Greetings, and welcome to Blue Bird Corporation Fiscal 2020 Fourth Quarter and Full-Year Earnings Conference Call. At this time, al participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mark Benfield. Thank you, Mark. You may begin.

Thank you. Welcome to Blue Bird's fiscal 2020 fourth quarter 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 our 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 in our latest earnings release and filings with the SEC. Blue Bird disclaims any obligation to update information on this call. This afternoon, you will hear from Blue Bird's President and CEO, Phil Horlock; and CFO, Jeff Taylor. Then we will take some questions. So let's get started. Phil?

Thanks, Mark. Well, good afternoon, and thank you all for joining us today for our fourth quarter and full-year earnings call for fiscal 2020. Before I jump into our financial results, I'd like to give an assessment of how I see our business environment today and particularly the outlook for the school bus industry. So let's turn to Slide 4. Not surprisingly, the fourth quarter was a challenging one as we entered our second quarter of dealing with the COVID-19 pandemic. But as you'll see, we continue to improve our business structure. And while significant, the impact of the pandemic on our fourth quarter results was less severe than we experienced in the third quarter, and we are seeing positive signs that the industry recovery is on the horizon. Nonetheless, we have to deal with some significant challenges. About 50% of schools chose online teaching over classroom teaching and a significant portion of the balance like the hybrid program alternated between online and classroom teaching. This approach was deployed throughout the fourth quarter and was largely in place at the start of the new school year. However, one fact is clear and obvious when schools are closed, buses aren't being ordered. The good news is that when schools are open, it’s business as usual with school bus orders being placed. Consequently, with uncertainty over in classroom teaching, our new order intake in support of school start was slow and this was seen in our unit sales for this quarter, which were down 23% from a year ago. I believe this was a significant sales decline. It was considerably lower than the 43% reduction we saw in the third quarter. In fact, fourth quarter sales were nearly 50% higher than what we achieved in the third quarter. So the pace of…

Thanks, Phil, and good afternoon. It's my pleasure to share with you the financial highlights from Blue Bird's fourth quarter and full year 2020. The quarter and year-end are based on a close date of October 3, 2020, whereas the prior year was based on a September 28, 2019 close date. We are filing the 10-K tomorrow, December 17, which includes additional material and disclosures regarding our business and financial performance. We encourage you to read the 10-K and the important disclosures that it contains. The appendix attached in today's presentation reconciles differences between GAAP and non-GAAP measures mentioned on this call as well as important disclaimers already mentioned by Mark. With that, please refer to Slide 10, and I will review the key results for the fourth quarter. Overall, it was a strong quarter for Blue Bird, especially considering the challenging operating environment due to the global pandemic. Let me say, first and foremost, our number one priority was and will continue to be protecting the health and safety of our employees. While operating conditions were tough, they improved significantly over the third quarter as supply shortages and disruptions lessened in the fourth quarter, and we maintained production without any unplanned plant shutdowns. Furthermore, as we discussed on our third quarter earnings call, we implemented additional cost control measures in the fourth quarter with the goal of protecting the balance sheet and liquidity while preserving the ability to recover quickly when schools reopen and school bus demand returns to pre-pandemic levels. Fourth quarter volume of 2,876 units was down 23% compared to the prior year period and lower industry volumes due to the COVID pandemic. However, it increased 48% sequentially as expected and consistent with our guidance. Net revenue of $281 million was $62 million or 18% lower year-over-year…

Thanks, Jeff. So let me now summarize the outlook that we see for both our operating performance and the school bus industry, which are the basis for our fiscal 2021 guidance. Turning to Slide 17. Our focus at Blue Bird is on delivering superior operating performance. We can't change the industry outcome this year, but we can focus on improving every element of our business so that we are well positioned when the industry rebounds as it inevitably will, so that we also rebound. That means executing our margin growth strategy by improving bus selling price, alternative fuel mix and cost structure. An example of a structural change that drives superior operating performance was our move to a single-ship production schedule in June. We know we build a bus more efficiently and with better quality when all of our team is working together on the same single shift. It's proven and a fact. The next step for us was to break specific plant bottlenecks, which we started during our October shutdown and will complete in our December holiday shutdown. So from early 2021, we will be able to build as many units on one shift that we used to build on two shifts in straight time. Now that's a smart move. Turning to the external environment. There are a number of factors that will influence the industry outlook. The most important being the return to in-classroom teaching. We know that when children in the classroom, school bus needed to transport children safely, and we see orders for new buses. The positive recent developments in COVID vaccine distribution and President-elect Biden's 100-day gold to open schools should impact the school bus industry favorably. Additionally, with 25% of the 600,000 unit North American school bus fleet being 15 years or older and…

Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] Thank you. Our first question comes from Eric Stine with Craig-Hallum. Please proceed with your question.

