Hello, and welcome to the Blue Bird Corporation Fiscal 2023 Third Quarter Earnings Call. My name is Lauren, and I will be coordinating your call today. [Operator Instructions]. I will now hand you over to your host, Mark Benfield, Head of Investor Relations, to begin. Mark, please go ahead.

Thank you, and welcome to Blue Bird's fiscal 2023 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 2 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 CEO, Philip Horlock; and CFO, Razvan Radulescu. Then we will take some questions. Let's get started. Phil?

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 has done a fantastic job in delivering results ahead of schedule, which will be evident as Razvan and I cover the third quarter financial results today. To set the stage, at the last earnings call, you saw the 180-degree shift in our second quarter financial results compared with last year. Well, in the third quarter, I'm pleased to say that we've improved on the second quarter results and had an outstanding quarter. So let's get started with the key takeaways for the third quarter on Slide 6. Market demand for school buses continues to be strong, and the backlog for Blue Bird school buses was at 5,200 units at the end of the third 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 third 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. This, along with operational improvements, drove a substantial increase in our third quarter financial results compared with last year. On the EV front, thanks largely to the EPA's unprecedented $5 billion Clean School Bus Program, we had more than 550 EVs in our backlog at the end of the third quarter and EV delivered in the quarter increased by nearly 150% compared with a year ago. We also…

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, whereas 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. 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 14 is a summary of the third quarter and year-to-date results for fiscal 2023. It was another excellent operating quarter for Blue Bird with somewhat consistent supply chain challenges and with an increased number of higher-margin units driving both our topline 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 quarter, the team has continued doing a fantastic job and generated 2,137 unit sales volume, which was 411 units or 24% higher than prior year. Consolidated net revenue of $294 million was $88 million or 43% higher than prior year, driven by higher units, higher part 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 million, and $83 million higher than the prior year third quarter. This outstanding performance was driven by the increased profitability combined with strong working capital management and supports…

Thank you, Razvan. Let's now move on to Slide 25. All the hard work the Blue Bird team has put in to turn around our business, following 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 are at least 1/4 ahead of our original turnaround plan for the year and expect to book around 8,400 units, that's a 23% increase over fiscal '22 and achieve a topline revenue of just over $1.1 billion, an incredible 40% increase over last year. Parts sales will also be well ahead of plan, delivering at least $92 million in revenue, and that's up 20%. We now expect adjusted EBITDA midpoint to be around $73 million, that's an outstanding turnaround of $88 million from the losses we incurred in fiscal 2022. EV book has continued 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 industries 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. 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…

[Operator Instructions]. Our first question comes from Eric Stine from Craig-Hallum.

It's Aaron Spychalla on for Eric. Can you maybe just -- 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 '24 guide, just maybe talk through some of the puts and takes around that.

Yes, sure. It's Phil here, Aaron, it's 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. Obviously, last year, we had major supply chain issues in that we had many suppliers. I mean, struggling to get labor struggling to get 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 of suppliers. The difference is this year, problems are a lot less. They are a lot more contained. We have a lot of visibility into the issues they have. In other words, we know weeks ahead of production when we are running into an issue. So we can work with them on it. We can try and find an alternative source where we can. We have time to do it and react. So I won't get into naming those suppliers. Needless to say, there are a lot of -- some of the body parts. There are 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, a 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. And by the time it's come off the line, we find those parts, locate them and we put them on the bus in line. So that's -- when I talked about the set up 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're seeing. And we're we are hopeful and expecting continued improvement going forward just like we had this last year.

All right. 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?

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 in the near term, we -- our target is to get into 14 day -- 14, 15 days. So taking a little, let's say, 5 days out of that. And what does that mean? 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 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. So you reduce your labor hours, your overtime requirements because you've 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.

[Operator Instructions]. Our next question comes from Mike Shlisky from D.A. Davidson.

I wanted to ask first off, on the guidance for 2024. So Razvan, is there any free cash thought you can give us for next year? Do you have any in investments to make in working capital or other areas we should be thinking about?

Yes. Mike, thanks for the question. It's still very early in our fiscal '24 projections. However, we decided as said -- as promised in the last call to give you at least a base case outlook with $85 million EBITDA. We are going to ramp up our investments in capital. 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 investment outlays in fiscal '24. So it will still be a very strong free cash flow, but I don't have at this point, absolute number to give you. We are still working through the operating plan, and we'll definitely get back in December with our full guidance, if you will, for fiscal '24.

Okay. Okay. Fair enough. I also wanted 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 2 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 one or the other or your overall market share or other factors? Or is it really all about supply chain that's going to drive where you end up on that spectrum next year?

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 year, 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.

Great. I want to squeeze another one here about your non-bus EV products going forward. There was a pretty big bankruptcy this week. One 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 van, et cetera, that you hadn't drawn invoice 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. That company is still planning to 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 they design a battery before you really make any major pushes into those markets?

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 for, which is a -- obviously, it's not a school bus use, it's quite different. So -- but it's progressing well. We feel really good about where we're heading. 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 supportive and capable. So as far as I'm concerned, I think you'll it see -- we'll have development vehicles. Our development chassis running towards the end of this year will be our plan. And then we'd 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 and then -- our goal would be towards 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 as 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.

We have no further questions. So I will now hand back over to Phil Horlock for closing remarks.

Well, thanks, Lauren, and thanks to all of you for joining us on the call today. We do appreciate your continued interest in Blue Bird, and we look forward to updating you all again on our progress next quarter. As Razvan mentioned, we'll take a deep dive and a look into our '24 guidance. And just to 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 third quarter results, which was a further improvement than our second quarter, which obviously was well respected, I would say, in terms of the turnaround. 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 Blue Bird's sales today, while continuously working on improving our manufacturing and 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 billion program that the government at this highest level has endorsed. So the outcome of all our efforts in the third quarter, we have an EBITDA margin just short of 10%, and we're forecasted to be at 10% next quarter. And of course, we raised full year fiscal '23 guidance once more and provided you with a first look at our fiscal '24 guidance. 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 love to take a look at it later. And we'll know a lot more, obviously, how the market is 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, and I'm very proud of what we've done. Finally, I'd like to give special recognition once again to our incredible employees and our dealers for their commitment and dedication to Blue Bird, especially for all the work they put in after the pandemic. So should you have 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.

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