Blue Bird Corporation [BLBD] Conference call transcript for 2022 q1
2022-05-12 20:17:06
Fiscal: 2022 q2
Operator: Hello, and welcome to the Blue Bird Corporation Fiscal 2022 Second Quarter Earnings Conference Call. . Please note, today's event is being recorded. I would now like to turn the conference over to Mark Benfield, Head of Investor Relations. Sir, please go ahead.
Mark Benfield: Thank you. Welcome to Blue Bird's Fiscal 2022 Second Quarter Earnings Conference Call. The audio for our call is webcast live on blue-bird.com under the Investor Relations tab. You can access the supporting slides on our website by clicking on the presentations box on 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 2 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, Matthew Stevenson; and CFO, Razvan Radulescu. Then we will take some questions. So let's get started. Matt?
Matthew Stevenson: Thank you, Mark, and good afternoon, everyone. The second quarter of our fiscal year 2022 began on a positive note with an improving supply chain environment and softening futures on commodities. But these early gains were disrupted by world events in the Ukraine and in China, which led to considerable disruptions in our supply base and higher material cost inflation. Overall, it continues to be a challenging environment, but team is still making considerable improvements in our operations as well as our strategic initiatives to drive the company forward. The overall fundamentals of our customer base remains strong and the new grant funding mechanism for clean and cleaner emission school buses are creating a very exciting future for us. On Slide 6, you can see though that demand remains high for our products. Our order intake for Q2 was up 30% year-over-year, supporting a record backlog of approximately 6,600 units worth over $700 million. Given supply chain is limiting our production, we price protected units we built and delivered in Q2 in order to safeguard our dealer and customer relationships. Many of these buses were priced and ordered prior to June of 2021. We continue to make improvements in our underlying operations to prepare for higher throughput when supply chain disruptions ease and look forward to reaping the benefits of these improvements in the future. We are hopeful in the quarter, we would see improvements in the supply base, but numerous shortages and delays in critical parts impacted production. Throughout the quarter, we saw part shortages worsen, and although we built an annual run rate of nearly 10,000 buses in the month of March, it came at a high cost in labor, rework and expedited freight. Many suppliers continue to have labor shortages at their facilities that seem to grow as gas prices soared in the quarter and many employees decided they can no longer afford to commute to their jobs. The supply base is generally fatigued as it's been a long 2 years with numerous challenges. We drive deviations or resource parts wherever possible to maintain production capacity, but in many cases, there are limited viable suppliers for key components. Previously, we are forecasting material improvement in the supply base in the back half of our fiscal year. Given the world events, we no longer see these improvements coming in the near term and now expect to see stability in the supply chain pushed out into our fiscal year 2023. As I mentioned, we price protected customer orders placed in the middle of 2021 that were delayed due to supply constraints. Given the delayed production and the inflationary environment on materials and labor and efficiencies due to part shortages, our margins were compressed in our second quarter. Previously, we're forecasting a softening commodity market, but due to the Russian invasion of Ukraine, we saw commodities again spike impacting our cost base, including freight, driven by record prices of diesel fuel. We are aligning pricing to future costs and proactively have taken numerous price increases, including an additional 10% we announced this week for a total of 25% since June of 2021. However, you do not fully see these actions in our results yet as a majority of what we are currently producing was priced prior to June of '21. However, the average revenue per unit in our backlog has increased nearly $9,000 since the start of our fiscal year as we burn off the old backlog and the new pricing takes hold. On Slide 7, you can see many of the challenges I just referenced. However, our team is tenacious and the mentality we have is, we can always improve and adapt to the current situation. On the supply chain side, we hired a new leader for the group and increased resources in the purchasing materials and warehousing teams. We've also hired an outside firm to assist the team during this tumultuous environment to improve processes and eliminate waste. We also are putting more boots on the ground of problematic suppliers to ensure they are bringing the same intensity to these issues as we are in delivering on their promises. Regarding the inflation we are seeing in our cost base, we are passing along significant price increases to align to our current and future build costs. We are also continuing to adjust our steel hedging strategy. Also, due to the push to get last-minute parts for production, premium freight was increasing, and we have developed better insights to the financial trade-offs of those decisions. There is great work being done at the manufacturing facility to adjust to the constant reality of all the parts not being there when we start production. We have made considerable changes to our manufacturing footprint term to offline throughput and reduce the number of hours per bus. Offline is where we put on the majority of the parts that we're missing throughout the normal production process. We are also adjusting our labor model accordingly based on the limitations of our supply base to support production and are now going to a 6-day 8-hour shift pattern to allow an extra day for the supply base to produce parts versus the normal 4- or 5-day pattern we would typically run. Overall, I'm very proud of the