Earnings Call: Q1 2021

Feb 10, 2021

Greetings, and welcome to Blue Bird Corporation's Fiscal twenty twenty one First Quarter Earnings Conference Call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. Please note this conference is being recorded. I would now like to turn the conference over to your host, Mark Benfield, Executive Director, Profitability and Investor Relations. Thank you. You may begin. Thank you, and welcome to Blue Bird's fiscal twenty twenty one first quarter earnings conference call. The audio for our call is webcast live on bluebird.com under the Investor Relations tab. You can access 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 in our latest earnings release and filings with the SEC. Blue Bird disclaims any obligation to update the information in this call. This afternoon, will hear from Blue Bird's President and CEO, Phil Horlock, and CFO, Jeff Taylor. Then we will take some questions. So let's get started. Phil? Thanks, Mark. Well, good afternoon, everybody, and thanks for joining us today for our first earnings call fiscal twenty twenty one where we'll cover our first quarter results. Before I jump into our financial performance, I'd like to give you an assessment of how I see our business environment today and, importantly, how we are adapting to the market conditions and prioritizing our plans going forward. So let's turn to slide four. As the headline says, in a challenging market, we're continuing to drive business structure improvements and importantly for our future, substantially increasing our focus on the growing electric vehicle business. From an industry standpoint, not surprisingly, the first quarter was another challenging one as we dealt with about 40% of students attending only virtual classes with the balance split fairly evenly between in classroom teaching and a hybrid program. As I have stated on previous earnings calls, one fact is clear and obvious. When schools are closed, buses aren't being ordered. The good news is that when schools are open, it's business as usual with school bus orders being placed. That's great for us to know as we move forward. Following the recent holiday break, however, we have been seeing more schools resuming in classroom teaching, and that's led to increased quote activity for our new buses. This is a leading indicator that industry recovery is on the horizon, bolstered by increasing deployment of the COVID vaccine and the new administration's declared intent to open all schools within the first hundred days of its term. As we've consistently stated, it's our expectation that the industry recovery will begin in the second half of fiscal twenty twenty one in support of the next school year start. Shifting now to Blue Bird. Our first quarter results were solid despite dealing with COVID as we continue to improve our business structure and underlying margins. We significantly improved working capital in the quarter compared with last year as we drove down inventory, operating at much leaner levels than in prior years. At 46% of total sales, we had another first quarter record mix of alternative powered bus sales, maintaining our strong leadership position, and we were number one in trailing twelve months market share for both electric and propane powered buses. Now today, you're gonna hear a lot about our electric vehicle results and our plans on this earnings call. But needless to say, we're excited with the comments made by the new administration on supporting electrification of 500,000 school buses that transport our children every day. We're significantly increasing our focus and resources in the electric bus segment, where we are the market leader as customer interest and percentage growth in zero emissions vehicles is outpacing every other segment of our business. In this regard, I'm pleased to announce today it's our intention to offer Bluebug electric chassis to the class three through seven truck market. Now this is a new business opportunity for us that we will launch later in 2021 and is an obvious outcome from having the broadest range of alternative powered chassis in the business led by our zero emissions electric and low emissions propane products, all of which, I should remind you, are built in our factory. So overall, Blue Bird is well positioned for profitable growth as schools resume in classroom teaching and the industry recovery begins, and we plan to remain at the forefront of the inevitable and exciting industry shift towards zero emission student transportation. Let's now turn to slide five, and we'll cover the first quarter financial highlights. Our first quarter is always a seasonally low quarter of the year following school start in the prior quarter. Now despite this fact and the impact of COVID nineteen, our financial results were solid. At 1,255 buses, our unit sales were down 205 from last year, representing a decline of 14% entirely due to the pandemic, but well below the 23% volume decline we saw in the fourth quarter of fiscal twenty twenty. Similarly, net sales of $130,000,000 were 15% below last year. Adjusted EBITDA of $5,800,000 was $2,200,000 below the same period last year, more than explained by the lower unit sales. Now while adjusted free cash flow was $13,900,000 negative in the quarter, which reflects seasonal seasonality of our business, This was a substantial $77,000,000 improvement over last year. We certainly saw the benefits of our stringent inventory and cash management controls that we've been deploying, which we've now institutionalized in our company. All three of these financial results on which we provide guidance, namely net sales, adjusted EBITDA, and adjusted free cash flow, were in line with our plan. As I talked earlier about improving our business structure and underlying margins, we delivered on many operational fronts, which is summarized on the lower half of this slide. As you can see, these achievements reflect our three pronged margin growth strategy that we have communicated consistently on prior earnings calls, namely improving bus selling price, increasing mix of alternative powered vehicles, and reducing structural costs. So let's now turn to slide six and review our major operating achievements to date and, importantly, see the specific results of the margin growth initiatives that I just mentioned. We continue to drive transformational initiatives to improve efficiencies, quality, and capacity. Let me give you a great example of this. By the end of the first quarter, we substantially completed all of our plant upgrade actions necessary to ensure we can build as many vehicles in a single production shift that we used to build on two shifts. That's great for efficiency, quality, and gross margins, especially as industry volume recovers. As a reminder, we have now delivered more than $50,000,000 savings from these transformational initiatives since we started three and a half years