Hello, everyone. Thank you for attending Blue Bird Corporation's Fiscal 2023 Fourth Quarter and Full Year Earnings Call. My name is Sierra, and I'll be your moderator today. All lines will be muted during the prepared remarks from our management team with an opportunity for questions-and-answers at the end. [Operator Instructions] I would now like to pass the conference over to our host, Mark Benfield, Head of Invest Relations. Please proceed.

Thank you, and welcome to Blue Bird's fiscal 2023 fourth quarter and full year earnings conference call. The audio for our call is webcast live on blue-bird.com under the Investor Relations tab. You can access supporting slides on our website by clicking on the presentation box on the IR website. 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'll hear from Blue Bird CEO, Phil Horlock, and CFO, Razvan Radulescu. Then, we'll take some questions. Let's get started. Phil?

Well, thank you, Mark, and good afternoon, everybody. First, let me say the Blue Bird team has done a fantastic job in delivering continually approved results as we have moved through each quarter in 2023. As you'll see shortly in Razvan's section, the fourth quarter was no exception to that, where we achieved outstanding financial performance. For the full year, we delivered record financial results across the board, well ahead of the transformational plan that we outlined just a year ago, following a very tough year in fiscal 2022. So, let's get started with the key takeaways for the full year on Slide 6. As the headline says, we achieved record full-year financial results in fiscal 2023, and we beat guidance every quarter, including the fourth quarter. In fact, as Razvan will show you in just a few minutes, the fourth quarter was an all-time record profit for any quarter in Blue Bird's history with an exceptional adjusted EBITDA margin of 13%. As we look at the drivers for this terrific progress in fiscal 2023, it really is about making significant improvements across our entire business throughout the year. Market demand for school buses continues to be very strong and the backlog for Blue Bird school buses was at a very healthy 4,600 units at the end of the fourth quarter. This bodes wells for pricing, production stability, and profit margins. Now, while supply chain constraints are easing, there are select constraints across the industry which is still limiting industry production and deliveries. But we are very engaged with those constrained suppliers with on-site support at their plants and we are managing the situation very well. On that point, the evidence is clear with our bus deliveries in 2023 being 25% higher than last year. I'm pleased to tell you…

Thanks, Phil, and good afternoon. It's my pleasure to share with you the financial highlights from Blue Bird's fiscal 2023 fourth quarter and full-year record results. The quarter-end is based on a close date of September 30, 2023, whereas the prior year was based on a close date of October 1, 2022. We will file the 10-K today, December 11, after market close. Our 10-K 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 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 9 is a summary of the fourth quarter and full-year record results for fiscal 2023. It was another outstanding operating quarter for Blue Bird with somewhat limited supply chain challenges and with an increased number of higher margin units driving both our top-line and our bottom-line results. We significantly beat the adjusted EBITDA quarterly guidance provided in the last earnings call. And in fact, we delivered the best quarter ever for Blue Bird with 13% adjusted EBITDA margin. The team pushed hard and continued doing a fantastic job and generated 2,116 unit sales volume, which was 100 units or 5% higher than prior year. Record consolidated net revenue of $303 million was $45 million or 17% higher than prior year, driven by a higher number of units, higher parts sales, improved mix of electric buses, and pricing actions that took hold significantly in this quarter as expected. The adjusted free cash flow was very strong at $35 million and $6 million higher than the prior-year fourth quarter. This performance was driven by the increased profitability combined with strong working capital management and support our…

Thanks, Razvan. Let's move on now to Slide 23. Now, we've shown you the chart on the left before, which illustrates the three priorities that drive us: taking care of our employees, delighting our customers and our dealers, and delivering profitable growth. The new chart on the right provides more texture around the specific strategies that we are pursuing that both align with our priorities and drive our forward year growth plans. At the center is our ultimate objective, to drive sustained, profitable growth. As you look at the accomplishments in fiscal '23, we've transformed the business from losses to record profitability. For fiscal '24, we have increased our earnings guidance to reflect a 10% adjusted EBITDA margin, and then over the next couple of years, we plan to grow the margin to 11% to 12%. Our core strategies focus on delivering these financial goals and are spelled out in this chart. Shown at the top of this chart, leadership and safety, both in the workplace and with our products, is paramount to us. Specifically with our products, we seek to differentiate ourselves, providing more value to our customers. Our buses are purpose-built from the ground up for transporting children safely with many unique features that no one else has in the industry. They're not a derivative of a truck chassis like most of our competitors, and our customers understand the value of this. Delivering the best and broadest range of products and features and leading in quality, durability and alternative power are the cornerstone of our product planning and development. Being competitive in cost through lean manufacturing and efficient throughput, strong supplier relationships and smart product design are essential to competing a business where competitive bids are mandatory. And after the sale, we need to provide great service and…

