Blue Bird Corporation [BLBD] Conference call transcript for 2023 q1
2023-05-12 18:51:06
Fiscal: 2023 q2
Operator: Hello, everyone and a warm welcome to the Blue Bird Corporation Fiscal 2023 Second Quarter Earnings Call. My name is Emily and I'll be coordinating your call today. I will now turn the call over to our host, Mark Benfield, Head of Investor Relations at Blue Bird Corporation. Please go ahead.
Mark Benfield: Thank you. And welcome to Blue Bird's fiscal 2023 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 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, Matthew Stevenson; and CFO, Razvan Radulescu. Then we will take some questions. Let's get started. Matt?
Matthew Stevenson: Thank you, Mark and good afternoon everyone. Razvan and I are extremely excited to update you on our results for quarter two which was probably the most pivotal quarter for the company in years and begins to highlight the real potential of our business. This quarter we're going to show a 180-degree turn in our financials as we've been forecasting for some time. I'm pleased to say that we not only delivered as promised, but once again delivered results ahead of schedule a testament to the hard work that our teammates have been doing every day. On side 6 you can see some of the key takeaways for the quarter. Overall, industry demand continues to be robust and the backlog for Blue Bird school buses is at nearly 5800 units. We are now through most of the legacy priced buses in our backlog. As a reminder, we define these legacy priced units as those at price levels prior to October of 2021. This along with operational improvements drove the significant inflection in our financials. We also reinvested back into the business putting in over $3 million in wage increases for our frontline teammates this year starting this quarter, while continuing to improve processes throughout our operations upgrading our facilities and even opening an all-new EV center, which we will talk about in detail during the call. Through the efforts of the best workforce in the business, strong leadership, lean process improvements and just playing hardcore tenacity we are seeing some of the best performance the company has ever seen in a second quarter. And let us not forget the EPA's fantastic Clean School Bus Program that recently closed its first phase and announced its direction for Phase 2. The success of this program has led to a staggering number of EVs in our backlog. The business is performing well and the turnaround is ahead of schedule. Now let's take a look at some of the highlights from the second quarter. The financial performance for fiscal year 2023 quarter two shows a massive improvement from a year ago. Our units sold were over 2,300 which drove record second quarter revenue for Blue Bird up over $90 million from fiscal year 2022. This was a 373-unit increase from the same time period last year. Adjusted EBITDA was $31 million better than this time last year and we posted $20 million for the quarter. As a result adjusted free cash flow for the quarter was $23 million up $2 million compared to the second quarter of fiscal year 2022 overall a fantastic second quarter for Blue Bird. On the right-hand side of the slide you can see some of the ongoing highlights for the business. As I mentioned, demand continues to be strong. Our backlog is incredibly robust at roughly 5800 units worth over $775 million in revenue. Included in that backlog is $200 million of firm orders for 621 electric school buses a large uptick from last quarter due to the impact of the EPA's Clean School Bus Program. In fact we are incredibly proud of some of the recent large EV deployments including Broward County in South Florida and the city of Boston. As we have discussed in previous quarters we have raised pricing considerably since July of 2021. Our average selling price for the quarter is up 22% year-over-year. Our sales for the quarter were 63% alternative power demonstrating our continued leadership in the space. Part of that was our EV growth up 175% year-over-year. Now parts sales continues to be another bright spot for us up 37% year-over-year. The increasing average age of school buses on the road is having a material effect on our aftermarket sales. With our EV demand so high and more coming from the EPA's Clean School Bus Program, we had to increase EV chassis capacity so we recently opened up our -- a new EV buildup center which we are thrilled about. We are ready for the increasing demand as the EPA has recently announced Phase 2 of the program, which is another $400 million this time through a grant program. As you can see on Slide 8, we are delivering some of the best operational performance in nearly two years in several critical areas. Set-ups and throughput, are up significantly as missing parts are down due to our efforts to improve material flow to the plant. Those have included