately $60 million of gross margin, despite only 84 EV units being sold this quarter. We are not a one-trick pony, unlike many new entrants in this space. In fiscal 2024, adjusted net income was $25.8 million, a $4.5 million or over 20% improvement year over year. Adjusted EBITDA of 41 million or 11.8% was up compared with prior year by approximately 1 million. Adjusted diluted earnings per share of 77 cents was up 11 cents versus the prior year. Slide 11 shows the walk from fiscal 23 to 4 adjusted EBITDA to the fiscal 24 to 4 result. Starting on the left at an already strong 40.7 million, The impact of the bus segment gross profit in total was $9.3 million, split between volume and pricing effects, net of material cost increases of $11 million, offset by labor cost increases of negative $1.7 million, mainly due to the USW new labor rates now in full effect for Q4. The favorable development in the parts segment gross profit was $0.9 million, driven by higher sales and improved margins, as mentioned earlier in the call. Additionally, our 50% share result from microboard joint venture improved also by 3.5 million year-over-year. These great improvements more than offset planned increases in our fixed costs. On a year-over-year basis, the fiscal 2044 includes one time approximately 6 million of expenses, mainly in bonus and professional services, with the rest of 7.1 million in SG&A and engineering costs as expected. The sum of all of the above-mentioned developments drives our record fiscal 2044, reported adjusted EBITDA result of 41.3 million. Moving to slide 12, I will cover some more details regarding our full-year record results. Breaking down the 1.347 billion revenue into our two business segments, the BASnet revenue was 1.243 billion, up by 208 million or 20% versus prior year. Our average bus revenue per unit was 138,000, an increase of 16,000 per unit versus the prior year, which was largely the result of pricing actions taken over the past year and improved EV product mix. EV sales for fiscal 24 were 704 units as guided in our last call, an increase of 158 units or approximately 30% improvement versus last year. Part revenue for the year was $104 million, representing a growth of $6 million, or 6%, compared to the already very strong prior year level. This great performance was in part due to increased demand for our parts of the free-to-steel aging, as well as supply chain-driven pricing actions and throughput improvements. Gross margin for the year was a record 19%, or almost 7 percentage points higher than last year, due to our sustained operational performance and our pricing overtaking the inflationary costs year over year, including the full effects of our USW labor agreement in Q4. This is another testament to our strong product position and diversification across all school bus types and powertrains, with over $250 million of gross margin coming mainly from our 92% non-EV unit sold. As I said before, we are not a one-trick pony. In fiscal 24, adjusted net income was $115 million, an $81 million improvement year over year, more than tripled of the prior record. Record adjusted EBITDA of $183 million, or 13.6%, was up compared with prior year by $95 million, more than doubled in million dollars, and almost a six percentage point margin increase year over year. Adjusted diluted earnings per share of $3.46 was up $2.39 versus the prior year, also more than tripled year over year. Slide 13 shows the walk from fiscal 23 adjusted EBITDA to the fiscal 24 result. Starting on the left at the prior record of $88 million, the impact of the bus segment gross profit in total was $113 million. Split between volume and pricing effects, net of material cost increases of $120 million, offset by labor and overhead cost increases of negative $7 million, including the USW new agreement now in full effect. The favorable development in the past segment gross profit was $5 million, driven by higher sales and improved margins. Additionally, our 50% share result from Microboard joint venture improved also by $6 million year over year. These great improvements were offset by planned increases in our fixed costs, mainly personnel and fringes healthcare-related, SG&A and engineering, in total of $28 million, as we continue to invest in our business and our people. The sum of all the above-mentioned developments drives our new record fiscal 24 adjusted EBITDA result of $183 million, or 13.6%. Moving on to slide 14, we have extremely positive developments year over year also on the balance sheet. We ended the year with $128 million in cash and reduced our debt significantly by $35 million over the last year. In fact, at the end of fiscal 24, we had $33 million of cash in excess of all debt. Our liquidity set at the record $271 million at the end of fiscal 24, a $108 million increase compared to a year ago. In fact, now in mid-November, we reached over $300 million in liquidity for the first time ever. The operating cash flow was a very strong $111 million in this year, driven by an improvement in operations and margins, offset by an increase in accounts receivable due to the large number of fleet and GSA units built towards the end of the year, all of which have turned into cash already in fiscal 25 Q1. On slide 15, we wanted to share with you our updated fiscal 25 guidance. We have a number of both tailwinds and headwinds, and we maintain a cautious stance, yet maybe a bit less conservative than in the prior years, as already mentioned in the prior call. The tailwinds, we have strong demand, stable pricing, and still a