Earnings Labs

Blue Bird Corporation (BLBD)

Q3 2024 Earnings Call· Wed, Aug 7, 2024

$62.91

-2.40%

Key Takeaways · AI generated
AI summary not yet generated for this transcript. Generation in progress for older transcripts; check back soon, or browse the full transcript below.

Same-Day

+0.27%

1 Week

-2.93%

1 Month

+1.84%

vs S&P

-3.51%

Transcript

Operator

Operator

Hello all and welcome to Blue Bird's Fiscal 2024 Third Quarter Earnings Conference Call. My name is Lydia and I'll be your operator today. After the prepared remarks there'll be an opportunity to ask questions. [Operator Instructions]. I'll now hand you over to Mark Benfield, head of investor relations, to begin. Please go ahead.

Mark Benfield

Analyst

Thank you and welcome to Blue Bird's fiscal 2024 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 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 CEO Phil Horlock and CFO Razvan Radulescu. Then we will take some questions. So let's get started. Phil?

Phil Horlock

Analyst

Thanks Mark and good afternoon to everyone on our call today. It's great to be here and to share with you our results for our fiscal 2024 third quarter. You'll recall that on our last earnings call we reported an all-time record profit for a second quarter. Well, I'm very pleased to tell you that our momentum has not slowed down at all, with the Blue Bird team doing a fantastic job in delivering a third quarter profit that is an all-time record for any quarter in our history. That surpasses our previous quarterly record that we achieved in the first quarter of this year. Razvan will be taking you through the details of our financial results shortly. So let me get started with the key takeaways for the third quarter on slide six. As the headline says, we recorded the best ever profit for a quarter. I am particularly proud of this achievement after breaking profit records in each of the past two quarters and we have much more to come. Regarding the first line in the box, I'm very pleased to report that we achieved an outstanding adjusted EBITDA margin of 14.5% in the third quarter. That's more than 4 percentage points higher than a year ago. And once again, we're increasing four-year guidance on all three metrics that we provide and we're also increasing our long-term financial outlook as Razvan will show you later. As we look at the drivers for this terrific progress in Q3, it really is about maintaining and delivering the plan we laid out last year, which focuses on making significant improvements across every piece of our business. Market demand for school buses continues to be very strong. Our quarter-end backlog of firm orders for Blue Bird buses stood at just over 5,200…

Razvan Radulescu

Analyst

Thanks, Phil, and good afternoon. It's my pleasure to share with you the financial highlights from Blue Bird's fiscal 2024 third quarter record results. The quarter end is based on a close date of June 29, 2024, whereas the prior year was based on a close date of July 1, 2023. We will file the 10-Q today, August 7, 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 10 is a summary of the fiscal '24 third quarter and year-to-date record results. It was another outstanding operating quarter for Blue Bird, with somewhat limited and very well-managed supply chain and labor challenges, and with high margin units driving both our top line and our bottom line results. We significantly beat the adjusted EBITDA general quarterly guidance provided in the last earnings call, and in fact, we delivered the best quarter ever for Blue Bird, with $48.2 million adjusted EBITDA margin. Additionally, on a year-to-date basis, we tripled the results of last year for a new record year-to-date of $141.6 million. The team continued to push hard and did again a fantastic job and generated 2,151 unit sales volume, which was just above prior year Q3 volumes, but with more complex Type D and a higher number of EBITDA buses. Record Q3 consolidated net revenue of $333 million was $39 million or 13% higher than prior year, driven by a slightly higher number of units, higher part sales, improved mix of Type D and electric buses, and pricing actions that continued to materialize also…

Phil Horlock

Analyst

Well, thanks, Razvan. As usual, that was a great explanation of our quarterly results and our forward-year outlook. Let's move on to slide 21. I covered this slide in our two prior 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 three priorities that continue to drive us, taking care of our employees, delighting our customers and our dealers, and delivering profitable growth. The 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 margin accomplishments in fiscal '23, we transformed the business from losses in fiscal '22 to record profitability in '23, achieving a full-year margin of 8%. For fiscal '24, we just increased our full-year earnings guidance, midpoint of range, to a 13% adjusted EBITDA margin. Then over the next few years, we plan to grow the margin to 14% and then to 15% and beyond. Following these core strategies has been key to our margin transformation and will continue to drive our forward-year plans. On this point, we have highlighted our leadership and safety strategy on this slide in recognition of the significant move we announced just a couple of months ago, to make three-point seatbelts a standard feature on all of our Type C and Type D school buses. This will take effect in the fourth quarter of this calendar year, and we will be the first school bus manufacturer to provide three-point seatbelts as standard equipment. Now we are following this with the standardization of a driver's airbag in mid-2025…

Operator

Operator

Thank you. [Operator Instructions]. Our first question today comes from Mike Shlisky with D.A. Davidson. Please go ahead. Your line is open.

