Blue Bird Q3 2023 Earnings Call Transcript

Quartr
Provided by Quartr
August 9, 2023

There are 6 speakers on the call.

Operator

And welcome to the Bluebird Corporation Fiscal 2023 Third Quarter Earnings Call. My name is Lauren, and I'll be coordinating your call today. There will be an opportunity for questions after the end of the presentation. I will now hand you over to your host, Mark Benfield, Head of Investor Relations to begin. Mark, please go ahead.

Speaker 1

Thank you, and welcome to Blue Bird's fiscal 2023 3rd quarter earnings conference call. The audio for our call is webcast live on bluebirddot 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.

Speaker 1

Blue Bird disclaims any obligation to update the information in this call. This afternoon, you will hear from Blue Bird's CEO, Phil Horlock and CFO, Rajvind Rajalescu. Then we will take some questions. Let's get started. Phil?

Speaker 2

Well, thank you, Mark, and good afternoon, everybody. First, let me say it's great to be back at Blue Bird And the team here is doing a fantastic job in delivering results ahead of schedule, which will be evident as Raspan and I cover the Q3 financial results today. To set the stage, at our last earnings call, you saw the 180 degree shift in our Q2 financial results compared with last year. Well, in the Q3, I'm pleased to say that we've improved on those 2nd quarter results and had an outstanding quarter. So let's get started with the key takeaways for the Q3 on Slide 6.

Speaker 2

Market demand for school buses continues to be strong And the backlog for Bluebird School Buses was at 5,200 units at the end of the 3rd quarter. Now we are still dealing with supply chain constraints across the industry, which Although easing is limiting industry production and deliveries, but we are managing this very well. As reported last quarter, we are now largely through the legacy price buses in our backlog that significantly impacted profitability last year and earlier this year. The vast majority of our buses now and in our 3rd quarter bookings and backlog is at current price levels. As a reminder, we define these legacy price units as those at contractual price levels prior to October 2021.

Speaker 2

This, along with operational improvements, drove the substantial increase in our Q3 financial results compared with last year. On the EV front, thanks largely to the EPA's unprecedented $5,000,000,000 Clean It School Bus Program, We had more than 550 EVs in our backlog at the end of the 3rd quarter and EV deliveries in the quarter increased by nearly 150% compared with a year ago. We also reinvested back into the business by selectively upgrading facilities and processes, Enhancing the plant working environment and adding electric bus capacity through our new EV production center. Through the efforts of the best workforce in the business, Strong leadership, lean process improvements and sheer hard work, the 3rd quarter saw some of the best performance the company has ever achieved. As you'll see shortly, the impact of these actions shows in our outstanding Q3 financial results, where we significantly beat guidance.

Speaker 2

Bottom line, the business is performing extremely well. The turnaround we have been executing is completed And ahead of schedule and profits and margins have improved substantially. Now let's take a look at the financial and business highlights from the 3rd quarter On Slide 7. I want to start by saying that our Q3 financial performance is massively improved from a year ago. We sold over 2,100 buses, which is a substantial 24% of 411 buses above last year.

Speaker 2

Those unit sales drove 3rd quarter revenue of almost $300,000,000 which is an exceptional 43% above fiscal 2022. That's an increase of $88,000,000 The impact of the pricing increase that we took up of up to 25% to recover hyperinflation, Together with higher unit sales and a richer mix of EVs contributed to this impressive revenue growth. Adjusted EBITDA of $28,000,000 Was $19,000,000 better than a year ago. Incidentally, our 3rd quarter result exceeded this year's 2nd quarter by $8,000,000 Despite selling 150 fewer buses, although not shown on this slide that translated into an outstanding adjusted EBITDA margin of 9.5%. And finally, adjusted free cash flow for the quarter was $43,000,000 That's an impressive increase of $83,000,000 over last year's Q3.

Speaker 2

Overall, fantastic Q3 financial results That build on the improvements we saw last quarter. Razvan will take you through the details later. On the right hand side of the slide, You can see some of the ongoing operating highlights for the business. As I mentioned, demand continues to be strong. Our firm order backlog is Extremely strong at 5,200 units worth over $750,000,000 in revenue.

Speaker 2

We raised prices considerably over the past 2 years And the average selling price per bus in the 3rd quarter was up more than 17% from a year ago. Parts sales also continues to be a bright spot for us, Up 23% year over year. The increasing average age of buses on the road is having a material positive impact on our aftermarket business. Turning to alternative powered buses, they represented 63% of our unit sales in this quarter and that's 8 percentage points higher than last year. We continue to be the clear leader in this space.