very high industry backlog. We offer now not only diesel and gasoline school buses, but we have 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 over 2,000 buses on the road and are confident in the upcoming orders from round two and three of the EPA Clean School Bus Program, with significantly improved sales mix in the second half of fiscal 25, above our already strong EV backlog of over 600 units. But 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 through the first half of fiscal 25, as the infrastructure plans are being worked on, and with many customers requesting EV delivery before school starts in the summer of 2025. In summary, we are maintaining our units and revenue midpoint guidance to $9,250 and $1.45 billion respectively. However, given our momentum from our record fiscal 24 results, we are increasing our adjusted EBITDA guidance by $10 million to $200 million, or 13.8%, with a range of $190 to $210 million, and 13.6% to 14% margin in Moving to slide 16, we laid out for you the quarterly guidance for fiscal 25. Starting in Q1, with the seasonal lowest number of production weeks in the year due to year-end holidays, we expect to sell approximately 2,000 units, including 100 EVs, and generate approximately $300 million in revenue, with adjusted EBITDA of $40 to $45 million. In Q2, we expect our total volume to go up to approximately 2,300 units, including 200-plus EVs, and generate approximately 350 million in revenue, with adjusted EBITDA of 45 to 50 million. In Q3 and Q4, we expect an increased number of EVs, with 300-plus in Q3 and 400-plus in Q4, driving quarterly revenue around 400 million and adjusted EBITDA of $50 to $60 million per quarter, as shown. Before we look at our free cash flow guidance, on slide 17, we wanted to remind you that Blue Board was awarded by the Department of Energy under the MESC program an $80 million grant for a new 600,000 square foot Type D and EV production facility. This would raise our total production capability to 14,000 units on one shift and would provide for increased volume upside for the commercial chassis production when needed. The total investment of 160 million would span over two years from calendar year 2025 until first half of calendar year 2027, with 50% to be funded by Bluebird, subject to finalized negotiations with the DOE by the end of December 31st, 2024, and our Board of Directors approval. The free cash flow impact for Bluebird in fiscal 25 is now roughly estimated at $50 million for our half. On slide 18, in summary, our fiscal 25 guidance for net revenue is $1.4 to $1.5 billion with adjusted EBITDA of $190 to $210 million and free cash flow of $40 to $60 million after deducting $50 million in extraordinary capex for the new plant under the MESC program. We expect fiscal 25 to be another record year for Bluebird on our path of profitable growth. Speaking of profitable growth, let's look on slide 19 at some of our principles for running the business and touch on some capital allocation points. We strongly believe that revenue is vanity, profit is sanity, and cash is king. Let's cover these points one by one. On the revenue side, we are focusing on executing our organic growth. with an emphasis on alternative fuels. However, we do still offer diesel for those that continue to request it. We are not chasing market share, yet we are re-engaging with some of the national large fleets as already shown in fiscal 24. While we continue to be laser focused on our core school bus business, we have planted the seeds for adjacent market growth in the commercial step and chassis business, as well as with microburn. More to come in the future on these exciting new areas of profitable growth. Looking at profit, we continue to be very disciplined in our margin management. We have implemented a price increase of $3,500 per bus for all orders received after October 1st, 2024, to cover for expected variable cost increases, including the impact of our new labor agreement with USW. We continue to be nimble in our backlog management, which we like to keep at approximately two quarters of production, providing us with a competitive advantage in the current environment. Finally, we work relentlessly on reducing our variable costs through continuous cost improvements, lean manufacturing on one shift, supply chain management, and steel forward buys. Looking at cash, we plan to invest into our future manufacturing capabilities while also returning value to our shareholders through stock buybacks. We already completed 10 million buyback in fiscal 24 Q4, and we have authorization for up to another 50 million in the existing program. And we plan to achieve this while maintaining great liquidity and a strong cash position, and we have flexibility in case we decide to pursue focused and attractive M&A opportunities. Moving on to slide 20. Looking at our fiscal 25 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. Today, we are confirming the medium-term outlook at 14% margin in fiscal 26 and 27, with volumes of up to 10,000 units, generating revenues of around $1.6 billion through its adjusted EBITDA of approximately 225 million. Starting in 2028 and beyond, 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 could be EVs, and generate EBITDA of 270 to 300 plus million, or 14.5% to 15% plus. at best-in-class level. The plus comes from the other areas of growth outside of EVs we mentioned before, both for Bluebird Commercial Chassis and for Microbras. We continue to be incredibly excited about Bluebird's future, and now I'll turn it back over to Phil.