Thank you. [Operator Instructions] Our first question today comes from Eric Stine with Craig-Hallum. Please proceed.

Hello.

Hey, Eric.

Hey, Eric.

Can you -- hey, okay, good. You can hear me.

We can hear you, yeah.

So -- good. Very good. Well, obviously, great end of the year, $40 million in EBITDA, and appreciate the fiscal '24 and the kind of high-level quarterly view. But maybe just talk about seasonality a little bit. Obviously, historically, a very seasonal business. Now, you've got this big backlog you're working through, plus you've got strong industry demand. So maybe, in the context of that high-level guidance that you have given per quarter, how should we think about seasonality throughout the year?

That's a great question, Eric. It's Phil here. Obviously, you're used to us, you've seen our report numbers over many years, and seasonality was always one issue we dealt with. I think right now, with our backlog and with the pent-up demand we have and the industry in general with dealing with the same issues, seasonality is really not something that is concerning us right now. Now, the first quarter will always be lower. We obviously have shutdowns, holiday vacation plans around Thanksgiving, around the holiday season, at Christmas time. So, these obviously impacted with less days obviously, especially in December. But I think overall when you look at us now, that predictability of looking by quarter, we're not going to have anything like the seasonality we used to have. It's pretty-- it's fairly consistent throughout the year, just first quarter should be a little lower in a volume standpoint.

Okay, that's helpful. And then, you talked about Clean Bus Solutions and then you expect that to accelerate. And I would assume you're talking about affordable by getting as close to what the cost of a diesel bus would be on a monthly basis for a school district. I mean, how do you -- I think in the slides you said you expect it to be 10% of sales here in the relative near term. I mean, how do you see that playing out? Do you think that school districts are looking at the Clean School Bus Rebate Program, waiting to see if they get funding, if they don't, then they potentially go this route and possibly do it quickly as a way to really get buses on the road in a pretty rapid fashion?

Yeah, I think that's the way we're looking at it. Obviously, the grants for the EPA program have been terrific. I mean, they've helped people really accelerate adoption and districts who otherwise would not have been able to afford a product have had a chance to get a terrific grant. But there's no question when you don't have grants or you have limited grants and there's a -- we said before the price of an EV bus is typically 3 times the price of one with a combustion or spark engine ignition. It's a bit of a sticker shock as we say in the auto industry. And so, having this capability now instead of a big upfront capital expense, you can pay what's called an affordable monthly fee over 12 years or 15 years or so at the lifetime of the product, makes it much more affordable and faster to adopt. That's the beauty of it. For that $350,000, let's say, plus price of electric school bus, when you're paying a standard monthly fee over 15 years, you can afford a few -- a lot more of those buses right up front and get to run them, get used to them. Now, I do think at the end of the EPA grant, I mean five-year program that's being put out there, it's going to be -- we expect obviously battery cost to come down, significant reductions in the price of the platform so to speak, the electric platform, and I think that's when you really will see the benefits of a program like this coming through because it will be much more attractive than a traditional upfront capital cost per school bus.

Got it, and very helpful. And then, last one for me. Just, I mean, obviously the margins, the price per bus, I mean, all of that moving in the right direction and pretty quickly. I mean -- but would you agree with the statement that really that is more due to the price increases you've put through and that that's finally worked through backlog rather than the mix of electric buses? If I do my math, it looks like maybe electric made up 6% to 7% of the mix in fiscal '23.

Hi, Eric. This is Razvan. Thank you for the question. Absolutely. The biggest impact comes from the numerous price increases we put in place over the last almost 24 months now to keep up with the material cost inflation and reposition our margins for the future. So yes, EV is a smaller portion of that, but all the other buses and especially alternative power ones are what drives our extraordinary bus margins today.

