Blue Bird - Earnings Call - Q1 2025

Executive Summary

• Q1 FY2025 delivered resilient profitability despite lower EV mix: Revenue $313.9M, diluted EPS $0.86, Adjusted EBITDA $45.8M (14.6% margin), 2,130 units sold. Management said results “beat first quarter guidance” and reaffirmed FY2025 targets.
• Mix and cost drivers: Revenue decreased 1.2% YoY on less EV mix and product/customer mix; gross margin eased ~80 bps YoY to 19.2% given the USW labor agreement now fully in effect; other income benefited from ~$2.6M emission credits.
• Guidance maintained; risk balanced by levers: FY2025 revenue $1.4–$1.5B, Adj. EBITDA $185–$215M (midpoint unchanged at $200M), Adj. FCF $40–$60M reaffirmed; EV unit target set at ~1,000 with funded backlog prioritization; company prepared to pass through potential tariffs.
• Catalysts to watch: 2H EV deliveries from EPA Rounds 2–3; court memo enabling continued disbursements; tariff scope/timing and pass-through; DOE-funded plant expansion; CEO transition to John Wyskiel on Feb 17, 2025.

What Went Well and What Went Wrong

What Went Well

• Sustained margin power on core ICE business: Adj. EBITDA margin 14.6% with 94% ICE mix; CEO: “near record profit in the first quarter… exceptional 14.6% Adj. EBITDA margin”.
• Order backlog and pricing remain strong: ~4,400 units at quarter-end supports pricing and stability; ICE pricing ~6% higher YoY; average revenue per unit $135k despite lower EV mix.
• EV commercialization progress and cash generation: 132 EV units delivered; ~1,000 EVs sold or in backlog position as of late January; Adj. FCF $21.8M; record liquidity ~$280M.

What Went Wrong

• YoY top-line softness from mix: Revenue down $3.8M YoY primarily on lower EV volumes and product/customer mix; bus ASP down ~1.9% YoY to $135k.
• Margin headwinds from labor: Gross margin 19.2%, ~80 bps below prior year due to USW contract now fully effective.
• Policy/tariff uncertainties: Temporary pause to EPA disbursements triggered order/delivery timing risk (later clarified by EPA CFO memo), and potential 25% tariffs on Canada/Mexico (10% on China) add COGS uncertainty (though company plans pass-through).

Transcript

Operator (participant)

Hello, everyone. Thank you for attending today's Blue Bird Fiscal 2025 first quarter earnings conference call. My name is Sierra, and I will be your moderator for today. All lines will be muted during the presentation portion of the call, with an opportunity for questions and answers at the end. If you would like to ask a question, press star one on your telephone keypad. I'm now going to pass the conference over to our host, Mark Benfield, Head of Investor Relations with Blue Bird. Please proceed.

Mark Benfield (Head of Investor Relations)

Thank you, and welcome to Blue Bird's fiscal 2025 first quarter earnings conference call. The audio for our call is webcast live on BlueBird.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 following two slides and in our filings with the SEC. Blue Bird disclaims any obligation to update the information in this call. This afternoon, you will hear from Blue Bird's President and CEO, Phil Horlock, and CFO, Razvan Radulescu. Then we will take some questions. So let's get started. Phil.

Phil Horlock (President and CEO)

Thanks, Mark, and good afternoon to everyone. It's great to be here and to share with you our financial results for our fiscal 2025 first quarter. I'm very pleased to tell you that our momentum from last year has not slowed down at all, with the Blue Bird team doing a fantastic job in delivering near-record adjusted EBITDA and margin in the first quarter of fiscal 2025. Razvan will take you through the details of our financial results shortly, so let me get started with the key takeaways for the first quarter on slide six. As the headline says, we achieved near-record quarterly profits in the first quarter of Fiscal 2025, which is particularly impressive as it has the fewest working days of any quarter in the year.

As shown in the first box, we beat Q1 guidance and are maintaining our full-year guidance, and that's despite the impact on our business of the President's executive orders. More to come on that a little later. As we look at the drivers of this terrific result in Q1, it really is about continuing to deliver the plan that we laid out a couple of years ago, which focuses on making significant improvements across our entire business. Market demand for school buses continues to be very strong, and the backlog for Blue Bird school buses was at a healthy 4,400 units at the end of the first quarter, representing almost six months of production. This bodes well for pricing, production stability, and profit margins.

Bus prices were again higher than a year ago on every combustion engine model, and we are priced competitively, as we can see from bid results and our overall win rate. You will recall that on prior earnings calls, I talked about the expected surge in EV orders toward the end of December 2024, as orders were being submitted to meet the deadline for rounds two and three of the federally funded Clean School Bus Program. These rounds represent almost $2 billion in funding for electric and propane-powered buses. Despite the EPA subsequently allowing extensions to that EV order deadline, we saw a spike in our EV orders, with the backlog at the end of Q1 standing at a record 765 EVs, and that's 22% higher than at the end of Fiscal 2024 and a substantial 82% above the same time a year ago.

In a few minutes, I will cover where our fiscal 2025 EV unit sales and backlog stand today. We continue to sell a strong mix of alternative powered vehicles and maintain our position as the undisputed leader in this segment, which we have held for more than 15 years. We're also reinvesting back into the business too by selectively upgrading facilities, installing lean manufacturing processes, and developing exciting new and differentiated products that will hit the market in the next two to three years, and we continue to enhance the plant working environment for employees. This investment is resulting in some of the best manufacturing performance the company has ever seen, with higher efficiencies and increased throughput.