Thank you, Razvan. As usual, that was a great explanation of our latest financial results and our outlook. So let's move on now to slide 22. I covered this slide on our two prior earnings calls, so I won't spend too much time on it today as our priorities and our strategy are unchanged, just as they should be. The chart on the left illustrates the three priorities that continue to drive us today, 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 look at the margin accomplishments and our plans, we transformed the business from losses to record profitability in fiscal 23, achieving an 8% margin. In fiscal 24, we grew our margin by a full six points to around 14%, which is a truly breakthrough year for us that we are now building from. And as we look longer term, our goal is to grow our margin to 15% and more, as Razvan just mentioned. Following these six core strategies have been key to our margin transformation and will continue to drive our forward year profitable growth plans. Let's now turn to slide 23 and look at the latest status of federal funding for clean school buses, which is so important in helping us to continue accelerating the adoption of both electric and propane vehicles in fiscal 25 and beyond. Let me start by reiterating that 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. And of course, EV buses provide major health benefits for our school children and communities by replacing old legacy diesel buses that emit harmful emissions. As a reminder, we have just started the second year of this bipartisan five-year program, which provides $5 billion of funding electric and propane powered school buses. There was still over $4 billion to be deployed after the first year of funding. The latest news to report to you since the last quarter is that the EPA has launched round four of the five round clean school bus funding program. This round four rebate program is highlighted on the slide and provides $965 million to fund an estimated 4000 EV school buses. The application period is now open and is scheduled to close on January 9, 2025, with winners needing to take delivery of their buses in May 2027. We are now looking closely with our dealers and our customers to submit applications, and needless to say, with the audit deadline being November 25, the vast majority of these buses will be delivered in our fiscal years 2026 and 2027. In play at this point are rounds two and three, which I covered extensively in our last earnings call. Now, these two rounds provide over $1.9 billion in funding for 6,600 clean school buses. The winners have all been notified and have until April 2026 for round two and June 2026 for round three to take delivery of their buses. Virtually all of this is ahead of us in terms of orders and deliveries. Looking at the far right column, we have a 2024 Clean Heavy Duty Vehicles program, which I also covered at the last earnings call. This program 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 to accelerate the adoption of EV school buses, and that's beyond the $5 billion from the EPA program. We estimate that all this from this program should total 2,300 EV school buses. Awards are expected to be announced in December 2024 with the winners having until January 27 to take delivery of these buses. So including round four, we have a total of $3.5 billion in grants and rebates approved and preparing to be deployed over the next three years to fund up to 13,000 EV and propane school buses. With our expectation on winning around 30% of orders, these programs represent a great opportunity for Bluebird to supply up to 4,000 EV school buses of all body types over the next three years or so. Beyond that, we have another billion dollars in clean bus funding to go and significant state and local funding too to accelerate the adoption of clean EV and propane powered school buses. And 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, legacy diesel buses from the road and replacing them with clean, powered buses. What could be more important than the safe and healthy transportation of our school children? Continuing on the subject of federal funding of electric buses, I'd now like to turn to slide 24 and look at the likely timeline for orders and deliveries, which has been a question posed in recent weeks. This slide depicts the various EB rounds and funding timeline from application to bus delivery. As you can see, round one of the Clean School Bus Funding Program was completed in fiscal 24. Rounds two and three closed out applications in early 24, and winners were notified of their awards through the third quarter of 24. Now, following the award notification stage, we have now entered the ordering phase for the winners. Now, prior to ordering the buses, awardees want to deal first with finalizing their charging and utility infrastructure needs. That is to ensure they have charging available and operative close to when the ED school buses are delivered. Those charging infrastructure needs are recognized by the EPA by permitting buses to be deployed as late as June 2026 from these two rounds. Now the EPA had dictated that purchase orders for the round three rebates must be placed by year end 2024. We have seen recent evidence, however, of order extensions being allowed by the EPA at the request of the rebate winners. So while we're still expecting a sharp increase in orders like this calendar year, it likely will be less than the expected surge due to the recent granting of extensions to the order deadline by the EPA. With this assumption, The slide depicts the relatively long ordering period in place well into fiscal 25, with the majority