Speaker 2

No other manufacturer comes close to these numbers. Part of the Q3 volume growth was in EV buses with bookings up nearly 150% from last year and up over 150% For the 1st three quarters of the year. Additionally, we left the quarter with more than 550 firm EV orders in our backlog, Which is more than a 10% share of our total backlog. That's worth around $180,000,000 in revenue. Clearly, we're benefiting substantially from the first phase Of the EPA's Clean School Bus Program.

Speaker 2

And lastly, our AV business. In the Q3, we launched an all new extended range battery, Providing around a 30% increase in range on a single charge over our standard battery. That's an expected range of about 130 miles on one charge, With a terrific value offering for our customers by meeting the sweet spot for daily school bus use. On the leadership front, in June, we appointed Britton Smith as President of the company. Britton has done a terrific job leading our EV business over the past 18 months And his appointment reflects the increasing importance of electrification to our present and our future growth strategy.

Speaker 2

We've Brandon's responsibilities, and it's great to have him in his executive leadership role. I'm pleased to tell you that based on our exceptional Q3 financial results, Together with the continued progress we are seeing in the Q4, we are again raising full year guidance on all three metrics that we report on. Razvan will cover this thoroughly in his section later. But as a preview, we are increasing midpoint of guidance for adjusted EBITDA, Up from $60,000,000 to $73,000,000 That's an incredible increase of $88,000,000 from fiscal 2022. Clearly, our turnaround has worked.

Speaker 2

We are delivering results and we have momentum across the entire business. Turning now to Slide 8. We are delivering some of the best operational performance in nearly 2 years in several critical areas. Setups and throughput are up significantly As missing parts are down due to our successful efforts to improve material flow to the plant and to the production line. Those have included adjusting our warehousing strategy by delivering supplier parts to the plant, resourcing numerous problematic suppliers And breaking production constraints.

Speaker 2

This also contributed to the lowest number of hours per bus and the best manufacturing efficiencies in 2 years. As an example of our measurable progress, in June of last year, we took more than 40 days from initial production setup of a bus to booking the sale. We are now running at less than 20 days, which is great for plant efficiencies and even better for cash flow. Not only is this proof that Bluebird is back on track, We are now exceeding some historic financial benchmarks for the company. Moving on to Slide 9.

Speaker 2

This is a reminder of our key pillars around care, delight and deliver. Our focus areas within these pillars include our people, Lean transformation, expanding our total addressable market and scaling EVs. I want to briefly touch on the progress on each of these. Regarding our people, on our last call, we covered the actions we'd already implemented this calendar year, namely company wide pay increases, Additional paid vacation days, plant working environment improvements and narrow span of control in the plant, all have been very well received by our team members. In Q3, our newly formed We Care team in our Fort Valley plant wanted employee suggestion ideas program that has got off to a great start With over 8 of unfitter suggestions captured and more than 90% actioned in just the 1st 2 months of operation.

Speaker 2

You will also recall that in May, our plant employees voted in favor of unionization by the United Steel Workers. I can tell you that we are working together well and are in the early stages of negotiating our first collective bargaining agreement. We want a collaborative relationship with the union and an outcome that our employees embrace, and it's also great for the company going forward. Through continued focus on lean transformation, we are seeing improvements in quality and throughput, even while the supply chain environment is still far from normal. Our commercial EV chassis development continues to progress toward having running prototypes early next calendar year, while we stay focused on ramping up EV school bus production.

Speaker 2

With that in mind, let's now take a close look at our progress in ramping up our all new EV buildup center that we told you about in our last call. Turning to Slide 10. We have doubled EB production from 2 to 4 units per shift since we began using our dedicated EB center last quarter. Later this year, we'll be building up to 6 units per shift with the opportunity to double its capacity to 12 EV buses on 2 shifts. As demand grows and supply chain capabilities improve and expand, we will be able to support throughput of 20 EVs per day with our new footprint.

Speaker 2

That's an annual capacity of up to 5,000 electric school buses, Plenty enough to meet the growing EV demand in the years ahead. This dedicated facility is a great example of a lean production system and efficient manufacturing Within Blue Bird. Let's move on now to Slide 11. This is a reminder of the EPA's Clean School Bus Program. This program provides $5,000,000,000 over 5 years in rebates or grants to customers for the purchase of clean emission school buses, Covering EVs and propane powered buses.