As a result of all these accomplishments, our first quarter profitability and margin was the second highest Q1 result that we've ever achieved, with an adjusted EBITDA of $46 million, just $2 million below last year's first quarter record, with an exceptional adjusted EBITDA margin of 15%. Now, since the first quarter, virtually all industries and businesses have been monitoring and responding to the executive orders issued by President Trump on January 20th, and we are no exception. We are dealing with those executive orders that could impact our business, namely the pausing of federal funding and new tariffs, which are certainly in a state of flux, and I will cover these in a couple of slides. But first, let's take a closer look at the financial and key business highlights for the first quarter on slide seven.

We sold 2,130 buses in the first quarter and recorded revenue of $314 million, just about the same as last year. By the way, the first quarter volume for last year and this year were higher for more than 15 years in what is typically a seasonally challenged quarter, having just followed the start of the new school year. As I mentioned earlier, first quarter Adjusted EBITDA of $46 million was just $2 million below the Q1 record we set a year ago when we had a 10% sales mix of EVs compared with just 6% this year. More significantly, we achieved a 15% margin equal to last year, with a 94% mix of combustion engine vehicles sold.

While we enjoy the profit contribution of EVs, it should be noted that we achieve about the same percentage margin on all of our internal combustion powered buses, or ICE vehicles, as they are called. We are not reliant on EVs to achieve a 14%-15% EBITDA margin, and they're highly profitable on all of our products. We are confident that we achieve best in industry margins, and with a 94% mix of ICE buses sold, our exceptionally strong first quarter results highlight the underlying strength and profitability of our core business. And finally, adjusted free cash flow for the first quarter was $22 million, an increase of $23 million over a year ago. Overall, we achieved outstanding first quarter financial results with a high mix of ICE buses at 94% of unit sales.

Now, on the right-hand side of the slide, you can see some of the operating highlights for the business. As I mentioned earlier, demand continues to be strong, with our firm order backlog today representing $760 million in revenue, reflecting a backlog of over 4,700 buses. First quarter selling prices for each ICE bus were about 6% higher than a year ago, reflecting both pricing and a richer option take. However, the lower EV mix in fiscal 2025 Q1 of 6% compared with 10% last year resulted in the average vehicle selling price being close to last year at $135,000 per unit. Parts sales totaled $26 million in Q1, representing a solid 6% growth over last year in the typically slowest sales quarter of the year for our parts business. Turning to alternative powered buses, they represented a 51% mix of unit sales in Q1.

This compares with typically less than a 10%-15% mix for our major competitors. We benefit from the higher margins and higher from the loyalty of our gas and propane sales, which are exclusive to us in the industry. As previously mentioned, we have seen a spike in EV orders from late last year, and by this Monday, we had close to a combined 1,000 EVs sold or in our order backlog for fiscal 2025. Our latest full-year forecast reflects 1,000 EV unit sales for the full year, so we are well positioned to deliver on this projection. Incidentally, the current backlog of electric vehicles represents about $250 million in revenue, which is almost double the value at the end of Q1 a year ago.

Now, with the President's executive order in place to pause EPA and federal funding programs for up to 90 days to allow a review of the programs, I will cover the status and confidence of funding for these EV buses on the next slide. I also have some late-breaking news that was released late yesterday regarding the executive order to pause federal funding programs and disbursements of funds. It is very impactful. I'll cover this shortly. I'm pleased to announce that late last year, we signed our contract with a DOE for the 50% funding of our new plant expansion in Fort Valley, representing $18 million of a total investment of $160 million. This means that the DOE funds are appropriated, and we have a contractual agreement in place with the DOE.

Per the President's executive order, this grant funding is presently paused, although we are confident it will proceed following review. However, the pausing of funding for this program should be impacted too by the late-breaking news that I just referred to. I'll cover this shortly. As a reminder, this project adds 400 well-paying American jobs with clean buses built by a century-old American company located in Middle Georgia, providing our children with health and safety benefits of clean air. Last month, it was announced that I will be stepping down as President and CEO to enjoy my second retirement from Blue Bird, and John Wyskiel will replace me effective February the 17th. Now, John has terrific operational experience, having held senior and executive positions at automotive system suppliers Magna, Dana, and BorgWarner.

He also knows Blue Bird very well, having been General Manager at our manufacturing location in Brantford, Canada, in the past. I look forward to helping John and Blue Bird in any way I can from my seat on the board. And finally, we beat first quarter guidance, which is the eighth consecutive quarter in which we've done so, and we are holding our full-year guidance. With a 15% Adjusted EBITDA margin and near-record profits in Q1, I'm very proud of our team's accomplishments. Let's now turn to slide eight and review the potential impact of the EPA funding pause on Blue Bird EV sales this year. As you can see on the left-hand chart, we have about 1,000 EVs either sold or in our backlog today. Our full-year forecast reflects EV sales of 1,000 buses for this fiscal year.

Now, we've analyzed the disposition of each unit in the backlog to determine if EPA funding through the Clean School Bus Program has yet been distributed to the customers for these orders. On 25% of the total sold or backlog units, representing 250 school buses, customers have been fully approved for a rebate or grant from the EPA, but they have not yet received their funds. Distribution of these funds is now on pause for up to 90 days, pending a review of the funding program per the President's executive order. So let me now cover the late-breaking news that is highlighted in yellow in the box at the bottom of this slide.

The CFO of the EPA issued a memorandum late yesterday afternoon that essentially states that the court has declared that federal fund disbursements for programs funded under the Infrastructure and Investment Jobs Act and the Inflation Reduction Act shall not be paused while litigation is ongoing or a court rules otherwise. It further states that disbursement of funds will continue. Clearly, this is good news for Blue Bird, as customers will now start receiving federal funding again from the Clean School Bus Program, helping to address the 250 ordered EV buses for which funds have not yet been received. Additionally, this news should apply also to the Department of Energy funding of our new plant in Fort Valley, so that the present pause in funding disbursement from the DOE will be lifted. As a reminder, funding for this program was covered by the Inflation Reduction Act.