ago. Next, we increased our RV selling price of bus by about $2,000 or 2% over last year, primarily reflecting the impact of the annual pricing to recover economics that we took late in fiscal twenty twenty. I'm particularly pleased with this accomplishment in the lowest volume quarter of the year. Now we have a lot of activity going on in alternative powered vehicles. First announced publicly today, we've just renewed our exclusive partnership with Ford Motor Company for several more years for the supply of our market leading gasoline and propane engines. With Ford and Rausch, we're enjoying an exclusive and successful three way partnerships that's lasted more than ten years, and we see no sign of it ending. In early spring, as I mentioned on our prior earnings call, we'll be launching our next generation exclusive propane and gasoline engine from Ford and Roush, the all new 7.3 liter v eight engine. It brings more power. It's more compact. It's got more torque, and it delivers more fuel economy. As our tagline says, the best just got better. Our combined alternative power mix was a record 46% of unit sales for the first quarter. That's 7% above last year. And with the higher owner loyalty and margin we generate from these unique products, it's great business for Blue Bird. As I covered earlier, the rapidly growing interest for electric buses is a very exciting opportunity for us and will generate significant growth in the years to come. A trailing twelve months basis, which in this case covers calendar year 2020, our electric bus market share was an outstanding 63%. This compares with 25% market share in 2019, so I'm really pleased with this growth trajectory. Fiscal year to date, we now have a hundred and seven electric buses either sold or in our firm order backlog, and that number is up 24% from the same time last year. That's really nice growth in the down industry, and it's just the beginning for electric vehicles. And finally, when you look at the total number of electric vehicles, we have either sold or our firm orders for since we started EB production just three years ago. It's more than 400 buses. That covers all school bus configurations, type a, type c, and type d. No one matches our breadth of EV products and market leadership in the school bus industry. In summarizing our operating achievements in one word, I would say that we have momentum. Even in an industry significantly impacted today by COVID nineteen, costs are down, average selling price is up, alternative fuel mix is higher, and we have exciting new growth opportunities ahead with electric vehicles and chassis. Let's now take a quick look at where I think we are heading on alternative powered vehicles on slide seven. On the previous slide, I mentioned that our alternative powered bus mix in the first quarter was a record 46% of total sales. Well, that's grown. It's now at 50%, reflecting second quarter bookings to date and our firm order backlog. That's another record mix for Blue Bird at this time of the year, five points above a year ago. But it's all the more impressive when it's achieved during the pandemic that's impacting an entire industry. As we've covered on prior earnings calls, our range of buses attracts new customers who have never tried an alternative powered bus, and many are new to the Blue Bird family. We saw this feature yet again in the first quarter. These are compelling facts, and with the higher customer loyalty we enjoy from these products, it's a great endorsement of our exclusive alternative powered buses, the Blue Bird brand, and our great dealer network. And we're off to a terrific start with our electric buses this year. As a reminder, we're not new at the EV business nor are we a start up that's achieved only a handful of deliveries. We've been building and delivering zero emission school buses for nearly three years now. We have the broadest EV range in the industry with type a, type c, and type d offerings on the road today. We're number one in market share and are preparing to deliver our four hundredth electric bus in the coming months. From a grant funding standpoint, the vast majority of the VW mitigation funding is still ahead of us and will help us boost sales over the next three years or so with many states earmarking specific funds for school bus purchases. We've had great results so far with our propane electric buses from the funds that have been issued. And the recently announced hundred million dollars Bezos Earth Fund grant to the World Research Institute also provides a boost with its unique carve out for zero emission school buses. In summary, I'm very proud of our strong and undisputed leadership position in alternative powered bus sales. We have the best partners, the best products, and they're exclusive to Blue Bird. And with less than 20% of school districts having purchased an alternative powered school bus today, we have plenty of runway ahead for continued growth. Now I show the right hand box in our last earnings call, and you can see how far we've come in the last four years. And looking ahead, we don't see this growth stopping. We project that four years from now, between 60 to 70% of all blue buses sold will be powered by a fuel that's an alternative diesel. That's an increase of up to 3,000 alternative powered buses over this year. We're bullish about this growth opportunity and are investing in the business, and we see electric and propane power as a way forward in alternative power as we drive toward low and zero emission products. Because of its outstanding growth potential, however, and the unprecedented interest in zero emission transportation, electric power is a priority focus for us. So let's take a deeper look at our EV strategy and plan. Turning to slide eight. As we learned from our propane success, when we bring an entirely new product to market, it takes more than just a great product to win year after year. Customers want turnkey solutions that take care of their issues and their questions. In the case of propane, it was, where do we buy propane fuel? How do we lock in the fuel price? What fueling infrastructure is required? What's the best vehicle configuration for my duty cycle? What are those TCO benefits? And so on. In the case of electric vehicles, we call this the EV ecosystem, carefully selecting the best partners in the business, working with us to handle each aspect of the acquisition and ownership experience to make it easy for our customers. As a graphic in the left hand box shows, we are well on our way to confirming our EV ecosystem, our partners, and their participation with us. We'll be sharing this with you at upcoming earnings calls and EV conferences. Turning to the right side of the slide, we show our key growth initiatives. First, continued leadership in delivering electric powered school buses. With more than 500,000 school buses on the road, that's an addressable