Speaker 2

About 2,500 buses were awarded rebates in the first phase of this program, which totaled $1,000,000,000 It's estimated that about 2,000 buses will ultimately be ordered from Phase 1 as some school districts elected not to move forward with their EV orders Amidst concerns over infrastructure readiness and overall preparedness at the district level. The good news is that the result of rebate savings About $185,000,000 will be reallocated to future spaces of the program. We have received hundreds of EV orders from this program And fully expect to garner well over 5.50 orders for this first phase when all is said and done, with at least $165,000,000 in sales. The long term impact of this program should be well over $1,000,000,000 in revenue to Bluebird, representing more than 3,000 orders. Now the EPA recently launched Phase 2 of this program, which is summarized on Slide 12.

Speaker 2

Phase 2 is a competitive grant program with $400,000,000 anticipated to be awarded in this round. Applications for Phase 2 grants will close at the end of this month. To ensure we were well represented in application submissions, We established substantial resources, both internally and externally to work closely with our dealers and our end customers in supporting them in the detailed grant writing process. Following an extensive review and selection process by the EPA, we anticipate orders to begin In January 2024. We expect the 2nd phase to fund approximately 1,000 buses, and we conservatively estimate that we will get at least 250 of these.

Speaker 2

Later this year, we anticipate the EPA will announce a further $600,000,000 Phase 3 program, which will complete the $1,000,000,000 a year program funding commitment for 2023. I would now like to hand it over to Razvan to walk through our Q3 financial results in more detail as well as our updated full year fiscal 2023 guidance. In addition, we will be providing you with a first look at our fiscal 2024 guidance. Over to you, Resvan.

Speaker 3

Thanks, Phil, and good afternoon. It's my pleasure to share with you the financial highlights From Blue Bird's fiscal 2023 3rd quarter results. The quarter end is based on a close date of July 1, 2023, The prior year was based on a close date of July 2, 2022. We will file the 10 Q today, August 9, after the market closes. Our 10 Q includes additional material and disclosures regarding our business and financial performance.

Speaker 3

We encourage you to read the 10 Q and the important disclosures The appendix attached to today's presentation includes reconciliations of differences between GAAP and non GAAP measures mentioned on this Call as well as important disclaimers. Slide 14 is a summary of the Q3 year to date results for fiscal 2023. It was another excellent operating quarter for Bluebird with somewhat consistent supply chain challenges and with an increased number of Higher margin units driving both our top line and our bottom line results. We significantly beat the adjusted EBITDA quarterly guidance Provided in the last earnings call and in fact we delivered close to 10% margin in this quarter. Despite taking downtime due to the union election activities in this The team has continued doing a fantastic job and generated 2,137 unit sales volume, It was 411 units or 24% higher than prior year.

Speaker 3

Consolidated net revenue of $294,000,000 Was $88,000,000 or 43 percent higher than prior year, driven by higher units, higher parts sales, Improved mix of electric buses and pricing actions that took hold significantly in this quarter as expected. The adjusted free cash flow was a Q3 record of $43,000,000 $83,000,000 higher than the prior year's Q3. This outstanding performance was driven by the increased profitability combined with strong working capital management and Our great liquidity position at the end of this quarter, which was over 134,000,000. Adjusted EBITDA for the quarter was €28,000,000 driven by our high volume of now profitable buses, increased parcels and margins, partly offset by increased labor costs. Given the transitional nature of our fiscal 2023 Q1 results, Which included still a large portion of all backlog low margin buses, our year to date performance is still very solid at 6,398 units sold, There are of 375 EVs with $830,000,000 in revenues, which is already above full year fiscal 2022 With one full quarter still to go.

Speaker 3

Year to date adjusted EBITDA at €44,000,000 and we delivered year to date an outstanding free cash flow of €86,000,000 Moving on to Slide 15 and as mentioned before by Phil, our backlog at the end of Q3 continues to be very strong at 5,200 units And with the vast majority of these units at current price levels. Breaking down the Q3, dollars 294,000,000 in revenues into our 2 business segments. The bus net revenue was $270,000,000 up by $84,000,000 versus prior year. Our average BaaS revenue per unit increased from $108,000 to $126,000 or 17%, Which was largely the result of pricing actions taken over the past 18 months as well as the higher mix of electric buses. EV sales in Q3 were at a record level of 148 units or 88 more than last year, 147% increase.