We will continue to monitor funding progress in this area and any changes in the EPA's support of the Clean School Bus Program. So let's continue now with the left chart on the slide and the funding disposition of our EV orders. 75% of the total units have funds in place and are either already sold or scheduled for production and delivery. Incidentally, almost 30% of the backlog represents buses that are fully funded with the help of state and local programs. With this funding uncertainty, we have taken a number of actions to support the sale of 1,000 EVs in Fiscal 2025. First, we have reprioritized our production schedule to build fully funded buses first. Second, we have shifted production of buses with paused EPA funding to later in the year.

Third, we are pursuing several new opportunities for EV orders, utilizing state and local funding to mitigate the risk of unfunded EPA orders, and fourth, with a collaborative effort involving school bus OEMs and several fleet customers, we have garnered significant political support for the resumption of the Clean School Bus Program funding. Bottom line, we have 750 EV buses either sold or funded in the backlog today, and we're pursuing funding for at least another 250 buses, including significant state and local funding opportunities, and we are confident in our 1,000 unit sales forecast. We also remain confident that the Clean School Bus Program will be resumed as it fits the charter and the mission of the EPA. Let me now move to slide nine and assess the tariff impact on Blue Bird from another President Trump executive order.

The original tariff proposals are presently in a state of flux, with the potential tariffs on import of Canadian and Mexican goods on hold for 30 days while negotiations are underway with the U.S. Now, Blue Bird is exploring various sourcing options with suppliers to mitigate potential tariff risks. Our position is that any potential government tariffs will be passed through to the end customer, so there will be no net financial impact on Blue Bird. Should the tariffs be implemented as originally proposed, we would initiate a 5% price increase on all non-EV bus orders to cover the cost increase on imported components. We will continue to monitor and respond to any changes in tariff plans. I'd now like to hand it over to Razvan to walk through our fiscal 2025 first quarter financial results and our guidance in more detail. Over to you, Razvan.

Razvan Radulescu (CFO)

Thanks, Phil, and good afternoon. It's my pleasure to share with you the financial highlights from Blue Bird's fiscal 2025 first quarter results. The quarter end is based on a close date of December 28, 2024, whereas the prior year was based on a close date of December 30, 2023. We will file the 10-Q today, February 5, 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 11 is a summary of the fiscal 2025 first quarter near-record financial results.

It was a great operating quarter for Blue Bird, a great start for the new fiscal year, and they beat our guidance provided in the last earnings call on all metrics. In fact, we delivered the second-best adjusted EBITDA percentage margin quarter ever for Blue Bird, with close to 15%. The team pushed hard and continued doing a fantastic job and generated 2,130 unit sales volume, which was just above prior year level. Near-record Q1 consolidated net revenue of $314 million was only $4 million lower than prior year, driven by pricing actions that materialized in this quarter, which nearly offset the reduction in EV volumes as guided last time. Adjusted EBITDA for the quarter was a near-record $46 million, driven by high margins, increased parts and margins, offset by increased labor costs due to the USW labor agreement, which is now in full effect.

The adjusted free cash flow was a record Q1 of $22 million and $23 million higher than prior year first quarter. This result was due to continued strong profitability across all bus and powertrain types and improvements in working capital. Our liquidity position at the end of this quarter was a record $280 million. Moving on to slide 12, as mentioned before by Phil, our backlog at the end of Q1 continues to be very strong at approximately 4,400 units, including a record 17% EVs. In fact, at the end of January, we have now approximately 1,000 EVs sold in Q1 and in backlog, as mentioned by Phil before. Breaking down the Q1 $314 million in revenue into our two business segments, the bus net revenue was $288 million, down by $5 million versus prior year due to lower EV mix, nearly offset by increased prices across non-EV products.

As a result, our average bus revenue per unit decreased from $138,000 to $135,000, or approximately 2%. EV sales in Q1 were 132 units, 74 units, or 36% lower than last year, as planned. Parts revenue for the quarter was $26 million, representing a growth of $2 million, or 6% increase compared to the prior year. This great performance was in part due to increased demand for our parts as the fleet is aging, as well as supply chain-driven pricing actions and throughput improvements. Gross margin for the quarter was a near-record 19.2%, or 80 basis points lower than last year, due to the expected impact of the USW labor agreements now in full effect. In fiscal 2025 Q1, adjusted net income was approximately $31 million, or $1 million higher than last year.

Adjusted EBITDA of $46 million, or 14.6%, was slightly lower compared with prior year by $2 million and 40 basis points. Adjusted diluted earnings per share of $0.92 was up $0.01 versus the prior year. Slide 13 shows the walk from fiscal 2024 Q1 adjusted EBITDA to the fiscal 2025 Q1 result. Starting on the left at $47.6 million, the impact of the bus segment gross profit in total was negative $4.1 million, split between volume, EV mix, and pricing effects, net of material cost increases of positive $2.2 million, and operational cost increases of negative $6.3 million, largely driven by the USW labor agreement. A favorable development in the parts segment gross profit was $0.9 million, driven by higher sales and improved margins, as mentioned earlier in the call. Our fixed costs and other income were favorable year over year by $1.4 million.

The sum total of all of the above-mentioned developments drives our near-record fiscal 2025 Q1 reported adjusted EBITDA result of $45.8 million, or 14.6%. Moving on to slide 14, we have extremely positive developments year over year, also on the balance sheet. We ended the quarter with a record $136 million in cash and reduced our debt significantly by over $40 million over the last year. Our liquidity sits very strong at a record $280 million at the end of fiscal 2025 Q1, a $95 million increase compared to a year ago. Additionally, we have executed another tranche of share buyback of $10 million during Fiscal 2025 Q1, which brings us to $20 million completed over the last six months, with another $40 million left to go on the existing share buyback program approved by our board.

