Blue Bird Q3 2024 Earnings Call Transcript

Quartr
Provided by Quartr
August 7, 2024

There are 8 speakers on the call.

Operator

Hello all and welcome to Bluebird's fiscal 2024 Third Quarter Earnings Conference Call. My name is Lydia, and I'll be your operator today. After the prepared remarks, there'll be an opportunity to ask questions.

Operator

I'll now hand you over I'll now hand you over to Mark Benfield, Head of Investor Relations to begin. Please go ahead.

Speaker 1

Thank you, and welcome to Blue Bird's fiscal 2024 Third Quarter Earnings Conference Call. The audio for our call is webcast live on blue bird.com under the Investor Relations tab. You can access the supporting slides on our website by clicking on the Presentations box on the IR landing page. Our comments today include forward looking statements that are subject to risks that could cause actual results to be materially different. Those risks include, among others, matters we have noted on the following two slides and in our filings with the SEC.

Speaker 1

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

Speaker 2

Thanks, Mark, and good afternoon to everyone on our call today. It's great to be here and to share with you our results for our fiscal 2024 Q3. You'll recall that on our last earnings call, we reported an all time record profit for our 2nd quarter. Well, I'm very pleased to tell you that our momentum has not slowed down at all with the Blue Bird team doing a fantastic job in delivering a 3rd quarter profit that is an all time record for any quarter in our history. That surpasses our previous quarterly record that we achieved in the Q1 of this year.

Speaker 2

Razdan will be taking you through the details of our financial results so let me get started with the key takeaways for the Q3 on Slide 6. As the headline says, we recorded the best ever profit for a quarter. I am particularly proud of this achievement after breaking profit records in each of the past two quarters and we have much more to come. Regarding the first line in the box, I'm very pleased to report that we achieved an outstanding adjusted EBITDA margin of 14.5% in the 3rd quarter. That's more than 4 percentage points higher than a year ago.

Speaker 2

And once again, we are increasing full year guidance in all three metrics that we provide and we are also increasing our long term financial outlook as Razvan will show you later. As we look at the drivers with this terrific progress in Q3, it really is about maintaining and delivering the plan we laid out last year, which focuses on making significant improvements across every piece of our business. Market demand for school buses continues to be very strong. Our quarter end backlog of firm orders for Bluebird buses stood at just over 5,200 units. That's a little more than the same time last year.

Speaker 2

But importantly, our net orders for Blue Bird Buses through the 1st 3 quarters of this year were 10% higher than for the same period last year. Now that's a great endorsement of the strength of the industry and the customer demand for Blue Bird's buses. And this bodes well for pricing, production stability and profit margins. Now while supply chain issues are undoubtedly easing, as we have reported throughout this year, we do have select constraints on a couple of chassis components across the truck and bus industry that are limiting industry production and deliveries. But we're very engaged with those constrained suppliers and with additional capacity being added in the balance of this calendar year, we should see some easing of those constraints as we move through the end of this year and into 2025.

Speaker 2

Every bus we are selling today and those in our order backlog reflect current pricing and we are priced competitively, which we can tell from our quote win rate and our incoming orders. This is entirely different Bluebird bus revenue and gross margin structure compared with just a year ago with bus prices up significantly. On the EV front, thanks largely to the first round of $1,000,000,000 of funding from the EPA's unprecedented $5,000,000,000 Clean School Bus Program, our 3rd quarter delivers electric buses were again over 200 units and nearly 40% more than last year and represented 9% of our unit sales for the quarter. And we ended the quarter with a record backlog of EV buses. This is particularly impressive as we're approaching the end of deliveries for the 1st round of the Clean School Bus program and are just beginning to see orders from the second and third round of the EPA's program.

Speaker 2

These will really impact fiscal 2025 and 2026, and I will cover this timing of deliveries in more detail a little later. We also 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 products contributed to our profit improvement in the 3rd quarter. We are continuing to invest back into the business by selectively upgrading facilities and installing lean manufacturing processes and we are enhancing the plant working environment. Through the efforts of the best workforce in the business, strong leadership, lean process improvements and just sheer hard work, we have been achieving some of the best manufacturing performance the company has ever seen.

Speaker 2

Bottom line, we are performing extremely well in a strong market. We are delivering a rich mix of higher margin alternative powered vehicles. We are priced competitively and appropriately for today's economic environment and manufacturing efficiencies are improving. As a result of all these accomplishments, we achieved an outstanding 3rd quarter adjusted EBITDA of $48,000,000 with a margin of 14.5%. Now let's take a closer look at the financial and key operating highlights for the Q3 on Slide 7.

Speaker 2

As I have said on previous earnings calls, our present year financial performance is transformed from a year ago with many highs reported. We sold 2,151 buses in the Q3 of fiscal 2024, which is very slightly above last year. However, those unit sales drove a strong 3rd quarter net revenue of $333,000,000 which is a very impressive 13% increase over last year. So with essentially flat volume compared with a year ago, up by only 14 buses and net revenue up 13%, the impact of higher pricing and a richer mix of EVs is clearly evident in the revenue growth. Our record 3rd quarter adjusted EBITDA of $48,000,000 was $90,000,000 above last year.

Speaker 2

That's almost 70% higher and well above the $25,000,000 to $35,000,000 general guidance range for quarterly profits that we showed at our last earnings call. And finally, while adjusted free cash flow for the quarter was slightly negative, that was more than explained by significant sales to the national fleets where we provide extended payment terms. We won this business early in fiscal 2024 and these units were delivered late in Q3 and are now being paid for in the Q4. They are recognized as receivables in Q3. Overall, we had exceptional third quarter financial results and achieved transformational improvements over last year.

