BLBD - NASDAQ

Good morning or good afternoon. Welcome to the Blue Bird Fiscal 2025 Second Quarter Earnings Conference Call. My name is Adam, and I will be your operator for today. [Operator Instructions]. I'll now hand the floor to Mark Benfield to begin. Mr. Mark, please go ahead when you're ready.

Thank you, and welcome to Blue Bird's fiscal 2025 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, John Wyskiel; and CFO, Razvan Radulescu. Then we will take some questions. So, let's get started. John?

Thanks, Mark, and good afternoon, everyone. Thanks for joining us. It's great to be here and to share with you our financial results for our fiscal 2025 second quarter. As you might know, I worked for Blue Bird just over 20 years ago as a General Manager. It was a challenging period back then, but it was truly one of the most rewarding times in my career and I'm excited to be back. Before I get started, I want to thank outgoing CEO, Phil Horlock, our Board, and of course, our employees for welcoming me back into the company and making the transition very smooth. Likewise, it's great to be back working with our supply partners and of course, our very dedicated dealer network. I'm really excited to be back. There is such a bright future ahead as you'll see today. Let's get to the 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 record adjusted EBITDA in the second quarter of fiscal 2025. Razvan will be taking you through the details of our financial results shortly. So let me get started with the key takeaways for the second quarter on Slide 6. Going straight to the headline, we achieved record quarterly revenue and profit in Q2 2025. As shown in the first box, we beat Q2 guidance and are maintaining our full year guidance. This despite the impact of the current administration policy on tariffs and we'll talk more on that later in this call. We continue to execute our plan developed a few years ago, which focused on improvement across the entire business and that focus is evident in our strong Q2 results. Now, market demand for school buses continues to be very strong. We ended the quarter with just under 5,000 units in our backlog representing over six months of production. This bodes well for operational stability and margins. A few years ago, we had to take some strong pricing action and we continue to maintain laser focus in this area. This is demonstrating our results. Bus prices were again higher in Q2 compared to a year ago on every combustion engine model and we are still priced competitively as we can see from our bid results and our overall win rate. During the quarter, we also continued to see strong mix of alternative power vehicles. We maintain our lead position in this segment. It's a segment we created more than 15 years ago. We are also reinvesting back into the business by selectively updating facilities, focusing on lean production systems, and developing exciting new and differentiated products that will hit the market beginning as early as next year. We recognize targeted investment in our operations will lead to better performance on the manufacturing side of the business and investment in our product portfolio will grow the top-line. It's our objective to position this business to be a strong long-term investment. As a result of this continued path, our Q2 profitability and margin was the highest quarterly result we've ever achieved. Adjusted EBITDA came in at $49 million or 14%. That's 6.5% better compared to last year's second quarter. Similar to almost every business in the country, we are also dealing with the impacts of the administration's executive orders and the tariff volatility. We are fortunate to be well-positioned to navigate the situation to a margin neutral outcome. But now, let's take a closer look at the financial and key business highlights for the second quarter on Slide 7. We sold 2,295 buses in the second quarter and recorded revenue of $359 million, a quarterly record and $13 million ahead of last year. On the EV side, we sold 265 vehicles 11.5% and we continue to have strong order intake for EVs. As I mentioned earlier, second quarter adjusted EBITDA of $49 million was a quarterly record as well and was $3 million above the second quarter of 2024. That's a 14% margin, 50 basis points better than last year. We will talk more on our outlook later in this call. As a reminder, our margins are very balanced across our entire product line from a percentage basis including EVs and we think EVs are a perfect fit for the school bus market when you look at the duty cycle, available charging intervals, range and proven health benefits to our children. But our core business in the ICE segments is equally as strong. Even with nearly 90% ICE mix, our second quarter results highlight the underlying strength in the overall business. Finally, adjusted free cash flow for the second quarter was $19 million, a decrease of $35 million over a year ago, but mainly driven by a tax carry-forward benefit that we had in 2024. Overall, we achieved an outstanding second quarter financial result. 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 of 4,900 buses representing $770 million in revenue. Second quarter average selling prices for buses was up $4,000 per unit or about 3% compared to last year and part sales totaled $26 million in Q2. All powered buses represented a 57% mix of unit sales in Q2. This compares with a typically less than 10% to 15% mix for our major competitors. We benefit from higher margins and higher owner loyalty with our gas and propane products and we're the exclusive supplier in the industry. At the end of the quarter, we had a combined 1,100 EVs either booked or in our order backlog. Our latest forecast reflects 800 to 1,000 EV unit sales for the full year and we are well-positioned from an order standpoint to achieve our previous target of 1,000 units. However, the tariff exposure is higher on EVs and it may create a scenario where we intentionally push out some of our builds. Razvan will cover this in more detail. The current backlog of 708 electric buses represents $233 million in revenue. Throughout the second quarter, it was very encouraging to see Rounds 2 and 3 of the EPA Clean School Bus Program flowing through to our end customers. It's a good program and this momentum provides optimism that will continue into Round 4. In addition, reimbursement funds were flowing for our $80 million MESC contract with the DOE. This is for their funding towards our new plant expansion in Fort Valley. As a reminder, this project adds 400 well-paying American jobs to a century old American company with an iconic brand to build clean school buses, providing our children with the benefits of clean air. It's really a great story. And finally, we beat our guidance for the 10th consecutive quarter and are holding our full year guidance. With a 14% adjusted EBITDA margin and record profits in Q2, I'm very proud of the team's accomplishments. But before I hand it over to Razvan to cover the financials, I would ask that you turn to Slide 8, so I can talk to another highlight in Q2. Earlier in March, we debuted our Blue Bird commercial chassis at the Work Truck Show in Indianapolis. We are a recognized OEM in this segment and the reaction to this new product was overwhelming. The chassis will be offered in propane or EV. It has some best-in-class features like a 55 degree wheel cut for tight turning radiuses, the highest front axle clearance at over 8 inches, galvanized frame rails, and is designed to have fewer electrical and fluid connection points for reliability. We are now executing our manufacturing strategy, but the product is scheduled to launch in 2026, at a market competitive price. As mentioned, many company fleets, last milers and delivery companies express strong interest. We will be finalizing our financial projections for this new segment this year as a part of our 2026 outlook. I'm really excited about this opportunity. So I would like to now hand it over to Razvan to walk through our fiscal 2025 second quarter financial results and full year guidance in more detail. Razvan?