market of more than a hundred billion dollars in the years ahead as we move along the inevitable journey to zero emissions. You may have seen recently, both the state of California and General Motors have just declared their intent to phase out combustion engines by 2035. Those are bold statements, but the shift is happening. Second, using our strengths in chassis manufacturing and breadth of powertrain choices, we can provide EV chassis to producers of commercial vehicles who seek a proven OEM chassis and factory installed electric powertrain. With more than a 50,000 buses on the road today, Blue Bird buses and chassis cover about 1,500,000,000 miles annually, and we are now accumulating over 2,000,000 miles each year with our EV buses. That experience and know how gives confidence to our customers. We're looking forward to our EV growth journey, and we'll fill you in on our progress as we move ahead. As we look to expand beyond school buses, let me just show you how we match up against the truck industry classification for chassis. Turning to slide nine. From our large to small buses, our chassis fit the requirements of truck classifications three through seven. That covers GBWR demand from 10,000 pounds to 33,000 pounds, which is an extensive range. And with our factory installed electric powertrains addressing every one of these truck classes today, we're well positioned for this growth opportunity in chassis sales. I would also be remiss if I didn't mention that we can also provide propane, CNG, gasoline, and diesel power for these classifications. We're in a great position. I'll now turn it over to our CFO, Jeff Taylor, who'll take you through the financial results in more detail, then I'll be back later to cover our outlook and fiscal twenty twenty one guidance. Over to you, Jeff. Thanks, Phil, and good afternoon, everyone. It's my pleasure to share with you the financial highlights from Blue Bird's first quarter of fiscal twenty twenty one. The quarter end is based on a close date of 01/02/2021, whereas the prior year first quarter was based on the 01/04/2020 close date. We will file the 10 Q tomorrow, February 11, which 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 reconciles differences between GAAP and non GAAP measures mentioned on this call as well as other important disclaimers already mentioned. With that, please refer to slide 11, and I will review the key results for the quarter. Overall, it was a solid quarter for Blue Bird, especially considering it was a seasonally slow quarter, which was further impacted by lower demand due to the global pandemic. Everyone across the company executed well, but our operations areas deserve to be highlighted for their outstanding performance. First quarter volume of twelve fifty five units was down 14% compared to the prior year period on lower industry volumes due entirely to the COVID pandemic. Net revenue of $130,000,000 was $23,000,000 or 15% lower year over year for the quarter. Bus net revenue of $118,000,000 was down $17,000,000 on lower volume. Bus average selling price or ASP was 93,900 per unit, a year over year increase of 1,600 per unit due to favorable product mix and option content in addition to price increases to offset inflationary cost pressures. Our alternative fuel mix was 46% in the first quarter, which is up seven percentage points over the same quarter last year. Very strong performance. Parts revenue for the quarter was 12,600,000.0, representing a decrease of 5,800,000 year over year as many maintenance facilities were shut down due to the virus and consistent with lack of in person schooling. Gross margin of 11.1% was 280 basis points lower than the prior year period. The deterioration in margin in the first quarter was almost entirely the result of lower fixed cost absorption due to lower volume, higher cost associated with COVID, and lower mix from the parts segment. Selling, general, and administrative was 14,700,000.0, which was down 5,800,000.0 on reduced spending and cost control actions in our management and engineering areas. Once again, very strong performance. GAAP net loss was $1,600,000 as compared with $400,000 for the first quarter of twenty twenty. On an adjusted basis, net income was $100,000 down approximately 2,000,000 versus last year. Adjusted EBITDA of $5,800,000 was down by $2,200,000 compared with the prior year quarter, which I will cover in more detail on the next slide. Our adjusted EBITDA margin was 4.4%, a decrease of approximately 80 basis points. Diluted EPS of negative $06 per share was $04 per share lower than prior year, while adjusted diluted EPS was $0 per share or $07 per share lower than the prior year quarter. Weighted average diluted shares were 27,100,000.0 during the first quarter versus 26,500,000.0 in the same period last year. Liquidity was approximately 121,000,000 as our revolver balance was untapped and fully available at quarter end. Looking at the first quarter on slide 12, year over year adjusted EBITDA bridge starting on the left of the chart, lower bus volume of 205 units and lower parts volume of approximately 32% were partially offset by favorable mix and lower freight and warranty expense. All of these factors combined to decrease adjusted EBITDA by $4,200,000 with volume being the primary factor. Pricing and transformational initiatives such as strategic sourcing and product redesign projects added $1,800,000 combined. Lastly, operating expenses were lower due to cost controls, while manufacturing costs were unfavorably impacted by lower fixed cost absorption on lower volume, partially offset by improved efficiency that resulted in adjusted EBITDA of $5,800,000 for the quarter. Moving on to free cash flow, Slide 13. The table shows both first quarter free cash flow in addition to adjusted free cash flow. The first quarter is normally a seasonally low quarter for free cash flow due to low demand and building working capital. First quarter adjusted free cash flow was negative $13,900,000 a year over year improvement of $77,000,000 largely on 64,000,000 lower trade working capital, while free cash flow was negative 14,800,000.0, an 80,000,000 improvement year over year. I couldn't be happier with the control of trade working capital this quarter and particularly the supply chain organization managing inventory in a difficult environment. Looking at net debt and leverage and liquidity on slide 14. Net debt of $147,000,000 was $61,000,000 lower versus prior year due to lower borrowing on the revolver, approximately $35,000,000 significantly improved trade working capital, required term loan payments over the past year approximately $10,000,000 and increased cash balances year over year approximately $16,000,000 Our net leverage ratio for the first quarter was 3.1 times. While the net leverage covenant is suspended for 2021 under the amended credit agreement, it is still relevant to set the rate of