adjusting our warehousing strategy, re-sourcing numerous problematic suppliers and revising production constraints. This has also contributed to the lowest number of hours per bus, in the best manufacturing efficiency in two years. In turn, this generated a number of all-time records for quarter two, including revenue, EV bookings, parts sales and adjusted EBITDA. Not only that this proves the company is back on track, but we are now exceeding some historic financial benchmarks for the organization. Slide 9, is a reminder of our key pillars around care delight and deliver. Our focus areas within those pillars include our people, lean transformation, expanding our total addressable market and scaling EV. I want to briefly touch on the progress of each of those, since our last call. Regarding our teammates, in January a large-scale wage increase took effect for our hourly teammates. We also increased our paid vacation days to 14 this year, unheard of in most manufacturing environments. We also continued to update our facilities to enhance the working environment, including putting massive air chillers, into our facility for the summer months. We are also in the final phase of rolling out a new self-manufacturing organizational structure designed to provide more resources for our frontline teammates, by narrowing the span of control and offering essential support. Through continued focus on our lean transformation, we are seeing improvements in quality and throughput, even while the supply chain environment is still far from normal. The commercial chassis continues to progress while we stay focused on ramping up our EV school bus production, but on this call we really want to focus on highlighting our all-new EV center. A lot of great work went into this, and it's core to our future. On Slide 10, you can see photos of our new 40,000-square-foot EV center. Previously, this was actually an old coating facility on the Blue Bird campus. Through relatively minimal investment and a lot of hard work by our team, we turned it into a modern EV commissioning center. It's where we install the EV batteries, along with some of the final components on the thermal management system and bring up the state of charge for the batteries. This new facility will help us meet the EV demand forecasted over the next five years. As we have mentioned in previous earnings calls, this will allow us to take EV production from four to 12 units per day, by the middle of this year, with the ultimate goal of 20 units per day whenever demand warrants it. Plus, it is a great example of where we are headed with our entire production footprint, rooted in the foundational principles of the Blue Bird production system and lean. Slide 11 is again, a reminder of the EPA's clean school bus rebate program. This program allocates $5 billion, over five years for clean and cleaner-emission school buses. Approximately 2,500 buses were funded in the first phase of this program, with an average rebate of $375,000 per electric bus. Customers had until the end of April, to submit payment request forms to the EPA demonstrating that new buses as well as eligible infrastructure have been ordered. Some of our customers have asked for an extension beyond the April 30 deadline, due to delays on the final quotes for their charging infrastructure, but we have already seen many orders come in through this program and fully expect to garner well over 500 orders, for the first phase when it is all said and done. The long-term impacts of this program, will be well over $1 billion in revenue to our organization. The EPA recently launched Phase 2 of their program and on Slide 12, you can see the details. As we expected in Phase 2, announced in late April, it is a competitive grant program with an anticipated $400 million to be awarded in this round. Applications will be taken from now through the end of August. And we can expect those grant award winners to be announced in late 2023, with orders in the first calendar quarter of 2024. We have established substantial resources both internally and externally, to work closely with our dealers and end customers in supporting them in this grant-writing process. The focus of this grant program will be larger deployments, and we expect the EPA to fund only 25 to 50 awards. The applications will have a scoring process, and priority districts will be given preference in the evaluation criteria. We expect this second phase to fund 900 electric buses, and we conservatively estimate that we will get at least 200 of these. We continue to remain excited about the Clean School Bus Program, and look forward to working, with our dealers and customers on Phase 2 to deploy more industry-leading electric buses. I would now like to hand it over to Razvan, to walk through our fiscal year 2023, quarter two financial results in more detail as well as our updated fiscal year 2023, guidance.