Thanks, John, and good afternoon. It's my pleasure to share with you the financial highlights from Blue Bird's fiscal 2025 second quarter and first half of the year results. The quarter end is based on a close date of March 29, 2025, whereas the prior year was based on a close date of March 30, 2024. We will file the 10-Q today, May 7, 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 10, is a summary of the fiscal 2025 second quarter record financial results. It was another great operating quarter for Blue Bird with highest ever EV volume and they beat once again our guidance provided in the last earnings call. In fact, we delivered the best quarter ever in terms of both top-line and bottom line, as a testament of our continued journey of profitable growth. The team pushed hard and did once again a fantastic job generating 2,295 unit sales volume, which was just above prior year level. Record Q2 consolidated net revenue of $359 million, was $13 million higher than prior year driven by pricing actions that materialized in this quarter and increased EV volume. Adjusted EBITDA for the quarter was an all-time record $49 million driven by high bus and parts margins partially offset by increased investments in headcount, engineering, and business growth areas. The adjusted free cash flow was strong at $19 million and $35 million lower than the prior year second quarter primarily due to increased tax expenses year-over-year. This result was due to continued strong profitability across all bus and powertrain types, strategic cost management and improvements in working capital. Looking on the right side at the first half of the fiscal year, we posted all-time record revenue of $673 million and all-time record adjusted EBITDA of $95 million, both improved versus than record last year's first half. Moving on to Slide 11. As mentioned before by John, our backlog at the end of Q2 continues to be strong at almost 5,000 units including over 700 EVs. In fact, at the end of March, we have now 1,100 EVs sold in the first half and in backlog with only 150 EPA Round 3 units in process to be funded. Round 3 is slowing again, as confirmed by the EPA, as well as Round 2. Breaking down the Q2 $359 million in revenue into our two business segments, the bus net revenue was $333 million, up by $15 million versus prior year due to higher EV mix and improved pricing across non-EV products. As a result, our average bus revenue per unit increased from 141,000 to 145,000 or approximately 3%. EV sales in Q2 were a record 265 units doubled versus Q1 and 55 units or 26% higher than last year as planned. Part revenue for the quarter was flat from Q1 at $26 million representing a small reduction of $2 million compared to the prior year. This continued strong performance was in part due to increased demand for our parts as the fleet is aging, offset by a reduction of parts used in warranty due to quality improvements made year-over-year. Gross margin for the quarter was 19.7% or 130 basis points higher than last year in line with our targets. Adjusted EBITDA of $49 million or 13.7% was higher by $4 million compared with prior year and showed a 50 basis points improvement. In fiscal 2025 Q2 adjusted net income was a record $32 million or $2 million higher than last year. Adjusted diluted earnings per share of $0.96, was up $0.07 versus the prior year. Slide 12, shows the walk from fiscal 2024 Q2 adjusted EBITDA to the fiscal 2025 Q2 result. Starting on the left at $45.8 million, the impact of the Bus segment gross profit in total was $8 million split between volume, EV mix, and pricing effects, net of material cost increases of $8.5 million and operational small cost increases of negative $0.5 million largely driven by the USW labor agreement now in full effect, almost fully offset by other efficiency improvements. The small unfavorable development in the Parts segment gross profit was negative $0.8 million driven by lower sales of parts used in warranty as mentioned earlier in the call. Our fixed cost and other income were unfavorable year-over-year by negative $3.8 million due to increased headcount and investments into our growth areas. The sum total of all the above mentioned developments drives our all-time record fiscal 2025 Q2 reported adjusted EBITDA result of $49.2 million or 13.7%. Moving on to Slide 13. We have extremely positive developments year-over-year also on the balance sheet. We ended the quarter with a near record $131 million in cash and further reduced our debt by approximately $5 million over the last year. Our liquidity felt very strong at a near record $274 million at the end of fiscal 2025 Q2, a $38 million increase compared to a year ago. Additionally, we have executed another tranche of share repurchases accelerated to $20 million during fiscal 2025 Q2, which brings us to $40 million completed over the last nine months with another $20 million left to go on the existing program approved by our Board. The operating cash flow was strong for Q2 at $29 million, driven by great operational execution and margins, improvements in working capital, and partially offset by increased tax payments. On Slide 14, we'd like to give you an update about the impact the new administration's tariffs policy already has on our business and the respective countermeasures we put in place. To level set definitions and how they work, tariffs are taxes imposed by the government on certain goods brought in from other countries. They are paid by the importer of record and usually are passed on to the end users. Since February, we have seen almost on a weekly basis and sometimes even twice in the same day, new tariffs being imposed on various imports in the United States of America. And while the majority of our parts and assemblies are sourced in the U.S., we are also using great suppliers from Mexico and Canada, as well as a small number