The operating cash flow was very strong for Q1 at $26 million, driven by great operational execution and margins and improvements in working capital. On slide 15, we want to share with you our updated fiscal 2025 guidance. Looking at Q1 actuals, we have beaten in every metric our guidance this past quarter, so we had a very strong start for the fiscal year. The recent executive orders and uncertainty of the timing for the EPA round two and three funding disbursements drove us to reduce the upside for the EV volumes for the second half of the fiscal year. However, given our solid and backlog position of 1,000 EV units at the end of January, we maintained this as our target for Fiscal 25.

On the adjusted EBITDA side, we are maintaining our previous guidance for Q2, and we are widening the range on the lower side by $5 million each for Q3 and Q4, also due to the timing uncertainty of the impact from newly proposed 25% tariffs on Mexico and Canada imports to the USA. We have a relatively lower exposure to China sourcing and the respective 10% tariffs proposed. Nevertheless, all of our non-EV new quotes issued since the end of January have a conditional tariff clause of 5% price increase based on our estimated cost of goods sold increases run rate and newly proposed 25% tariffs for Canada and Mexico and 10% for China. We are also prepared to apply these tariff surcharges to existing non-EV orders in the backlog at the appropriate time.

On the EV side, we actually reduced our list prices by $25,000 in line with our cost improvements as a step towards getting to total cost of ownership parity with the internal combustion engine buses over time as planned and indicated in our long-term outlook. Any tariff-related pricing surcharges on EVs will be evaluated and announced once we have more clarity of scope and timing, and we have already secured some strategic inventory of pre-buy EV components at the end of 2024 calendar year, see our increase in raw inventory during Fiscal Q1. We are maintaining our revenue to a range of $1.4 billion-$1.5 billion, and we are confirming our adjusted EBITDA of $200 million, or 14%, with a widened range of $185 million-$215 million, or 13.5%-14.5%.

We'll provide further updates at the beginning of May after we close fiscal Q2 and gather further insights into the EPA program timing and any tariff changes. On slide 16, we want to reiterate our thoughts on fiscal 2025 business environment and our total year guidance. We continue to have a number of both tailwinds and headwinds at play this year. The tailwinds, we have strong bus demands, stable pricing, and still a very high industry backlog. We offer not only diesel and exclusive gasoline school buses, but we have the only propane fuel school bus in the industry with clean fuel and best-in-class total cost of ownership. As mentioned last time, we are not a one-trick pony. We are also leading in the EV segment with over 2,000 EV buses on the road. The state subsidies continue to be strong.

EV pure-play competitors are going out of business, and we have already approximately 1,000 EVs sold and in backlog at the end of January. As headwinds, there is some uncertainty regarding the timing of the EPA Clean School Bus Program future rounds. Also, supply chain is still fragile at times while improving overall. The material costs and supplier inflation pressures are still present, and the newly proposed 25% tariffs on Mexico and Canada and 10% on China imports, once implemented, will impact our cost of goods sold over time with bus pricing countermeasures already announced and ready to be implemented as needed. In summary, we are maintaining our units and revenue midpoint guidance to 9,250 and $1.45 billion, respectively, with approximately 1,000 EVs. We are also confirming our Adjusted EBITDA guidance of $200 million, or 14%, with a range of $185 million-$215 million and 13.5%-14.5% margins.

Moving to slide 17, in summary, we are forecasting an improvement year over year with revenue up to approximately $1.45 billion, adjusted EBITDA in the range of $185 million-$215 million, or 13.5%-14.5%, and adjusted free cash flow of $40-$60 million. The free cash flow guidance is in line with our typical target of 50% of adjusted EBITDA, and it includes on top the extraordinary CapEx of $50 million as our 50% fiscal 2025 portion of the new plant investment funded by the DOE MESC grant, which is currently proceeding as planned. Moving on to slide 18. Today, we are reconfirming the medium-term outlook at 14% margin with volume of up to 10,000 units, generating revenue around $1.6 billion and with adjusted EBITDA of approximately $225 million.

Starting in 2028 and beyond, our long-term target remains to drive profitable growth to higher levels, towards $1.85billion -$2 billion in revenue, comprising of 11,000-12,000 units, and generate EBITDA of $270 million-$300+ million, or 14.5%-15%+ at best-in-class levels. The growth comes not only from improved EV mix, driven by sustained state funding and improved EV total cost of ownership over time, but also from our new Blue Bird commercial chassis addressable market expansion, as well as our Micro Bird joint venture new plant expansion in the U.S. We continue to be incredibly excited about Blue Bird's future, and now I'll turn it back over to Phil.

Phil Horlock (President and CEO)

Thanks, Razvan. That was a great explanation about Q1 results and our financial outlook. Let's now move on to slide 20.

I've shown this slide on several 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 every day at Blue Bird that both align with our priorities and drive our four-year profitable growth plans. At the center is our ultimate objective: to drive sustained profitable growth. As you look at the accomplishments in fiscal 2023, we restructured the business from losses to record profitability, achieving a full-year margin of 8%. For fiscal 2024, we achieved a transformational improvement of six percentage points to a 14% Adjusted EBITDA margin.

This was truly a breakout profit year for Blue Bird, where we more than doubled our profitability over fiscal 2023. We look to solidify and build on this in fiscal 2025. Then, over the next few years, we plan to grow our margin to 15% and beyond. So let me now start to wrap up the earnings call with our outlook for the business on slide 21. Razvan took you through the guidance for fiscal 2025, and I'm showing some of the key metrics at the midpoint of guidance here. We are being prudent in our bookings outlook, only increasing volume by 3% over fiscal 2024 at this time, as we still deal with a few select supply chain issues. But we managed those very well in 2024, and if we can build more in fiscal 2025, we will, just as we did last year.