interest on our outstanding borrowings. We have two active financial covenants for the period. First, the trailing twelve months EBITDA as defined under the credit agreement was 48,700,000.0 versus a minimum requirement of 24,500,000.0. Second, liquidity was 121,000,000 at quarter end versus a minimum covenant of $15,000,000 Our liquidity continues to remain strong as our cost controls, working capital discipline, and structural margin improvements are clearly paying dividends. Furthermore, we are continuing all of these activities for the foreseeable future to further protect our cash and liquidity. In conclusion, the first quarter was a good start to the year and a smooth quarter from the perspective of supplier disruptions and COVID impacts. However, the operating environment has gotten more choppy in the second quarter with a higher level of supplier issues and disruptions as well as high levels of absenteeism. However, our team is rising to the challenge in addressing these on a daily basis. We continue to execute our margin growth strategy as Phil discussed. And finally, there are positive trends regarding COVID vaccinations that should allow schools to reopen for a fall twenty twenty one school start, if not sooner. We continue to be optimistic that school bus demand will recover in the second half of the year. I will now turn the discussion back to Phil who will describe the outlook for the second second quarter and give his closing remarks. Phil? Thanks, Jeff. So let me now summarize the outlook that we see for the balance of this year and beyond. Turning to slide 16. We all want to see the resumption of safe in classroom teaching. It's good for students, it's good for parents, and it's good for industry. We have the vaccine being distributed, and we are seeing more schools gradually reopening. These are great signs that the initial recovery is beginning. I thought it would be worth reminding all of us, however, of the new administration's stance on this topic. You can see the supportive comments highlighted from various speeches given by president Biden in recent weeks. It's clear that the administration's commitment to reopening schools safely within a hundred days and converting America's largest mass transportation system of more than 500,000 buses to electric power is great news for our industry and for our business. So now let's turn to the outlook for Blue Bird's business on slide 17. Our emphasis at Blue Bird is on delivering superior operating performance. We can't change industry outcome this year, but we can focus on improving every element of our business so that we're well positioned when the industry rebounds as it inevitably will so that we also rebound. That means executing our margin growth strategy by improving bus selling price, alternative powered bus mix, and cost structure. As I mentioned earlier, an example of structural change that drives superior operating performance was our move to a single shift production schedule. We know we build the bus more efficiently and with better quality when all of our team is working together on the same single shift. That's great news for us as the industry recovers. We have established electric vehicle leadership and growth as a top priority, and they're organizing the EV business as a unique division within Blue Bird. We'll be offering our chassis to the commercial vehicle industry later this year with our factory installed electric powertrain at the forefront. But into the external environment, there are a number of factors that will influence the industry outlook, the most important being the return to in classroom teaching. We know that when children are in the classroom, school bus are needed to transport children safely, and we see orders for new buses. The positive recent developments in COVID vaccine distribution and president Biden's hundred day goal to open schools should impact the school bus industry favorably. Additionally, with 25% of the North American school bus fleet being fifteen years or older and aging more when schools are closed, there is great demand for new buses from school districts. It's not a question of if the industry rebounds, but a question of when, and we expect to see improvements later in fiscal twenty twenty one. With so much uncertainty and speculation on when schools will fully resume in classroom teaching, however, we are maintaining the wide guidance range we provided in the last earnings call. We are prepared, however, for a surge in orders should the industry recover faster. Let's turn to our guidance range now on slide 18. This slide shows the key metrics in which we provide guidance and is unchanged. For net sales revenue, we're forecasting a range of between $750,000,000 and $975,000,000 adjusted EBITDA between 40,000,000 and $65,000,000 and adjusted free cash flow between $5,000,000 negative and $20,000,000 positive. Now our guidance reflects industry assumptions ranging from 26,000 to 30,000 buses, with the lower end assuming COVID causes increased disruption to classroom teaching and minimal industry recovery in the second half of fiscal twenty twenty one. The higher industry outlook of 30,000 units reflect resumption of in classroom teaching later in fiscal twenty twenty one and an increase in orders in support of 2022 school start. As the heading says, we believe it's important to plan prudently and somewhat conservatively while aggressively pursuing operational improvements. We'll narrow guidance as the control of the pandemic becomes clearer and keep you informed. As I did on the prior earnings call, I'd now like to share our view on when we expect to be back on track to achieving our goal of at least a 10% EBITDA margin. Let's turn to slide 19. This slide illustrates adjusted EBITDA impact of COVID nineteen on fiscal twenty twenty and 2021. We were on track to achieve our original guidance last year until the pandemic hit in the third quarter. While we do expect some industry recovery in the second half of fiscal twenty twenty one, we expect a significant industry rebound toward pre COVID levels in fiscal twenty twenty two commencing with school start. And as the volume recovers, we plan to resume our glide path towards at least a 10% adjusted EBITDA margin in the fiscal twenty twenty two and 2023 time frame. So despite the COVID challenges and its impact on today's school bus industry, we haven't lost sight of our mission, to grow profitability and increase EBITDA margin to at least 10% in the near term. To this end, we'll continue to drive improvements across all the elements of our business, thereby improving our underlying margins, and we're reporting our progress to you each quarter. That concludes our formal presentation. I'm now going to pass it back to our moderator to begin the Q and A session. Our first question comes from the line of Eric Stine with Craig Hallum. Please proceed with your