of components or subparts from China and Europe. We have highlighted on this chart the main components exposure for each tariff category. On Canada and Mexico, the good news is that at least so far the USMCA exemptions apply for a brief period they did not. Our exposure to Europe is low, but even a 10% tariff adds up and this is temporary and could go up based on the ongoing negotiations. The steel and aluminum 25% import tariff gave the U.S. manufacturers the opportunity to raise prices immediately as shown in the spot market at the end of March. The good news is that we have a robust steel hedging program covering our backlog. However, this cost increase impact will materialize in fiscal 2026, if the prices stay where they are now. And now, to the big elephant in the room, China. The 145% tariffs are bringing the imports to a standstill and we are particularly exposed on our EV kit from Accelera. To give you a rough order of magnitude, we are looking at more than 10% price increase on the total value of an EV bus. Therefore, we decided to prioritize ICE buses in fiscal Q4 and reduce the number of EVs we produce until the tariff situation comes to a resolution. As you will see in our updated guidance, Q3 is proceeding as planned due to already inbound and strategic inventory we have put in place. While we are working with our supply chain partners to find alternative sources in the United States and North America, this takes time and we are not going to compromise safety or quality during this process. As a result, we have to implement a 2% tariff increase at the end of Q2 on all units sold, as well as an additional 2% general price increase on all new orders after April 1. This was done when China new tariffs were at only 20%. More price increases are going to be announced in the near future reflecting the now 145% new tariff levels for China. Our goal is to provide as much advanced notice as possible to our dealers and customers while preserving the financial health of our business. Let me be clear, these unprecedented tariffs have a real effect on our business and they will drive our prices up. On Slide 15, we wanted to remind you about our quarterly guidance provided in our last earnings call. We are targeting $200 million adjusted EBITDA for the year with approximately 1,000 EVs. On Slide 16, we want to share with you our confirmed fiscal 2025 total year $200 million guidance with updated Q3 and Q4 and the tariff driven lower EV number for the year of 800 to 1,000 units. But first, looking at Q2 actuals, we have beat once again our guidance this past quarter, so we had a very strong and record breaking first half for the fiscal year. There is still some uncertainty on the EPA Rounds 4 and 5 due to the recent executive orders. However, the Rounds 2 and 3 funding disbursements are flowing again as confirmed by the EPA. We have booked approximately 400 EVs in the first half and have a backlog of 700 EVs of which now only 150 are in process of receiving funding from Round 3. On the adjusted EBITDA side, we are increasing slightly our guidance for Q3, given our strong business momentum, and we are lowering the bottom range by $5 million for Q4 driven by lower EVs. We are maintaining our revenue to a range of $1.4 billion to $1.5 billion and we are confirming our adjusted EBITDA of $200 million or approximately 14% with a narrowed range of $190 million to $210 million or 13.5% to 14.5%. We'll provide further updates at the beginning of August after we close fiscal Q3 and gather further insight into the tariff situation especially for China and EVs. On Slide 17, 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. As tailwinds, we have strong bus demand, stable pricing and still a very high industry backlog. We offer not only diesel and 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 few times, 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 1,100 EVs sold and in backlog at the end of March. As headwinds, there is some uncertainty regarding the timing of EPA Clean School Bus Program future Rounds 4 and 5. Also supply chain is still fragile at times while improving overall. The material cost and supply inflation pressures are still present and the newly implemented tariffs are impacting our cost of goods sold over time with bus pricing countermeasures already announced and more to be implemented as needed. In summary, we are slightly raising our units and maintaining our revenue midpoint guidance to 9,300 and $1.45 billion respectively with approximately 900 EVs. We are also confirming our adjusted EBITDA guidance of $200 million or 14% with a range of $190 million to $210 million and 13.5% to 14.5% margin. Moving to Slide 18. In summary, we are forecasting an improvement year-over-year with revenue up to approximately $1.45 billion, adjusted EBITDA in the range of $190 million to $210 million or 13.5% to 14.5% and improved adjusted free cash flow of $60 million to $80 million. The free cash flow guidance is in line with our typical target of approximately 50% of adjusted EBITDA and it includes on top the extraordinary CapEx of now $30 million as our 50% fiscal 2025 portion of the new plant investment funded by a DOE MESC grant, which is currently proceeding. Moving on to Slide 19. Today, we are once again reconfirming the medium-term outlook at 14% margin with volumes of up to 10,000 units generating revenue around $1.6 billion and with adjusted EBITDA of $225 million. Starting in 2028 and beyond, our long-term target remains to drive profitable growth to higher levels towards $1.85 billion to $2 billion in revenue comprising of 11,000 to 12,000 units and generate EBITDA of $270 million to $300-plus million or 14.5% to 15% plus 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 USA. We continue to be incredibly excited about Blue Bird's future. And now, I will turn it back over to John.

