Release Date: August 07, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Blue Bird Corp (BLBD, Financial) achieved an all-time record profit for any quarter in its history during Q3 2024.
- The company reported an outstanding adjusted EBITDA margin of 14.5%, more than 4 percentage points higher than the previous year.
- Market demand for school buses remains strong, with a quarter-end backlog of firm orders for over 5,200 units.
- Electric vehicle (EV) sales saw significant growth, with over 200 units delivered in Q3, representing 9% of total unit sales.
- Blue Bird Corp (BLBD) was awarded an $80 million grant by the Department of Energy to increase EV and overall production capacity, enhancing future growth prospects.
Negative Points
- Despite easing supply chain issues, there are still select constraints on chassis components affecting production and deliveries.
- Adjusted free cash flow for the quarter was slightly negative, impacted by extended payment terms for significant sales to national fleets.
- The company faces ongoing material and labor cost inflation pressures, which could impact future margins.
- The recent collective bargaining agreement with the United Steelworkers Union will increase labor costs by approximately 1% of company revenues on a run-rate basis.
- Lower EV sales are expected in the first half of fiscal 2025 due to the timing of EPA orders and requested delivery schedules.
Q & A Highlights
Q: Looking at your long-term guidance, it implies significant revenue growth but a relatively modest increase in EBITDA margins. Can you explain why the margins aren't expected to grow more significantly given the higher revenues and EV mix?
A: (Razvan Radulescu, CFO) We are modeling a lower price for EV buses over time, which will drive a lower margin per bus compared to today. This is part of our strategy to increase EV adoption. While we expect to improve margins, we are also preparing for cost adjustments in the future.
Q: Your Q4 revenue outlook suggests a decline compared to Q3. Can you explain why this is the case, especially given the typical demand before school starts?
A: (Razvan Radulescu, CFO) The fourth quarter has one less work week due to the July 4 shutdown. Additionally, we expect lower EV unit sales in Q4, which significantly impacts revenue given the higher average selling price of EV buses.
Q: Is there any risk that federal funding for EV buses could be reversed or taken away if there is a change in the political environment?
A: (Philip Horlock, CEO) The funding amounts have already been allocated and awarded to customers. This was a bipartisan agreement, and we believe it would be very difficult to reverse given the strong support for clean school transportation.
Q: Can you provide an update on the cost inflation and how it is impacting your gross margins?
A: (Razvan Radulescu, CFO) We are seeing continued inflation pressures from our suppliers in terms of material and labor costs. However, we are regularly increasing our prices to balance these factors. The new collective bargaining agreement will also impact margins, but we are managing these costs through pricing actions.
Q: What is the status of your chassis business development?
A: (Philip Horlock, CEO) We are in the development phase and have a prototype that was well-received at the ACT show. We aim to get this product in customers' hands later this year for validation, with commercial availability expected in late 2025.
Q: Are you winning more business with national fleets, and is this driven by EV and propane buses?
A: (Philip Horlock, CEO) Yes, we are participating more in national fleet business, particularly with our propane and electric products. We have a good delivery time and intend to retain this business going forward.
Q: How should we think about capital allocation given your strong balance sheet?
A: (Razvan Radulescu, CFO) We will evaluate opportunities to deploy capital, including the $80 million DOE grant for increasing EV production. We expect to continue generating significant free cash flow and will update our capital allocation strategy in future earnings calls.
Q: For fiscal '25, your guidance seems conservative given your recent performance. Are you being cautious with EV sales projections?
A: (Razvan Radulescu, CFO) We expect lower EV volumes in the first half of fiscal '25, with a higher volume in the second half. We feel confident about our preliminary guidance but will provide more updates as the year progresses.
Q: Can you elaborate on the impact of the new collective bargaining agreement on your financials?
A: (Razvan Radulescu, CFO) The new agreement will cost about 1% of revenues on a run rate basis. This will impact our margins, but we are balancing this with regular price increases to the market.
Q: How do you see the upcoming 2027 diesel emissions standards impacting your business?
A: (Philip Horlock, CEO) The 2027 emissions standards will significantly increase the cost of diesel engines, making alternative powered vehicles more attractive. We are well-positioned with our propane, gasoline, and electric products to meet these standards and capture market share.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