Net revenue of $1.45 billion will be a new record for Blue Bird of 8% from fiscal 2024. Adjusted EBITDA guidance of $200 million is 9% higher than our Fiscal 2024 record results. Importantly, we are planning on a robust 14% adjusted EBITDA margin in fiscal 2025, up 40 basis points from fiscal 2024, as we look to maintain a momentum after such a surge in margin last year. And finally, we are looking to grow EV unit sales to 1,000 buses in fiscal 2025, up 42% from last year. As you can see on the right chart, there was a lot of pent-up demand following the low industry sales between 2020 and 2022, and the bus fleet has aged by a couple of years.

ACT is forecasting a compound annual growth rate of 6% through to 2029, and that's great news for our business and great news for our profit outlook. So let me now wrap up the call with a summary of the key messages that we want to convey today on slide 22. Our first quarter results, with 94% of our sales being traditional internal combustion engine vehicles, was exceptional. The second highest Q1 profit ever at $46 million and a margin of 15%. Further, this is the lowest volume quarter of the year, and additional profit growth is ahead of us. Our margins are strong on all powertrain offerings. We enjoy the higher unit profits from EV vehicles and will pursue this business aggressively, but we are not dependent on them.

Our strength is in having the broadest range of products and all having very strong margins: EV, propane, gas, and diesel. That is how we win. We will sell around 1,000 EVs this year, more than 40% higher than a year ago. We have 1,000 EV buses either sold or orders in hand today, of which 75% have funding in place, and we have more orders to come this year. We beat our first quarter guidance for the eighth consecutive quarter, and we are maintaining full-year guidance despite disruptive executive orders because our plans are robust. We remain confident that the Clean School Bus Program will continue. It's a bipartisan program approved by Congress in 2022. It's 100% appropriated. It's been widely successful and oversubscribed, and it provides clean air and eliminates harmful tailpipe toxins for the benefit of our children and our communities.

We are maintaining our financial outlook for a sustained 14% to 15% plus margin in the medium and longer term, with solid growth plans supporting this, including the expansion of our addressable market by supplying commercial chassis to U.S. last-mile delivery businesses and the doubling of Micro Bird JV bus capacity following its plant acquisition in Plattsburgh, New York, late last year. The future is incredibly bright for Blue Bird, and we are on a trajectory of sustained profitable growth with the best team and best product offering in the industry. I want to thank our nearly 2,000 employees for all their hard work and dedication in delivering a great first quarter result on top of a record full-year profit last year, as well as our outstanding dealer body who are critical to our success.

That concludes our formal presentation today, and I'd now like to hand it back to our moderator for the Q&A session.

Operator (participant)

Thank you. We will now begin the Q&A session. If you would like to ask a question, please press Star, followed by 1, on your telephone keypad. If you would like to remove that question, press Star, followed by 2. And if you are using a speakerphone, please pick up your handset before asking your question. Our first question today comes from Eric Stine with Craig-Hallum. Your line is now open.

Eric Stine (Senior Research Analyst)

Hi, everyone. Thanks for taking the questions. Eric, so hey, so I can appreciate, I mean, given all the uncertainty, I certainly can appreciate taking the low end of the EBITDA guidance down, but I do notice you took the high end up by the same amount.

And so I'm just wondering if you could talk through some of the scenarios that would get you to the high end of that range.

Razvan Radulescu (CFO)

Yeah, Eric, thanks for the question. This is Razvan. So obviously, we had a very strong Q1. We beat the upper end of the guidance we gave last time, and we see strong momentum on several of the non-EV powertrains that we are selling. So at this point, we do see a scenario where we can reach above the previous 210, up to 215. However, definitely, we need some higher EVs than 1,000 to reach these numbers. But overall, we feel very good about the upper range of 215 being achievable at the current point with the current premises.

Phil Horlock (President and CEO)

Eric, if I can just add, Razvan's right.

I mean, and you know, with all the backlog of 4,700 buses we have today, we have a good line of sight, right? And we took pricing increase in October, and as the year goes by, that bends in as we start to build those units, and that'll come through. So, and then we look at us where we are today, like Razvan said, lowest quarter of the year, lowest volume quarter of the year, great profitability, beat guidance, and we project, you know, increased volume through the rest of the quarters. And so we have some confidence there. We'd like to think this latest, you know, reversal of the pause on that President Trump had put in place, executive order, is really going to help us get moving now again. We took it down a little bit.

We took the range, cut the range down, as you know, and I think we're now, we're feeling a lot better about where that's heading. And I'm interested in Zeldin, looking at the comments he's been making on his strategy and his plans moving forward with the EPA. It gives me a lot of confidence here that we'll get this program fully up and running again.

Eric Stine (Senior Research Analyst)

Got it. And then, you know, I guess I don't necessarily want to put you on the spot, but I mean, I'll ask it anyways. I mean, I know there's some uncertainty because this pause is on "unspent funds," but you know, there's some ambiguity there. Does unspent mean, I mean, is allocated, does that count as unspent, or does allocated put it in a different category? And maybe these are questions that just can't be answered, but I would love your thoughts.

Phil Horlock (President and CEO)

Yeah, I mean, look, there are two things. First of all, we have 250 buses out there where the EPA, when they approve a customer to get their rebate or grant, they say, "Go and order your bus, and we will provide you with your rebate and grant." Go and order, and that's what these people have done. They've ordered the buses. Those are firm rock-solid orders. I should add, by the way, since the pause came in place, we're not at a single cancellation of one order, not a single cancellation. So that's the first part of it. But the resumption now here isn't, it's a resumption of the program. It's not just a resumption of disbursements. It's a resumption of a proven program that was approved by Congress in 2022 to get that moving again.

So we're going to look for new orders going in now and new orders from customers and new orders coming to us, and the disbursement of funds firing up again very quickly.

Eric Stine (Senior Research Analyst)

Got it. Maybe last one for me, just on pricing. I would assume you talked about the ability, if needed, in response to tariffs to apply higher prices to your backlog. Is that, is your ability to do that because of steps that you've taken over the last couple of years? I know your pricing was really overhauled, especially during COVID and coming out of COVID. You know, just speak to your ability to do that if needed.