Thank you, Razvan. Let's move on to Slide 21. We have shown this slide on several earnings calls, so I won't spend too much time on it today as our business priorities remain consistent. The chart on the left side of the page outlines our Blue Bird value system as a company, taking care of employees, delighting our customers and dealers, and delivering profitable growth. The right side of the page outlines how we get there. And of course, the objective of delivering sustained profitable growth for our investors is at the center of it all. And when you turn to Slide 22, I want to start with Blue Bird's history and resilience. After the COVID and inflationary period that affected the entire industry to epic proportions, we really worked hard to restructure and improve our business. So looking at 2025 and beyond, we are really coming into our moment. Razvan took you through the guidance for fiscal 2025 and I'm showing some of those key metrics in the midpoint guidance here. First, we're being cautious with our bookings outlook only increasing volume by 3% over fiscal 2024 at this time. Net revenue of $1.45 billion will be a new record for Blue Bird, up 8% from fiscal 2024, and adjusted EBITDA guidance of $200 million is 9% higher than our fiscal 2024 results. Importantly, we are planning on a robust 14% adjusted EBITDA margin in fiscal 2025, up 40 basis points from fiscal 2024. And finally, we are forecasting to grow EV unit sales to 900 buses in fiscal 2025, up 28% from last year. On the right chart, you can see there's still a lot of pent-up demand following the low industry sales over the last five years and the bus fleet has continued to age. ACT is forecasting a compounded annual growth rate of 6% through 2030, and that's great news for our business and our profit outlook. So wrap it up with Slide 23. As I approach my first 100 days since rejoining the company, I really do feel good about things. This great company and iconic brand is almost 100 years old. It has stood the test of time and it's poised for the future. We delivered record sales and adjusted EBITDA for the quarter and are maintaining our full year guidance despite the challenging tariff environment. We remain confident the Clean School Bus Program will continue. It's a bipartisan initiative. It's 100% appropriated and eliminates harmful tailpipe toxins benefiting our children and communities. Over time, Blue Bird has demonstrated resilience. Our performance has put us in a position to really look longer-term as we invest and enter new segments and upgrade our operations. I want to thank our employees, our dealer network and their supply partners, all are critical to our success. And I'm really glad to have rejoined Blue Bird. It's been an incredible start with record results, maintaining guidance, a great history and an exciting future. Thank you. So that concludes our formal presentation for today. And now, I'd like to hand it back to the moderator for our Q&A session.