Mike Shlisky

Analyst

Good afternoon. Thank you for taking my question. Of course, Phil, congrats on your retirement.

Phil Horlock

Analyst

Thanks, Mike.

Mike Shlisky

Analyst

Hey, there's a lot to cover here. Sure, of course. Hey, there's a lot to cover here. Why don't I start with the question or two about the long-term guidance? Looking at what you're doing now, what your long-term guidance is, it implies almost $100 million worth of additional revenues, but EBITDA up about $125 million. That's less than 20% income margins, actually about 18%. This past quarter, you just did 50%, 5-0. I guess I would have expected more in EBITDA given the EV mix going forward, the 50% higher revenues on the top line in general. I'm sure the fixed cost base won't grow anywhere near that much. So, I guess I'm curious, I know you just put this guidance out, but do you think there's potential to go above 15% if you do in fact hit $2 billion and the EV mix plays out as you expect?

Razvan Radulescu

Analyst

Yes, Mike, thanks for the question. This is Razvan. So, as Phil alluded in his comments, he mentioned 15% and beyond. And obviously, as we are executing on this journey, as we firm our plan for the future, we are going to look potentially at higher numbers. However, there are also factors that are part of this strategic long-term plan. We are modeling over time a lower price for the EV buses in conjunction with lower cost, which in the end will drive a lower margin per bus compared to what we are making today. And definitely, this will drive the adoption and increase the mix, which then goes hand-in-hand with our increased mix of EVs. So, we are working on that journey, and as we have more updates that we can give you, we'll be happy to share those with you at that time.

Mike Shlisky

Analyst

Okay, sure. On a somewhat similar note, looking at the 4Q outlook and given what you did the first three quarters, just backing into it, you're suggesting that the revenues may be down from the 3Q that you just put up here. Outside the pandemic, does a lower 4Q than 3Q really have any precedent? Is it maybe just a mix, again, of the EVs being a little bit lower? Or, I'm having a hard time figuring out how you're going to have lower revenues just before school starts and everyone wants their deliveries than you did in the previous quarter?

Razvan Radulescu

Analyst

Yeah. So, the fourth quarter, Mike, has one less work week than the third quarter because of the July 4 shutdown, which we put in place two years ago. So, there is less number of work days. However, this particular fourth quarter, as mentioned both by me and Phil, has a lower number of EV units by about 100, and definitely this drives significantly lower revenues given the average selling price for EV buses.

Mike Shlisky

Analyst

Got it, got it. Maybe one last one for me, and that's on the political environment. Can the EPA or other federal funding for buses be reversed or taken away starting on January 2025, if a certain candidate wins the Presidency or do you feel like what has been passed is passed and will be allocated? I'm just kind of trying to figure out whether there's any kind of risk to some of the EV programs that are out there today.

Phil Horlock

Analyst

Yeah, Mike, well, it's Phil here. I mean, a lot of things can happen, obviously, but, you know, we look at it this way. I mean, those amounts have already been awarded. They've actually allocated them. So, the second round, I talked about, they've been allocated to customers. It's right out there. They know what they're getting. They just finalize their infrastructure plans. Remember, that was a bipartisan agreement in '21. Both parties, there was no objection to it. It went through pretty easily, and, you know, I think it was all around the fact talking about school children, school transportation. So, I think it'd be very difficult to, that's what we feel, very difficult for that to be reversed. There's so much support for it, and it's doing so much good for the environment for our children.

Mike Shlisky

Analyst

Okay, well, thanks for that answer, and again, congrats. I will leave it there.

Phil Horlock

Analyst

Thanks, Mike.

Operator

Operator

Our next question comes from Craig Irwin with ROTH Capital Partners. Please go ahead.

Unidentified Analyst

Analyst · ROTH Capital Partners. Please go ahead.

Hey, guys. It's actually Andrew on for Craig, and Phil, congrats on the retirement. First question is on gross, yeah, first question on gross margins, you know, posted some really strong margins in the quarter with the strong revenue. You guys are still kind of seeing cost inflation, and you guys are engaged with your suppliers that are kind of seeing some constraints here. So, just any update you could provide on the cost inflation and kind of where you can see long-term margins going would be great?

Razvan Radulescu

Analyst · ROTH Capital Partners. Please go ahead.

Andrew, this is Razvan. I'll take this one. So, in terms of gross margins, we highlighted some of the tail -- headwinds that we are seeing into fiscal '25. We have the just finalized new collective bargaining agreement with the USW, and that is going to cost us about 1% of revenues on a run rate basis going forward. We do see continued inflation pressures from our suppliers in terms of material costs, also driven by some labor factors, but also the general economic environment that is still not entirely stable at this point in time. So, we have material inflation and we have labor inflation that will put pressure on margins. At the same time, we are continuing to, on a regular cadence, increase our prices to the market, and we're trying to balance the two factors there. So, at this point in time, we provided the general guidance for fiscal '25 with a range, and we'll be happy to provide more insight in the next earnings call when we have more visibility into our exact built-in backlog for entire fiscal '25.