All right, thank you.

Thanks, Eric.

Our next question today comes from Mike Shlisky with D.A. Davidson. Please proceed.

Yes. Hi. Good afternoon, and thanks for taking my questions.

Hi, Mike.

I guess I want to talk first about the -- hi there. I want to just touch first on the EV subsidies and EV programs for fiscal '24. Do you anticipate that Blue Bird will continue to kind of get its fair share if not greater of whatever is awarded this year's -- in this year's subsidies and in the broader EV bus market in general?

Yes, I would. I would expect us, Mike, to do very well and get our fair share. We got a good share to the first phase and I think we prepared very well for this. We have grant writers on our team who work with our school districts, they work with our customers, they work with our dealers. They'll just put together what I call really valid applications. I mean, when you're looking at a grant program, you're often asked into look at the quality of that customer, either in an attainment area, either in an area that needs electric buses because of the pollution that might be in that area. And we've researched that very well, gone through it. So, we feel confident of where we stand in terms of the applications we put forward and validity of those applications.

And just to follow up there, have you found any, a large number or even a small number of the previous awards get postponed because the customer didn't have a charging infrastructure or other parts that were required to get the bus?

That's a good question. I've heard that some others about some folks out there have had cancellations on their request. I can tell you this, we've had two vehicle cancellations, two in total. Not 20, not two customers with lots of applicant, two vehicles because of a customer who was just concerned about, could he get the infrastructure in place the time he wanted it. And that's it, that's for us. We've been very successful in terms of putting our grant requests in highly validated, highly qualified. So, we feel good about that.

Got it. One topic that wasn't really mentioned was the organized labor in your facility. I was wondering if you could update us on how discussions might be going with your employees and what -- if there is a date or a possible milestone you've got for us to share today on that. Thank you.

Okay. Well, I think it's pretty much the same as I said last quarter, actually. We're collaborating well with the United Steelworkers. We're having very frequent negotiations. We're not actually talking about what I call the economic terms. It's been more around things like holidays and what do we do about grievance issues that might be out there. More of a typical what they call non-economic factors. So, as I said, going very well, a lot of good discussion, very professionally run. And I would say that I think the earliest we're going to be talking -- we seeing a completion of this, I don't even have a date on it, but I think we're talking well into '24 before something might be finalized. Like I said, meeting very regularly, we're very thorough. This is a ground up program. I mean, you start literally from a blank sheet of paper and work through everything with United Steelworkers. And so, I think sometime, maybe towards middle of next year could be, but again, I'm not putting any timeframe on that. We'll just do it thorough -- we'll just handle it thoroughly.

Okay. Phil, thanks so much. I appreciate the commentary. I'll pass it along.

You bet. Thanks, Mike.

Our next question comes from Craig Irwin with ROTH MKM. Please proceed.

Good evening, and thanks for taking my questions.

Hi, Craig.

Phil, you guys -- hi. You guys have really demonstrated leadership in alternative fuels over the last many years. And part of that is understanding the market. And today again on this call, you've been really clear that the long-term adoption of EV school buses, the accelerating adoption is dependent on the ability to reduce the cost of operating these buses, the cost of acquiring these buses for the school districts that are considering going electric. Can you maybe share with us your level of activity, your level of engineering focus on reducing the cost of EV school buses for your customers? Maybe if you could share opportunities you see as particularly ripe or having good near-term returns? And what's your vision for potential cost improvement over the next few years?

Okay. Great question, Craig. So, obviously, you look at where we are, we buy a system from Cummins, right, and they're a great partner of ours. We buy our drivetrain system from them, includes the batteries, includes the controls, the control software system, the motor, the inverters, all the pieces. And we have a regular cadence with Cummins in terms of the products that we meet on going through options to reduce design, lower the cost, think smarter about the product itself. And I'm not going to put any numbers on the table now. Needless to say, we have a great program with them. We're constantly looking at resourcing, sourcing alternatives, lower cost systems, whether that includes batteries, the control motor itself, do we look at the axles down the road. I mean, these are all things we consider in collaboration with Cummins. I think we're still at the early stages, I would say, in terms of the EV capability. And we've been in since 2018 with Cummins as our partner. But I think down the road, you'll sort of look at it -- we'll be looking more and more at battery suppliers, battery alternatives, cell providers because frankly what's happened in the last with one of our major battery suppliers on that was a battery supplier out there who had to declare bankruptcy and was acquired by another company is an example I think of some of the flux that's going on there. So, we're constantly looking at alternatives for stronger partners, better cost partners, lower cost partners, more efficient partners, and we'll keep doing that. I think some things over time, you'll see us probably bring a little bit more of this in-house too as we get more scale on our business. But we're at the forefront of…