Razvan Radulescu: Thanks, Matt. And good afternoon. It's my pleasure to share with you the financial highlights from Blue Bird's fiscal 2023 second quarter results. The quarter end is based on a close date of April 1, 2023 whereas the prior year was based on a close date of April 2, 2022. We will file the 10-Q today May 11, 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 on this call as well as important disclaimers. Slide 14 is a summary of the second quarter and year-to-date results for fiscal 2023. It was an excellent operating quarter for Blue Bird with somewhat reduced supply chain disruptions and with an increased number of higher-margin units driving both our top line and our bottom line results. We have exceeded the revenues and adjusted EBITDA of our conservative quarterly guidance provided in the last earnings call, and in fact, we delivered the Q4 expected results two quarters earlier. The team has done a fantastic job and generated 2,304 unit sales volume, which was 373 units or 19% higher than prior year. Consolidated net revenue of $300 million was $92 million or 44% higher than prior year driven by higher units, higher parts sales, improved mix of electric buses and pricing actions that took hold significantly in this quarter. The adjusted free cash flow was positive at $23 million and $2 million higher than the prior year second quarter. This outstanding performance was driven by the increased profitability combined with strong working capital management; and supports our great liquidity position at the end of this quarter, which was over $100 million. Adjusted EBITDA for the quarter was $20 million given our high volume of now profitable buses, increased part sales and margins, offset by increased labor costs. Given the transitional nature of our fiscal 2023 Q1 results, which included still a large portion of old-backlog low-margin buses, our year-to-date performance is still solid at 4,261 units sold thereof 227 EVs with $536 million in revenues adjusted EBITDA of $16 million and excellent free cash flow of $43 million. Moving on to slide 15. As mentioned before by Matt, our backlog at the end of Q2 continues to be extremely strong at nearly 5800 units with the vast majority of these units at much higher price levels compared to the fiscal 2022 built units. Breaking down the second quarter $300 million in revenues into our two business segments. The bus net revenue was $273 million, up by $85 million versus prior year. Our average bus revenue per unit increased from $98,000 to $119,000 or 22%, which was largely the result of pricing actions taken over the past 18 months as well as a higher mix of electric buses. EV sales in the second quarter were at a level of 135 units or 86 more than last year, a 176% increase. Parts revenue for the quarter was $26 million, representing a growth of $7 million or 37% compared to the prior year. This extraordinary performance was in part due to a large parts backlog reduction due to improved supply chain in aftermarket. And we expect the future fiscal 2023 quarters to be in the low 20 million. Gross margin for the quarter was approximately 12% or 10.4 percentage points higher than last year due to our improved operational performance and our pricing catching up with the inflationary costs over the last 18 months. In fiscal 2023 second quarter, adjusted net income was positive $9 million or $19 million higher than last year. Adjusted EBITDA of approximately $20 million or 7% was up compared with prior year by $30 million and 11.7 percentage points. Adjusted diluted earnings per share of positive $0.27, was up $0.58 versus the prior year. In summary, our operating performance and financial results demonstrated in this quarter are evidence that our turnaround is working. And it sets a new base for our future performance towards our long-term goal of profitable growth. Moving on to slide 16. We have positive developments year-over-year also on the balance sheet. We ended the quarter roughly with $18 million in cash and reduced our debt significantly by $17 million. Our liquidity is strong above $100 million at the end of fiscal 2023 Q2 with a zero balance on our revolver. The improvements in operating cash flow and adjusted free cash flow were primarily driven by improved operations and margins and were supported by only a small improvement in trade working capital in this quarter. As a reminder, at the end of November 2022, we entered into the sixth amendment to our credit facility extending the maturity date through December 31, 2024. The sixth amendment provides for revised covenants modifications to the revolving credit facility and the new pricing grid. The amended covenants and the extended maturity of our loan provide Blue Bird with both flexibility and stability as our business continues to recover from the COVID-19 pandemic and the associated global supply chain disruptions. Slide 17 shows the walk from fiscal 2022 Q2 adjusted EBITDA to the fiscal 2023 Q2 results, starting on