of corresponding deliveries expected to be in the second half of fiscal 25 and into fiscal 2026. Nevertheless, as Razvan showed, we are forecasting very strong EV unit sales of 1,150 buses in fiscal 25, representing more than 60% increase in BlueBirds deliveries over fiscal 24, as we benefit from the $1.9 billion of EPA Round 2 and 3 awards that are in play right now. EV bus sales from the EPA Round 4 and Clean Heavy Duty Vehicles Program, however, will likely impact fiscal year 2026 at the earliest. I should mention that following recent discussion with the Clean School Bus Program Administrator of the EPA, our understanding is that there is no delay in the EPA's plans or processes to pay grants or rebates to the awardees Paul Hebertz, Following order submission the EPA simply accommodating requests for awardees to delay ordering until firm infrastructure plans are in place that match with bus delivery timing. Paul Hebertz, Our expectation that the majority of fiscal year 25 EB bus deliveries will be in the second half of the year supports this view on infrastructure and bus order timing. I'd like to turn to slide 25 and provide you with our view on continued federal government support on incentives pertaining to Bluebird. Clearly, there has been a lot of hand-wringing on this topic in recent weeks. As the headline says, we are very confident in continued federal government incentive support for two specific programs from which Bluebird is benefiting. First, the DOE's $80 million investment grant representing 50% of $160 million plant expansion at Bluebird. It is worth reminding all of us that this program was fully endorsed in the state of Georgia by both Republican and Democratic parties for the following reasons. It supports manufacturing investment in the United States by a US company with a history of nearly 100 years based in middle Georgia, where manufacturing presence is limited. And it creates up to 400 good-paying jobs and adds much-needed capacity to build new, cleaner buses for transporting our children safely to school. Second, the $5 billion Clean School Bus Program funding that we have spoken of so much today. As a reminder, 25 million children ride school buses today in the U.S. It's America's largest mass transportation system by a long way, and it's not a discretionary purchase by a school district. This program was written into legislation in 2021 with full bipartisan support of the bill. The funds have been fully appropriated and four years of funding are in play. It helps eliminate the harmful emissions we see every day at school with old legacy diesel buses emitting black fumes from the tailpipe as kids board and exit these buses. This is a serious and proven health concern. It accelerates the adoption of zero-emission buses to protect our children's health and safety, reduces future costs by increasing scale, and lowers operating costs to a fraction of that of an internal combustion engine. We have more than 2,000 electric buses deployed and on the road, thanks in part to this program built in the U.S., partnering with U.S. suppliers, all for the safety of our children. So to summarize these programs, U.S. manufacturing, u.s company bipartisan support innovation new jobs health and safety of our children and clean air for everyone now that's compelling so let me now wrap up the earnings call and our outlook for the business on slide 26. there's not much more to say on our fiscal 24 results other than we achieve record results more than double last year's then record profit and we beat guidance across every metric frankly Fiscal 24 was a breakthrough financial performance for Bluebird, just shy of a 14% adjusted EBITDA margin and reflecting a six percentage point margin increase over fiscal 23. Razvan took you through the RAISE guidance for fiscal 25, and I'm showing some of those key metrics at the midpoint of guidance here. We are being prudent on our bookings outlook, only increasing volume by 3% over fiscal 24 at this time, as we still deal with some supply chain issues, but we've managed them very well in 24, and if we can build more in fiscal 25, we will, just as we did last year. Net revenue of $1.45 billion will be a new record for Bluebird, up 8% from fiscal 24. Adjusted EBITDA guidance of $200 million is 9% higher than our fiscal 24 record results. Importantly, we are planning on a robust 14% adjusted EB down margin in fiscal 25 as we look to maintain a momentum after such a surge in margin in fiscal 24. And finally, we're looking to grow EB unit sales to 1,150 buses in fiscal 25, and that's a substantial 64% increase over the year before and well supported by $1.9 billion of EPA funding already in the market. As you can see on the right chart, there is a lot of pent-up demand, falling low in industry sales in 2020, 21, and 22. And the bus fleet has aged by a couple of years. ACT is forecasting a compound annual growth rate of 6% through to fiscal 27. And that's great news for our business and great news for our profit outlook. The future is incredibly bright for Bluebird. This time last year, We talked of achieving a 12% EBITDA margin in a couple of years. Clearly, we've already surpassed that by a significant margin and are confident in our pursuit of our new long-term goal of more than 15%. I want to thank our nearly 2,000 employees for all the hard work and dedication in delivering our record results at fiscal 24 and for transforming our company, as well as our outstanding dealer partners who are critical to our success. Now that concludes our formal presentation today, and I'd now like to hand it over to our moderator for the Q&A session.

