Hello, and welcome to the Blue Bird's Corporation Fiscal 2024 Second Quarter Earnings Call. My name is Natasha and I will be your moderator for today. If you would like to ask a question [Operator instructions]. I now have the pleasure of handing you over to your host, Mark Benfield. Mark, please go ahead.

Thank you, and welcome to Blue Bird's Fiscal 2024 Second 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 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 on the following 2 slides and our filings with the SEC. Bluebird disclaims any obligation to update the information in this call. This afternoon, you will hear from Blue Bird's CEO, Phil Horlock; and CFO, Razvan Radulescu. Then we will take some questions. Let's get started. Phil?

Thanks, Mark, and good afternoon, everybody. It's great to be hearing to share with you our results through our fiscal 2024 second quarter. You'll recall that in our first quarter earnings call, we reported an all-time record profit for the quarter. Well, I'm pleased to tell you that our momentum has not slowed down at all with the Bluebird team doing a great job in delivering an all-time record profit for any second quarter in our history and our second best quarter ever after the last quarter. Razvan will be taking you through the details of our financial results shortly. So let me get started with the key takeaways for the second quarter on Slide 6. As the headline says, we achieved best ever financial results for the second quarter only surpassed by our 2024 first quarter profit performance. As shown in the first line in the box, while we achieved a second quarter record for adjusted EBITDA, our net sales revenue was a record for any quarter. So with record profits and record revenue, I am very pleased to tell you that we achieved an outstanding adjusted EBITDA margin of 13% in the second quarter and importantly, we are once again increasing our full year guidance. As we look at the drivers for this terrific progress in Q2, it really is about maintaining and delivering the plan we laid out last year, which focused on making significant improvements across our entire business. Market demand for school buses continues to be very strong. Our quarter end backlog of firm orders for Blue Bird buses grew by nearly 30% from the first quarter to an outstanding 5,900 units. Now that's a great endorsement of the strength of the industry and the customer demand for Blue Bird buses. This bodes well for…

Thanks, Phil, and good afternoon. It's my pleasure to share with you the financial highlights from Blue Bird's fiscal 2024 second quarter record results. The quarter end is based on a close date of March 30, 2024, whereas the prior year was based on a close date of April 1, 2023. We will file the 10-Q today, May 8, after market close. 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 9 is a summary of the fiscal '24 second quarter and first half record results. It was another outstanding operating quarter for Blue Bird with somewhat limited and well-managed supply chain challenges and with high-margin units driving both our top line and our bottom line results. We significantly beat the adjusted EBITDA general guidance provided in the last earnings call. And in fact, we delivered the best second quarter ever for Blue Bird with 13% adjusted EBITDA margin and second best ever quarter only after fiscal '24 Q1. The team continued to push hard and did again a fantastic job and generated 2,254 unit sales volume, which was just shy of prior year Q2 volumes, but with more type D and EV buses. All-time record consolidated net revenue of $346 million was $46 million or 15% higher than prior year, driven by a high number of units, higher part sales, improved mix of type D and electric buses and pricing actions that materialized in this quarter as expected. Adjusted EBITDA for the quarter was a Q2 record of $46 million, driven by high margins, increased…

Thank you, Razvan. As always, that was a great explanation of our Q2 results and our financial outlook. Let's now move on to Slide 19. I covered this slide at our prior 2 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 every day, taking care of our employees, delighting our customers and dealers and delivering profitable growth. The chart on the right provides more texture on the specific strategies that we are pursuing that 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 recall, the accomplishments in fiscal '23, we transformed the business from losses to record profitability, achieving a full year profit margin of 8%. For fiscal '24, we just increased our full year earnings guidance at midpoint of range to a 12% adjusted EBITDA margin. That's a full 4 percentage points higher than last year and then over the next couple of years, we plan to grow the margin of 13% and then to 14% and beyond in the longer term. Our specific strategy is focus on delivering these financial goals and a spell out in this chart, namely, leadership and safety, both in the workplace and with our products is paramount to us, and we are investing in both engineering and CapEx in these areas in fiscal '24. Best products and features. As always, we seek to differentiate ourselves providing more value to our customers. As a reminder, our buses are purpose built from the ground up for transporting children safely with many unique features. Then another derivative of [Indiscernible] like most…

Thank you. If you would like to ask a question, [Operator instructions]. We will take our first question from Eric Stine of Craig-Hallum.