Speaker 2

We are on a great trajectory. On the right hand side of the slide, you can see some of the operating highlights for the business. As I mentioned earlier, demand continues to be very strong with our firm order backlog at the end of the 3rd quarter worth about $775,000,000 in revenue, reflecting a backlog of over 5,200 buses. That's almost 7 months of firm order backlog on our current sales rate. We raised prices considerably over the last 2 years and the average Q3 selling price per bus in fiscal 2024 was an outstanding 13% higher than a year ago.

Speaker 2

That's about a $17,000 increase in average selling price per bus. Part sales totaled $25,000,000 in Q3, representing a strong 6% growth over last year and that's also consistent with the growth we saw in the first half of twenty twenty four. Turning to alternative powered buses, they represented about 59% of our total unit sales in the 3rd quarter and we are running at a very strong 60% of sales mix through the 1st 9 months of the fiscal year. We continue to be the clear leader in this space. No other major school bus manufacturer comes even close to those numbers.

Speaker 2

EV bus is a part of that alternative power mix and in the 3rd quarter, EV bookings increased by 38% over last year. Once again, we sold over 200 EVs in a quarter. That represents a very strong mix at 9% of our total sales compared with 7% in last year's Q3. Additionally, we left the quarter with a record Q3 backlog of 567 EVs, which is a very strong 11% share of our total backlog. Now that's worth more than $180,000,000 in revenue and the impressive 17% higher than the backlog we had at the end of the second quarter.

Speaker 2

Clearly, we're benefiting substantially from the 1st year of funding from the EPA's $5,000,000,000 Clean School Bus Program. I'll cover later the status of the 2nd year of this program, which comprises of 2 rounds, and we expect significant orders and deliveries from those 2 rounds in fiscal 2025 and fiscal 2020 6. On the labor front, I am really pleased with the outcome of our first collective bargaining agreement with the United Steel Workers Union, which now represents our hourly employees and was completed in just less than a year. Razvan will summarize the details of the program a little later, but this is truly a win win for Bluebird and for our employees, and we look forward to a collaborative and stable partnership that benefits all. In regard to future investment expansion plans, I'm very excited with being awarded an $80,000,000 grant by the Department of Energy to increase EV and overall production of our Type D bus, allowing us to expand single shift capacity of school buses from 10,000 buses annually to 14,000 buses.

Speaker 2

I will cover the significant growth initiative in more detail a little later. And finally, on the back of our 3rd quarter results, we are once again raising full year guidance for adjusted EBITDA, net sales revenue and adjusted free cash flow. Most notably, we're increasing adjusted EBITDA at the midpoint of range by $20,000,000 with guidance now at $175,000,000 for the full year. That represents a really strong margin of 13.3%, which is an outstanding 5.5 percentage points higher than last year. This is our 6th quarter in succession that we have beaten and raised our guidance, with the expected outcome being record full year results in fiscal 2024.

Speaker 2

In fact, at midpoint of guidance, we are now at double the profit we achieved in 2023, which was a then record. Importantly, too, we have raised our longer term margin outlook from 14% to 15% as we continue to solidify and build on our recent operating and financial performance. With an all time quarterly record profit in the 3rd quarter, reflecting a 14.5 percent adjusted EBITDA margin, I'm incredibly proud of our team's accomplishments. Let me now walk you through the highlights of our plans for the $80,000,000 DOE grant that we were awarded just last month. Turning on to Slide 8.

Speaker 2

Bluebird is one of the 11 companies to be awarded a grant by the DOE under the MESC program. That is the manufacturing and energy supply chains office of the DOE. Awards were based on converting a facility that produced combustion engine based products to one that produces EV products. In our case, we're converting our former Wonder Lodge RV production site. The grant award of $80,000,000 represents 50% of the capital required to build a 600,000 square foot Type D and EV production facility located right across the street from our existing plant.

Speaker 2

So the total investment is around $160,000,000 with Bluebird funding the other 50%. The build out will span around 2 years with production launch expected by the end of 2026 or early 2027. Adding this facility would raise our total production capacity to around 14,000 buses on one shift and would provide for increased volume upside for the commercial chassis production when needed. The new plant would create approximately 400 new jobs and the project includes a number of community benefits. The project generates a great return on investment with a projected IRR of 28% and payback less than 2 years after start of production.

Speaker 2

Now grant deployment is subject to finalized contract negotiations with the DOE through December this year, which are underway today and final Board approval. We are very excited about the opportunities that this award presents as another pillar for our long term profitable growth outlook. We will applaud you about progress at our next earnings call. I'd now like to hand it over to Radhvan to walk through our fiscal 2024 Q3 financial results and updated guidance in more detail. We'll also be providing our first look at guidance for fiscal 2025.

Speaker 3

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 Q3 record results. The quarter end is based on a close date of June 29, 2024, whereas the prior year was based on a close date of July 1, 2023. We will file the 10 Q today, August 7, after market close.

Speaker 3

Our 10 Q includes additional material and disclosures regarding our business and financial performance. We encourage you to read the 10 Q and the important disclosures that it contains. The appendix attached to today's presentation includes reconciliations of differences between GAAP and non GAAP measures mentioned on this call as well as other important disclaimers. Slide 10 is a summary of the fiscal 24 Q3 and year to date record results. It was another outstanding operating quarter for Bluebird with somewhat limited and very well managed supply chain and labor challenges and with high margin units driving both our top line and our bottom line results.

Speaker 3

We significantly beat the adjusted EBITDA general quarterly guidance provided in the last earnings call and in fact we delivered the best quarter ever for Bluebird with $48,200,000 adjusted EBITDA margin. Additionally, on a year to date basis, we tripled the results of last year for a new record year to date of $141,600,000 The team continued to push hard and did again a fantastic job and generated 2,151 unit sales volume, which was just above prior year Q3 volumes, but with more complex Type D and a higher number of EP buses. Record Q3 consolidated net revenue of 333,000,000 was $39,000,000 or 13% higher than prior year, driven by a slightly higher number of units, higher part sales, improved mix of Type D and electric buses buses and pricing actions that continue to materialize also in this quarter as expected. Adjusted EBITDA was an all time quarterly record of $48,000,000 driven by high margins, increased parcels and margins, partly offset by increased labor and material costs. The adjusted free cash flow was negative $4,000,000 a $46,000,000 reduction versus the prior year Q3.