Thank you. [Operator Instructions]. And our first question comes from Mike Shlisky from D.A. Davidson. Mike, please go ahead. Your line is open.

Yes. Hi, good afternoon. And John, welcome. So I noticed that you didn't really change much on your outlook, your medium and long-term targets. I was kind of wondering, John, it's been about two months that you've been there a little more than two months. Does your background lend itself to any margin improvements above and beyond what's been stated? Anything you might want to change now you probably sat down and chatted with a lot of folks from the company for the last couple of months here. Anything you can do to kind of get beyond that 15% over the long-term in your personal goals.

Thanks, Mike. Thanks for the question. Thanks for welcoming me into the company. The couple things, I think it's early. I've only been here the first 100 days, so I wouldn't want to speculate in that area. But there's a couple things I think from my end that can bring the company and I think, you know my background, I have a strong operational background and I can support the company in that area. A large part of my career was on the plant floor. And if you look at the last 20 years, predominantly in Magna prior I was running large groups, large segments in the company, up to 60 plants, probably uniquely, I have an advantage in that. I've run a bus plant in Blue Bird, so I have a lot of familiarity with the product and a lot of familiar with the manufacturing process. So again, I think it's a little bit early to tell what we can do, but a big part of what we're focusing on is the longer-term manufacturing strategy.

Got it. Thanks for that. There also were a few comments made about the price for non-EV buses. I was wondering if you can share a little bit about the price expectations and performance for the EV buses themselves. They were planned to come down over time. That's the whole point of all the substitutes, to get the kind of scale you need, get those prices down. But I was just kind of wondering if EV pricing is running in line with what you were targeting and do the tariffs throw all that off over the next couple of quarters here.

Hey Mike, this is Razvan. Thanks for the question. So as you might be aware, and as we discussed last time, we took the first step to reduce prices on EVs by approximately $25,000. Unfortunately, the current situation with the tariffs, it's moving us backwards in that goal. By how much we are still evaluating, but needless to say, it's a pause in our journey to reduce the price of the EV buses and improve the total cost of ownership. However, we are optimistic that the tariff situation will clarify hopefully in the next few months and then we'll be able to resume our journey on the price reduction for EV.

Okay, great. I also want to clarify just kind of the broad guidance here. I mean, there are some uncertainties. It sounds like you're facing some of them; some of them were not there last quarter, especially in the EV figures you just mentioned. But are you saying that EVs have a couple headwinds that are taking place right now? But the ICE and propane outlook has actually improved, so the net seems like it's pretty much unchanged. I'm curious if you can see some of the big parts of moving here that made the guidance stay roughly the exact same as it was before.