Unidentified Analyst

Analyst · ROTH Capital Partners. Please go ahead.

Great, thank you. Second one for me, I know we're kind of still early days in the chassis business, but I think you said last quarter you had one on the ground. We're engaging some customers there, so is there any kind of update now after the fiscal third quarter?

Phil Horlock

Analyst · ROTH Capital Partners. Please go ahead.

Not really, Andrew. I think what we said last quarter is still the same. We're in development mode now, developing a prototype. We have a prototype. We showed at the ACT show, big truck show, back in May. Well-received, well-recognized, a very active customer group come and walk through that and see that chassis. So, right now, our goal is that we want to get this product in the hands of customers later this year. We got several customers extremely interested. They want that product. They do their own validation test. They give feedback to us, and then we'll be looking into later into '25, getting a commercial product on the road for those customers. But I say we're very optimistic about it. We like what we're doing, and it's going to be a great chassis when it becomes the market, that's for sure.

Unidentified Analyst

Analyst · ROTH Capital Partners. Please go ahead.

Awesome. Well, it's great to hear. Congrats on the strong results, and I'll hop back in the queue.

Phil Horlock

Analyst · ROTH Capital Partners. Please go ahead.

Thank you.

Operator

Operator

Our next question comes from Chris Pierce with Needham. Please go ahead.

Chris Pierce

Analyst · Needham. Please go ahead.

Hey, good afternoon, everyone. I just wanted to ask on the national fleet business, you're bump up in accounts receivable that we don't see in prior years, but admittedly, my model doesn't go back that far. So, I'm just curious, are you winning more business with these national fleets, and is EV and propane driving that, or are you winning your share of diesel engines as well? What's the right way to think about the national fleet business for Blue Bird?

Phil Horlock

Analyst · Needham. Please go ahead.

Yeah. I mean, it's really all of the above. We are definitely participating more in national fleet business than we have recently. Propane has been a fantastic product for us this year. As we said before on prior earnings calls, our competitors don't have a propane product. It's a fantastic total cost of ownership vehicle for these fleet operators, and they know that. So, we've had great success there. Electric is the same thing, very excited about our product. I think the third thing is we have a very good delivery time versus the rest of the market in terms of getting products in customers' hands. And that's been great news for us, for fleets who want those products for school start. So, I think we've done very well with that. By the way, we intend to keep this business. We intend to keep this business. This isn't a one-off event for us. I said this isn't a one-off year for us in that we've turned up the capability this year for us. We intend to retain this business going forward. It's good business for us.

Chris Pierce

Analyst · Needham. Please go ahead.

Perfect. You just answered my follow-up because I know one of the three players in the market has had trouble delivering a diesel bus at this point in time. Okay. Perfect. And then, I was at ACT Expo recently, and I sat in on a presentation with Cummins and talked to some of the other competitors. Can you talk about your -- you guys have been talking about diesel emissions, and I just didn't pick up the same level of concern from other players in the industry, but I just didn't know if that's something that -- I didn't know how to frame that from not having looked at the industry for a long time. Is it just that diesel emissions get tighter over time and everyone sort of adjusts, or is there something specific to these 2027 diesel emissions that gives you confidence in alternative fuel buses taking increased share?

Phil Horlock

Analyst · Needham. Please go ahead.

It's absolutely the second one you raised there. In 2027, the emissions get very stringent on the requirements, such that it's very difficult for a diesel engine to meet it without a lot of hardware support. Very costly. It'll significantly increase the cost of a diesel engine. Now, our propane product today meets a 2027 emissions engine. Even our gasoline engine is quite a small part, I'll call it, trying to get there to meet the emissions requirements. Obviously, electric is zero emissions and fully meets all those requirements. Our competitors don't have a propane engine. They don't have a gasoline engine. All they have is a diesel engine and an electric vehicle. So I think you're going to get a different comment from them, and when I talk about our leadership, just to remind them, 60% of the vehicles that we sell today are non-diesel. That's quite a different story for our competitors. They're up at the 90% level of diesel sales, diesel mix for their business. So it's 10% non-diesel, so to speak. So for them, it's quite a different story. For us, we're very excited about it. We're well-positioned for it. We have exclusive products in propane and gasoline, and even in electric we have exclusivity by default because we get it from Cummins, and they're the only ones that provide it by Cummins. So I think we're in a very good position.

Chris Pierce

Analyst · Needham. Please go ahead.

Okay. I appreciate the detail. Talk soon.

