Good day, and welcome to the Blue Bird Corporation Fiscal 2023 First Quarter Earnings Conference Call. All participants will be in a listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask question. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Mark Benfield, Head of Investor Relations. Please go ahead.

Thank you, and welcome to Blue Bird's Fiscal 2023 First 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. Blue Bird disclaims any obligation to update the information in this call. This afternoon, you will hear from Blue Bird's President and CEO, Matthew Stevenson; and CFO, Razvan Radulescu then we'll take some questions. Let's get started. Matt?

Thank you, Mark, and good afternoon, everyone. It has been just two months, since our most recent earnings call, but Razvan and I are still very excited to update you on the progress of Blue Bird. As we discussed last time through the hard work of the Blue Bird team, we have positioned the organization for a significant success this year and a dramatic turnaround from the results we posted in fiscal year 2022. This quarter, we are pleased to report that the business continues on its upward trajectory. And as we will review during this call is even ahead of plan. On Slide 6, you can see some of the key takeaways for the quarter. Overall, industry demand continues to be robust and the backlog for Blue Bird school buses is incredibly strong. In this past quarter, we also built the last major tranche of legacy price buses in our backlog. As we have forecasted in previous earnings calls, this will drive a significant inflection in our financials. We define these legacy price units as those at price levels prior to October of 2021. We also continue to aggressively manage costs throughout the business, which you will see in Razvan's portion of the presentation. Through strong leadership tenacity and lean process improvements, we are seeing some of the best operational performance in the company in nearly two years. We also continue to be incredibly excited about the impact the Clean School Bus program will have on our business and we are starting to see orders for our leading electric and propane buses come through. The market demand is strong. The business is back on track to deliver and is beginning to fire on all cylinders. We are incredibly upbeat about what is in front of us. Now let's take…

Thanks, Matt and good afternoon. It's my pleasure to share with you the financial highlights from Blue Bird's fiscal 2023 first quarter results. The quarter end is based on a close date of December 31, 2022, whereas the prior year was based on a close date of January 1, 2022. We will file the 10-Q today February 8 after the market closes. Our 10-Q includes additional material and disclosure 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 important disclaimers. Slide 13 is a summary of the first quarter for fiscal '23. It was a very good operating quarter for Blue Bird, with somewhat reduced supply chain disruptions, but with a significant number of legacy priced low-margin units. We have exceeded the revenues and adjusted EBITDA midpoint of our quarterly guidance provided in the last earnings call. The team has done a fantastic job and generated 1,957 unit sales volume, a record Q1, which was 808 units or 70% higher than prior year. Consolidated net revenue of $236 million was also a record for Q1 and $107 million or over 80% higher than prior year, driven by higher units, improved mix of electric buses, and pricing actions that are starting to take hold. The adjusted free cash flow was $20 million positive, $54 million higher than the prior year first quarter. This outstanding performance was driven by the further reduction in inventory back to normal levels during the quarter and support our great liquidity position at the end of this quarter. Adjusted EBITDA for the quarter was negative $4 million, due to increased material costs and still…

All right. Thank you, Razvan. On to slide 22, as detailed in the fiscal year 2023 guidance that Razvan walked through we are now past the vast majority of the legacy price units that were holding back our financial performance. Plus, we are seeing the results of all the hard work around operations starting to flow through to the P&L. We are now plan on booking at least 8,250 units, a 20% increase over fiscal year 2022 and driving a top line of $1 billion, a 25% increase year-over-year. Parts sales will continue to be on plan, with line of sight to have leased $84 million of revenue up 10%. We now expect the EBITDA performance to be approximately $43 million, up nearly fourfold compared to fiscal year 2022. EV bookings continue to be on plan, and we expect those to double to over 500. There have been no significant changes in the ACT Retail Sales forecast for fiscal year 2023. It continues to be supply chain constrained across the industry and our targeted bookings will put us right where we want to be around that 30% market share. I cannot emphasize enough the exciting demand in front of us. Retail sales have been off from their average of 32,000 units per year for the past three years in a row and the national school bus fleet is aging. The market was first constrained by COVID and school closures and has been held up more recently by the supply chain. This aging fleet must be replaced, and we expect substantially robust years ahead of us to address this pent-up demand. ACT is forecasting a compound annual growth rate of 10% from our fiscal year 2023 to fiscal year 2027. Our business is back on track, and we look forward to…

Thank you. We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Mike Shlisky with D.A. Davidson. Please go ahead.

Good afternoon and thank you for taking my questions. I wanted to maybe first ask a few about the outlook. Matt you had mentioned the 10% CAGR for the industry over the next five years. But if you look at the chart you put out there and its constant risky as well. The very big jump between 2023 and 2024, because if you know if there's any reason why there'd be a big jump there, are there any regulatory changes taking place or have a pull-forward or push back on revenue or anything else unusual that makes it such a strong growth rate from this current fiscal year to next fiscal year?

Hey Mike, it's Matt Stevenson. Thanks for the question. Really my concern is around the pent-up demand. If you look at an industry that historically is around that 31,000, 32,000 and then in the more recent history around that 35,000 mark. There's just a lot of pent-up demand for school buses there. And the forecast is we've seen some improvements in the stability of the supply chain. And then by the time you get into 2024, the feeling is lot of this is going to get -- the case will be worked out and it will enable us to get higher production capacity as well as our competitors.