team and the improvements in the operations we are making in a very difficult environment. Slide 8 has our financial results and our ongoing business highlights. In the second quarter, we booked 1,931 units with sales of $208 million. This was 443 units more than the second quarter of fiscal year '21 and $43 million more in revenue. But producing those buses came at a high cost due to increasing material costs, rapidly rising freight costs and production inefficiencies due to the part shortages as well as being compounded by buses priced in the first half of the calendar year '21, but built nearly a year later. Now we consciously chose to price protect the contracts our dealers have with our customers to preserve these long-standing relationships. Our adjusted EBITDA was negative $11 million, $18 million less than the second quarter of fiscal year '21, and our adjusted free cash flow was positive $22 million, $23 million better than the prior year. In the quarter and since our last earnings call, a number of key programs and initiatives have moved forward to continue our leadership in alternative powertrains. In late April, the EPA announced the details surrounding the release of the first $500 million of the $5 billion clean school bus rebate program, which is part of the infrastructure spending bill. This first tranche should fund approximately 1,200 to 1,600 school buses. This is a great opportunity for bluebird, and we intend to get our full share of these buses. We will touch on this program more in a few minutes. Also, we -- just this week, we debuted our prototype electric commercial chassis at the Advanced Clean Transportation Expo, which will open up new markets for the company. We also continue to build the backlog of Type C and D EV school buses with over 360 on order. In the quarter, we also received CARB vehicle certification for our gasoline engine bus. Blue Bird is the only CARB compliant gasoline school bus today in the industry, giving us a competitive advantage in states such as California. Our alternative power presence continues to grow with 62% of our backlog now comprised of nondiesel powertrain. And with our dominance in propane, we are well positioned for the clean school bus rebate program, which also applies to buses powered by propane, in which we are the leader. Overall, in a difficult quarter, we are still finding ways to drive operational improvements as well as new strategic initiatives to propel the company forward. I will discuss additional programs in our focus areas later in the call. But first, I'll hand it over to Razvan to walk through our financials in more detail. Razvan?
Razvan Radulescu: Thanks, Matt, and good afternoon. It is my pleasure to share with you the financial highlights from Blue Bird's Fiscal 2022 second quarter results. The quarter end is based on a closed April 2, 2022, whereas the prior year was based on our April 3, 2021, close date. We will file the 10-Q today, May 12, after the market closes. 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 in this call as well as important disclaimers. Slide 10 is a summary of second quarter results for fiscal 2022 and fiscal 2021. It was another tough quarter for Blue Bird with a difficult operating environment as a result of continued supply chain disruptions that have impacted many manufacturing industries. Despite those challenges, global unit sales volume of 1,931 units was 442 units higher than prior year due to the extraordinary efforts from our supply chain and manufacturing teams. As Matt already mentioned, this improvement we saw in January and February quickly reversed in March with the ramp-up of the war in Ukraine. Supply issues were experienced for multiple components across a number of suppliers. In addition, Blue Bird had a backlog of over 6,600 units at quarter end, 4,000 more than at the end of the second quarter of fiscal '21. At this time, our production capacity, which will remain constrained for the balance of the fiscal year is full, and we are feeling fiscal '23 Q1 slots. Our ability to complete and deliver all of these units on a timely basis will depend on supply stability of key components. Consolidated net revenue of $208 million was $43 million higher than prior year. Of that, bus net revenue was $188 million, up by $38 million versus prior year. On average, bus revenue per unit decreased from 101,000 to 98,000, which was largely the result of a higher mix of gasoline power buses, 29% this year versus 11% last year. Supply-constrained EV sales were at a level of 49 units less than the last year. Parts revenue for the quarter was $19 million, representing an improvement of $5 million compared to the prior year second quarter. Over the past few quarters, we have seen improvement in part sales, which is an indicator that the normal workforce school districts is starting to get back to pre-COVID levels, although there has been some disruption also in our parts business due to supplier shortages. Gross margin for the quarter was 1.5% for 970 basis points lower than the same period of last year. As we noted on the Q1 call, we expected to see significant margin compression in the second quarter due to raw material increases, component cost pressure and the low-margin backlog units that were priced nearly 12 months ago. I will discuss this in detail later in the presentation. In the second quarter of fiscal '22, adjusted net income was negative $10 million or $12 million lower than last year. Adjusted EBITDA of approximately negative $11 million was down compared with the prior year by $18 million. Adjusted diluted earnings per share of negative $0.51 was down $0.36 from the prior year. Slide 11 shows the walk from fiscal '21 second quarter adjusted EBITDA to the fiscal '22 second quarter results. Starting on the left with $7.5 million, higher bus volume in the period of additional 442 units and higher parts margin of $2.6 million resulted in a $6.5 million favorable impact. Pricing, net of economics, was negative $12.1 million in the quarter, driven by higher steel and commodity costs and margin compression as