Speaker 3

Parts revenue for the quarter was $24,000,000 representing a growth of $5,000,000 or 23% compared to the prior year. This extraordinary performance was in part due to increased demand for our parts as the buses are fully back on the road in the post COVID environment As well as supply chain driven pricing actions. Gross margin for the quarter was 15% Or 5 percentage points higher than last year due to our improved operational performance and our pricing catching up with the inflationary cost of the last 18 plus months. In fiscal 2023, Q3 adjusted net income was positive €14,000,000 or €17,000,000 higher than last year. Adjusted EBITDA of approximately $28,000,000 or 9.5 percent was up compared with prior year by 19,000,000 And 5 percentage points.

Speaker 3

Adjusted diluted earnings per share of positive $0.44 was up $0.53 versus the prior year. In summary, our operating performance and financial results demonstrated in this quarter and the prior quarter Our clear evidence that our turnaround is complete and it sets a solid base for our future performance towards our goal of sustained profitable growth. Moving on to Slide 16, we have extremely positive developments year over year also on the balance sheet. We added a quarter with over $50,000,000 in cash And reduced our debt significantly by €79,000,000 over the last four quarters. Our liquidity set strong at €134,000,000 at the end of fiscal 2023, Q3 with a zero balance on our revolver.

Speaker 3

The improvements in operating cash flow and adjusted free cash flow were primarily driven by improved operations and margins, and were supported by only a small improvement in trade working capital in this quarter. Additionally, we had at the end of the quarter $13,000,000 in prepaid revenues from the Phase 1 of the EPA Clean School Bus Program with more to come in the future. As a reminder, at the end of November 2022, we entered into the 6th amendment to our credit facility, Extended the maturity date through December 31, 2024. The amended covenants and the extended maturity of our loan Provided Bluebird with both flexibility and stability as our business continues to recover from the COVID-nineteen pandemic and associated global supply chain disruption. As our business results already significantly improved and our trailing 12 months net leverage ratio as well, In the second half of this calendar year, we intend to explore refinancing options and debt maturity extension.

Speaker 3

Slide 17 shows the walk from fiscal 2022 Q3 adjusted EBITDA to the fiscal 2023 Q3 results. Starting on the left at €8,800,000, the impact of the Bus segment gross profit in total was €20,500,000 Split between volume and pricing effects, net of material cost increases of $13,800,000 and operational improvements of $6,700,000 The operational improvement consists of year over year manufacturing efficiency improvements and lower freighting costs. The favorable development in the past segment gross profit was $3,600,000 driven by higher sales and improved margins as mentioned earlier in the call. Additionally, our MicroBurg joint venture results improvements were more than offset by increases in our fixed costs, Mainly personnel related for a net of negative $4,900,000 compared to Q3 a year ago, when very tight cash conservation measures were in effect. The sum total of all the above mentioned developments drives our strong fiscal 2023 Q3 reported adjusted EBITDA result Of $28,000,000 or 9.5 percent.

Speaker 3

On to Slide 18. Looking at Q3 and ahead of Q4, are happy to reiterate that we are now largely past most of the old backlog units with fixed pricing from fiscal year 2021 orders. Our production schedule is now full for the rest of fiscal 2023 and fiscal 20 24 Q1 with some models Type D for example going already deep into However, as mentioned in the last earnings call, supply chain and labor inflationary cost pressures still exist And not all the upcoming price increases will slow to the bottom line in fiscal 2023. Given our already significant backlog, We already announced in May for fiscal year 2024 a model year price increase of $2,500 per bus net For new orders on all bus types to be built after October 1, 2023 to cover expected inflationary and raw material cost increases. On Slide 19, you can see once again the spot market development for steel prices.

Speaker 3

After the reduction in the second half of calendar year twenty twenty two, They started to increase again all the way through the end of May, and this will offset a portion of our pricing realization for the remainder of calendar year 2023, As mentioned on the previous slide. However, the last few months showed easing, and we will continue to monitor the situation closely. Please also keep in mind that we have already put in place a comprehensive steel buying strategy, and we are entering in future locked contract For steel prices with certain tonnages up to 12 months forward, minimizing our exposure and margin risk in the backlog. On Slide 20, looking at fiscal year 2023, we want to share with you our As a reminder, we are taking a more transparent and conservative approach this year As it is still a somewhat an uncertain supply chain environment we are facing. However, we have improved already all the other business levers that we could address As now demonstrated by our very strong fiscal 2023 Q2 and Q3 actual results.