question. Hi, everyone. Hi, Eric. Hey, maybe just starting on the commercial truck opportunity. I mean, clearly, you're making this move with insight into the market opportunity. Curious what kind of interest levels you're seeing from OEMs and maybe how the pipeline is developing in various end markets. And curious, I mean, is this because this is chassis only, is this kind of above and beyond the 1,000 or so electric buses that you can produce a year? Yes. Good questions, Eric. You know, these are this is the this is early days yet, so I wanted to let you know what the soonest. That's why we made a point to telling you it's later in 2021. You know, when you look at the class through seven entire industry, you're looking at 250,000 vehicles and more. And, obviously, a lot of those complete OEMs who provide their own chassis, they put it under their products. They may or may not have power electric product drivetrain. So we're we're looking at a subset of that. Obviously, not the two fifty level, but something significantly lower. In the in the discussion we've had with a number of potential customers, and I'm I'm not telling you yet. I've got a right robust pipeline that I can share with you. But what we're hearing is they really want what I call an OEM solution for a for a for a electric drivetrain fully installed by an OEM. You know, too many conversions are taking place. I mean, you got lot of I've gone to the small companies taking gasoline, chassis, taking the engine out, putting electric drivetrain in. And they're saying to us, look. We'd like we're interested in talking to you and meeting with you because we think, we know it's gonna be robust if it's built in the factory, and you you certainly got the the chassis business figured out with all the buses you got on the road today. And, obviously, we've got a significant number of electric vehicles on the road today. So I think what I'm telling you, Derek, at this point is a little early to to to be sharing pipelines with you. Like I said, we've we've specifically said I said specifically, we're looking at launching this later in the year. Sure. I have more to tell you on the next earnings call, but we're optimistic about it. Now when it comes to our capacity, we can scale up pretty easily. The thousand units I talked about before were very much it was school buses in mind, but we have a lot of chassis capacity. And we're able to ramp up very easily with with well over that number if we we get the demand for it. So I'm trying to be aware of that. Okay. So that's great. And I realize it is early. But Mhmm. You know, maybe just on the topic of on that capacity number just for school buses. I mean, I know it's another quarter that has gone by. And if you look at whether it's developments in vehicle to grid or third party ownership potentially of buses who would then lease to a school district at the same price as diesel or utility doing that. I I mean, when you add all that up, I mean, any thoughts on when, you know, the time frame might come where you would reach that level or or kinda how you're thinking about it maybe from a high level? Well, certainly, you you have a little bit the chart I showed you on there on our we call our e EV ecosystem showing there with Blue Bird in the center. I mean, we are heavily working on that with a lot of different partners. Now just you touched something like BetaG. I mean, virtually every bus we sold, for example, in the state of California is is BetaG capable. So, you know, I was working with utility companies to take advantage of that, whether it's for the benefits of the school district or of third party are all things we are working on with those partners in our ecosystem. Financing is shown on there. Obviously, right now, today, electric buses are sold when grants are available. There are significant bank grants being provided, particularly in California, but all across the nation. And people will get their chance to get into an electric vehicle. You know, they want it, especially when there's a nice grant support behind it. But on the financing side too, we're we're talking with several different partners who we want to align with who can maybe have a creative way of reducing upfront acquisition price by taking some risk on some of the assets that are in that vehicle. And I I'm excited by it. I mean, when you look at b two g opportunities, the financing opportunities to try and take the acquisition, stick a shock a little bit away right now for battery costs do come down to levels we expect to do in the next five, six, seven, or so years. We're excited about those opportunities that we can bring. So we're gonna keep working with those partners. We're gonna solidify relationships with them. I expect some will be exclusive to us. We like being have exclusivity. It's good for us and good for our customers, and, you know, we'll we'll keep you apprised as we move along. Got it. No. That's great. And then maybe just the last one for me. I I do wanna drill down a little bit into Jeff's comment about in the second quarter, you've seen higher levels of supplier disruptions and absenteeism at the plant. I mean, is this something you can give some color where it stands today? I mean, do you feel like it's something that you've got your arms around, or is it something that might be a factor in that wide guidance range? I don't know. I think it's something within our arms around. Maybe Jeff can speak. Why why don't I give you the high level view and Jeff can sort of tell you, what was behind, you know, his specific comment there? Look. I think we all know that the COVID cases across the country, they escalated later in the fall. Right? I mean, through November, December. We came back after Christmas, after the holidays, and people got together. We saw COVID cases peak. We've seen that in our suppliers, but we're also seeing some of them getting over that peak. We've seen as as things have settled down, they had a problem. And what I mean by problem is, you know, we're watching these. We know we watch who our problem suppliers are. We talk these guys every day. We're we're on you know, we're constantly in discussion to make sure they can supply them and get parts to us. It might mean expedited freight we've gotta use to get a a part to us because it's it's the allocation got cut down for a couple of days in their production cycle. But we've been able to work our way through that with minimal interruption so far, but I think the term that Jeff used was choppy, because that's what it is. Ourselves, even we saw quite a spike initially in the first week after we got back after the after the holidays, which has significantly subsided. But we had higher absenteeism for the first two weeks in January, and now we're back down to, what I call much more normal levels. So it was a choppy period for us. I think Jeff was just highlighting, you know, we're not out of this yet. I mean, no