Yes, Mike. So obviously we had a very strong first half, which gives us good momentum, and it puts us in a position to strengthen our results for the total year. So that's the first thing. Second, the effects on the ICE from the tariff so far are fairly moderate, and we have taken already pricing actions to offset that. So indeed, the variable now is the EV tariff level that will affect us mainly in Q4. And therefore, we may decide together with our dealers and our customers to push some of the volume that we could build in Q4 into fiscal 2026. So that's why we widened the guidance for Q4 now to $45 million to $60 million. But we narrowed the guidance on Q3 towards the upper end now, $50 million to $55 million.

So just to clarify, Razvan, if you don't build the EVs, you've got ICE and propane orders that take those builds up. Am I on the right track there?

Yes, absolutely. So in terms of total volume, we will substitute EV with ICE in Q4.

Yes. And keep in mind; we're closer to the fourth quarter as well compared to most companies, just based on our reporting period. So the risk period for us is considerably less than other companies. Most companies are closing in December, of course.

Of course. Thanks so much for the answers. I'll pass it along.

Thanks, Mike.

Thanks, Mike.

The next question comes from Eric Stine from Craig-Hallum. Eric, your line is open. Please go ahead.

Hi, everyone thanks for taking the questions today.

Hey Eric.

Hey, so I know that, that your dealer network is certainly one of your strengths. Just curious on the pricing side, I mean, obviously everyone's dealing with this tariff uncertainty. But just curious, I mean, have you gotten any pushback from your dealer network? And then, I guess, it's your dealer network going to the school districts, but any pushback at either level? And just curious, are -- it seems as if they are, but curious your thoughts on some of the other market participants and whether the other two are kind of following suit and acting rationally?

Eric, this is Razvan. Thanks for the question. So we are obviously working very closely with our dealer partners and the end customers to navigate this challenging times regarding tariffs. Now, the first price increase we put in place was fairly moderate approximately 2%. And this is because the majority of our supply chain is from the United States and North America and we have smaller exposure to other markets. So the level is while nobody likes to pay taxes or tariffs more than before, this is something that we are able to navigate and work together on. The risk right now is coming on the EV level and especially in the Q4 because we have some exposure to China and those dollars now are tariffs at 145%. So definitely it's a bigger number.

Yes. And maybe just a couple other points. Like Razvan says nobody likes price increases, but it's also not inherent to us. It's an entire industry. In fact, I would say it's nationwide with what's going on, so relative to our peers who are in the same situation. And then maybe just one last point on the dealers, I mean we have a really collaborative relationship. We've been talking to them right since January on this. So they're lock, stock and barrel with us on this whole thing.

And then to the second part, we have seen similar actions from our competitors so far on the tariffs levels.

Okay. That's great. And I know top of mind for investors clearly is the CSB funding and I know Round 2 and Round 3 now flowing and it sounds like you're hopeful on Round 4, but could you just update us or give your updated thoughts on how much of the funding is federal versus state and local? And then, also just curious, and then I can jump back into line, but just curious given everything going on, on the EV side, whether you are seeing a noticeable uptake in interest in propane and gasoline.

So, on the first question, so the level of funding and subsidies was roughly 50:50 between state and federal, when we had the full Clean School Bus Program announced obviously over a certain number of years. Right now the good news is that the Rounds 2 and 3 are flowing as we expected last time. So there is some uncertainty on Rounds 4 and 5, but we are optimistic that Round 4 will continue given the fact that Rounds 2 and 3 are flowing. So they are still fairly balanced at this point in time and we see continued strength in the state level funding. So far I would say still a balanced equation there with Rounds 2 and 3 flowing.

And then on the EV side, that's right, on the EV side, I think we're in a pretty unique position. As you can appreciate, we're the only ones with this alt power segment, a segment we created and it puts us in a great position in terms of dealers or districts that may want a clean -- a cleaner solution in their product.

Yes. And you know what, maybe just one more to sneak in. So you mentioned, I think you gave the number, it was 100 or maybe it was a little bit over. In terms of what's exposed to Round 3 and school districts just waiting on that funding, is that -- was that -- am I correct in that thinking?

Yes. So last earnings call, we had 250 units waiting for funding, and now we have only 150 and they are all Round 3 and they are in process of being funded as we speak.

Okay. Thank you.

The next question comes from Tyler DiMatteo from BTIG. Tyler, your line is open. Please go ahead.