Razvan Radulescu (CFO)

Yes, definitely. There are some precedent measures we had to put in place about two or three years ago where we had to go back on the backlog.

However, the situation these days with tariffs, it's something that will be experienced by everybody across all the goods that are crossing the borders should these tariffs ultimately be put in place. So in a way, it's almost like a sales tax that the government is imposing, and we are ready to do it and push it through our downstream flow and collect the money from the ultimate end customer.

Phil Horlock (President and CEO)

I would add too, Eric, we already talked to our dealer network on this. We have a great dealer network. They've been through this before, as Razvan said, post-COVID. They understand, you know, this isn't, this is a little different, right? This is not like rampant inflation on commodities. This is the U.S. government deciding they want to tax products that are imported. And I think they understand that's going to be passed through.

Eric Stine (Senior Research Analyst)

Okay, I appreciate it. Thanks.

Phil Horlock (President and CEO)

Okay, you bet.

Operator (participant)

Our next question comes from Greg Lewis with BTIG. Your line is now open.

Greg Lewis (Managing Director and Energy and Infrastructure Analyst)

Hi, thank you and good afternoon, and thanks for taking my questions. I did want to follow up on kind of the tenor or pace of the EV mix in, you know, this year and the guidance. You know, you called out that I guess EVs were 6% of kind of the Q1 mix. As I think about, or as you kind of talk to the 1,000 vehicles and the guidance, I guess that points it to maybe being, you know, 17% of full year. You know, how should we think about the progression of the EV mix, you know, I guess in the final three quarters of the year?

Razvan Radulescu (CFO)

Hey, Greg, this is Razvan. Thanks for the question. I'll take it.

Our 1,000 units is about 11% of the total year volume that we are forecasting. 1,000 EVs on 9,250 units. Q1 was at 6%, and we are forecasting, as you can see on Slide 15, a progression going up to 200, 300, 400 respectively until Q4.

Greg Lewis (Managing Director and Energy and Infrastructure Analyst)

Okay, and then

Phil Horlock (President and CEO)

Greg, I'm sure you've heard my other Greg, Greg, just a little bit of texture. Just in case you're familiar about, on the last earnings call, we signaled very clearly that we were going to get a low mix in the first quarter. Because what happened was the round one of the EPA funding closed out in 2024, but the rounds two and three were just starting going right towards the end of the fiscal year of 2024. There was a little bit of a lull between a program ending and a new one starting.

And that's what we, and we knew that was going to happen. And then we knew that it was going to accelerate. All this should accelerate as those applications for those orders, I guess, get once an order is submitted. That's when the EPA begins to process the rebate or the grant.

Greg Lewis (Managing Director and Energy and Infrastructure Analyst)

Okay, yes, it's super helpful. And then my other question was around, you know, even last year, you know, in November when, you know, the new administration was coming in and they were flagging, you know, the potential for tariffs. It looked like, you know, and I guess we have a temporary pause or maybe a, who knows when they'll be implemented. It looked like inventories went up in the fourth quarter, last quarter, in the December quarter versus the September quarter.

You know, could you talk a little bit about why those inventories went up? Is that kind of related to a lull or, you know, was the company kind of maybe building up inventories ahead of some potential issues really in whether it was tariffs or concerns around supply chain? Just kind of some color around why that inventory spiked up sequentially this quarter.

Razvan Radulescu (CFO)

Yes, Greg, this is Razvan. So definitely we took some measures to increase inventories to call it and pre-buy some components for various reasons. Majority of the pre-buy consists of EV components, batteries, and some other components from the EV system, as well as some other components. So there is an aspect of ensuring supply chain stability with these measures.

At the same time, the threat of tariffs existed, but at that point, it was a bit unclear if and when and how much it could be. So it's more to ensure stability of supply chain than fighting tariffs preemptively.

Greg Lewis (Managing Director and Energy and Infrastructure Analyst)

Super helpful. Thank you for the time.

Phil Horlock (President and CEO)

You bet. Thanks, Greg.

Operator (participant)

Our next question comes from Michael Shlisky with D.A. Davidson. Your line is now open.

Linda O'Malley (Research Analyst)

Hi, good afternoon. This is Linda O'Malley on for Michael Shlisky. Thank you for letting us ask questions. So my first question here is, I know we don't really have any finality on what the federal government might do with respect to the EPA program, but if they pull it tomorrow, what's your confidence level on hitting the $270 million-$300 million long-term guidance without as many EVs?

Razvan Radulescu (CFO)

Thanks, Linda. This is Razvan. I'll take that question.

There are multiple avenues of growth for our long-term outlook, both on the top line as well as on the EBITDA. We are standing by, as said in the prior remarks, in the prepared remarks. We are standing by those numbers. We will drive the company up to $2 billion and to 15% plus EBITDA. There is a certain EV mix growth that will still be driven by state and local funding and potentially still some federal funding. We are driving down the total cost of ownership on EVs. Slowly over time, they will reach parity with the internal combustion engines. We are entering a new area of addressable market with our Blue Bird commercial chassis, which is an extension, and this will add both top line and bottom line results.

Our joint venture, Micro Bird, we just announced in December, we purchased a new factory in New York State, and that will over time double their production capacity. We have multiple engines of growth, and we will execute on all of them, and therefore we are standing by those long-term targets, both for the revenue as well as the bottom line.

Linda O'Malley (Research Analyst)

Got it. Thanks. I appreciate the clarification on the impact of tariffs on Canada and Mexico, but I wanted to double click on the 10% tariffs on China. Could you elaborate on your level of exposure there and tell us if there is any impact with regards to your exposure there? And yeah, a bit more color will be helpful. Thank you.