So last quarter, you talked about pricing being ahead of material prices and that you thought you might have a step down sequentially in EBITDA, which did not come to fruition. Curious, did you see that and that was offset by, as you said, high mix of EVs and type D school buses? Or is that something that, for whatever reason, that's more of a second half rather than the second quarter?

Eric, thank you for the question. This is Razvan. So definitely, as I mentioned, we have been much more proactive in our pricing actions in the last several quarters than we were in the past. We started to see some inflation factors into our costs, both in the cost of goods sold from the material cost as well as in our SG&A through labor inflation. But definitely, we expect more increases in the second half of this year. So overall, yes, we saw a bit of margin compression in the end But in the end, the bulk of it is still to come in the second half of fiscal '24.

Got it. And you're not necessarily implying a lower -- or a noticeably lower mix of EV, you're just guiding from that way again not to being conservative given some of the uncertainties that are still out there supply chain and others?

Yes. So we are maintaining our guidance of approximately 800 EVs for this year. But yes, in any given quarter, the mix can vary a little bit but overall, yes, we are confident and our guidance continues to remain conservative.

Okay. Great. Maybe just turning to the federal funding. I know that the deadlines have been pushed out versus clean school bus round of 1, just curious, you talked about some quite strong [Indiscernible] order trends. Are you -- I know it's still early, are you seeing anything from a Round 2 or is that something that you expect throughout the remainder of the year and into '25?

Eric, it's Phil here. Yes, I mean, I think, obviously, when you get these grand awards, you know you're a winner. They take the time learning about the infrastructure that they need from the utility companies, the charging infrastructure, too. That's all now in progress because the award in certainly that first, what I call the first round of the second year, that's what they're working on. But we are starting to receive orders though. I think we've got -- I could tell you, I know we got 50 -- more than 50 to date have just come in from the second one -- second round, if you like, of our total program today. So that's promising. That's good. So I expect during the course of the year, we will see more, it will pick up pace as people figure out their charging infrastructure needs. And many of those customers we work with them on that to try and accelerate our orders. So we feel very confident in that we're going to have a nice order book continuing through this year and a good -- hit the record numbers sold that last I mentioned to you.

Yes. Good to hear your -- starting to see, even though it's still early days. Maybe last one for me. You mentioned the EV chassis business, and I think you kind of hinted on some things or to stay team here over the remainder of '24. Just wondering if you can give a little more detail whether if it's something we need to wait on?

Yes. Okay. So obviously, we haven't gone to public in this yet, but I can tell you that we're in the pilot stage of those -- that program. We have chassis on the ground here that we're working with, testing out some to put through their rigors and we will, at a future date this year, we're bringing customers in to take a look at it, give us feedback and I think there's a couple of shows down the road that we've probably exhibited that, too. So yes, it's well under development, and we're already generating customer interest, and we'll take that further this year.

We take our next question from Mike Shlisky of D.A. Davidson.

I want to touch first on market share in the quarter. So you're seeing somewhat flat shipments is pretty good when you think about the overall industry by most accounts will down quite a bit, over 20% on [Indiscernible]. So I guess I was wondering what -- I was wondering what you describe like a decent market share gains in the quarter. Are you able to better work with those suppliers having challenges? Do you think the other players were just cut up and they have issues with other [Indiscernible] during the quarter? Or just [Indiscernible] to how you got such a great [Indiscernible] who are in the fiscal [Indiscernible]?

Mike, this is Razvan. So thanks for the question and good to hear from you today. So at this point, we are focusing on our deliveries, and we managed to maintain the pace of deliveries despite still some select supply challenges that we see in the market. I can't speak for the other competitors, you have to ask them. But from our point of view, we maintain the speed, and we improve the profitability, and that's what we are focusing on.

Perhaps put another way, I mean, at this point in May, you think that the supply chain challenges that you've been seeing at least at year-end have improved at all? Or do you fully feel that there's a piston getting worse and you would have a quarter -- this quarter probably down 20%, which you saw, even though it's much closer to the start of the next few years?