Hi, everyone.

Hi, Eric.

Hey, so, I mean, obviously, a lot of uncertainty here heading into fiscal year 2021. But just curious, what are you hearing from school districts related to funding availability related to release of funding, maybe purchase plans? And just what kind of confidence that it does give you that when things hopefully return to normal? And I guess, in fiscal 2022, what kind of strength that you see? I mean, is it something where you think that this industry can snap back pretty fast? Or are there factors where you think potentially it's a little more gradual than that?

It's a good question, Eric. I mean, let me tell you my thoughts and let some of the best experience, too, in those schools that have reopened. The ones that are reopened, I'd say, we are seeing volumes in the region of sort of 95% of where we've previously been, maybe 90% to 95% of where we were back in 2019. So that's encouraging for us. You go back to our funding mechanism, principally, property taxes. That's a principal funding mechanism for school buses. Property value is still high. Property taxes are still robust. And so, the view is that the funding certainly for -- traditional funding for school buses looks pretty strong. And we've seen consistently over the years that when districts need to add school buses, which are all about safety of children. They'll put some bond money out there. They'll -- it will be a unique funding mechanism for doing it, and that's been successful in the past. I think the other thing to recognize, too, is, try not get political here, but we've certainly heard President-elect Biden talking about electrification of the school bus fleet. And I think certainly, he's at the top of his agenda or he's getting kids back-to-school in the classroom. And I certainly think to do that effectively, you've got to have a robust school bus fleet of safe buses that can handle it. So I guess, what I'm telling you is best experience of districts who've actually gone back-to-school were seeing orders. Do I think -- am I -- I don't necessarily think -- when I think of 2022, we're going to see, as bounce immediately back at 35,000, which is like the peak we've been running at for the last 30 years, and we have -- we enjoyed three or four years of that prior to the COVID pandemic. But I think we'll be close to that. I don't think we'll be far off that. I think we'll be in the 33,000, 34,000 sort of range when we bounce back.

Okay. No, that's great color. Well, maybe just turning to this fiscal year, I mean, you mentioned that first quarter was full in that context. I mean, should we think about typical seasonality this year? Or I think, could it potentially be a fair amount steeper? And I guess, in the back-half of the year, COVID has a big bearing on that, but maybe just how we should think about or get our minds around first quarter?

Well, obviously, we don't give guidance by quarter. But I can tell you, when I say we're full, obviously, we are a little down from last year. But the decline from a year ago is a lot less than what we saw in the third quarter and then in the fourth quarter of fiscal 2020. We're much nearer -- just getting into double-digit decline. I mean that's where we are as we look at the 2020 -- 2021 first quarter orders versus a year ago. So I think that's a point that we've been trying to make here is that, we talk about the rate of decline, it seems to be slowing down, and certainly evidence starting in the first quarter. And when we give you those results, you'll see that in the February time.

Yes…

And then -- yes.

Eric, this is Jeff. I think you're going to see the first-half is going to continue to be impacted by COVID, and then obviously, we've commented that we're optimistic on the second-half. So that could play into the seasonality as we look at the full-year as well.

Okay. Got it. Lastly, just on the electric bus side, I know you recently up capacity by six times, I believe, over 1,000 units, and that's pretty significant. And I know you entered with, I think, 80 coming into the year. I mean, what -- you obviously didn't have that capacity thinking that you wouldn't need it soon. So is that a level that you think, whether it's in the next fiscal year or two that you could be approaching on the electric bus side?