we work through the backlog. As we look to the balance of the year, we will more clearly see the impact of higher commodity costs. Plant efficiencies deteriorated by 9.7 million from last year, driven by higher freight costs, approximately $1,000 more per bus and supply disruptions and part shortages. SG&A and engineering expenses were close to $3 million higher than last year, primarily driven by higher wages. Recall that during the second quarter of fiscal '21, we had takeouts and furloughs in place in response to COVID-19 demand drop and key engineering projects were postponed. Since then, that has been restored and also increased due to high inflation and essential regulatory engineering projects have resumed. Additionally, in the other category, our joint venture results from Micro Bird were close to 1 million lower versus the prior year, but they have been also affected by supply chain shortages, predominantly the microchip shortage, which is impacting the chassis allocation from . Moving to Slide 12. We wanted to give you a perspective of what the underlying normalized results for Q2 would have looked like absent of the supply chain constraints and margin compression from the old fiscal '21 backlog. On the volume side, our current capacity is close to 3,000 units per quarter. So we could have built and sold additional 1,000 units. to approximately $30 million of net margin opportunity. As I explained before in prior calls, we are still working through the backlog of units and ordered almost a year ago. If the current prices we put into marketplace would have been fully affected during Q2 would have picked up additional $12 million from the pricing net of economics core. Finally, the supply chain shortages drove tremendous inefficiency in our manufacturing operations through increased rework and offline hours and multiple schedule changes. Absent of this effect and running at our historical efficiency, we would not have had to spend $11 million of variances in our operations. The operating expenses reflect the current wage rates and fixed cost for SG&A and engineering, so no adjustments needed there. So looking at the entire picture, our underlying operating performance would have yielded approximately $25 million of adjusted EBITDA on 3,000 units with price cost get closed and with smooth supply chain and operations performance. This is also our target level for the midterm in a normal year once the supply chain is returning back to normal levels, and our teams are making constant progress towards that goal. This was also our expectation for fiscal '22 Q4 at the time of our last earnings call. However, as you will see a bit later, many of the assumptions we had at the time did not go through anymore due to external geopolitical and macroeconomic factors. Moving on to the balance sheet and liquidity on Slide 13. We ended the quarter with cash of $15 million. That was at $167 million, $12 million lower than last year. Net debt of $142 million was $8 million lower than prior year and our revolver at 0 balance. It is worth noting that we are in compliance with all covenants for the end of the quarter. There are 2 active financial covenants in our credit agreement for the period. First, the trailing 12 months EBITDA, as defined under the credit agreement, was $12.3 million versus a minimum requirement of negative $4.5 million. Second, liquidity as defined under the credit agreement was $108.3 million versus covenant of $5 million, that for remain in compliance with our credit agreement covenants. Moving on to Slide 14. We have already covered the cash and debt on the previous slide. The improvement in operating cash flow and adjusted free cash flow was primarily driven by trade working capital due to our increased production levels throughout the quarter. On Slide 15, we would like to give you some transparency regarding how we were planning to work through the backlog with oil pricing. As an analogy, it is like a snake eating the elephant. It is slow and painful at times, but we are making good progress. The area sections on the graph represent the unit volumes by month on the left axis. In white, you can see that approximately half of the volume we will build and sell in fiscal '22 comes from fiscal '21 orders, which in today's inflationary environment are yielding very low and sometimes even negative margins. In light blue, we are stacking up units orders during fiscal '22 Q1, although some were quoted also during the second half of fiscal '21. On the right axis, the horizontal lines, you can see the relative improvement in standard gross margin per unit with the 5% price increases announced in July 2021 taking forward. Beginning in June, we are planning to build and sell the first unit orders during Q2 fiscal '22 with 11% price increase in place. Please note that the additional 4% price increase we put in place in March is only now starting to affect future orders taken during Q3 of fiscal '22 for builds later in the year. The effects above combined with the improved supply chain situation in January and February and steadily decreasing steel and other raw material prices gave us confidence towards a good recovery during the second half of fiscal '22. And then February 24 happened, Russia decided to invade Ukraine and start on unnecessary conflict on the borders of Eastern Europe. The human suffering and refugee situation is staggering along with enormous economic consequences for the world. This conflict is driving significant effect in a globally connected economy. Ukraine provides critical gas for the worldwide chip production as well as iron is produced in the region and is used in steel manufacturing. Oil and gas markets were also shocked by the ensuing trade war. On Slide 16, you see our key raw material assumptions here in February. Steel prices were trending down and diesel was stable around $3.50 per gallon in the U.S. On Slide 17, you see how the steel prices shot back up, $300 to $500 per ton, and diesel went above $5 per gallon. While we are locking prices for the 20% of steel use in our own fabrication, our