Razvan Radulescu (CFO)

Yeah, so we have some limited exposure on China. It's the lowest of all those three countries mentioned, and we are monitoring it.

We will assess it, and we will take necessary actions once we have a clear magnitude of those tariffs.

Phil Horlock (President and CEO)

Yeah, we don't have any major components sourced to China at all. They're all, you know, they're all fairly, it's a very small piece of our business. And we understand exactly what it is, what the exposure would be, and we can handle that.

Razvan Radulescu (CFO)

Yeah, and maybe additionally, we are also evaluating countermeasures by resourcing parts that are currently sourced from China to potentially other Asian countries or bring them closer onshore.

Linda O'Malley (Research Analyst)

Thanks for the color. And my last question is, with the supply chain in good shape, what are some risks that we should be looking at for this quarter? Any concerns with regards to labor availability or components?

Phil Horlock (President and CEO)

No, I think for this quarter, we've got very good line of sight.

We're obviously well in the middle of the quarter now, and I think it's going well on plan. We expect it, so I think where we stand, we've got a great labor force. We know we have great retention of our employees, and we feel very strong about where we're doing. Supply chain is in good shape right now, is where it's running, and we're looking good.

Razvan Radulescu (CFO)

Yeah, we'd also add the collaboration with USW is very good, and we feel very confident in our workforce, and we have a good line of sight right now for the current quarter.

Awesome. Thank you for your time.

Phil Horlock (President and CEO)

Thanks, Linda. Thank you.

Operator (participant)

Our next question comes from Craig Irwin with Roth Capital Partners. Your line is now open.

Craig Irwin (Managing Director and Senior Research Analyst)

Good evening, and thanks for taking my questions. First question I wanted to ask is the cost structure on your EV school buses.

I know you've been working hard to explore new approaches, new avenues to take costs out of the bus. Can you maybe give us an update on the potential there over the next, you know, series of quarters? And, you know, I don't know if you have an update on tests you've been doing with potential alternate drivetrain OEMs. Anything you can share with us on that would be helpful.

Razvan Radulescu (CFO)

Hey, Craig, this is Razvan. Thanks for the question, so we announced recently, and it's in the prepared remarks, the fact that we reduced the price of our EV school buses by $25,000 over the prior level, as mentioned repeatedly on our long-term the first step towards that. In terms of other technologies and new sources, I think we are not going to comment today on that work that's going on.

And as always, we work hard with all of our suppliers and partners to drive down the cost of EV buses and essentially bring the total cost of ownership close to one of the highest power train school buses.

Phil Horlock (President and CEO)

Yeah, I would just add, Craig, I mean, obviously there's competitive knowledge here. We are working with a number of alternative suppliers on different components right here to really help drive down our costs. And I think we know that's going to be successful. We have plans in place. I mean, I'll pick on one which you know about, is the, for example, we're going to be demonstrating, which is a demonstration program coming up shortly for our new commercial chassis that we're very excited about. That uses a different drivetrain than we've used previously.

And we're excited about it, and we'll be demonstrating that at the show with a ride and drive, and customers get into it. That's a key growth initiative at a good cost point for our future. Good cost point and price point.

Craig Irwin (Managing Director and Senior Research Analyst)

Excellent.

Phil Horlock (President and CEO)

For future growth products.

Craig Irwin (Managing Director and Senior Research Analyst)

Okay. That's good to hear. So my second question is about the potential for, you know, a mix shift versus expectations. You know, if the executive orders actually do hold and we see, you know, less funding support than, you know, previously expected for EV school buses, what's the potential to backfill that demand with something like propane? Do the propane customers typically wait for VERA funding or other relevant state or federal funding before they book orders with you?

You know, can you talk about the potential for, you know, alternative solutions to be delivered to different school districts if, you know, if we do see any real impact from the pause in EV funding?

Phil Horlock (President and CEO)

Sure. I'll pick that one up, Craig. I mean, absolutely. You're completely right with what you suggest there. I mean, propane is a logical choice in the marketplace. You know, we've been delivering that propane product with our partnership with Ford and Roush now for the best part of, I mean, 15 years or so. So it's a very strong product. The beauty of the propane product is it's a total lowest cost of ownership of any vehicle on the road, period. I mean, it will save money.

There's a little bit of a premium to diesel, but you'll save costs in terms of fuel and maintenance costs significantly every year, $3,000-$4,000 per bus. But as you say, a diesel engine, no subsidies are required to make that effective. That's the beauty of that product. And it's proven. We've got a lot on the road, fantastic testimonials. That's what we'd look to see. Also, I should add, it's clean. It's ultra low emissions. It already meets the 2027 standards of NOx at 0.02, it exceeds it actually at 0.02 grams per brake horsepower hour. So it's a fantastic product, and we're very pleased to have it. Of course, it's exclusive to us. So absolutely right. That would be the shift that I think would be logical for customers and certainly for ourselves to make. We've done it before.

Before EVs came on the market, that was the clean product that we pushed for everyone, which we pushed hard and we've been very successful at it, and I think that's what we'd look to do going forward.

Craig Irwin (Managing Director and Senior Research Analyst)

Great. Well, thanks again for taking my questions.

Phil Horlock (President and CEO)

You bet. Thanks, Craig.

Operator (participant)

Thank you for your questions. As a reminder, it is star one to ask a question and star two to remove. Our next question comes from Chris Pierce with Needham. The line is now open.

Chris Pierce (Senior Analyst)

Hey, good afternoon, everyone. Can you just talk to, you know, yourself, Thomas, IC, First Student, you know, school district stakeholders?

Is there any sort of working group to put together a consistent message to go to DC and kind of not necessarily lobby for these funds because it's a law that's been passed, but I would just like to hear some sort of offensive message that you're taking around, you know, disbursing these funds if it exists at this time?