Speaker 3

This was due to increased investment in working capital, mainly finished goods and accounts receivable as we sold a larger number of buses to fleets and GSA in this quarter. We expect many of these units to turn into cash by the end of fiscal 2024. Our liquidity position at the end of this quarter was also at a record Q3 level with $232,000,000 and we had close to 0 net debt position. On a year to date basis, in 9 months, we generated revenues close to $1,000,000,000 tripled the prior year to date adjusted EBITDA result to $142,000,000 and we delivered significant steps forward on our profitable growth path. Moving on to Slide 11, as mentioned before by Phil, our backlog at the end of Q3 has grown and continues to be very strong at over 5,200 units including over 11% EV.

Speaker 3

Breaking down the Q3 record $333,000,000 in revenue into our 2 business segments, the bus net revenue was $308,000,000 up by $38,000,000 versus prior year. Our average BaaS revenue per unit increased from $127,000 to $143,000 or 13%, which was largely the result of pricing actions taken over the past year as well as the higher mix of Type D and electric buses. EV sales in Q3 were also strong at 204 units or 56 more than last year, a 38% increase year over year. Parts revenue for the quarter was $25,000,000 representing a growth of $1,000,000 or 5% compared to the already very strong prior year levels. This great performance was in part due to increased demand for our parts of the fleet is still aging as well as supply chain driven pricing actions and throughput improvement.

Speaker 3

Gross margin for the quarter was a record 20.8% or 5.3 percentage points higher than last year due to our sustained operational performance and our pricing overtaking the inflationary cost in the last four quarters. In fiscal 24Q3, adjusted net income was a record $31,000,000 double the level of the prior year, a $16,000,000 in 12 months year over year. Adjusted EBITDA of $48,000,000 or 14.5 percent was up compared with the prior year by $19,000,000 an increase of over 4 percentage points. Record adjusted diluted earnings per share of $0.91 was up $0.47 versus the prior year more than doubled. Slide 12 shows the walk from fiscal 2023 Q3 adjusted EBITDA to the fiscal 2024 Q3 results.

Speaker 3

Starting on the left at $29,700,000 the impact of the bus segment gross profit in total was $22,300,000 Split between volume and pricing effects, net of material cost increases of $25,000,000 offset by labor cost increases of negative 2,700,000 dollars The favorable development in the Parse segment gross profit was $1,200,000 driven by higher sales and very good margins as mentioned earlier in the call. These great improvements were slightly offset by increases in our other expenses and fixed costs, mainly engineering and personnel related of negative $5,000,000 as discussed in the last earnings call. The sum of all of the above mentioned developments drives our record fiscal 24Q3 reported adjusted EBITDA result of $48,200,000 or 14.5 percent. Moving on to Slide 13, we have extremely positive developments year over year also on the balance sheet. We ended the quarter with $88,000,000 in cash and reduced our debt significantly by $39,000,000 over the last 4 quarters.

Speaker 3

In fact, our net debt position was once again close to 0 at the end of this quarter. Our liquidity fell very strong at €232,000,000 at the end of fiscal 24 Q3, a $98,000,000 increase compared to a year ago. The operating cash flow was $1,000,000 in this quarter, driven by an improvement in operations and margins offset by an increase in finished goods and accounts receivables due to the large number of fleet and GSA units built this quarter. For the fleet and the government GSA units, the working capital flow is different than the dealer business in 2 main ways. First, the buses are in finished goods inventory for an additional 2 to 6 weeks, while they are transported and inspected for delivery before they get into customer hands, which is when we recognize the sale.

Speaker 3

2nd, fleet and GSA buses generally have longer payment terms than our dealer business, which could be 30 days or more depending on the contract. A detailed comparison chart of these flows is available in the appendix of today's presentation. Slide 14 shows the sustainable results achieved by our team over the last 4 quarters, generating over $180,000,000 in adjusted EBITDA or 14%. Our revenues have been consistently above $300,000,000 every quarter, partially due to pricing realization combined with a strong increase in EV sales versus last year. We have beaten raised our conservative guidance for the last six quarters in a row due to the outstanding execution of our plans by our teams and despite a still difficult supply chain environment with select suppliers.

Speaker 3

The last four quarters have been in the 13% to 15% adjusted EBITDA range demonstrating that we are delivering now consistently double digit performance and at best in class levels. Finally, it is important to note that our pricing curve has been ahead of our costing curve in the last 4 quarters, preparing us for the significant investment lined up for 2025 and the contractual inflation factors expected ahead of us, some of which already impacted our margins in fiscal 24 Q3 as expected. Before we talk about the updated guidance for fiscal 2024 and our updated mid and long term outlook, on Slide 15, we wanted to share with you the results of our year long negotiations with the USW on our first collective bargaining agreement. Overall, we believe we have achieved a win win result, which makes Bluebird an even more attractive place to work in Middle Georgia and will give us the talented and stable workforce required for our profitable growth plan. We have now a 3 years contract from June 2024 to June 2027 with approximately 1500 people in scope.

Speaker 3

The average wage increase in the 1st year is 12%, followed by 4% in year 2 and another 4% in year 3. We are also introducing profit sharing at 4% of net income once certain thresholds for profitability are met each year. We also strengthened the company 401 contributions for the employees. In total, the increased cost equals approximately 1% of the company revenues on a run rate go forward basis and we intend to pass this to our customers over time through pricing actions. In Q3, we recorded a number of one time expenses including the ratification bonus of $7.50 per employee paid in June and the 2 up of our profit sharing accrual.