suppliers are mostly on a quarterly raw material escalator, which will hit our bottom line with these recent increases in Q4 of fiscal '22. These are impacted almost immediately our shipping costs via trucks and the general Tier 2, 3 and 4 supply chain disruptions with drove more air freight and expedited shipments. The recent COVID lockdown in China further compounded the supply chain disruptions. All these events combined are slowing down and postponing our recovery, which we expected during second half of fiscal '22. We also had to reduce our rate of production growth for the remainder of this fiscal year. We are taking several countermeasures to address these facts on the ground. Announced an additional 10% price increase for new orders to be built before 31, '22. Working with our dealer partners to improve backlog margins and optimize the production mix and deliveries. Working to improve the plant efficiency in a very difficult environment and adjust the speed to reflect the current supply chain capabilities. Continue to maintain very strict fixed cost control, reduced where possible, while still investing in critical areas for growth, for example, EV and chassis, to set ourselves out for success once the supply chain normalizes. Further pricing models and production swap management will be put in place during fiscal Q3 for future orders to reduce our margin exposure going forward. More to come on this during our next earnings call. On Slide 18, looking at fiscal 2022. As previously discussed, we had a difficult first half due to supply constraints and margin compression. We still expect to see gradual but slower relief in Q3 with the 11% price increase begins to take effect. By Q4, the situation is expected to further improve, but volume risk still exists and margins continue to be under pressure with inflationary effects accelerating. Therefore, we are reducing our adjusted EBITDA guidance for fiscal 2022 to a range of $20 million to $30 million on increased revenues of $800 million to $900 million. The adjusted free cash flow is expected to be positive on a range of $15 million to $25 million. With that, I will now turn the discussion back to Matt, who will walk you through an update on our business.
Matthew Stevenson: All right. Thank you, Razvan. I would now like to walk through progress on our key focus areas for fiscal year '22. Just as a reminder, on Slide 20, our 3 foundational objectives: the first is to take care of employees, the second to delight our customers and dealers and third is to deliver profitable growth. Around each of those objectives, you can see the key metrics we track in the business. Within those foundational objectives, there are 4 key focus areas for fiscal '22. The first areas are people. The journey in making Blue Bird a premier place to work, better engaging our workforce and creating an reviving environment where our employees look forward to the opportunity to share their passion and ideas. The ultimate goals are to improve our cost, quality and reduce absenteeism and attrition. The second major focus area is on our lean transformation. The goal being to implement a world-class operating system that drives out cost, improves quality, increases throughput and improves the working environment for our teammates. The third area is to expand our total addressable market. School buses are core, yet there are some markets that take a chassis so similar to our school bus that I would call them an extension of our core competency of building great chassis rather than a market adjacency. We have excess chassis capacity and these additional segments can help absorb overhead, offset the seasonality of the school bus business and assist us in retaining a more consistent workforce. Our final major focus area is scaling up EV. The beginning of the $5 billion in incentives recently approved in the infrastructure spending bill is here and will dramatically increase the demand for electric school buses. This increased EV demand impacts everything from our sales strategy, sourcing, production, transportation and infrastructure. We have a dedicated cross-functional team that is focused on preparing Blue Bird for this bright future and electrification and strengthening our leadership position. Now let's take a look at some of the progress on Slide 21. On the people front, we are nearing a completion of transforming the leadership team at Blue Bird, radically increasing the capabilities and energy within the team. Two new additions to the team were made in the quarter. Britton Smith joined us from Kate BMG as Senior Vice President of Electrification and our Chief Strategy Officer. Britton has over 20 years of leadership experience across multiple industries and in earlier in his career, spent time at McKinsey. Jim Nelles also joined as our Senior Vice President of Supply Chain. Jim has made a career excelling in supply chain leadership, whether it's large companies like LG or consulting with many industrial Fortune 500s to improve their operations. Jim will lead the purchasing, logistics, warehousing and materials functions. We also launched a comprehensive hourly and salaried employee engagement survey and developed an action plan to address areas of opportunity in the early stages of requests to become a premier place to work. The upgrades in our facilities focused on improving employee morale are continuing, and we are also improving the span of control of our frontline leaders to hourly teammates to make sure those leaders have the appropriate time to provide the coaching training, scheduling as well as driving the increased level of accountability and engagement. Only lean transformation and the facility continues to make progress. As I mentioned, over the quarter, we spent considerable time redesigning our offline processes and have paid dividends. As you can see in the picture here, we set up 17 offline days with assigned tag time monitors and supported by parts kitting. The result was, we're able to reduce offline hours by 40% and doubled throughput in the process, eliminating the need for 2 shift offline