Phil Horlock (President and CEO)

Yeah, good question, Chris. I mean, we touched on that a little bit in our discussion around what we were doing with the EPA funding and so on in our presentation, but let me give a little color on that. We absolutely do have such a consortium. We've been to Washington several times, D.C. meeting with a lot of influential folks either in Congress, the senators, on both sides, on both sides of the party, right? Democrat and Republican, particularly the Republican side.

And we have that, our competitive part of that group. We have our customers who are in that group. It's a very influential group and a lot of access, a lot of recognition. And I think we made the comment in there that from all of our meetings, I can tell you we've had outstanding thought presented to us by all of those parties that this clean school bus program is the right thing to do. It's what we need to do for our children, the clean air for our kids. And so, yeah, that's been going very well. And we're going to keep pushing that. Just this week, that team was together in D.C., for example, earlier this week, doing exactly what you said, presenting the case and garnering support. And it's just been nothing but supportive, is what I would say.

Chris Pierce (Senior Analyst)

Okay. And then just a point of clarification. You delivered 132 EV school buses. You have 1,000 in backlog right now, but you're only getting to 1,000 for the full year because 75% of that 1,000 is there's money in place for that, and the rest is uncertainty. And that is what's driving the wider range on the Adjusted EBITDA. I just want to make sure I have that buttoned up.

Razvan Radulescu (CFO)

Yeah, Chris, actually that's not correct. So what we said is we have 1,000 between what we sold in Q1 plus the backlog. So the total is 1,000 for the year right now.

Chris Pierce (Senior Analyst)

Perfect. Okay. And then,

Phil Horlock (President and CEO)

yeah, let me just quickly. Go on, sorry.

Chris Pierce (Senior Analyst)

Go ahead, Phil. Go ahead, Phil.

Phil Horlock (President and CEO)

Well, no, I mean, you're absolutely right. That's one reason.

Certainly on the bottom end, we pulled it wide. Well, we widen both on the top and the bottom end because you're right. 1,000 units is a lot of units, right? But, you know, when we put together that forecast, we were working with a pause from the president, executive order, and that there was no EV programs were being processed by the EPA on the Clean School Bus Program. No customer requests were being progressed. Now, that just late last yesterday, that pause has been lifted. So we'll take a look at that. We'll see what it means. But right now, what happened is we just wanted to recognize that. That's all the time that, you know, orders get put in and then the grants follow.

But we were recognizing the fact when we lowered it down to the, at least talked about the 1,000 versus 1,000-1,300 range, that with the pause, there was a potential that all of those units may not get supported, certainly within the fiscal year, so we could build them. Obviously, I think we feel a little more optimistic now of where we are today. And, you know, we'll progress where this thing goes, but certainly we just wanted to be a little prudent and manage this correctly. But we'll update you on next earnings call, see what happens on this. The review should be over of the EPA's programs by that time. And like I said before, we are very confident that this program will continue. Very confident. Based on the support that we've garnered from our trips up the hill and up the hill there in Washington.

So that's why we had to put the range where it is. But as I mentioned earlier, the high end of the range, I think also talks about this assumes more orders come in. We can see ourselves pushing beyond the original guidance that we had. So that's why we had a higher top end and a lower, a lower bottom end of the range. It's still the same midpoint.

Chris Pierce (Senior Analyst)

Okay. Okay. I appreciate the detail. And then just lastly, what would you say to an investor who, you know, asked why you guys aren't more aggressive with the buyback given the multiple the stock's trading at?

Phil Horlock (President and CEO)

Well, I mean, we do, well, we have an agreement right now through our board of what we spend per quarter. $10 million per quarter is sort of where our bogey is that we want to be at. That's what we've been working on.

Good question you raised there. It's interesting, but certainly we'll, and we have to recognize too, we can only do this when the window opens, what's called the open window comes. That window opens two days after our earnings call and it closes 15 days before the start of the quarter. That's the window we have to operate in. We managed it very well, $10 million there in the last round, and we'll do the same again this time.

Chris Pierce (Senior Analyst)

Okay. Thanks for everything.

Phil Horlock (President and CEO)

Thank you.

Operator (participant)

Thank you for your questions. There are no longer questions in queue, so I'll turn the conference back to Phil Horlock for any closing remarks.

Phil Horlock (President and CEO)

Okay. Thank you, Sierra, and thanks to all of you for joining us on the call today.

Just want to say that I think last year you saw momentum increasing throughout the year as profitability improved as we moved through the quarters. And we've continued on the same path by delivering an impressive 15% EBITDA margin in the first quarter of Fiscal 2025. And that's with a 94% mix of ICE vehicles. I just want to stress that. We said before we've got a 14-15% margin with a very high mix of ICE vehicles. We call that best in class. We do appreciate Blue Bird, and we do look forward, however, to keep updating you all again on our progress next quarter. Should you have any follow-up questions, please don't hesitate to contact our head of investor relations, Mark Benfield. Just one more thing.

On a personal note, this will be my 35th and final Blue Bird earnings call as I step down as CEO just 12 days from now. I want to thank all of you for the time we spent together, either on these calls or meeting in person with many of you. I would say the company has never been stronger than it is today and has a fantastic future as we approach our 100th year anniversary in just a couple of years. With John Wyskiel taking over as CEO, I know Blue Bird will be in good hands. John's a seasoned business professional, a great leader, and a veteran of the auto business. And he knows Blue Bird well from the time he spent here. He understands our strategy and our priorities, and he's very excited to be joining us and meeting you along the way.

Now, with John, Razvan, and Mark leading and attending the many conferences that they have, the investor conferences those being every year, you can be assured of continued strong, effective, and clear communication and discussion of Blue Bird's quarterly results and the business outlook. I want to thank you all again for the team here at Blue Bird. Have a great evening.

Operator (participant)

That will conclude today's conference call. Thank you all for your participation. You may now disconnect from.