one is. COVID's still around, but, I think our team's doing a great job dealing with it. Jeff, you wanna give any more commentary on that? Bill, I think you hit, all of the key points there. You know, the the first quarter, which was October through December, was actually, pretty smooth for us, and it was really when we returned from the holidays that we we did see some choppiness increase. So I think you you covered all of the parts there. I mean, suppliers, are seeing the same things we're seeing, and so there are, you know, things that we do to keep our plant running, and we've been able to effectively do that up to this point. But we will expedite parts, which which increases our cost. We do add rework from time to time when things like that happen. And then, obviously, you know, absenteeism is a is a direct hit, on our manufacturing cost when, when it slows down our production a little bit. So, the team's done a fantastic job managing through it. Like I said on the call, we we deal with these issues every day. But, just, certainly wanted to, you know, put that out there that the second quarter has been a little more choppy than what we saw in the first quarter. Okay. Thanks a lot. Thanks, Barry. Our next question comes from the line of Craig Irwin with Roth Capital Partners. Please proceed with your question. Hi. Good evening, and thanks for taking my questions. So your, class three to class seven chassis, you're gonna supply into the market with Cummins efficient drivetrain drivetrain in the right the electric drivetrain. Can you maybe frame out for us what you've been doing on the marketing side to launch us into the market? And what are the types of customers that you're directly marketing these to? And, a lot of EV companies out there are getting really granular around around expectations in EVs. Can you maybe, share with us boundaries that would be reasonable for short term and maybe long term, volumes of these chassis? And then also on the traditional electric school buses, 400 is a great number. But can you, can you maybe set some boundaries on electric school bus deliveries in your fiscal twenty one versus last year? What are the growth rates? What are the units that we should be looking for? Yeah. Let me start off with that first. I mean, I think, we're up about 24% right now year to year. That's in our bookings that I call it the backlog for the year on here we are in, you know, just just in the February. I think that sort of number of maybe being 25 up is sort of a good number to to plan on right now as we look forward to see. You know, we had a 58 last year of of our large buses, type c's and d's, smaller number for our type a's, but I expected that to be in that region. I don't know why it wouldn't be in the region of, like, 25% up versus versus where it was last year. Because your your first part of the question, you know, you asked me for more granularity. I I sort of said, Craig, you know, right now, we're we're putting out we've done a we've done a lot of research in terms of looking at the industry, looking at who is providing what were these where are folks getting their chassis from these days? Electric power chassis. I mentioned before, many of them today happen to be conversions. A lot of smaller companies out there doing these conversions. It's something you know, you could be talking about, stepping vans. You could be talking about the standard commercial delivery vehicles. There's some pretty big players out there. I think we all know who they are. But what we what we've heard from our research is, gosh, can we find an OEM that would do this and stand by it? He's got a lot of experience in building the chassis that's tough and robust. Now one thing we don't like to do in Blue Bird is build a pretty tough chassis. I mean, I mentioned before, got a 50,000 school bus on the road, and and many of them are fifteen, twenty years old with three three hundred thousand miles on them or more. And, you know, we don't have to do that. We're we're we're we're three years into electric business. I love the fact we have a a type a electric product. We have a type c, and we have a type d. So we meet a lot of those requirements, that those operators might want. Prior to COVID, in fact, and prior to electric, we did a lot of we did a lot of research around this particular area with some more conventional products like our gasoline and our to electric to electric extent, propane. I've got a lot of acceptance. We did sell a few in the market, and it's just given us an optimism that we think we can take this now across across a lot of a lot of different industries in the in the commercial world. I think one thing I would last thing I would point out is about the way we build our chassis. You know, our chassis has a lot of complexity in it. I mean, a lot of people tell you that. We have a lot of trust comes and tell you that. We have a lot of complexity. It's federal complexity, state complexity, and then it's it's it's down at the school district level. And I think we've shown an ability to be able to modify change, make quick changes, satisfy unique customers' needs through many, many years. And I think that's why we feel confident that we can, we can really do a good job in this, in alternative industries because we can very adaptable, and we're able to do give a customer what they want and what they see. And the parallels of, you know, this this truck classification three through seven against the type a, type c, type b is remarkable. It's it's right on the money. I mean, it's just a it's a direct comparison to two different, industries. Okay. Can you maybe talk about what your capacity would be if if we really did see the, the blue blue sky scenario where we have an aggressive change out of the the legacy, school bus fleet. How many units of of electric drive trains, can you, produce a year? How many, can Cummins EDI supply to you, so that you can deliver, you know, finished, electric school buses into the market? You know, are we talking in the range of, you know, maybe several hundred? Do we have the opportunity maybe to flex into the thousands? And what sort of, commitments do you have around capacity from your primary battery supplier? Well, I think we have we have plenty of capacity with our primary battery supplier. I mean, we just, you know, we we obviously, I think when you look at what we sold, it's a it's a it's a it's a it's a it's a nice number the way it's growing in the scheme of things. It's it's still relatively small, clear for the rest of our business. So from a Bluebird standpoint, and I wanna talk about chassis and school buses, I mean, if you come to our plant, you'll see we're a very manual operation operating plan. That's why we have a pretty good free cash flow model. We don't spend a lot of money every year on CapEx. We're we're very manual. That's our flexibility. So in our cases, a lot of the