Excellent. And then I guess others have tried this question, so maybe we'll be just a little more direct, right? You have the most experienced bid team out there facing the EPA, right? And you've demonstrated clear leadership in EV school buses. Do you expect to have a greater share of the $400 million in funding coming to customers that you support than what you saw on the $1 billion that was handed out last year?

That's an interesting question. I can tell you this, I'm not quite sure what's going to happen in the end, right? At the end, we don't select the actual folks who are going to get those grants. I mean, the EPA says that. I will tell you, I think we prepared extremely well for it. Just to reiterate, we've sent in enough applications to take the entire fund. So, we think we did -- and we really well qualified our applicants. We didn't go in here with just a, "Hey, let me just give you a free opportunity to have a bus that's relatively low cost or no cost." We actually went thoroughly through every school district, everyone of our customers, some of them were conquest customers, new customers who wanted to move to Blue Bird. So, I guess what I'm saying is, Craig, that the proof of the pudding will be in the eating, right, when it shows up. But I feel confident we prepared as best we possibly could to get every opportunity to capitalize on these grants.

Okay. And then an adjacent question to that. Congratulations on your collaboration with Generate Capital. Jigar Shah is also a visionary on clean tech finance and has executed impeccably in his many different business ventures. Do your competitors, the companies that have aspirations of leadership in the EV school bus market have access to the funding out of Generate or would they need to go and find similar partners to set those up and offer that kind of financial support to some of these low-income disadvantaged communities that the President is really focused on giving the opportunity to?

Well, our venture with Generate -- and by the way, I agree with you fully, Jigar Shah is a fantastic guy. I've met him several times over the years in on different events even prior to this joint venture here. But I will tell you that I think we are really well prepared on this. As I look at it -- one second. Yeah, I should say I just lost a tone the question I'd explain all my knowledge of Jigar Shah just as you were doing. But I think the unique thing for us, we have the exclusive relationship with Generate Capital. They want to work with us. They see our leadership in this space. They have fantastic access to things that we don't really access today in terms of tax credits, getting to every sort of corner of utility understanding better than we do around the price of electricity and what it really means to a customer. So, the answer to your question is quick. We are the only ones who can do this deal with Generate Capital, and so we're very proud to have that unique relationship. The goal for us now is to train our entire dealer network of what this is all about, what it means, the advantage it gives and give a chance for all of our customers to get a zero emissions school bus as fast as possible.

Great. Well, congratulations on fantastic performance. It's got to feel good to come back to Blue Bird to drive this level of success.

This feels great. Thanks a lot, Craig. I appreciate it. It's all a team effort though. Thanks a lot.

Absolutely.

Thank you for your questions. There are currently no questions waiting at this time, so I'll pass the conference back over to Phil Horlock for closing remarks.

And thanks to all of you for joining us on the call today. We appreciate your interest in Blue Bird and we look forward to updating you again on our progress next quarter as we always do. As you saw today, we've completed a significant transformation, well ahead of schedule, and it clearly shows in our record fiscal '23 fourth quarter and full year results. We have a really strong momentum going into fiscal '24, and consequently, we raised our fiscal '24 guidance significantly, projecting a 10% adjusted EBITDA margin, which is 2 percentage points above what we achieved in fiscal '23. And we're confident in achieving an 11% to 12% margin within a couple of years as industry supply chain constraints continue to ease. So, should you have any follow-up questions, please don't hesitate to contact our Head of Investor Relations, Mark Benfield, and thanks again from all of us at Blue Bird. Have a great evening. Good night.

That concludes today's conference call. Thank you all for your participation. You may now disconnect your line.