the left at negative $10.7 million. The impact of the bus segment gross profit in total was $27.1 million split between volume and pricing effects net of material cost increases of $23.3 million; and operational improvements of $3.8 million. The operational improvements consist of year-over-year manufacturing efficiency improvements and lower freight in costs. The favorable development in the parts segment gross profit was $5.4 million, driven by higher sales and improved margins. Additionally our Micro Bird joint venture results improvements were more than offset by increases in our fixed costs, mainly personnel related for a net of negative $2 million compared to Q2 a year ago when very tight cash conservation measures were in effect. The sum total of all of the above-mentioned developments drives our strong fiscal 2023 Q2 reported adjusted EBITDA result of $20 million or 7%. On to slide 18. Looking ahead, we are happy to reiterate that we are now largely past most of the old backlog units with fixed pricing from fiscal 2021 orders. And we will continue to benefit in the second half of fiscal 2023 from pricing/mix improvement based on the age and price level of our current backlog. Our production schedule is now virtually full for the rest of the fiscal 2023 with some models Type D for example going already into fiscal 2024. However, supply chain and labor inflationary cost pressures still exist and not all of the upcoming price increases will flow to the bottom-line in fiscal 2023. Given our large backlog, we already announced for fiscal 2024, a model year price increase of $2,500 per bus net for all bus types built after October 1st, 2023 to cover expected inflationary and raw materials cost increases. On slide 19, you can see the spot market development for steel prices over the last two years. After the initial reduction in early 2022, steel spot prices shot back up in March and April after the Ukraine war started. However, that bubble reversed itself by August. The favorable trend continued through December 2022 and we benefited from this in fiscal 2023 Q2. However the steel prices started to increase again all the way through the end of April. And this will offset a portion of our pricing realization for the remainder of calendar year 2023 as mentioned on the previous slide. Please keep in mind that we have now a comprehensive steel buying strategy and we are entering in future locked contracts for steel prices with certain tonnages up to 12 months forward minimizing our exposure. On slide 20, looking at fiscal year 2023, we want to share with you our updated forecasts by quarter, which serves as basis for our fiscal 2023 total year guidance. As a reminder, we are taking a more transparent and conservative approach this year as it will still be a somewhat uncertain year from a supply chain perspective. However, we have improved already all the other business levers that we could address as now demonstrated by our very strong fiscal 2023 Q2 actual results. Looking forward at fiscal 2023 Q3 and Q4, we are increasing our forecasted revenues in the range of $275 million to $300 million for each quarter as well as increasing our EBITDA margin by approximately one percentage point each quarter. For Q3, we are projecting adjusted EBITDA of $21 million with a range of $19 million to $23 million. For Q4, we are projecting adjusted EBITDA of $23 million with a range of $20 million to $26 million. Putting it all together, for the total year, we expect revenues in excess of $1.1 billion; and an increased mid-point adjusted EBITDA of $60 million with a range of $55 million to $65 million. Moving to slide 21. In summary, we are forecasting a significant improvement year-over-year in all aspects with revenues up more than 35% to approximately $1.1 billion, adjusted EBITDA in the range of $55 million to $65 million, and positive free cash flow of $30 million to $40 million. On slide 22, we wanted to reiterate our long-term outlook. We are very happy about the results of our turnaround taking hold and our prospects ahead. And we are looking forward to share with you in our next earnings call our first indications regarding fiscal year 2024. Looking a bit beyond that once the supply chain normalizes, which has not happened yet, we expect to sell 9500 units including 1,500 units EVs; and generate $100 million or 8% adjusted EBITDA on $1.25 billion in revenue. Looking further to the medium term. Our EV growth and operational improvements can support volumes of 10,500 to 11,000 units including EVs in the range of 2,500 to 3,500 units generating revenues of $1.5 billion to $1.75 billion with adjusted EBITDA of $150 million to $200 million or 10% to 11%. Our long-term target remains to drive profitable growth, towards $2 billion in revenues comprising of 12,000 units of which 5,000 are EVs and generate EBITDA of $250 million or 12%. We are incredibly excited about Blue Bird's future. And now I will turn it over back to Matt, to further expand on this.