Speaker 3

Looking forward at fiscal 2023 Q4, We are maintaining our forecasted revenues in the range of $280,000,000 to $300,000,000 However, we are increasing our Q4 EBITDA margins by approximately 1 percentage For an adjusted EBITDA of $29,000,000 or approximately 10% with a range of $26,000,000 to $32,000,000 For the total year, we are reiterating our expectation for revenues in excess of $1,100,000,000 and we are significantly increasing our midpoint adjusted EBITDA guidance The €73,000,000 or 6.5 percent adjusted EBITDA margin with a range of €70,000,000 to €76,000,000 Moving to Slide 21, in summary, we are forecasting a significant improvement year over year in all aspects, With revenues up 40 percent to approximately €1,100,000,000 adjusted EBITDA in the range of €70,000,000 to €76,000,000 And positive free cash flow of SEK 70,000,000 to SEK 80,000,000, partially supported by the prepaid revenues from Phase 1 of the EPA Clean School Bus Program. On Slide 22, as promised in the last earnings call, we wanted to give you today the first look at our initial fiscal 2024 guidance And expected business operating environment. The supply chain situation is not fully stable yet and therefore we are sharing with you a base case scenario As well as the downside and upside from there.

Speaker 3

The base case guidance is anchored in the supply chain status quo With slight improvements and with slight increased production levels to a total of 8,500 bus units for the year, Of which 750 plus REVs for a revenue projection of $1,150,000,000 and adjusted EBITDA of $85,000,000 For 7.5 percent adjusted EBITDA margin. This is an increase of our fiscal 20 year expected results And would represent the best year ever for Bluebird and the great achievement at relatively low volumes compared to the pre COVID best years. The downside, upside scenarios listed there are dependent on the supply chain developments throughout fiscal year 2024 And bracket our adjusted EBITDA results to a range of 7% to 8%. We'll provide you of course with more details during our next earnings call in mid December. On Slide 23, we wanted to reiterate our long term outlook.

Speaker 3

We are very happy about the results of our completed turnaround As demonstrated by our fiscal 2023 Q2 and Q3 actual results, our increased fiscal 2023 guidance And our initial fiscal 2024 base case guidance. Looking a bit beyond that, once the supply chain further normalizes, We expect to sell approximately 9,500 units, including 1500 unit EVs and generate a normal year $100,000,000 or 8 percent adjusted EBITDA on $1,250,000,000 in revenues. Looking further to the medium term, our EV growth and operational improvements can support volumes of 10,500 to 11,000 units, including EVs in the range of 2,500 to 3,500 units, Generating revenues of $1,500,000,000 to $1,750,000,000 with adjusted EBITDA of $150,000,000 to 200,000,000 Our long term target remains to drive profitable growth towards $2,000,000,000 in revenues, Comprising of up to 12,000 units, of which up to 5,000 REVs and generate EBITDA of $250,000,000 or 12%. We are incredibly excited about Bluebird's future, and I will turn it back over to Phil to further expand on this. Thank you, Razvan.

Speaker 3

Let's now move on to Slide 25.

Speaker 2

All the hard work the Blue Bird team has put into turnaround our business, Following the unprecedented supply chain disruptions and hyperinflation that we've seen over the past 2 years is now really paying off. That's why we're again raising our full year financial guidance. We're at least 1 quarter ahead of original turnaround plan for the year And expect to book around 8,400 units, that's a 23% increase over fiscal 2022 and achieve a top line revenue of just over $1,100,000,000 An incredible 40% increase over last year. Parts sales will also be well ahead of plan, delivering at least $92,000,000 in revenue And that's up 20%. We now expect adjusted EBITDA midpoint to be around $73,000,000 That's an outstanding turnaround of $88,000,000 From the losses we incurred in fiscal 2022.

Speaker 2

EV bookings continue to be on plan and we expect those to almost double year over year. The school bus industry forecast for our fiscal 2023 continues to be supply chain constrained across all OEMs And our targeted bookings will put us right where we want to be around that 30% market share number. As other indices are flat to slowing down, We are just heating up with growing demand in front of us. Since the pandemic hit in early 2020 and virtually all schools closed for 6 to 9 months, Followed by severe industry wide supply constraints, industry sales for the past 3 years have been well off from the long term average of around 32,000 new buses a year. Consequently, the school bus fleet is aging and must be replaced.