Okay. That makes perfect sense. And then talking about your EV outlook as well. You had mentioned that you expect to get $1 billion plus out of the $5 million from the EPA program. And that sounds okay, but your overall share of the market is roughly 30%. You're talking about low 20s here in your comments. Is there anything out there from the competition or anything we should be thinking about as to why you might not get 30% or if not quite a bit higher than that when all is said and done on the EPA program?

Yes, Mike, I think you're spot on. We're just being conservative in terms of how we're looking at it. But if you take our – like you said our historic market share and our leadership in the EV position that would forecast an opportunity to have more than that but we're just being conservative with our approach here.

Okay. Maybe one last one for me on pricing. Can you just give us a little more color on some of the cadence of pricing going forward? Could it just kind of inch up through the rest of the year as backlog evolves and as EV mix grows? And do you think there's opportunity for further growth in pricing in 2024?

Hi, Mike, this is Razvan. I'll take this question. So as you would see on Slide 16, you can observe that the makeup of our upcoming project itself based on the different price levels. We had already sold out almost all the way through the end of fiscal 2023. So those are pretty much locked in. We are now feeling the second half of fiscal 2023 Q4 with orders at the current price level which is the 25% price increase versus 18 months ago. So in terms of fiscal 2023 it's pretty much set and we are also getting good orders coming in at this price level. As far as fiscal 2024, it's a bit too early to predict how it's going to go and we will update you as we have more visibility into fiscal 2024 later.

Okay, and that's great color. I appreciate the discussion. I'll pass it along.

Thank you, Mike.

[Operator Instructions] Our next question comes from Eric Stine with Craig-Hallum. Please go ahead.

Hi, everyone. Thanks for taking the questions.

Hey, Eric.

Hey. So I mean obviously, a really strong start to the year, I think above where you had kind of forecast last quarter. And it looks like maybe not as steep as your typical ramp and it's more of a general ramp throughout the year. So just curious, what do you attribute the first quarter strength to? I mean is it that you had a modest loosening of the supply chain? Obviously, there's pent-up demand, something around productivity of the plant because that was a pretty eye-opening number. So just curious if you could fill in some blanks there?

Yes. Thanks for the question Eric. It's Matt. We talked about the operational improvements we've been working on for well over a year now. And month-over-month week-over-week the team continues to get better and we're really starting to see the realization of those efforts. And there has been some improvement in the stability of the supply chain which always helps. But it's just the hard work is starting to pay off.

Got it. And then thinking about sort of the remainder of the year except in the second half of the fourth quarter, you're pretty much full. I mean is that limited more just by customer delivery schedule request? I mean because it seems that you actually could push harder on that. Now it sounds like you're also holding off on filling some slots so you can have them open when electric orders are placed here over the coming months but maybe some thoughts on the ramp?

Yes. So I think you touched on it Eric, historically Blue Bird's would have a much bigger second half on volume than first half and it's more even fueled throughout the year and that's really due to supply chain constraints. We're seeing it across the industry still suppliers are having issues finding frontline labor and having those teammates available to increase their capacity. And the same with the commercial truck market still holding in there pretty strong. So really it's just -- it's centering around supply chain limitations from taking volume higher, because the demand is there.

Got it. Okay. And then maybe last one for me. Just on -- obviously, you expect a nice order flow on electric and you're expecting that to pick up here over the next couple of months. But when you think about the coming quarters here in fiscal 2023, I mean, I would assume that you're not able to fulfill all of those orders within the fiscal year. And I guess what I'm getting at if you're talking about an $80 million EBITDA run rate just trying to get a sense, it would seem like in fiscal 2024 and I haven't done the math yet on the slide you had, but in fiscal 2024, I mean, you certainly would look at that $80 million as a number that you would grow from year-over-year?

Yes, hi, Eric, this is Razvan. I'll take this question. So it's a bit too early to give guidance for fiscal 2024. Obviously, there are still many variables. However, as we've shown in our outlook on Page 20 in our presentation in the short-term for a normal year, we expect to have about $100 million plus of EBITDA with 8% on roughly 9,500 units with a good mix of EVs. So this could be as early as fiscal 2024 assuming the business continues to improve and the supply chain continues to stabilize a bit more.

Okay. That's great. Thank you.

Thank you, Eric.

This concludes our question-and-answer session. I would like to turn the conference back over to Matthew Stevenson for any closing remarks.

All right. Thank you Sarah, and thank you to all who is joining us on the call today. As you heard during our prepared remarks, demand in our market continues to be strong and the backlog for Blue Bird buses is robust. Orders for the EPA's Clean School Bus Program are beginning to come in, and will continue to fuel our leadership in alternative power in electric school buses. The business has turned the corner. As evidenced by the numerous first quarter records for the business, including revenue, bookings, EV sales and our parts business. Plus, we are increasing the total year EBITDA guidance. Blue Bird is starting to fire on all cylinders, as the vast majority of legacy price buses are now behind us, and numerous operational improvements are starting to take hold. We are very confident and certain about where we are headed and that is back to historic margin levels and beyond. Should you have any follow-up questions, please do not hesitate to contact our Head of Investor Relations, Mark Benfield. Thank you, again, for your time and we look forward to update you on the continued progress of the Blue Bird in next quarter. Thank you and good evening.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.