Thank you. We will now begin the Q&A session. If you would like to ask a question, please press star followed by one on your telephone keypad. If you would like to remove that question, press star followed by two. And if you are using a speakerphone, please pick up your handset before asking your question. Our first question today comes from Mike Swieski with DA Davidson. Your line is now open.

Yes, hi, good afternoon. Thank you for taking my question. A lot to process here. Maybe I'll start with one of your later comments there, Phil, about the EPA program. If that delivery is going through 2027, if not past that, the program's fifth round will probably be over by 2027, 2028. Yeah, you've still got quite a large mix of EVs in your go-forward mix from that point forward. Are you relying on a renewal of the EPA program after fiscal 20, whenever the last 27, 28, this current one's over? Or do you feel like your EV business will, at that point, which is seven years away, stand up on its own and not need such heavy subsidies?

Hi, Mike. It's Phil here. Good question. I think it's the last point you said. We're expecting, as we progress through to 28, which is when we expect the EPA program will end, we expect to continue to build out the EPA. Of course, we're still seeing and expecting a lot of state support, local support that exists. I think as Razvan told you, you know, on last Sunday's calls, our projections do recognize a reduced revenue on these vehicles. over time. We've seen it a little bit now in the EPA, because each round, there's been about a $25,000 reduction in the amount of the rebate or grant being offered. Actually, that's resulted in more units being available for the market, too. So, we continue to see that as costs come down, battery costs come down, more scale, and still reflecting a great significant margin over the time, but certainly reducing in price to make it a little bit more affordable for all, and actually reaching that parity when TCO and the price really, really gels together.

Okay. So that's all been baked in. The pricing changes over time. The fact that it's going to be over after 27, that's all kind of baked in.

Absolutely. Razvan's got a couple of comments on that tonight, too.

Yes, Mark. This is Razvan. So, you know, in the past three messages, the three times an EV price versus a diesel bus, we are now already moving towards the 2.5 times. multiplier. And we are projecting that slope to continue downwards as we reduce our costs while maintaining our percentage margin across all bus types and powertrains.

Got it. Got it. So it's all planned. It's always been part of your outlook. But I guess you tell us behind the scenes what you're doing to ensure that the powertrain providers, and I guess there's two of them now, what are they doing to reduce their prices to you and kind of and make sure everyone's coordinating and working in lockstep to keep your margins and their margins consistent as we go forward.

Yeah, so obviously we are not able to share with you on this public call all our strategies for reducing our costs. Nevertheless, we are working with several providers, and there is new capacity coming online through the next couple of years, and we have clear plans with them behind our numbers to drive costs down and make DCV buses more affordable with the ultimate goal of reaching and beating with total cost of ownership the conventional buses.

Okay. One last one for me. Do you have any significant growth rotations for parts for 2025, or is the mid-20s you had the last quarter here a roughly decent growth rate for you for the following fiscal year here?

So our parts business is already very strong, has been for the last couple of years. So right now we are targeting single digit, low single digit revenue growth year over year.

Okay. Fair enough. We've been achieving, okay, we've been achieving 5% in recent, you know, that sort of number. And that's sort of, you know, what we expect to be. Hey, Mike, one thing I just want to mention to you, I do talk about state and local grants. Just to give you an example, we're right now in the middle of a significant order we won, I think you knew about that, with the LA Unified School District for 180 electric buses. That's a great example. Not a single EPA grant used for that transaction. Not a single one. All supported by grants in California, state grants, some local grants, and a very attractive deal for the customer. So there's an example, I think, even today of not being entirely reliant on EPA. and still having very attractive proposals to offer.

Got it. Outstanding. I'll pass it along. Thanks so much. Thanks, Mike.

Our next question comes from Eric Stein with Craig Howell. Your line is now open.

Hi, everyone. Thanks for taking the questions. So maybe... Hey, so maybe on pricing, good to hear about, I think, the 3.5% increase that you're putting through here recently. And I know that this is typically a one or twice every year you do this. Just curious, I mean, this has been a really big part of your margin expansion, obviously. What are you hearing from customers? Is there any pushback there? you know, how are the others, um, kind of, um, acting on price in the market and how do you feel about this going forward?