Speaker 2

This is not discretionary, and we expect strong industry demand in the coming years To address this pent up demand, ACT is forecasting a compound annual growth rate of 10% this year through to fiscal 2027, And that's great news for our business. After executing a substantial turnaround across our business, the company is performing extremely well. We We'll continue to improve operating performance and look forward to sustained profitable growth in the robust market ahead. The future is incredibly bright for Bluebird. Let's now turn to Slide 26 as a summary reminder of the strong investment highlights around our company.

Speaker 2

We are a great countercyclical play to many companies and industries being affected by the slowdown in consumer spending. Plus, not only are the fundamentals of our industry strong, It has just started to heat up with a 10% compound annual growth rate expected over the next several years. 2nd, There was a $5,000,000,000 commitment from the highest level of government to electrify this country's school bus fleet with more federal and state funding available And anticipated outside of this program. With more electric school buses on the U. S.

Speaker 2

Roads today than anyone, Bluebird will be a strong beneficiary of these programs. We also have a proven reputation as the undisputed leader in alternative powered school buses for over a decade as evidenced by more than 20,000 propane powered Bluebirds Operating today. Our exclusive partnership with Ford and Roush gives us a distinct performance and value advantage for this ultra low emissions product But no one else has with propane, and it has the best total cost of ownership value of any engine offering on the road today without grant support. And on EV, our collaboration with Cummins Accelerated Vision offers a proven partner investing billions in alternative fuel solutions, Something no other electric school bus manufacturer has to offer. As impressive as the outlook is for school buses, we are still looking for more growth I want to expand our total addressable market.

Speaker 2

Our planned commercial strip chassis offering, which is under development right now, Could eventually add a few 1,000 units per year on top of our projected long term forecast, more to come in this development program that we have underway. With our lean transformation efforts, we are eliminating non value added processes and reducing standard production hours per bus. We are always looking for ways to take cost out and at the same time, increased quality. Our efforts and continuously improving this area will never stop. As we mentioned today, our pricing is now fully aligned to market economics, and we are now just about through the legacy price bus issue that significantly hurt our margins in the past year.

Speaker 2

We just achieved almost 10% adjusted EBITDA margin in the 3rd quarter. As you saw in the Q4 fiscal guidance, we are expecting a full 10% margin on supply constraint volume. We are convinced that in a normalized operating environment where supply chain constraints are minimal, A sustained double digit EBITDA margin for the full year is in our reach, specifically 10% in the next 2 to 3 years And 12% in the next 4 to 5 years. As I mentioned at the beginning of this call, all the hard work by the Bluebird team has paid off And the business is ahead of plan and even exceeding historical performance benchmarks. Our turnaround is completed.

Speaker 2

I want to thank our nearly 1800 employees for all their hard work and dedication as well as our outstanding dealer body who sacrificed with us over the last 2 years. We could not have done it without them, and they are and always will be critical to our success and our future. That concludes our formal presentation today. And I'd now like to hand it back to our moderator for the Q and A session.

Operator

Thank If you change your mind, please press star followed by 2. If a parent asks your question, please ensure that your phone is unmuted locally. Our first question comes from Eric Stine from Craig Hallum. Eric, Please go ahead.

Speaker 4

Yes. Good afternoon. This is

Speaker 5

Dylan Rasvan. It's Aaron Spyjala on for Eric. Thanks for taking the questions. Hi, Aaron. First for us, can you maybe just hello.

Speaker 5

First, can you maybe just talk about some of the items That are in the supply chain that you're still seeing the constraints on and kind of the efforts that are being done there, outlook for improvement. And then just looking at the FY 'twenty four guide, just Maybe talk through some of the puts and takes around that?

Speaker 2

Yes, sure. It's Phil here, Aaron. Good to talk to you. It's a great question. I think, first of all, I'm going to set the scene a little bit.

Speaker 2

Obviously, last year, we had major supply chain issues in that we had many suppliers. I mean, Struggling with get labor, struggling to get the 2 tier Tier 2, Tier 3 supply support from Europe or from Asia, Struggling to meet what we need and that really hurt us last year badly. It's quite dramatically different this year. We have we do have a problematic list The suppliers, the differences this year, problems are a lot less. They're a lot more contained.

Speaker 2

We have a lot of visibility Into the issues they're having. In other words, we know weeks ahead of production when they're running into an issue. So we can work with them on it. We can try and find alternative source where we can. We have time to do it and react.