time when we wanna increase capacity or of one particular product line, it's a case of putting man men in the plant, manning it, and getting it moving. We the the movement just makes a single shift to to be able to build significantly more units on one shift than we built prior to COVID. I think it's a good testament to that. We're in a we're in a very good shape in our ability to be able to build chassis and install electric drivetrains in it and to be able to build bodies too for those school buses. When you talk about our Cummins partnership, they're in the same boat. Cummins is terrific organization. They scale for demand. The demand is where it is right now. They scale for it, but they are ready and willing when we sort of put in orders and start to put orders their way. They'll step up, and and it's a case again, just bringing on more more resources. Again, what they do on that drivetrain, you know, they're buying you know, a lot a lot of assemble a lot of components you're pre buying, as you know, in electric vehicle business. It's a case of putting it all together and and putting a control system to to handle it all, and we have lots of capacity to do that. So what do I think going forward? I think we're talking I mentioned before, we have a thousand unit capacity right now that's readily available for us to build buses, we could easily flex up, we think, to, to to a few thousand above that and several thousand chassis above. It's chassis only side. Great. Thanks for taking my questions. You bet. Thanks, Craig. Good to talk to you. Our next question comes from the line of John Lopez with Vertical Group. Please proceed with your question. Hi. Thanks so much. Can you guys hear me all right? Yeah, John. Yeah. We hear Great. Thank you. Thanks a ton. I have three questions. I just want to do them one at a time, if that's okay. The first one is, I'm just wondering if you guys can talk a second about what a market recovery could look like. I guess what I mean when I say that is obviously the industry was doing a couple thousand buses more per year pre COVID. So on the one hand there would seem like kind of a natural upward tendency when COVID clears. But on the other hand, you know, just between budgeting cycles and sort of any other logistical issues, I would imagine like a direct snapback is somewhat more complicated than that. So could you just talk for a second about like as the market comes back, just kind of how quickly would you think we could get back to kind of, I don't know, 02/2017, '2 thousand and '18 levels just procedurally? Yeah. Look. I think I think the snapback later this year, which I do expect as we get into 2022 school start. I mean, as we think about more vaccinations being available, schools reopening, we protocols are really in place to handle this. I do think we're gonna see, quite a surge in orders, in anticipation of 2022 school start. I I gave the industry range of what think it was 26 to 30,000. So that's quite a bit below the 35,000 we've been running at for about three years prior to COVID. I mean, that's probably about right. That's about the peak I can see this year. They probably didn't just they just had enough time, frankly, I don't think, to get everything back in order to get much above that 30,000 level. That would be great. Now when you're looking for 22, and, you know, you you get the buses, the schools are open, you have to remember that make major funding mechanism for school buses is property taxes in municipalities. So if property values remain high, you know, though which which which they are, because they're not falling, those property values remain high, that's the funding mechanism for school bus and for education. I think I mentioned a couple of other calls that people when when we look at the average look at the average number of buses bought by a school district. Now there are 14,000 school districts. There are 35,000 in street. It's sort two to three buses a year is the average. Sure. There's big there's big district by a hundred. But in most cases, these are three buys. I want four buses. I'll take two buses. And affordability is not as difficult as probably people think because in this context of the the total education budget for a for a across North America, it's about point 3% of the total education capital expense budget is spent each year on school buses. Mhmm. Point 3%. So it it it often and I think that what I would say is you look at it, school bus are getting a year older. There's a lot of interest, a lot of excitement, and, as we come out of this pandemic, making sure our children are safe. There is a safest method of transportation than a school bus. It's a fact. It's proved. It's 50 times safer than any other method of transportation. Transportation. Look at accidents, injuries, and so on. In the state of Georgia, we just got confirmation this week. This was a great this is an example, I think, of of a state step. $40,000 money is being proposed for, to to accelerate the replacement of old school bus in the state of Georgia. That's on top of the property taxes that typically funds, most of the replacements. And that's about 50 percent more, actually, a % more than it was a year ago, funding more than 500 buses on top of the traditional, sort of level of of of changeover. So what I'm telling you is there's a there's a lot of excitement, I think, about, getting kids back in school, and I think there's a lot there's a there's a lot of desire and interest to upgrade that school bus fleet, which we get you a very resilient industry when you look at it over a on a long cycle. Gotcha. That that's really helpful. Thanks for all that. I had two other real quick ones, if you wouldn't mind. The first one is I'm wondering the sort of Biden stuff is relatively recent. Mean I know conceptually it's been discussed for a couple of months but I think it probably has more force now. And I think the thing I'm wondering is as you're engaging with customers is there perhaps a rethink that's happening as people are thinking about a recovery, I. E, we thought we were going to do some portion diesel, some portion propane, now we're thinking a different portion EV. Is that a potential I don't want say impediment, but does that complicate the recovery to any great degree? No. I I don't think so. I think I think it is look. In the near term, there's still a lot of funding available for EV. I mean, VW grants, there's a South Coast Air Quality Management Group in California is making grant money available. You know, the CEC grants, I think, are wrapping up right now. And there's there's a lot of there is a lot of unique funding available. We're talking every day with prospects of all across the country who are interested in being able to utilize that VW grant. And I think there's still something like there's at least there's at least, I think, about $400,000,000 left, about $600,000,000 that's