Yeah, I think, uh, again, a good question. I mean, we've got a rhythm going where we certainly price twice a year. We've been doing that now for a good couple of years, uh, April 1st and then, uh, October the 1st. So it's almost like October started our new model year, so to speak, and then mid, mid model year. And, uh, we can tell from, uh, you know, the bids we've done, our win rates, and, you know, it becomes, you know, when you're dealt with school district bids and their decisions, we know we're very competitive. We are competitive. The competition looks like is, you know, on the same lines as us, and, yeah, it's going very well, and occasionally, as in the case of the $3,500 amount we put on in October, we put some product features in there, too. It was a new model year, and we had some not attractive features in that pricing, too, to differentiate ourselves a little further. So, yeah, it's looking very well, and we feel confident continuing on that trend.

Got it. That's helpful. And then maybe just on the outlook for fiscal 25, you know, I know it's a new situation over the last couple of years because of the backlog, and I get the whole dynamic about the second half waiting for EVs, but your guidance does imply that that there is a little more seasonality in the year. Is that, I mean, anything to read into that? Is that just kind of just the way that the schedule lays out for deliveries, or how should we think about that?

Yeah, if you look at slide 16, Production seasonality is purely driven by the number of weeks available in each quarter, with Q1 being the lowest due to both Thanksgiving and Christmas holidays and shutdown, and Q3 being the highest. So there is nothing special there.

Okay. All right. And then maybe just a housekeeping question. So it sounds like $50 million in CapEx for this project, at least for this year's portion of the project, should we think of that as your total capex, or is that the capex that would be above and beyond your more typical levels?

Yeah, the $50 million is the extraordinary above and beyond. We guided in the past also around $25 million as our normal capex.

Yep. Okay. Thanks a lot.

Thanks, Eric. Our next question comes from Tyler with BTIG. Your line is now open.

Hi, everyone, and thanks for taking the questions here. I wanted to follow up on some of the productivity comments and the structural improvements that you're kind of seeing. I guess how much of that is left, and then if you had to kind of bucket that opportunity in terms of maybe manufacturing gains versus gains on procurement. I guess, how would you bucket those different verticals? And I guess, how much of that is left as you look out to next year?

Again, another good question into our details here. I look at three major elements. I mean, the first one is I look at pure productivity in the manufacturing operation. This is lean manufacturing, Kaizen of initiatives done before a tackle before we brought some new folks on the team this last two years are really helping move the needle there and making sure we eliminate waste and the walking time our employees have in the stations and that's good really good discipline and that pays dividends the second one is around I guess it's called managing the material coming through the line and again we strengthen our team there We closed a warehouse that was 35 miles away from us in Macon, Georgia, and we brought one that's about less than 10 miles away. And we also put a warehouse next to the line in the main plant, which means that we can really fulfill our material needs very quickly in response to any issues we might have. But importantly, when I measure that, I measure throughput. This is the third piece, and it's part of that too. When I look at where we were just a couple of years ago, it was taking us 40 days from when we set up a unit to when we call it ready for delivery. So the first time we start putting a frame rail on a line and building components on it, to actually that vehicle coming off the line and being ready for delivery after taking out for a drive and all things we do, test driving, so on and so forth, was more than 40 days. That's now down to between 12 to 14 days it takes us now. And that saves labor. Obviously, it's great for working capital. It's fantastic for us, but that, again, has been part of our challenge. How do we reduce that time, compress it, to make sure we get major productivity? And you can imagine, when you go from 40 days to 14 days, it's very good for, like I say, our use of our capital, use of our cash, and frees up a lot of cash. So it's those three areas. Kaizen, initiatives, type of initiatives, lean manufacturing. It's working to control our inventory a lot better, material management and flow. And then the third piece is this acceleration of throughput in the line. It's limited for us because I think we mentioned before, you know, a school bus has got 9,500 parts on it. Typical car, 2,500. We got 9,500. And all different variations, length of our vehicles, all be down the same line. And so we have very high intensive labor on our line, not too much automation, but where we can, We have been using it to help really assist our folks on the line to approve a better quality bus, and we're seeing the impact of that. So I hope that's helpful to let you know, give me a text around what we're doing.

Okay, great. No, that's very helpful. Thank you. And then on my follow-up here, surrounding some of the comments related to the EPA and the potential extension of the deadlines, I guess, How do you guys kind of think about the alternative power bus mix in the product portfolio? Is there an opportunity to maybe have some customers take delivery of other powertrains outside of EEV? I guess it's how do you kind of think about managing the product portfolio, kind of given some of the comments surrounding the charging infrastructure and trying to really match that supply with the demand here over the next call of 12 to 18 months?