Speaker 3

In summary, we believe our CBA provides us with the necessary workforce and stability to continue to grow profitably in the years to come. On Slide 16, we want to share with you our updated fiscal 2024 guidance. We are increasing our revenue to $1,315,000,000 and we are significantly increasing our adjusted EBITDA by $20,000,000 to $175,000,000 or 13% with a range of $170,000,000 to $180,000,000 This is an increase of 100% over the prior year record results, doubling our prior best year ever. We are reducing our results outlook for the year by about 100 units due to the timing of EPA orders and requested delivery timing. Phil will cover this in more detail in the outlook.

Speaker 3

Given this and cost factor headwinds anticipating in Q4, we expect in the last quarter revenues of $300,000,000 to $330,000,000 and increased adjusted EBITDA in the range of $30,000,000 to $40,000,000 or 10% to 12%. Moving to Slide 17. In summary, we are forecasting a significant improvement year over year with revenue up 16% to over $1,300,000,000 adjusted EBITDA in the range of $170,000,000 to $180,000,000 and adjusted free cash flow of $80,000,000 to $90,000,000 in line with our typical target of approximately 50% of adjusted EBITDA. As a reminder, we are moving from accelerated filer to a large accelerated filer status by the end of fiscal year 2024, which will reduce our Form 10 ks filing requirement from 75 to 60 days. As a result, we plan to file our 10 ks and hold our fiscal year end earnings call on Monday, November 25, 2024 as announced in the last earnings call.

Speaker 3

On Slide 18, we wanted to give you a first look at fiscal 2025 in terms of preliminary 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 tailwinds, we have strong demand, stable pricing and still very high industry backlog. We have now the only propane fuel school bus in the industry with clean fuel and best in class total cost of ownership. We are also leading in the EV segment with close to 2,000 buses on the road and the orders from round 23 of the EPA Clean School Bus program will significantly improve our sales mix in the second half of fiscal twenty twenty five.

Speaker 3

As headwinds, supply chain is still fragile at times, while improving overall and we have made great progress in removing bottlenecks for some key components. The material costs and supplier inflation pressures are still present. And finally, we expect still relatively low EV production and sales to the first half of fiscal twenty twenty five, but the infrastructure plans are being worked on and there's many customers requesting EV delivery before school starts in the summer of 2025. While it's still very early, we are modeling the range of scenarios as follows: units in the range of 9,000 to 9,500 units EV sales in the range of 1,000 to 1300 units back end loaded in the second half, revenues in the $1,400,000,000 to $1,500,000,000 or approximately 10% increase over fiscal 2024 also back end loaded and adjusted EBITDA of approximately 13% and in the range of $180,000,000 to 200,000,000 dollars approximately 10% year over year improvement. We'll provide more insight into fiscal 2025 during our next earnings call on November 25.

Speaker 3

On Slide 19, we wanted to also update you on our raised long term outlook and our expected path to get there. Looking at fiscal 2024 updated guidance, through hard work from all our teams and great execution of our strategy, we already delivered way ahead of schedule the 13% adjusted EBITDA margin we had highlighted in the past as our long term aspiration. Therefore, today we are raising the bar again for our outlook as follows. Fiscal 2025 shows $190,000,000 and 13% plus adjusted EBITDA margin and replaces the previous short term outlook. Looking to the medium term in fiscal 2026 or fiscal 2027, our EV growth and operational improvements on one shift with the existing plant can support volumes of up to 10,000 units, including EVs of 2,500 units, generating revenues of $1,600,000,000 and with adjusted EBITDA of $225,000,000 or 14%.

Speaker 3

Beyond 2027, our long term target remains to drive profitable growth now to even higher levels towards $1,350,000,000 to $2,000,000,000 in revenue comprising of 11,000 to 12,000 units of which 4,000 to 5,000 REVs and generate EBITDA of $270,000,000 to $300,000,000 or 14.5 percent to 15% at best in class levels. We are incredibly excited about Bluebird's future and now I'll turn it back over to Phil.

Speaker 2

Well, thanks, Razvan. As usual, that was a great explanation of our quarterly results and our forward year outlook. So let's move on to Slide 21. I covered this slide at our 2 prior earnings calls, so I won't spend much time on it today as our priorities and our strategy are unchanged as they should be. The chart on the left illustrates the 3 priorities that continue to drive us: taking care of our employees, delighting our customers and our dealers, and delivering profitable growth.

Speaker 2

The chart on the right provides more texture around the specific strategies that we are pursuing both align with our priorities and drive our 4 year growth plans. At the center is our ultimate objective to drive sustained profitable growth. As you look at the margin accomplishments in fiscal 2023, we transformed the business from losses fiscal 2022 to record profitability in 2023, achieving a full year margin of 8%. For fiscal 2024, we just increased our full year earnings guidance at midpoint of range to a 13% adjusted EBITDA margin. Then over the next few years, we plan to grow the margin to 14% and then to 15% and beyond.

Speaker 2

Following these core strategies has been key to our margin transformation and will continue to drive our 4 year plans. On this point, we have highlighted our leadership and safety strategy on this slide in recognition of the significant move we announced just a couple of months ago to make 3. Seatbelts a standard feature on all of our Type C and Type D school buses. This will take effect in the Q4 of this calendar year and we will be the 1st school bus manufacturer to provide 3 point seat belts as standard equipment. Now we are following this with the standardization of a driver's airbag in mid-twenty 25 on our Type C bus with a Type D bus coming a little later.

Speaker 2

We will be first to market with this safety feature and both actions show our commitment to the safety of our children and the safety of our drivers. We intend to lead and we have many more safety initiatives in our product development pipeline that will differentiate us. Let's now turn to Slide 22 and look at the latest status of federal funding for clean school buses, which is so important in helping us accelerate the adoption of electric and propane vehicles in fiscal 2024 and beyond. As a reminder, we are just starting the 2nd year of this bipartisan 5 year program, which provides $5,000,000,000 of funding of electric and propane powered school buses. There are still over $4,000,000,000 to be deployed after the 1st year of funding.