operation. We have also reduced overall defects per unit, 40% compared to our first quarter. On our last earnings call, we talked about our long-term goal of reducing the hours per bus and our standard by 30%, and we have clear deliverables to tackle that. In the quarter, we reduced 15 hours out of our standard through process improvement and paint touch up by eliminating unnecessary rework and improving our paint masking process. When the supply chain normalizes, we will see the benefits of this hard work. Slide 22 focuses on our progress on expanding our total addressable market and scaling EV. As I mentioned earlier on the call, this week, we debuted our electric commercial chassis at the Advanced Clean Transportation Expo. This product is targeted at a Class 5 and 6 last-mile vans and high-end motor homes. These 2 segments of the market have an opportunity to nearly double Blue Bird's total addressable market. And our product launch garnered a tremendous amount of interest as it is an OEM engineered electric chassis with the after-sales support of nearly 100-year-old company with a strong dealer network throughout the United States and Canada. We partner with Lightning E-motors on developing the powertrain for this segment of the market, and we expect sales in the second half of calendar year 2023. On the EV side, construction started on an existing 40,000 square foot facility on our campus for final EV powertrain installation. It will enable us to scale up to 12 units per day by the end of fiscal year '22 and 20 units per day by the end of fiscal year '23, equating to 4,000 units of annual production for electric. Our goal for this facility is to showcase world-class manufacturing and a vision for what we want to accomplish with all Blue Bird assembly operations. Longer term, our goal will be to add an additional 2,000 units of capacity beyond this, which will support volume for our long-term outlook. Now moving on to Slide 23 and another exciting topic. As I mentioned earlier in the call in late April, the EPA released details around the clean school bus rebate program. It is the first $500 million of a $5 billion program, and we expect this first round to fund 1,200 to 1,600 EV buses. We are in the midst of the application process now. We have provided substantial resources to our dealers and end customers to assist them in applying for this funding. The application period is from May through August of this year. The amount of money varies greatly depending upon if the customer is applying in a priority zone. A priority zone is defined as a disadvantaged community where there is a greater need. Our priority zone can receive $375,000 for full funding of the EV school bus and a nonpriority zone can receive up to $250,000, which typically covers the premium over a conventional internal combustion school bus. Now let us not forget the importance of propane in this program as well as they can qualify for up to half of this total funding. And in that instance, propane can receive $15,000 to $25,000 per bus, depending upon if it's not-priority or a priority history. A single end customer cannot receive funding for more than 25 school buses and not one state can consume more than 10% of the overall funding. 40% of this funding will be targeted through priority districts and a lottery to be conducted to pick the winners. The results of the lottery will occur in October of 2022, and we expect orders in the first quarter of our fiscal 2023, impacting our financials in the second half of 2023. We are very excited about this opportunity, and we believe we will be able to take advantage of this program and win our fair share of new bus orders. Slide 24 reinforces the fact that the outlook for Blue Bird is incredibly positive. We are aligning the pricing of our units to the cost to produce units in the future and are seeing a material increase in revenue per unit in the backlog and have raised prices as total of 25% in the last year. We expect the supply chain environment to be bumpy for the remainder of the year, but we have made substantial operational improvements to manage the situation. The lean transformation programs continue to make an impact, and we're reducing standard hours off our production process through limiting waste and creating more streamlined methodologies. We are also continuing our dominance as the alternative power leader and are the only manufacturer to have a CARB certified gasoline school bus product. Our backlog now stands at over 60% alternative power. The clean school bus rebate program is starting, and our goal is to continue our leadership in EV school buses, given our proven reputation in electric and the substantial resources we are putting in place for our dealers and customers to assist in securing funding. In addition to this exciting $5 billion program that will be released over the next 5 years, many states and provinces are announcing plans to go completely electric with school buses in their states or province. The most recent being New York state, who plans to have every school bus on the road electric by 2035. Boston has also made a similar announcement and plan to have all school buses electric in 2030. In addition, Quebec has a similar timeline with all new school buses purchased in the province being electric going forward. And we are making progress on our electric commercial chassis and have a strong interest from a number of potential customers. Now keep in mind, the impact of our commercial chassis was not even included in the long-term outlook we presented a few earnings calls ago. Overall, the fundamentals of Blue Bird is strong. The market demand is robust. We are making operational improvements in the business. The clean school bus funding is getting released, and we are preparing for large-scale growth in EV. And at the same time, we are working on expanding our total addressable market. We look forward to continue to update you on our progress and the lead times stayed laser focused on our priorities and our deliverables. We would now like to open up the line for questions. Thank you.