Speaker 2

So I won't get into naming those suppliers. Needless to say, there A lot of some of the body parts or some chassis components. The good news is that by the time It's reaching the end of what we call our finish line compared with last year. In a lot of cases, we're able to find those parts. So in other words, typical bus stays in our line for 5 days once The body is being assembled, and then it comes off the line 5 days later.

Speaker 2

And by the time it's come off the line, we found those parts, locate them, we put them on the bus In line. So that's where when I talked about the setup time to booking time reduction, that's a big piece of it. We're doing much better Getting those parts installed before that bus leaves the line rather than reworking it later in a separate process. So again, those are the improvements we've seen and We are hopeful and expecting continued improvement going forward just like we had this last year.

Speaker 5

All right. Thanks. And then maybe just on that kind of setup to booking time 40 to 20 days. What's kind of the overall goal there and any other kind of areas that you're focused on to improve that?

Speaker 2

Yes. On that particular one, I mean, actually, it's a great question to ask. Obviously, 20 days is a heck of an improvement from where we were in June of last year At the end of that quarter, but our near term, our target is to get into 14 days 14, 15 days. So take another, let's say, 5 days out of that. And what does that mean?

Speaker 2

It means we get to cash 5 days earlier, which is great for cash flow again, great for our liquidity, and that's what we plan to do. So that's Certainly that one. And in addition, we sort of moved some of our processes that were sort of online and might be things that we don't Perform every on every single bus. We've taken some actions and moved them offline. So that's what we by doing that you avoid what's called trapped labor.

Speaker 2

So you reduced your labor hours, your overtime requirements, because you got a separate station handling those unique issues, which can be manned appropriately for the demand that day. So Just a couple of examples there I think of clever lean transformation and really helping productivity.

Speaker 5

All right. That sounds good. Thanks for the color. I'll hop back in queue.

Speaker 2

You bet. Thanks, Aaron.

Operator

Thank you. Our next question comes from Mike Shlisky from D. A. Davidson. Mike, please go ahead.

Speaker 4

Yes. Hello. Good afternoon and thank you for taking my questions. I wanted to ask First off, on the guidance for 2024. So, Rosvine, is there any free cash Thought you can give us for next year, do you have any investments to make in working capital or other areas we should be thinking about?

Speaker 3

Yes. Hi, Mike. Thanks for the question. It's still very early in our fiscal 2024 projections. However, we decided, as promised in the last To give you at least a base case outlook, with $85,000,000 EBITDA, we are going to ramp up our investments in capital.

Speaker 3

We, for the last couple of years, we had cash conservation measures. We slowed down our CapEx investments, And we expect to restart to invest more, especially more than this year. However, we don't expect any huge capital investments outlays In fiscal 2024. So it will still be a very strong free cash flow, but I don't have at this point absolute number to give you. I'm still working through And we'll definitely get back in December with our full guidance if you will for fiscal 2024.

Speaker 4

Okay. Okay. Fair enough. I also want to ask about the different cases and scenarios you put in that guidance slide in your discussion Between the downside and the upside, is the sole lever between those two brackets, is it just about the supply chain? Could a collective bargaining agreement and some of the costs and benefits around that change things between 1 or the other or your overall market share or other factors?

Speaker 4

Or is it really all about

Speaker 3

The primary driver between those scenarios is supply chain, But obviously, it's still very early, and there are many other variables, whether it's pricing levels in the market, whatever the competition does into the next Here, inflation from the supply base, potentially some outcome from the collective bargaining agreement. But we are comfortable that between all the processes we have in place, all the pricing mechanisms, we can control for most of those. So at this point, We focus these scenarios on the health of the supply chain.

Speaker 4

Great. I want to squeeze another one in here about your non bus EV products going forward. There was a pretty big bankruptcy this week of 1 of the battery suppliers, to some of the EVs. It's not your bus battery provider that I'm aware of, but I believe it might be someone that's involved with some of those non bus EVs, the delivery vans, etcetera, that you had in the drawing board for some time. I was wondering how far along are you in the process with getting something, any kind of prototype or getting things in the hands of customers.

Speaker 4

That company is still planning to, you know, try to get through the bankruptcy without any issues. But if they don't, do you have time to make any changes As far as the design of battery, before you really make any major pushes into those markets.