Speaker 2

The 2nd year, which is referred to by the EPA as a 2023 program, provides for 2 more rounds of funding, totaling almost $2,000,000,000 That's close to $1,000,000,000 more than was anticipated and appears to be an acceleration by the EPA to deploy the $5,000,000,000 in total funding. As the left chart shows, RAM 2 awards for the 2023 grant program are confirmed at $965,000,000 In fact, that's a $565,000,000 increase from the original plan due to the high level of grant applications submitted. Now about 2,700 electric and propane buses were awarded these grants earlier this year, which cover Type A, C and D school buses and the winners will have until April 26 to take delivery of their buses using these awards. Looking now at the middle chart, immediately after announcing the RAN 2 award results, the EPA announced its RAN 3 rebate program, which is also part of the 2023 program, totaling $940,000,000 and again about $500,000,000 more than have been anticipated due to the sheer volume of applications. Approximately 3,600 school buses will be awarded these rebates, which covers all body types again and the winners will have until June 26 to take delivery of these buses.

Speaker 2

So in total, RANS 2 and 3 will help to fund around 6,300 EV and propane powered buses and virtually all this is ahead of us in terms of orders and deliveries. Now our expectation that Blue Bird should win approximately 30% of these bus orders, talking around 1900 buses were delivered in fiscal 2025 fiscal 202026. Now with the deadline of bus deliveries from these two rounds being as late as June 2026, significant deliveries likely won't begin until the Q2 of 'twenty five calendar year as ZEN customers deal first with finalizing their charging and utility infrastructure needs prior to ordering. However, the EPA's timing plan indicates that purchase orders for the Round 3 rebates must be placed by year end 2024, So we are expecting an order surge late this calendar year. Finally, looking at the right hand chart, at our last earnings call, I introduced the 2024 clean heavy duty vehicles program, which amounts to $932,000,000 Now this is funded by the Inflation Reduction Act and the great news is that 70% of our EV funding is being allocated to school buses.

Speaker 2

That's up to $650,000,000 have additional funding to accelerate the adoption of EB School Buses and that's beyond the $5,000,000,000 from the EPA's Clean School Bus Program. Now we estimate that orders from this program should total around 2,300 EV school buses. Awards should be announced in February 2025 with the winners having until January 2027 to take delivery of their buses. The EPA's focus on school buses is great news for our industry, great news for our customers and great news for our school children with school buses recognized as having the perfect duty cycle for EV adoption. So we have a total of $2,600,000,000 approved and about to be deployed over the next 2 years to fund around 8,600 EV and propane school buses.

Speaker 2

With our expectation on winning around 30% of these orders, these programs represent a great opportunity for Bluebird, totaling around 2,600 EV school buses of all body types over the next 2 years or so. Beyond that, we have another $2,000,000,000 in Clean Bus funding still to go and state and local funding too to accelerate the adoption of clean EV and propane powered school buses. And let's remember the mission. The Clean School Bus Act was a bipartisan agreement signed in 2021 designed to keep our children and communities safe from air pollution by removing harmful older emissions diesel powered buses from the road and replacing them with clean powered buses. What can be more important than safe student transportation?

Speaker 2

So let me now wrap up the earnings call and our outlook for the business on Slide 23. Rajvind took you through the RAISE guidance of fiscal 2024 and I'm showing you some of those key metrics at the midpoint of guidance here. Our volume outlook of 8,800 buses is 3% over fiscal 2023. Net revenue of $1,300,000,000 will be a new record for Bluebird, up 15% from fiscal 2023. Adjusted EBITDA guidance of $175,000,000 is double the $88,000,000 profit we made last year, which was a record at that time.

Speaker 2

Importantly, we are planning on a 13% EBITDA margin in fiscal 'twenty 4, up 5.5 percentage points from fiscal 2023, which is several years ahead of the plan we have been sharing with you just a couple of years ago. We have confidence in achieving this margin after recording an impressive 14% adjusted EBITDA margin in the 1st 3 quarters of fiscal 2024. Now it should be noted that the 1st 9 months did benefit from an exceptional mix of EVs at 9% of unit sales, within a strong total mix of alternative fuel vehicles at 60% of sales. The extended time granted by the EPA for customers to deploy buses from the new RAM 2 and 3 funding awards has slowed the recent pace of orders and is impacting deliveries late in fiscal 2024. Consequently, we have lowered our forecast briefing bookings this year from 800 buses to 700 buses.

Speaker 2

This is purely due to order timing with these 100 deliveries now being moved from fiscal 2024 to fiscal 2025 and still represents a healthy 28% growth over last year. As I mentioned earlier, however, we do expect an order surge towards the end of this year as RAN 3 rebate bus orders must be submitted by December 24 per the EPA's timing plan. As you can see on the right chart, there was a lot of pent up demand following the low industry sales in 2020, 2021 and 2022 and the bus fleet has aged by a couple of years over that period. Forecasting a compound annual industry growth rate of 7% from the end of fiscal 2023 through fiscal 2027, and that's great news for our business and great news for our profit outlook. With residual supply chain challenges still impacting the auto industry, the ability to build all these units near term is not a given, but clearly the demand is there.

Speaker 2

After executing a substantial transformation across our business, the company is performing exceptionally well. We'll continue to improve operating performance and look forward to sustained profitable growth in the robust market ahead. You will recall that just a couple of years ago, our stated long term objective was to achieve a 12% EBITDA margin. Well, with guidance of fiscal 2024 now reflecting a margin of 13%, we have updated our long term outlook to reflect an EBITDA margin at least 2 percentage points higher than this year at 15%. I want to thank our nearly 2,000 employees for all their hard work and dedication in delivering an all time record profit in the 3rd quarter, as well as our outstanding dealer partners who are critical to our success.