We'll be at capacity this year, but I do think you'll certainly look over the next couple of years. I think, yes, I think we'll start to see a significant piece of that capacity being used. Just to clarify, when we talk about capacity, we talk about what we facilitized to. We talk about equipment, our plant, our automation. Obviously, I'm not manning to 1,000 buses today when I’m – I got 80-unit backlog. So we're being prudent on that, but we've put the capability in place that when it's there, we can easily ramp up. So -- and I just look at, again, what I mentioned earlier, the new administration part of their campaign. And they got to get this by the way through Congress and everybody is going to approve it, but he did talk about electrifying some 500,000 school buses over the next five years. Seems phenomenal, I mean, let's be honest. It's sort of -- you can't think about putting 500,000 new school bus on the road, but I think it's indicative of maybe the support we're going to see for school buses. So it's pretty exciting. Certainly, electric buses, too.

Yes. Okay. Thanks, everyone.

Thank you. Our next question comes from Craig Irwin with ROTH Capital Partners. Please proceed with your question.

Hi, good evening, and congratulations on tight execution this quarter..

Thanks, Craig.

/…in the choppy environment. Yes. You guys did a great job.

Thank you.

So one of the things I like in your slides -- sorry, is the -- in the waterfall, you include a $7.9 million headwind stepping from 4Q 2019 to 4Q 2020. That headwind, you say, is primarily from COVID. Can you share with us what portion of that probably hit the gross margin line, given that gross margins were quite a bit lower than where things have been over the last couple of years? I know a lot of the spending for COVID does come from spacing out your employees and putting in additional hand sanitization stations and other expenses and inconveniences. But can you maybe share with us an approximation of the margin impact, either in dollars or basis points?

Yes. Hey, Craig, this is Jeff. What I would say is that $7.9 million headwind that we saw there in the fourth quarter, the vast majority of that certainly hit us in gross profit. That was in specific areas that do impact cost of goods sold. It's in labor, it's an overhead and just overall manufacturing efficiencies, including loss of operating leverage from lower volume. And so all of those impact our cost of goods sold and subsequently slowdown the gross profit. So it's certainly the largest portion of it.

Great. Then the question I get in almost every phone call where someone mentions Blue Bird is, why are you guys not leaning in the way that so many of these SPAC IPO companies are laying out a growth path for investment and pursuing the explosive growth that's available in any of these from diversification. So you've got a proven technology out there with your school buses. You're one of the top two guys in the market. And your experience in alternative fuels is unsurpassed. I was talking to another leader in alternative fuels today, and they're growing 30%. They're going to grow 30% in 2021-plus with potential upside to 50%. It's got to be available to you. Why not invest for that? Why not lay that out as a plan for investors? Is this a conversation at the Board level? Or if it's not, why not?

No, it's definitely a conversation we're having at the Board level, Craig. And obviously, we are investing in terms of the capacity increase we've put in place, and the products are -- we have a very robust product cycle plan, too, that sticks from our product today to a superior products for the future that I think customers are going to love and they're going to value. I can't get into it today, but certainly, it's something we recognize. And actually -- by the way, we've seen those specs out there. We've seen their projected growth rates. We know the valuations, we've seen that. So certainly, it's something we are talking to our Board about. We're just not ready at this meeting. To tell you what we're going to do or what our next steps are. But I take your point, Craig. It's a good one. And we have a great platform, a great chassis. It can apply for different applications. So, we're talking to our Board about where we take it from here.

Excellent. That is a big piece of news. So, we will stay tuned and look forward to future updates. Thank you.

Good bye, Craig. Thanks.

There are no further questions at this time. I would like to turn the floor back over to Phil Horlock for closing comments.

Okay. Thanks, Paul, and I want to thank everyone on the phone today for joining us on the call, and I really appreciate the questions there that were put to us. We do appreciate continued interest in Blue Bird, and we look forward to updating you again on our progress next quarter. Before we sign up, I just want to leave you with the final message. We do believe we're well positioned to handle this unprecedented pandemic. We've got ample liquidity, as you heard and as Jeff's talked about. We are improving our business structure. You heard about the three pronged strategy. And we're going do whatever it takes from a restructuring standpoint to make sure we get through this period. We are confident we'll see a rebound in the industry, and we want to be there to capitalize on it. I also want to give special recognition to our incredible employees for their commitment and dedication to Blue Bird during this pandemic. They have been amazing when you look at our absenteeism rate and how low that is compared to traditional manufacturing industries, so all credit to our team. So should you have any follow-up questions, don't hesitate to call our Head of Profitability and Investor Relations, Mark Benfield, who you all know well. And thanks again from all of us at Blue Bird. Have a great evening. Be safe, and have a happy holiday. Thanks.

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful evening.