Great. Thanks for taking the questions here and good afternoon. I wanted to follow-up on the some of the pricing comments here. And I guess, I'm curious, how do you think about balancing the pricing equation with some of the win rate comments? Is it as simple as, hey, if we can't sell EVs to customers, we substitute to some of the other all powered buses as you alluded to. I guess just how do you think about kind of maybe leaning into this as an opportunity given your market leading position here?

Yes, I'll start and then I'll hand it to Razvan. I mean it's early to tell in terms of seeing a shift if they're going to go from propane to say or sorry, from EV to propane. But I think we're well situated, we're the only ones with the product. So that leaves me, Mr. Marin, I think more comfortable. But again early, I mean we're only a week or so since the China tariffs were announced. So Razvan, I don't know if you have anything to add.

Yes. On the pricing side, it appears that all the major manufacturers in the school bus industry are similarly affected by these tariffs based on what we've seen for our competitors pricing action. So from that perspective, it seems like we are in balance at least on the first rounds that we have put in place so far. So therefore, they did not have any material effect on our win rate.

Okay. Great, thank you. And then my follow-up here is, I wanted to kind of get a little bit more color on maybe the cost sharing split here. I know, Razvan, to your point, you've spoken a few times here to the pricing and kind of how that would flow through to customers. I guess, how do you think about that dynamic in terms of the supplier base here? Maybe what are the conversations there and kind of how do you think about that as you kind of look at the entire value chain here?

Yes. Thank you. It's a great question and obviously, we are working very closely with our supply chain partners to first understand the exposure and then take mitigating steps whether it's identifying alternative sources or potentially stair stepping the cost increases over time. But this is definitely a one-on-one discussion. It varies by country, by supplier, by component, by lead time. So there is no really simple or universal answer to this.

Okay, great. Thank you, guys. Really appreciate the time. I'll turn it back to the queue.

Thank you, Tyler.

The next question comes from Craig Irwin from ROTH Capital Partners. Craig, your line is open. Please go ahead.

Thank you for taking my questions. So I wanted to ask about the change to your fourth fiscal quarter guidance. I appreciate the granularity going in and saying 100 to 300 units of EVs in the quarter, and you did tap higher your total number of units, 2,500. If the tariff situation was to resolve the couple hundred units of EVs that look like they maybe are less likely to materialize now, would that be a potential source of upside for you in the fourth fiscal quarter? Or is this something where the customers maybe are delayed into the next year given the uncertainty that's been introduced by the tariffs?

Yes. Hi Craig, it's Razvan. Thanks for the question. So we do have the orders in our backlog. So there is indeed upside should the tariff EV situation solve favorably. Let's call it very soon. So there is some upside. That's why our upper end of the guide is a 210 with 300 EVs in Q4.

Okay, excellent, excellent. My next question is about the commercial chassis that you're introducing. So in a year ago at ACT Expo you showed an EV chassis this year it's propane. I know you can do gas and other drive trains in there. When you're doing the early development work with your customers as you put together the business model to share details with investors, what drive train or what fuel preference are you hearing from your customers? This seems to be an area of the market that might be underserved and you have interesting partners. Can you maybe just give us an update on the early conversations? And how this is playing out? And so your potential investment in the different technologies that might serve you over the next number of years.

Yes. Thanks, Craig. Great question. So a couple things. I had a chance, of course, to be at the Work Truck Show and could see firsthand the positive response. And then ACT, everything we heard similar was very favorable. Similar to you, I believe there's room in the segment. We can see that. And initial indications seem to be, I'd say there's greater interest on the propane side right now. Now, some of that may just be the sentiment that we see with EVs and people recognizing there'll be stronger tariffs in that area because of China. But certainly propane has got a great opportunity in that segment from everything we can see. And if you couple that as well with some of the best-in-class features that we have, we think we're pretty well positioned.

Okay. And then, lastly, if I may, I met with management from both of your leading competitors at ACT Expo in Anaheim and a bunch of industry suppliers and there seems to be some chatter out there that one of the other two will have a propane bus next year. The volumes and customer experience is obviously undefined at this moment. Can you talk about brand loyalty and how propane has helped you with existing Blue Bird customers and winning new customers? Would you expect to continue to sell propane to existing Blue Bird customers instead of wins? Does this really impact you or is this really them taking care of their existing brand loyal customer base?