Speaker 2

Now before I pass it back to our moderator for the Q and A session, I would like to move to Slide 24 and briefly cover the CEO and Chairman transition plan that we announced after market closed today. After 14 years as CEO of Bluebird, I will be stepping down at the end of this fiscal year. It's been an honor and a privilege to lead this great company for so long and to work with the best team in the business. Now I'm very pleased to confirm that our President, Britton Smith, will be taking over from me as CEO with his appointment effective September 29, which is the start of our new fiscal year. We have been working together in a very thorough transition plan over the past year with Britton taking on increasing responsibilities during that time.

Speaker 2

Britton will be joining the Board immediately and I will also be staying on the Board. I have to say, this is how our leadership transition should be run, promoting from within with a leader who knows the business and ensuring continuity. Also transitioning is our Chairman. After almost 9 years in the seat, Kevin Penn is stepping down and will be succeeded by Doug Grim, effective immediately. Now Doug knows our company very well, having been on the Board since 2017 and will be a great success to Kevin, who will be staying on the Board as a Director.

Speaker 2

From a personal standpoint, I'd like to thank Kevin for all the support he has given me during my time as CEO and for the great friendship we have built over those years. Again, the Chairman transition couldn't be better coming from within the Board and ensuring continuity. So this will be my last earnings call of Blue Bird's CEO and I'd now like to hand it back to our moderator for one final Q and A session.

Operator

Thank you. Our first question today comes from Mike Schliskey with D. A. Davidson. Please go ahead.

Operator

Your line is open.

Speaker 4

Good afternoon. Thanks for taking my

Speaker 3

question. And of

Speaker 4

course, Phil, congrats on your time.

Speaker 2

Thanks, Mike.

Speaker 4

Hey, there's a lot to cover here. Sure, yes, of course. Hey, there's a lot to cover here. Why don't I start with the question or 2 about the long term guidance? Looking at what you're doing now, what your long term guidance is, it implies also $100,000,000 worth of additional revenues, but EBITDA up about $125,000,000 dollars That's less than 20% incremental margin, it's actually about 18%.

Speaker 4

This past quarter you just did 50%, five-zero. I guess I would have said more in EBITDA given the EV mix going forward, the 50% higher revenues on the top line in general. We're sure the fixed cost base won't grow anywhere near that much. So I guess I'm curious, I know you just put this guidance out, but do you think there's potential to go above 15 percent if you would that hit $2,000,000,000 and DEB mix plays out as you expect?

Speaker 3

Yes, Mike. Thanks for the question. This is Radvan. So, as Phil alluded in his comments, he mentioned 15% and beyond. And obviously, as we are executing on this journey as we firm our plan for the future, we are going to look potentially at higher numbers.

Speaker 3

However, there are also factors that are part of this strategic long term plan. We are modeling over time a lower price for the easy buses in conjunction with lower cost, which in the end will drive a lower margin per bus compared to what we are making today. And definitely, this will drive the adoption and increase the mix, which then goes hand in hand with our increased mix of EV. So we are working on that journey and as we have more updates that we can give you, we'll be happy to share those with you at that time.

Speaker 4

Okay. Sure. On a somewhat similar note, looking at the 4Q outlook and given we did the 1st 3 quarters just backing into it, suggesting that the revenues may be down from the 3Q that you just put up here. Outside the pandemic, does a lower 4Q than 3Q really have any precedent? Is it maybe just a mix again of the EVs being a little bit lower?

Speaker 4

Or

Speaker 3

I'm just having a hard

Speaker 4

time figuring out how you're going to have lower revenues just before school starts and everyone wants their deliveries than you did in the previous quarter?

Speaker 3

Yes. So the Q4, Mike, has one less work week than the Q3 because of the July 4 shutdown, which we put in place 2 years ago. So there is less number of workdays. However, this particular Q4, as mentioned both by me and Phil, has a lower number of EV units by about 100. And definitely this drives significantly lower revenues given the average selling price for EV buses.

Speaker 4

Got it. Got it. Maybe one last one for me and that's on the political environment. Can the EPA or other federal funding for buses be reversed or taken away starting January 2025 if a certain candidate wins the presidency or you feel like what has been passed is passed and will be allocated? I'm just kind of trying to figure out whether there's any kind of risk to some of the EB programs that are out there today.

Speaker 2

Yes, Mike. Well, it's Phil here. I mean, a lot of things can happen obviously, but we look at it this way. I mean, those amounts have already been awarded. They've actually allocated them.

Speaker 2

So the one of the 2nd round we talked about have been allocated to customers. It's right out there. They know what they're getting. They just finalize their infrastructure plans. Remember that was a bipartisan agreement in 2021, both part, there was no objection to it.

Speaker 2

It went through pretty easily. And I think it was all around the fact talking about school children, school transportation. So I think it would be very difficult to so we feel very difficult that to be reversed. There's so much support for it and it's doing so much good for the environment for our children.

Speaker 4

Okay. Well, thanks for that answer. And again, congrats, I will leave it there.

Speaker 2

Thanks, Mike.

Operator

Our next question comes from Craig Irwin with Roth Capital Partners. Please go ahead.

Speaker 5

Hi, guys. It's actually Andrew on for Craig. And Phil, congrats on the retirement. Thank you, John. First question on gross margins.

Speaker 5

You've posted really strong margins in the quarter with the strong revenue. And you guys are still kind of seeing cost inflation and you guys are engaged with your suppliers that are kind of seeing some constraints here. So just any update you could provide on the cost inflation and kind of where you can see long term margins going would be great.

Speaker 3

Andrew, this is Rajvind. I'll take this one. So in terms of gross margins, we highlighted some of the tail headwinds that we are seeing into fiscal 2025. We have just finalized new collective bargaining agreement with the USW and that is going to cost us about 1% of revenues on a run rate basis going forward. We do see continued inflation pressures from our suppliers in terms of material costs, also driven by some labor factors, but also the general economic environment that is still not entirely stable at this point in time.