Yes. Well, let me talk about this. I mean, when you say it were down 20%, I guess I don't recognize that number. I mean I can tell you this, our orders for the quarter were terrific that we just went through, and we delivered the plan we had for the quarter, we more than delivered as you know. So we came in -- we beat our plan, and we're seeing very strong orders or orders for the quarter of 60% more than our bookings for the quarter. And all is a leading indicator of what you're going to book certainly down the road, I mean some of those vehicles will be built in '25, some of them build this year, so we're still in a -- we're feeling good. I don't see we're thinking there's going to be anything negative along the way for us, frankly, and that's what our guidance reflects.

Well, guidance reflects a 5% downturn, at least in this quarter or next quarter. So I'm surprised that would be possible with what you just said. So I want to make sure [Indiscernible] how could revenues be down 20%, it was down some big number [Indiscernible] despite -- it sounds like a relatively stable [Indiscernible] environment but [Indiscernible]. Are there other issues, other supply chain challenges that popped up more recently? Or I'm just trying to figure out how you can guide to a lower number in any quarter that we just saw?

Yes. So in terms of -- so in terms of revenue guidance, again, we are not giving specific quarterly guidance at this point in time for the remaining 2 quarters, but we raised the range from $300 million to $350 million, which is in line with the recent performance on the revenue that we had for the quarter. In terms of EBITDA, it is a conservative guidance, as I said also in the prepared remarks. And we have -- and we expect to have some more inflationary cost factors hitting the second half with increased engineering expenses, additional labor inflation cost factors, as well as some contractual price increases from select suppliers. So overall, that is what drives the EBITDA guidance for the second half, but the revenue as well as the units at 8,800 units for the year, essentially modeled maintained speed of our throughput right now.

Great, I'm not [Indiscernible], I think it sounds fantastic. Maybe one last one for Phil about the EPA program. One other EV maker earlier today described most of their activity from the EPA coming to a halt or a very sluggish pace because of the ability of their customers to get the full package of the charger and the electricity, et cetera, offset when they can get the whole check from the EPA. Have you established that's the wrong way of approaching that. I'm just curious if you could tell us if you're seeing any delays [Indiscernible] some similar factors.

Yes. Obviously, I'm not going to comment on what someone else in our industry told you or what the other point of view is, but I can tell you this that we obviously know this system works, right? We've been through the first round is in 2023. We got the second round now for 2024 and when I look at this, we know for a fact that when an order is granted to someone then people start to work to finalize their infrastructure requirements, charging infrastructure requirements. And we work with our customers on that. I mean we don't put an application in unless that cost we believe, is extremely well qualified. We showed that in the first year when we did this for the first round of the program. So we do that, we ensure it, and we're confident that during this year, we'll start getting orders. And I think I mentioned earlier, we've already got over 50 from the one that was just announced, what, 2 to 3 months ago, and that's pretty good, and it's on track with the first year we had. So we expect to continue to receive that, continue to see it grow with orders coming through from our customers throughout the year.

Thank you. We now take our next question from Chris Pierce of Needham.

Just on the doubling of engineering spend that you had mentioned a new product, are these new products or new iterations of existing fuel types that you have? And is the chassis that you referred to the EV chasis is sort of part of that? And kind of just kind of curious how to think about the net benefits from the spend?

Yes. Let me just take a quick one on that, and Razvan can jump in, too. But yes, I mean we look at engineering spend, there are certainly new features we're introducing that we haven't announced those yet because we don't announce too far before we launch them. They'll be coming into the market, new things for us, new features for us, new innovations, if you like. There's also a lot of work we talk about on their support in the emissions program. There's some big emissions trends coming forward in 2027, and that's caused requirements to do modifications and some of the emission controls on those products of ours. Just a reminder, our propane product -- sorry, does just completely meet the not requirements of 2027 without any changes with our further, I'll call it, control systems on those vehicles as we move into it. Yes, that needs a little bit of work, but it's well on its way and then, of course, we take a diesel engine to on our products. So when we look at all that, there's a bit of work there. But -- and then there are some of our buses, we're putting, like I said, additional new features, some cosmetic changes coming on there and some functional changes, too. So they're all covered, among other things, in our engineering bill.

Okay. And is that something that sort of helps you -- I don't want to use justify the price increase but helps kind of ease the price increases that you've been putting through? Or is that kind of just the way the industry operates where there are consistent upgrades to features of buses just like consumer cars?