Yes. So Craig thanks for the question. However, we are not aware or we do not have any confirmation of any competitive propane engine products coming into the market at this time for a school bus application. However, we are very confident in the value and the performance of our Ford propane engine together with Roush that we've put in place several years ago. We have over 20,000 buses in operation with propane and we have a great owner loyalty and repeat customers. So we are welcome. Any competition in this segment if they come.

Yes, and maybe just a couple of other things. I think our supply partner with Roush has equity in the name and that helps us talking to that brand loyalty. And of course, it's not a retrofit, so there's a lot of benefits to that.

Excellent. Well, you've demonstrated the value of propane and that's why I think the market is paying attention. So congratulations on another strong quarter here. I'll hop back in the queue.

Thanks, Craig.

Thanks, Craig.

The next question is from Chris Pierce at Needham. Chris, your line is open. Please go ahead.

Hey, good afternoon. About three months ago, we were on this call and there was just a lot of uncertainty around Clean School Bus EPA. Is there any way to kind of get a sense of then I know headlines hit and the portals were open. Is there any way to get a sense of what kind of levers within the industry kind of help push that to happen? Or was it just was -- were you guys as surprised as everyone else? And the reason I ask is just I know no one knows what's going to happen with Round 4, but just try to see how much of a topic this is within the administration and within the industry.

Hey Chris, this is Razvan. Thanks for the question. So first of all, we are not surprised because as we discussed three months ago and as we messaged in all our meetings, we were confident that Rounds 2 and 3 were going to flow because there is -- there was a legal obligation and the potential liability if they were to stop or to be stopped. So it confirmed what we were expecting. Obviously, we didn't know for sure, but we had that positive sentiment that Rounds 2 and 3 will be completed. So this also gives us some optimism now for Round 4, at least the next step. But obviously we'll have to wait and see what the EPA decides to do with Round 4.

Okay. But Rounds 4 and 5 would follow that same logical argument that there's a law in place and repercussions and that type of thing that's fair to say?

No, because Rounds 2 and 3 were awarded. So people started to put programs in place, breakdown for infrastructure, people were told to order buses. Round 4 was not awarded yet, only the applications were collected. So they are earlier in the stage of maturity, if you will.

Okay. Thanks for the clarification. And then, on China and EVs, because let's say Round 4 does start flowing or state subsidies for EVs or just market based purchases, do you have pricing power on EVs or it's because there's a certain stair step AST built into the Round 4, Round 5 and that could have be a headwind to margins on EVs.

So the details for Round 4 or 5 as far as what is the level of funding per bus are not yet confirmed or clarified by the EPA. We do have some idea what the prices will be based on the current tariffs, but obviously by the time Rounds 4 are awarded, orders are put in place. We work through the backlog several; it's towards the end of 2026 calendar year most likely. So by then we will know for sure the tariffs, what they are for any diesel, I would say it's a bit early to have this conversation for Rounds 4 or 5.

Okay. Perfect. And then, just lastly, with the accelerated buyback and the $20 million left, how should we think about look at that cash balance and you talked about the balance sheet. What -- I guess, how should investors think about that moving forward with the stocks trading at the multiple it's at?

Yes. So as you saw this quarter, we accelerated our previous pace, so we went up from $10 million before to $20 million now. We still have $20 million left in the current program. And we will let you know in the next earnings call what we have done during this quarter and potentially what our plans might be for the future on this topic.

Okay. Thanks for everything.

Thanks, Chris.

This concludes today's Q&A session. So I'll hand back to John for some closing comments.

Yes. Thank you, Adam. And thanks to each of you for joining us on the call today. Last year, you saw momentum increasing throughout the year with profitability improving as we move through the quarters and we're continuing that theme for 2025. I think you can share my enthusiasm for Blue Bird and we look forward to updating you on our progress in the next call next quarter. Should you have any follow-up questions, please do not hesitate to contact our Head of Investor Relations, Mark Benfield. And Blue Bird has never been in a stronger position than it is today. It has a fantastic future ahead as we approach 100 years as a company. And from all of us here, thanks for joining us on the call from Blue Bird and have a great evening.