Thanks for the question. This is Razvan. So first of all, we ended the prior fiscal year with over 600 units in backlog and we laid out on a quarterly basis what our EV sales expectation is. And obviously we expect a number of orders from round two and three to come and especially fill the second half of the year where we still have open slots. So that's how we manage the next 12 months for sure. And we continue to Kaveh Khoshnood, sell and push propane, which has the lowest total cost of ownership so it's the best. Kaveh Khoshnood, bus money can buy out there in terms of financial payback so between these two actions, we are very confident in our guidance and what we laid out for you.

Kaveh Khoshnood, Okay, thank you guys really appreciate the time here, I will turn it back to the keel.

Kaveh Khoshnood, Next question comes from Craig Irwin with Roth Capital Partners. Your line is now open.

Good evening, and thanks for taking my questions. So, Razvan, in your prepared remarks, you talked briefly about $6 million in one-time SG&A and engineering expenses in the quarter, in the September quarter. Can you maybe give us a little bit more detail around what that was, and are these items that are likely to recur in upcoming quarters?

Yes, Greg, thanks for the question. So the $6 million one time is primarily on a year-over-year basis, the bonus accrual. Given the extraordinary results we had this year, it was a higher amount accrued this quarter compared to the prior year. Some consulting expenses that we booked in Q4, which weren't there a year before. So that's why I call them one time in the sense that they are not to be repeated in the next coming courses.

Okay, excellent. And then a question of clarification. Phil, in your prepared remarks, you said that you do not expect a surge in orders before the end of the calendar year. But when I look at the very granular guidance you give around EVs, you expect a 2.4 to 3.1 fold increase in deliveries in the second half of calendar 2025. That's dramatic growth. When do you expect that surge in orders to materialize that will give you visibility on those units being delivered?

I think it's a good question again, Craig. I think we see that towards the end of our second quarter, we should see it happening. The second quarter for us, obviously, is through, you know, March or so, February, March of the year. So that's the time period which will set it up nicely for us to deliver later in the year. You know, I just want to stress, I mean, when we were here last month, we talked about this firm deadline, which the EPA had set at the end of November, actually. And what's happened is, I can understand, I think we can all count, I hope we can, that infrastructure is really important. Where am I getting my charging stations from? Especially because this latest rounds, they're looking for a higher volume of. In other words, the onesie twosies we saw in round one, we're not seeing those in round two and three. They're more about 15 to 20 to 30 vehicles looking for larger orders, which would provide a bit more effort on the infrastructure side. So with our customers, dealers, fleets, requests from the EPA, hey, can we extend this? Give us time to figure this out a little more. And the EPA said, sure, we'll let you have that. All we've seen so far is a extension. And I can't obviously predict at the end of that 45 days what they'll extend again, but that's what they'd be, that's the maximum we've seen to any of customers who requested an extension is 45 days.

Understood. So then in the final days of the Obama administration, there were three or four waivers issued to try and extend some of these funding programs forward into the first Trump administration. And I understand EPA is working on more than a half dozen similar waivers right now to provide funding continuity. Is there anything specific you might want to point us to there that you feel is relevant to the visibility that you're calling out for the funding continuity for an obvious Biden flagship program for the last four years?

Well, I think, you know, I mean, we've mentioned this before, but we go back to being a bipartisan program in 21. I mean, no from the Republican Party that being being supported. So. I mean, and I try to summarize today, if I listen to the new administration, what they talk about is we love U.S. manufacturing. We love U.S. suppliers. Well, we certainly got that, and we're certainly in the U.S. We like adding jobs. We're certainly doing that, too, because we're growing the business. And we look at health and safety. I heard Trump talk about that quite a bit on his running, and safety and health is so important. Well, this is nothing better than this for children's health and getting rid of harmful emission fumes. And so I think when you look at it, you know, the EPA is behind all that. And, you know, the EPA, when we talk to them, are completely confident. I mean, I say completely, they are confident of this being maintained. They believe it's an exceptionally valid product. It's done what the EPA is all about, making sure they protect the environment and they protect their children in particular, ride these buses every day. I think it's not like we're sitting here with some, you know, program that sort of it's off left field it doesn't seem to make sense it's why you're supporting some small group we're supporting 25 million children every day to ride a school bus and we've had discussions with that with the epa uh we've had discussions with lobbyists about this and who also feel you know confident uh that this will be supported i can't predict obviously with complete accuracy but i certainly think we feel we feel very confident that this money is going to a great cause and should continue to do so

I like those comments, and congratulations again on the record results.