Operator: . And the first question comes from Eric Stine with Craig-Hallum.
Eric Stine: So maybe just on the supply side, I know each bus has over 1,000 components, and I think you said that on average, 24 were an issue. And I know last quarter, you thought you kind of had your arms around it or some visibility. And so just looking for some details on these new issues that have emerged specific parts potentially. And then, obviously, you've pushed out the timing recovery or when things start to normalize, but just maybe confidence levels that you can get ahead of it.
Matthew Stevenson: Yes, Eric. Thanks for the question. Yes, in general, there aren't any specific components in the past. We had an issue around an ABS module that was limiting production. So our goal is to mitigate any supply disruptions as much as possible, whether that's looking at dual or triple sourcing options. And right now, we're seeing a lot of, I'd say, Tier 2 and Tier 3 type components. So these are like small electrical components or connectors being slowed down coming out of China as well as just seeing general domestic supply base have shortages of labor back to some of the just general dynamics in the economy and inflation.
Eric Stine: Got it. Okay. But in -- well, I mean, I guess, you've pushed it out. So it kind of remains up in the air a little bit of , but anyway, it's okay. Maybe just turning to the funding, the infrastructure funding. You've obviously seen pretty strong orders ahead of that. I know this is for 1,200 to 1,600 buses, but just curious, do you think people -- I mean, obviously, people are waiting on this. And where do you see the market expectation, whether this would be for the incremental cost over a diesel bus or the full price of a diesel bus?
Matthew Stevenson: Yes, Eric. So kind of 2 ways of looking at it. So if it's a priority school district it will be up to $375,000 for a type C or D, and that's usually going to cover the full cost of an EV bus. On nonpriority district, it's $250,000, which would be that delta over in the ICE engine. And 40% of the overall funding is targeted to go to priority districts.
Eric Stine: Okay. Got it. And maybe last thing. I mean, I guess just coming back to the supply chain, I mean do you think -- obviously, you're positioned for this EV ramp, and it is the 1,200 to 1,600, you're going to get your fair share of that. Do you feel like that the supply chain, even with all its issues that it is positioned or that you've got a handle on being able to meet that demand for this first round, let alone the next rounds going forward here over the next few years?
Matthew Stevenson: Yes, we're working hard with our key partner in this, Cummins, as well as our battery supplier, EXALT, make sure we're prepared for the increases both from a supply base as well as the operational improvements we're making to handle the production capacity.
Operator: . All right. Well, at this time, I would like to turn the floor back over to Matthew Stevenson, CEO, for any closing comments.
Matthew Stevenson: Thank you, Keith. I appreciate it, and thank you to all those joining us on the call today. And as you heard during our prepared remarks, demand for our buses remained strong. We've got a record backlog of over 6,000 units worth over $700 million. We're continuing our dominance in alternative powered buses and making significant improvements in our operations through our lean transformation initiatives. We're also incredibly excited about our growth potential in EV through the Clean School Bus Act, and our recently debuted EV chassis, which is effectively doubling our total addressable market. And although the supply chain disruptions are continuing, we are adapting our business to be nimbler and putting more resources to mitigate these impacts wherever possible. We have raised prices accordingly to existing and expected costs and our margins will improve as we work through the backlog that was ordered prior to the majority of the price increases taking place. We look forward to updating you again on our progress next quarter and appreciate your continued interest in Blue Bird. Should you have any follow-up questions, please don't hesitate to contact our Head of Investor Relations, Mark Benfield. And thanks again from all of us at Blue Bird. Have a great afternoon.
Operator: Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.