Matthew Stevenson: All right. Thank you, Razvan. On to slide 24, as detailed in the fiscal year 2023 guidance that Razvan just walked through, we are again now raising guidance based on the strong performance of the business. All the hard work the Blue Bird team has put in for nearly two years is paying off. We plan on booking at least 8,350 units, a 22% increase over fiscal year 2022 and driving a top line of $1.1 billion. That's a 37% increase year-over-year. Parts sales will be ahead of plan, delivering at least $88 million in revenue, up 15%. We now expect the adjusted EBITDA performance to be approximately $60 million up nearly fivefold compared to fiscal year 2022. EV bookings continue to be on plan. And we expect those to more than double year-over-year. Now there have been no significant changes in the ACT Retail Sales forecast for fiscal year 2023. It continues to be supply chain constrained across the industry. And our targeted bookings will put us right where we want to be, around that 30% market share. As other industries are slowing down, we are just heating up with incredible demand in front of us. As we have touched on in past calls, industry retail sales have been off from their average of 32,000 units per year for the past three years in a row. And the national school bus fleet is aging. The market was first constrained by COVID and school closures and it has been held up more recently by the supply chain. This aging fleet must be replaced. And we expect substantially robust years ahead of us to address this pent-up demand. ACT is forecasting a compound annual growth rate of 10% from our fiscal year 2023 through our fiscal year 2027. Our business is performing well after two long years and we look forward to executing on the robust market ahead. The future is incredibly bright for Blue Bird, so let's turn to slide 25, as a summary reminder of the strong investment highlights around our company. We are a great countercyclical play to many companies and industries being affected by the slowdown in consumer spending. Plus, not only are the fundamentals of our industry strong. It is just starting to heat up with this 10% compound annual growth rate expected over the next five years. Second, there is commitment from the highest level of government to electrify this country's school bus fleet. In addition to the $5 billion from the federal government, there is another $5 billion in other Federal, State, Provincial and Local programs, $10 billion in total to accelerate this transition to electric school buses. Blue Bird will be a direct beneficiary of this as we have more electric school buses on the road today than anyone. We also have a proven reputation as a leader in our alternative-powered school buses for over a decade as evidenced by the 20,000-plus Propane-Powered Blue Birds on the road today. Our exclusive partnership with Ford and ROUSH, offers us a distinct performance advantage no one else has with propane. And on EV, our collaboration with Cummins, offers a proven partner investing, billions in alternative fuel solutions something no other electric school bus manufacturer has to offer. And as impressive as the outlook is for school buses, we are still looking for more growth opportunities and want to expand our total addressable market. The Commercial Stripped Chassis offering could eventually add a few thousand units per year, on top of our projected long-term forecast. And with our lean transformation efforts, we are removing non-value-added processes and reducing standard production hours per bus. We are continuously looking for ways to take out costs, and at the same time increase quality. As we touched on today, our pricing is now aligned to market economics. And we are through the majority of legacy priced buses. All these factors will provide us with 10%-plus adjusted EBITDA margins in the mid-term normalized operating environment. As you saw in the guidance we provided for the fourth quarter, of fiscal year 2023, we get to approximately 9% adjusted EBITDA on supply-constrained volume, proving that in a normalized operating environment double-digit adjusted EBITDA margin will be in reach. As I mentioned at the beginning of this call, the hard work by the Blue Bird team has paid off and the business is ahead of plan and even exceeding historical performance benchmarks. I want to thank the nearly 1,800 teammates for all their hard work; as well as our outstanding dealer body who sacrificed with us over the last two years. We couldn't have done it without them and they are and will always be critical to our success. We now, would like to open up the line for questions. Thank you.
Operator: Thank you. The first question today comes from the line of Eric Stine with Craig-Hallum. Eric, please go ahead.
Eric Stine: Hi, everyone. Great to see the results.
Matthew Stevenson: Thank you, Eric. Appreciate it.
Eric Stine: Just curious – yeah, yeah. And just curious, I mean, obviously supply chain is still an issue. Seeing it ease a little bit, I mean, I guess, I'll start with probably a near-impossible question to answer but I mean is there -- do you have any thoughts about this kind of seeing the light at the end of the tunnel, or is this kind of a new norm? It's just going to drag on and it's something you're expecting to have to deal with yes for a long time.
Matthew Stevenson: Yes thanks for the question Eric. This is Matt Stevenson. I mean, we definitely are seeing some improvements. And some of it is moderating but there still is volatility in the supply chain; and really it isn't one specific component. It's kind of across the board. Of course, as you know, we use the same set of suppliers the commercial truck industry uses. And that industry is still going pretty strong. And most of the challenges reside around our Tier 1s and Tier 2s getting frontline labor. So we as a team have just gotten a lot better dealing with it so we remain optimistic on our ability to continue to deliver.
Eric Stine: I guess, kind of a follow-up on that, if I look back think back a couple of years. I mean, the norm was certainly not to carry this much backlog which obviously is related to the supply chain. I mean, do you envision a scenario where -- if you'd play this out a while that you'd kind of catch up and you will get back to more normal levels, or again, I mean is this -- do you kind of think that this is the norm where you've got this elevated level of backlog? Which I mean I guess is a good problem to have but it would also be nice to be able to work that down.
Matthew Stevenson: Yeah. Based on sort of pent-up demand that we reviewed there and what ACT is forecasting and a lot of robust years in front of us, we expect to still have a healthy backlog. We of course monitor the situation weekly if not daily in terms of our ability to ramp up production, but we continue to be conservative and ramping up our production to make sure we're watching all of inbound material and getting buses out the door.