Thanks a lot, Craig. Appreciate it.

Our next question comes from Chris Pierce with Needham Company. Your line is now open.

Oh, hey. Thanks for taking the question. If I look at slide 26, industry predictions from ACT, It looks like 24 is going to be down year over year versus it was up in prior slides. I know these aren't your estimates, but I just want to get a sense. If Bluebird is delivering mid single digit growth and the industry is down, can you talk about share gains that you might be seeing within the industry? Or I just want to make sure I fully understand sort of what's happening. And is it just share gains in alternative or share gains in diesel? Like, I just want to get a sense of what you guys are seeing versus the industry. Yeah.

Well, that's another good question here and a good observation. I think what I would say is, first of all, we don't tend to talk about share in this situation, but what we'll talk about is there is a specific reason why the 24 industry, which represents deliveries to customers, is down. And that's because one of our competitors had major production problems in the early part of 24 calendar year. We've prevented them from delivering, we believe, quite a few thousand buses to their customers. They had some product changes and couldn't and they chose not to deliver them. And I won't get into who that is or what the problem was, but we know for a fact that's true. I don't think we're, so now they're back on board again later in the year. They got the products up and running. They were shipping them. And that's why you see the major boost in 25, the big growth, because that customer now kicks in the volume they neglected to deliver in 24.

Roger Heeringa, gotcha Okay, and then, if I look at slide 20 on your slide deck that long term, you know used to say 2027 now it says 2028 but the numbers haven't changed, I just want to get a sense of is that because of the same dynamic we just discussed, where the industry. Roger Heeringa, shape of growth is different or something different on your end.

Yeah, thanks, Chris. I'll take the question. This is Razvan. So first of all, every year as we look, the long-term move a bit, but we kept 1,000 and 12,000 units. However, we raised the upper end of the 300 plus million and 15 plus. So we did change the bottom line, but we kept the top line. And the reason for that is because as we lay down now the exact plans for our new facility, we are planning to go live with it in the first half of calendar 2027, which means we can't benefit yet of that capacity increase in fiscal 2027, including also a ramp up of about six months. So therefore, the 11,000, 12,000 have to start in 2028 plot. So that's the reason why that shifted by one year.

OK. And then lastly, could I just get an update on the CEF search groups?

Sorry. What was that? I'm sorry. I missed what you said there. What?

Oh, Phil, I know that you're back. We couldn't hear the question.

You can correct me if you want. Phil, I know that you're back temporarily now. Yeah. Can you hear me?

I never left, but I'm still here. But yeah, I mean, yeah. But look, yeah, I mean, obviously I was planning on retiring at the end of September, and that didn't work out. And I can tell you the board has undertaken a search, and there's a three-person committee on the board looking at this in some detail and going through it. And I can assure you that when we do, when someone is selected, we'll ensure a great transition to make this work seamlessly.

Okay, thanks for the time.

Okay, thank you.

Thank you all for your questions. There are currently no questions in queue, so I'll pass the conference to Phil Horlock for any closing remarks.

Well, thank you, Ciara, and thanks to all of you for joining us on the call today. As you heard today, following our record fiscal 24 results, which were, I just mentioned again, at more than double last year's then record profitability, We've increased our fiscal 25 guidance for EBITDA to $200 million, a midpoint of range, which is a $17 million increase over fiscal 24. And we are confident in achieving more than a 15% profit margin in the longer term. I think Razvan used the term today on his call. We're not just a one-trick pony. We love the interest in EVs. It's terrific. We like the product. And we grew from a 6% mix in 2021. to 8% in 24, and we're looking to grow the 12% or so in 25. So again, significant growth we've seen there, but hey, we make a lot of products. We still make propane, we make gasoline, we make diesel, and we make a good margin, a very good margin, all three of those. So we have the most expansive range of powertrain off of the industry, as you all know. So bottom line, I would say the Bluebird has never been stronger, and we've got great momentum. So we appreciate your continued interest in Look forward to updating you again on our progress next week. And should you have any questions, please don't hesitate to contact our Head of Investor Relations, Mark Benfield. Thanks again from all of us here at Bluebird, and have a great evening.

That will conclude today's conference, Paul. Thank you all for your participation. You may now disconnect your line.