Speaker 3

So we have material inflation and we have labor inflation that will put pressure on margins. At the same time, we are continuing to on a regular cadence increase our prices to the market and we are trying to balance the two factors there. So at this point in time, we provided a general guidance for fiscal 2025 with a range and we'll be happy to provide more insight in the next earnings call when we have more visibility into our exact build and backlog for entire fiscal 2025.

Speaker 5

Great. Thank you. And second one for me, I know we're kind of still early days in the chassis business, but I think you said last quarter you had one on the ground. We're engaging some customers there. So is there any kind of update now after the fiscal Q3?

Speaker 2

Not really, Andrew. I think what we said last quarter is still the same. We're in development mode now, developing a prototype. We have a prototype we showed at the ACT show, big truck show back in May, well received, well recognized at a very active customer group come and walk through that and see that chassis. So right now, our goal is that we want to get this product in the hands of customers later this year.

Speaker 2

We have several customers extremely interested. They want that product. They do their own validation tests. They give feedback to us and then we'd be looking into later into 2025 to really getting a commercial product out on the road to those customers. But I'd say we're very optimistic about it.

Speaker 2

We like what we're doing and it's going to be a great chassis when it becomes a market, that's for sure.

Speaker 5

Awesome. Well, that's great to hear. Congrats on the strong results and hop back in

Speaker 2

the queue. Thank you. Our

Operator

next question comes from Chris Pierce with Needham. Please go ahead.

Speaker 6

Hey, good afternoon, everyone. I just wanted to ask on the National Sleep Business. You're talking we had this bump up in accounts receivable that we don't see in prior years, but admittedly my model doesn't go back that far. So I'm just curious, are you winning more business with these national fleets? And is EV and propane driving that?

Speaker 6

Or are you winning your share of diesel engines as well? Like what's the right way to think about the national fleet business for Bluebird?

Speaker 2

Yes. I mean, it's really all of the above. We are definitely participating more in national fleet business than we have recently. Propane has been a fantastic product for us this year. As we said before on prior earnings calls, our competitors don't have a propane product.

Speaker 2

It's a fantastic total cost of ownership for these fleet operators and they know that. So we've had great success there. Electric is the same thing, very excited about our product. I think the third thing is we have a very good delivery time versus the rest of the market in terms of getting products to cut in customers' hands. And that's been great news for us, the fleets who want those products for school start.

Speaker 2

So I think we've done very well with that. By the way, we intend to keep this business. We intend to keep this business. This isn't a one off. I said this isn't a one off year for us and that we've turned up the capability this year for us.

Speaker 2

We intend to retain this business going forward. It's good business for us.

Speaker 6

Perfect. You just answered my follow-up because I know one of the 3 players in the market has had trouble delivering a diesel bus at this point in time. Okay. Perfect. And then I was at ACT Expo recently and I sat in on a presentation with Cummins and talked to some of the other competitors.

Speaker 6

Can you talk about your you guys have been talking about diesel emissions and I just didn't pick up the same level of concern from other players in the industry, but I just didn't know if that's something that I didn't know how to frame that from not having looked at the industry for a long time. Is it just that diesel emissions get tighter over time and everyone sort of adjusts? Or is there something specific to these 2027 diesel emissions that gives you confidence in alternative fuel buses taking increased share?

Speaker 2

It's absolutely the second one you raised there. In 2027, the emissions get very stringent on the requirements, such as the spirit of diesel engine to meet it without a lot of hardware support, very costly. It will significantly increase the cost of a diesel engine. Now our propane product today meets the 27 emissions engine. Even our gasoline engine is quite a small pot, I'll call it trying to get there to meet the emissions requirements.

Speaker 2

Obviously, electric is 0 emissions and fully meets all those requirements. Our competitors don't have a propane engine. They don't have a gasoline engine. All they have is a diesel engine and electric vehicle. So I think you're going to get a different comment from them.

Speaker 2

And when I talk about our leadership, just remind, I mean, 60% of the vehicles that we sell today are on diesel. That's quite a different story for our competitors. They're up at the 90% level of diesel sales, diesel mix for their business. So it's 10% non diesel, so to speak. So for them, it's quite a different story.

Speaker 2

For us, we're very excited about it. We're well positioned for it. We have exclusive products in propane and gasoline and even electric we have exclusivity by default because we get it from Cummins and the only one that provided by Cummins. So I think we're in a very good position.

Speaker 4

Okay. I appreciate the detail. Talk soon.

Speaker 2

Great. Thank you.

Operator

The next question comes from Eric Stine with Craig Hallum. Please go ahead.

Speaker 7

Hi, everyone. I've been on multiple calls jumping around. So I apologize if I repeat any questions. Just curious, you mentioned for Q4, just that you're tempering your outlook for electric buses, just given some of the funding push out or the dates being pushed out for the clean school bus funding. Wondering, have you given an update on the timing of the labor agreement?

Speaker 7

Is that also a reason for the EBITDA, I guess implied EBITDA guide to be down versus the 1st 3 quarters of the year?

Speaker 3

Yes, Harik. This is Ruslan. I'll take that. So for Q4 guidance in addition to having lower review units as mentioned several times by me and Phil in the prepared remarks. We have also the USW, which concluded in June.

Speaker 3

So we will have the full impact of the USW agreement starting to hit in Q4 and the run rate impacts about 1% of revenue. So indeed there will be an impact full run rate in Q4 from that.

Speaker 7

Okay. Yes. So there is an example of me asking a question you'd already addressed. So sorry for that. Well, maybe this one.

Speaker 7

For fiscal 2025, your run rate the last three quarters would put you above where you're guiding for fiscal 2025. And I know the headwinds. Just curious, are you also being conservative on the EV side simply because of what you talked about, even though you're going to see or expect an order pickup here before December of this year, but those buses likely wouldn't be deliveries for you until late fiscal 2025 or early fiscal 2020 6. Is that the right way to think about it?