Eric Stine: And do you feel -- I mean, obviously, you're almost through the low-price backlog and you're putting through the price increases for fiscal 2024. Do you feel like I mean the market is basically conditioned for that? I mean, are you sensing any pushback? I know steel prices have started to turn higher again. I mean, what's your thought on price going forward?
Razvan Radulescu: Eric, this is Razvan. Thank you for the question. We are monitoring carefully the cost development. And as long as there is still inflationary pressure whether it's from labor costs or steel prices going back up, we will consider pricing actions to offset for these upcoming increasing costs. So it's a bit too early to know very long term how the situation will develop, but at least for fiscal 2024 we took the first step in order to cover for these inflationary costs.
Eric Stine: Yes. Okay. That's great. I'll take the rest offline. Thanks.
Matthew Stevenson: Thank you, Eric.
Operator: Our next question comes from Mike Shlisky with D.A. Davidson. Mike, please go ahead.
Mike Shlisky: Hell, good afternoon. Thanks for taking my questions. I guess, I wanted to ask first about some comments you made on EV Matt and the EPA awards. I guess, I'm -- some of your comments around for example the 2022 awards. You mentioned you're getting at least 500 out of the full amount. And for the 2023 awards that are already out there so far you think you can get about 200. And it just sounded like that's below the historical 30% share you had on the overall school bus market, so could you comment on what might be driving your market share there, or is it just conceptionism or just like rounding? I'm just kind of curious whether you all confident you can actually match or beat your share on EVs that you have on the overall bus market?
Matthew Stevenson: Hey, Mike in -- this is Matt. Thank you for the question. Really it's just our conservative nature much like you'd probably recall on the first phase of the program the 2022 program we said 500 to 700. We're just taking a very conservative approach here when we look at the 2023 grant -- or the grant program for Phase 2. And that has a reduced amount of money. That's anticipated to be only $400 million versus the roughly $1 billion that was in the first phase, but still again, it's really just the conservative nature of our approach. And our target is to go after and get at least that 30% or more, but for these purposes we say 200 or more.
Mike Shlisky: Great. Can you guys hear me okay?
Matthew Stevenson: Yes.
Mark Benfield: Yeah, we got you Mike.
Mike Shlisky: Great. Sorry. Next question, I want to ask about, kind of, the last two weeks we had an announcement out in California an advanced clean fleet rule where private fleets of all types and that includes buses have to be 10% EV by the end of next year. I assume that it includes school buses because you confirmed that one. And maybe secondly, you have a lot of private fleets that you work with in California, or is it almost all public over there at this point?
Matthew Stevenson: Mike that does include school buses. And we do have some private fleets that we work with in California. And that market was one of the first movers on EV. So we don't see that being difficult for the customers or that market out there just given how they had first-mover advantage in putting EVs in for well over -- or close to five years now.
Mike Shlisky: Great. And just as a quick follow-up there. I think in your comments you had mentioned the coming non-bus products the Class 5-6 stripped chassis. I'm curious, if you can give us an update as to some of the time lines specific there, because obviously there's a big opportunity coming in California; and possibly 12, 13 and 14 other states. Curious if you'll have something that could be sellable by the first part of next calendar year?
Matthew Stevenson: Our goal Mike as we've stated previously is to have prototypes by the end of this calendar year on the road. And so that's where our focus is right now.
Mike Shlisky: Okay, sure. Appreciate that. I’ll pass it along. Thank you.
Matthew Stevenson: Thanks Mike.
Operator: Our next question comes from Craig Irwin with ROTH MKM. Craig, please go ahead.
Craig Irwin: Good evening. Thanks for taking my question. So first congratulations on the solid results. It's really nice to see that pricing working so well for you guys. Slide 11 where you gave some details about the 2022 lottery results: It's nice to see you guys tracking this very, very closely. I wanted to just dig in if we can a little bit on these 1,200 unallocated units. Can you talk about the different parties that maybe received these vouchers when they needed to place their orders by and whether or not any of them actually have prior experience with Blue Bird and the alternative fuels markets, and whether or not there is a potential for some of these to land as customers for Blue Bird and obviously the mechanics of how they need to issue those RFPs and ink the necessary contracts to book that -- for you to book that as an order?