been carved out to school buses to apply to to low emission type vehicles, which we just started. When it comes to the first quarter, you know, what I was pleased about, and I think this is I'm trying to answer your question here is we still had a terrific we have a terrific quarter for all fuel vehicles. And and, obviously, now I've got I've got good electric. I've also got propane in there, a low emissions product, which is incredibly affordable product from a TCO standpoint from a school district. The fact that it held up at a time when people are probably scrutinizing what they're spending money on, thinking pay for better resources before classrooms, and we're we're fully back in the classroom. I think it just bodes well for, the success of that business. I mean, what we're seeing right now is we're seeing increased demand from, court activity. Court was I should say this, we're seeing increased court activity. We have some in seen some increased demand. We're seeing pockets that when schools are going back, yes, we're clearly seeing increased orders coming in. So I think I think it was an excitement about what president Biden has said on two points. Right? Schools reopening, but also this electrification school bus fleet. I we all heard that. And when I first heard it during the campaign trail, thought that's pretty impressive, and he's reiterated it since. I think it's exciting for everybody, but it's a journey. I mean, it's not gonna happen overnight. I mean, that's that is a multiyear journey, I think, that, we can all enjoy. Gotcha. Okay. Thanks for that as well. Sorry. The last one, I hope I have these numbers right. And if I'm wrong, please forgive me and and correct me. But I think two years ago your fiscal twenty nineteen you did something in the order of 50 electric buses delivered. Last year I think you were in the ballpark of 150. So you did about an incremental 100 buses. If you were to do 25% more this year kind of 200 buses in that ballpark, that would only be sort of an incremental 40. It seems like not a particularly large step up relative to some of the things you've discussed before. I'm wondering if I'm processing that number right. Are there other complications, whether this be supplier related, manufacturing related? Is it just time to sort of educate the ecosystem? Like, why I guess my question here is why wouldn't you do kind of at least as many incremental buses, EV buses, as you did last year in the context of the environment? Well, I think that's it. I think you summed it up in the context of the environment. When you look at the hundred buses we got last year, we got a lot of those in the first half of last year. So we expect we actually expected more. But what happened is COVID definitely put a little damper on the back end of our year. Right? From the, you know, March onward. That really put a damper on. We already have very much in hand that the the backlog of orders already were in hand for the most of that year. So the the actually, electrics, it slowed down a little bit towards the back end of last year as people were dealing with COVID and classrooms were closed. So, you know, I think what it seemed for me is a little bit like I've been a little bit prudent, being aggressive on the business and on the cost side, but being prudent on my on our volume projections. Now here we are in the first half of the year, which is heavily influenced by COVID. I'm at 20 four percent above last year, first half, when it wasn't influenced by COVID. But the big thing is what's gonna happen in the second half. I think look. I think what you said is a great point. It's something you know, I was obviously a question there, what do I think the numbers are gonna be? And I think we we sort of said in our mind twenty five percent since we're up about twenty five percent now, but I think it's possible we could we could be seeing us break well through '2 to February. Let's just see how it goes. I'll keep updating everybody on that each quarter. Gotcha. Gotcha. Hey, listen. Thanks so much for all the help. I really appreciate it. You bet. Thanks, Ron. K. Bye. And with that, we reached the end of our question and answer session. And I would like to turn the call back over to Phil Horlach for any closing remarks. Okay. Well, thanks, Devin, and I wanna thank everybody for joining us on the call today. They were they were great questions, by the way. I got us all thinking, and really appreciate that and your interest. I will look up to a pause updating you too on our progress next quarter. I certainly can see, what you're interested in, and, certainly, we'll make sure we, we cover as best we can, the topics that are on your mind. As I hope you can see, we are dealing really well, I think, with this unprecedented pandemic. And there's no question. I keep saying it's inevitable. Industry will rebound. It will rebound. So a lot of school districts out there run their own fleets. Kids have to get to school. Mom and dad have to get to work. They need those school bus, and it's just a temporary blip, if you like. It's a big blip, but the temporary blip we're going through that we will recover from. In the meantime, just remember, what are we doing? We're improving our business structure. We are growing what I call our underlying margin. You don't see it yet because the volume's low. We have the overhead absorption issue that Jeff mentioned, but believe me, our real underlying margins are improving, and we'll capitalize on that as the volume bounces back. And I think we're driving leadership in alternative power. That's exciting, bro. We've been we've led this race for the last ten years, and we aren't stopping. We got we got a new tool now in our tool set is the way I look at it. We've led on propane. We've led on gasoline. You might say, what's gasoline on that alternative power? It's an alternative to diesel. It's an alternative to diesel, and that's what we've been focused on. Now we're looking at zero emissions. And electric vehicles and electric chassis, they are top of mind for us now as we see the incredible growth potential that has in the changing aspect of our landscape of transportation. That's what we're gonna focus on and what we're gonna talk about in the next service call to you. I just do I want to give us I always give back a rec recognition to our incredible employees in, in Fort Belvieu, in Mako, in Drummondville, in Quebec, in, in Columbus, Ohio. We're in the past there. They're a great set of folks, and and we couldn't be where we are without them. So if have any follow-up questions, please don't hesitate. Give a call to our head of profitability and investor relations, Mark Benfield. You know him well. And, thanks again for the ones at Blue Bird. Have a great evening. This concludes today's teleconference. You may now disconnect your lines at this time. Thank you for your participation, and have a wonderful day.