Well, a couple of things. Obviously, we price for inflation. I mean, we have to recognize that our material costs go up, our labor costs go up, we've got to -- just like any industry does, we price to recover that. And that's the cost of doing business. And -- but on top of that, when we bring in exciting new features, we all talk about we want to have pieces our customers want and they value. So we would expect to price for those features as appropriate based on the value they bring to the customer. Sometimes we roll it into an annual price increase or sometimes we might do it separately in the middle of the model year. So we will figure it out as the time comes.

Okay. Perfect. And then on the EPA timeline, can you just talk about the right way to think about this because we're talking about a 2023 grant, but the final application was just put through. There was an increase of over $500 million, but those orders don't come until 2025. So on the surface level, it might look like we're halfway through the program dollar-wise, but the amount of buses that have hit your income statement is not close to halfway through. Is that the right way to think about it?

Yes. Yes. I mean basically, it is. Yes, given that long time frame, the EPA is given because there's an exceptional number of buses here, obviously, being sold through these grants. And they know that people have to stagger that out over a period of time for charges in place infrastructure in place. But we've got used to the rhythm of that the way [Indiscernible] comes in and the EPAs put it out there. But obviously, we look to install these as quickly as we can and get the buses out there, and we'll work with our customers to do that. With extending time frame just recognizes there's a lot of work to be done. You can't -- if a customer -- a brand-new customer gets like fleet of electric buses, let's say. They have quite a bit of work to do to prepare. There's the bus depot like for installing that and making sure we can run correctly And that's what it allows them time to do.

Maybe just to build on that, what Phil said and looking at the Slide 20 of our presentation. So for example, on the Round 2 2023 grant program on the left, December 2025 is the deadline for these buses to be on the ground and put in operation. So deliveries will be between now and then as the order comes in as our backlog develop. So those dates are kind of the endpoints for the buses to be up and running on the ground.

Perfect. And then just lastly, on Michael Shlisky question, I just want to understand, we're talking about cost increases in the second half of the year, but as someone newer to the story, is it correct that the second half of the year tends to be the seasonally strongest time of the year from a revenue perspective as well?

Yes. So before COVID, for sure, there was a cyclicality into the production levels, where 2/3 of the volume was done in the second half of the fiscal year and about 1/3 in the first half. However, after several years of undersupply and we're still being constrained on our supply chain at this point in time, we are now at a much more steady state. So that is not a factor anymore sort of number of weeks and a few holidays here and there. So we don't see the big gaps anymore.

As a reminder, to ask [Operator instructions]. We have no further questions so I would like to turn the call back to Phil Horlock for closing remarks.

Well, thank you, Natasha, and thanks, everyone, for joining us on the call today. Before I close this call, I like to summarize where I believe we stand today and also where we are going in the years ahead. As far as I can say last year, we saw -- you saw and we saw our momentum growing throughout the year with profitability increasing as we move through every quarter. And we've continued on the same path by delivering impressive record profit for second quarter with a 13% margin. That's on top of an all-time record profit for any quarter that we delivered in Q1. So with this solid base behind us, we raised guidance once again, projecting a full year adjusted EBITDA margin of 12% for the fiscal year, which, as we know, is a full 4 percentage points above last year. So we're in a very, very strong position think when we look at it versus ever a year ago and certainly 2 years ago. Going forward from here, our plan to drive profitability and grow shareholder value is due to a number of extremely favorable factors. One, we have an unprecedented backlog of firm orders and strong market demand ahead of us with an aging bus fleet out there. Two, supply chain constraints are easing, albeit there's still some way to go but nevertheless, we'll start to see what I call a light at the end of the tunnel, at least on some near-term issues that we were experiencing. Three, upcoming 2027 emission standards will increase the need for alternative powered vehicles. There is no question of that, in our mind, which is our sweet spot. Four, we have strong federal and state support and customer demand for electric school buses. As I said before, this is a perfect industry for deploying school buses. Our duty cycle is absolutely perfect for it and that's one of our sweet spots as well. And five, we're achieving record profits, margins, cash and liquidity today, and that's a really strong base to grow from. So with these very positive tailwinds, we're confident in achieving a 13% margin within a couple of years and then getting to 14% and beyond in the longer term. So we appreciate your continued interest in Blue Bird, and we look forward to updating you again on our progress next quarter. If you do you have any follow-up questions, please don't hesitate to reach out to us or contact our Head of Investor Relations, Mark Benfield. Thanks again from all of us here at Blue Bird, and have a great evening.

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