Matthew Stevenson: Thank you for the question Craig. It's Matt Stevenson. So on that graph on 11, you see that kind of top right corner is approximately that 500 to 700 of ones we either had a hand in and directly working with our dealers and the customers on applying for the rebate or were loyal Blue Bird customers or channel partners. So that is there on that top right. And then relative to your specific question on those 1,200 that are unallocated, we've worked with a number of customers there to target those rebates. One of the things that we have found and we have a few customers that did this as well is they submitted for an extension, some of them 60 days, some of them 90 days as they're waiting for the final quotes to their infrastructure, because the infrastructure and the buses have been submitted together. So we're still hopeful there's opportunity on those unallocated ones as well. And there's still a lot left up for grabs here over the next 30 to 60 days.
Craig Irwin: Okay, excellent. So if I could ask another question related to the EPA vouchers. Last year, they started off saying that they were going to do $500 million. The chatter that we were getting from talking to a bunch of people at ACT Expo was it could be increased to $750 million. Some people are saying it could be increased to $1 billion; and then lo and behold they gave us just under $1 billion in vouchers, which was a fantastic move. The official number is $400 million. We were hearing potential that this could be upped, but would you be surprised if EPA maybe went to a bigger voucher at least this year and maybe did more than those 25 to 50 awards and we saw materially more than $400 million in vouchers issued?
Matthew Stevenson: Yes, Craig. I mean, that's quite possible. I mean the -- well the EPA, we think has done a great job with this program. And I think if they get a lot of high-quality applications here, that can be quite possible that they up that amount. And we're also -- there's potential for more of a rebate program for that other roughly half of the $1 billion per year that they're allocating for this year. So, we just stay in close contact with the EPA and work closely with our dealers and customers in anticipation of what may happen.
Craig Irwin: Got it. Got it. And then, as we look sort of out on the horizon, you've had 22% price. You did put through 25% with your new price increase of $2,500 for fiscal '24. It looks like we'll be back to pretty much normalized margins. What do you see as the biggest risk to gross margin and cash flow outside of the steel items that you identified in your presentation and on the call?
Razvan Radulescu: Hi Craig, this is Razvan. I will take this question. So, we addressed a lot of levers on the pricing side as far as the -- derisking the margin profile going forward for the quotes that we have out there. And there is, as you mentioned some uptick risk on raw material prices; and we are controlling that as well to the -- in the best way possible. So, I think in terms of margins, we have pretty good visibility on the backlog and the -- probably the short to mid-term horizon. And we are going to watch closely and take another appropriate pricing measure, if it's necessary at the right point in time.
Craig Irwin: Got it. Got it. That makes complete sense. All right, I'll take the rest of my questions offline. Congratulations on the progress here. We look forward to a successful execution on President Biden's priority on EV school bus.
Matthew Stevenson: All right. Thank you Craig. We appreciate it.
Operator: At this time, we have no further questions registered. So I'll turn the call back over to Matthew Stevenson for closing remarks.
Matthew Stevenson: All right. Thank you, Emily. And thank you to all those joining us on the call today. As you heard during our prepared remarks, Blue Bird is in a great position with extremely positive momentum. Through massive improvements in how we operate this business across the board, we closed Q2 with record revenue and adjusted EBITDA and have again raised our full year guidance. As we have forecasted for nearly a year, the Clean School Bus Program is generating meaningful orders for us, and has produced a large backlog of EVs. To capitalize on this demand, we recently opened our new EV center to fuel our growth now and into the future. And we are doing all this, while investing back in our most important asset, our teammates. For nearly two years, we have focused on our first pillar, taking care of teammates. We did this through increasing communication, transparency, leadership visibility on the floor, and listening more, all while making facility improvements and increasing wages and benefits. We are reinvigorating our frontline teammates. The future is electric for Blue Bird in more ways than one. Should you have any follow-up questions, please do not hesitate to contact our Head of Investor Relations, Mark Benfield. Thank you, again, for your time and we look forward to updating you on the continued progress of Blue Bird next quarter. Have a great evening.
Operator: Thank you, everyone for joining us today. This concludes our call and you may now disconnect your lines.