Speaker 3

Yes, Eric. So definitely we will see lower EV volumes in the first half of fiscal 2025 as we indicated with a higher more back end loaded for the second half. We provided a range or guidance of $1,000 to $13,000 And as we said going forward, we are becoming a bit less conservative in our guidance that we give. So right now, we feel pretty good about the ranges we preliminarily put out for fiscal 2025, both in terms of units, EV and revenues and EBITDA. But obviously, as things develop, we'll give you an update in the next earnings call and we'll fine tune the look for fiscal 2025 then.

Speaker 2

Okay. Thank

Operator

you. Our next question is from Sharice Al Sabahi with Bank of America. Please go ahead.

Speaker 6

Hi, good

Speaker 2

afternoon. Just given sort of the significant balance sheet optionality that you now have, how should we think about capital allocation going forward? Sharish, this is Rajvan. So we outlined our

Speaker 3

Hi, Shariv, this is Rajvind. So we outlined our capital allocation strategies 2 earnings calls ago. However, since then, we've been awarded the Department of Energy mask grant for $80,000,000 and once it's approved by the Board and finally negotiated with the DOE, we will fund $80,000,000 over the next 2 years from that. So we are we will evaluate all the opportunities to deploy capital. This project has a great internal rate of return, so we have great opportunity to deploy that for our long term growth.

Speaker 3

But at the same time, we expect to continue to generate significant free cash flow. And as we find in our capital allocation strategy, we'll give you an update in the next earnings call and probably the following as well.

Operator

We have no further questions. So I'll turn the call back over to Phil Hollop for any closing comments.

Speaker 2

Okay. Well, thank you, Lydia, and thanks to all of you for joining us on the call today. Before I close this earnings call for my final time, I'd like to summarize where I believe we are today, where we stand today and where we are going. Lomaia, last year, you saw momentum growing throughout the year, profitability increasing as we move through each of the quarters. And we continue to be on the same path this year, delivering an impressive all time quarterly record profit in the 3rd quarter with a 14.5% margin.

Speaker 2

With this very strong base behind us, we've raised guidance for the 6th quarter in a row and adjusted EBITDA of $175,000,000 and a margin of 13.3%. And as I mentioned earlier, that's a full 5.5 percentage points above last year's then record profitability. In fact, it's worth pointing out and remembering, Ronny, is again that our absolute EBITDAR is double last year's result, which was then a record for the company. And as we look to going forward from here, I mean, we've outlined few of our full forward year financial plan, but I think it's worthwhile just reminding ourselves of the extremely favorable factors we have right now. These tailwinds we have that help and drive profitability and grow shareholder value that we're seeing right now, we think we'll see moving ahead.

Speaker 2

Number 1, we've got an unprecedented backlog of firm orders and strong market demand of edibles with an aging bus fleet. That's shown by the ACT data and confirmed by all the industry experts that are out there. Supply chain constraints are easing and we're seeing that a little bit, albeit still some way to go. And again, that's why you see the increase in trend on the ACT volume chart we showed you of the industry projections growing. Upcoming 20 27 emission standards will definitely increase the need for alternative powered vehicles and that is our sweet spot.

Speaker 2

We can deliver on that. Number 4, we have strong bipartisan federal and state support and customer demand for electric buses. The demand is there. Look at the applications that we receive for RAN 2 and RAN 3 of these grants by customers who never had an electric bus before. They want electric powered buses.

Speaker 2

That's our sweet spot. Number 5, we've been awarded a significant investment grant by the DOE to increase our Type D EV production capacity and importantly, our total capacity to 14,000 units on a single shift. That's fantastic opportunity for us to improve our sales outlook in the 4 years and obviously build very competitively as we move forward. And number 6, the base we have, we're achieving record profits, record margins, record cash and record liquidity today. And these are structural improvements we've made that will stay with us as a great baseline as we move forward.

Speaker 2

So with these positive very positive tailwinds, we provided our first look at guidance fiscal 2025. We took EBITDA midpoint of range up to $190,000,000 and that's $15,000,000 higher than fiscal 2024. And we are confident in achieving a 14% margin in a couple of years as the industry supply chain constraints ease and then go on to 15% in the long term. Bottom line, I have to say that Bluebird has never been stronger and we have great momentum. So we appreciate a continued interest in Bluebird and Britton and Rasband look forward to taking you to update you all again on our progress at the next earnings call.

Speaker 2

Should you have any follow-up questions, please hesitate to contact our Head of Investor Relations, Mark Benfield. And thanks again from all of us at Blue Bird. Have a great evening.

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Key Takeaways

  • Blue Bird delivered its highest ever quarterly profit with Q3 adjusted EBITDA of $48 M and a 14.5% margin, and raised full-year 2024 guidance to $1.315 B in revenue and $175 M in adjusted EBITDA, up over 100% from FY 23.
  • Market demand is robust with a firm order backlog of over 5,200 buses (about seven months of sales), year-to-date net orders +10%, and average selling price up 13% year-over-year thanks to pricing actions and a richer mix.
  • Alternative-powered buses accounted for 59% of Q3 unit sales, with electric deliveries exceeding 200 units (up 38% YoY) and a record EV backlog of 567 buses (11% of total orders) under the EPA’s Clean School Bus Program.
  • Blue Bird won an $80 M DOE grant to fund half of a new 600,000 sq ft Type D and EV production facility, boosting single-shift capacity from 10,000 to 14,000 buses with a projected IRR of 28% and under two-year payback.
  • The company completed its first collective bargaining agreement with the United Steelworkers, securing a stable workforce under a three-year contract with average wage increases of 12% in year 1 (4% thereafter) and a 4% net-income profit-sharing program.
A.I. generated. May contain errors.
Earnings Conference Call
Blue Bird Q3 2024
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