Phil Horlock

Analyst · Needham. Please go ahead.

Bye. Thank you.

Operator

Operator

The next question comes from Eric Stine with Craig-Hallum. Please go ahead.

Eric Stine

Analyst · Craig-Hallum. Please go ahead.

Hi, everyone. I've been on multiple calls jumping around, so I apologize if I repeat any questions. Just curious, you mentioned for Q4 that you're tempering your outlook for electric buses, just given some of the funding pushout or the dates being pushed out for the clean school bus funding. Wondering, have you given an update on the timing of the labor agreement? Is that also a reason for the EBITDA, I guess implied EBITDA guide to be down versus the first three quarters of the year?

Razvan Radulescu

Analyst · Craig-Hallum. Please go ahead.

That's right. This is Razvan. I'll take that. So for Q4 guidance, in addition to having lower EV units, as mentioned several times by me and Phil in the prepared remarks, we have also the USW, which concluded in June. So we will have the full impact of the USW agreement starting to hit in Q4, and the run rate impact is about 1% of revenue. So indeed, there will be an impact for the run rate in Q4 from that.

Eric Stine

Analyst · Craig-Hallum. Please go ahead.

Okay. Yep. See, there's an example of me asking a question that you'd already addressed. So sorry for that. Well, maybe this one. For fiscal '25, your run rate the last three quarters would put you above where you're guiding for fiscal '25, and I know the headwinds. Just curious, are you also being conservative on the EV side, simply because of what you talked about, even though you're going to see or expect an order pickup here before December of this year, but those buses likely wouldn't be deliveries for you until late fiscal '25 or early fiscal '26? Is that the right way to think about it?

Razvan Radulescu

Analyst · Craig-Hallum. Please go ahead.

Yes, Eric. So definitely, we will see lower EV volumes in the first half of fiscal '25, as we indicated, with a higher, more back unloaded for the second half. We provided a range of guidance of 1,000 to 1,300. And as we said, going forward, we are becoming a bit less conservative in our guidance that we give. So right now, we feel pretty good about the ranges we preliminarily put out for fiscal '25, both in terms of units, EV, and revenues and EBITDA. But obviously, as things develop, we'll give you an update in the next earnings call, and we'll fine-tune the look for fiscal '25 then.

Eric Stine

Analyst · Craig-Hallum. Please go ahead.

Okay, thank you.

Operator

Operator

Our next question is from Sherif El-Sabbahy with Bank of America. Please go ahead.

Sherif El-Sabbahy

Analyst

Hi, good afternoon. Just given the significant balance sheet optionality that you now have, how should we think about capital allocation going forward?

Razvan Radulescu

Analyst

Hi, Sharif, this is Razvan. So we outlined our capital allocation strategies two earnings calls ago. However, since then, we've been awarded the Department of Energy MESC grant for $80 million. And once it's approved by the board and finally negotiated with the DOE, we will fund $80 million over the next two years from that. So we will evaluate all the opportunities to deploy capital. This project has a great internal rate of return, so we have a great opportunity to deploy that for our long-term growth. But at the same time, we expect to continue to generate significant free cash flow. And as we fine-tune our capital allocation strategy, we'll give you an update in the next earnings call and probably the following as well.

Phil Horlock

Analyst

You still there, Sharif?

Operator

Operator

Thank you. We have no further questions, so I'll turn the call back over to Phil Horlock for any closing comments.

Phil Horlock

Analyst

Okay. Well, thank you, Lydia. And thanks to all of you for joining us on the call today. Before I close this earnings call for my final time, I'd like to summarize where I believe we are today, where we stand today and where we are going. Lydia, last year, you saw momentum growing throughout the year, profitability increasing as we moved through each of the quarters. And we've continued to be on the same path this year, delivering an impressive all-time quarterly record profit in the third quarter with a 14.5% margin. With this very strong base behind us, we've raised guidance for the sixth quarter in a row and a guidance to a full year adjusted EBITDA of $175 million and a margin of 13.3%. And as I mentioned earlier, that's a full 5.5 percentage points above last year's then record profitability. In fact, it's worth pointing out and remembering and reminding us again that our absolute EBITDA is double last year's result, which was then a record for the company. And as we look to going forward from here, I mean, we've outlined a few of our full forward year financial plan, but I think it's worthwhile just reminding ourselves of the extremely favorable factors we have right now, these tailwinds we have that help and drive profitability and grow shareholder value that we're seeing right now. We think we'll see moving ahead. Number one, we've got an unprecedented backlog of firm orders and a strong market demand ahead of us with an aging bus fleet. That's shown by the ACT data and confirmed by all the industry experts that are out there. Supply chain constraints are easing, and we're seeing that a little bit, albeit there's still some way to go. And again, that's why you…

Operator

Operator

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