Speaker 2

Yes. I mean, first of all, our development program, I think, we're being very cautious and careful about it in terms of Making sure it meets the requirements that we have that far, which is obviously, it's not a school bus. Usually, it's quite different. So but it's progressing well. We feel really good about where we're heading.

Speaker 2

When it comes to battery support for that, I think we feel very confident in our suppliers and what they can deliver for us. I don't think they're in The same boat as Proterra, that's for sure, much more solidly supported and capable. So as far as I'm concerned, I think you'll see We'll have development vehicles, our development chassis running towards the end of this year will be our plan and then we have running prototypes early next year that we can put in the hands of A select number of customers to put them through their paces. So that's what we do. We want to get some mileage under our belt.

Speaker 2

And then our goal would be to The end of next year to have a product that we would really be taking to the market, but a lot of customer interest in this. We're reviewed Obviously, we're a key OEM who's been building chassis for, well, almost 100 years now. So we know how to do it and we've obviously got some successful track record since 2018 of producing electric power buses. So I think we feel confident we'll have a product that the market is going to really like.

Speaker 4

Okay. I appreciate the discussion. I'll jump back in the queue. Thank you.

Operator

Thank you. We have no further questions. So I'll now hand back over to Phil Horlock for closing remarks.

Speaker 2

Well, thanks, Lauren, and thanks to all of you for joining us on the call today. We do appreciate your continued interest in Bluebird, And we look forward to updating you all again on our progress next quarter. As Rasa mentioned, we'll take a deep dive and a look into our 24 guidance and just make a point here that, that obviously is our first look at this for you this year and we wanted to get ahead of time as we said we would do. As you saw today, we've completed a significant turnaround. We're ahead of schedule, and I think it clearly shows in our 3rd quarter results, Which was a further improvement in our Q2, which is obviously was well respected, I would say, in terms of the turnaround.

Speaker 2

All key operating metrics are significantly improved from a year ago, and the legacy pricing issue that we've talked about on so many earnings calls is just about behind us. We are focused on maintaining leadership in the fastest growing alternative power segment, which represents the majority of Bluebird sales today, While continuously working on improving our manufacturing supply chain productivity, that never stops in Blue Bird, it is continuous. Specifically, we are very excited about our exceptional growth electric buses and there is much more to come there clearly, especially since we're only a fraction away through The Clean School Bus program, the $5,000,000,000 program that the government at its highest level has endorsed. So the outcome of our efforts in the 3rd quarter, we have an EBITDA Just short of 10%, and we're forecasted to be at 10% next quarter. And of course, we raised full year fiscal 2023 guidance once more And provide you with a first look at our fiscal 2024 guidance.

Speaker 2

Incidentally, that was about 4 months earlier than we've ever done in the past. So again, It shows it's a first look, and we'll take a look at it later. And we'll know a lot more, obviously, how the market's looking when we close the books later this year and see you all again In December. But I would say that overall, I think it was a terrific quarter for Blue Bird. I'm very proud of what we've done.

Speaker 2

Finally, I'd like to give Special recognition once again to our incredible employees and our dealers for their commitment and dedication to Bluebird, especially for all the work they've put in after the pandemic. So should there be any follow-up questions, please do not hesitate to contact our Head of Investor Relations, Mark Benfield. And thanks again from all of us at Blue Bird. Have a great evening.

Operator

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

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Key Takeaways

  • Record Q3 performance: Blue Bird sold 2,137 buses (up 24% YoY), generated $294 million in revenue (up 43%), achieved $28 million of adjusted EBITDA (9.5% margin) and $43 million of free cash flow, all above guidance.
  • Strong backlog and pricing reset: Ending Q3 with a 5,200-unit backlog worth over $750 million, the vast majority at current price levels, as legacy-priced orders from before October 2021 wind down.
  • EV leadership and momentum: Alternative-powered buses made up 63% of Q3 sales (up 8 points), EV deliveries rose 150% YoY, and over 550 firm EV orders in backlog benefit from the EPA’s $5 billion Clean School Bus Program.
  • Operational improvements: Lean initiatives halved setup-to-booking time to under 20 days, reduced missing parts and hours per bus, and doubled EV production capacity to four units per shift with room to scale.
  • Raised guidance and outlook: Fiscal 2023 adjusted EBITDA midpoint lifted from $60 million to $73 million, and initial fiscal 2024 targets include $1.15 billion in revenue and $85 million of adjusted EBITDA.
AI Generated. May Contain Errors.
Earnings Conference Call
Blue Bird Q3 2023
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