Blue Bird Corporation Q3 FY2025 earnings call

Management Statement and Operational Highlights

• Record Results: Blue Bird achieved record sales and adjusted EBITDA in Q3 2025, beating Q3 guidance and increasing full-year guidance.
• Manufacturing Strategy: Deep-dived into long-term manufacturing strategy, exploring production automation, automated material movement, and manufacturing execution systems to drive cost reduction.
• Pricing Discipline: Bus prices remain higher than prior year and quarter, competitive with strong win rate. Tariffs were managed to keep margins neutral.
• EPA Clean School Bus Program: Rounds 2 and 3 of the program are flowing, with rounds 4 and 5 in play. Reimbursement funds for the $80 million MESC grant for a new plant are flowing.
• Micro Bird Plant: Started production in the Plattsburg, New York plant, a joint venture with Girardin, doubling small bus capacity.
• Chassis and Future Products: Entered final testing phase for a new chassis, targeting best-in-class, with plans for production in 2026.

Segment Performance

• Bus Segment: Net revenue was $372 million in Q3 2025, up $64 million or 17% versus prior year due to higher EV mix and improved pricing. EV sales in Q3 were a record 271 units, 33% higher than last year. Parts revenue was flat at $26 million. Gross margin for the quarter was 21.6% or 80 basis points higher than last year.
• EV Segment: Represented 11% of volume in Q3. Backlog at the end of Q3 was over 500 EV buses, representing $174 million in revenue. Forecasted 900 EV unit sales for the full year.

Guidance

• Fiscal 2025: Raised full-year adjusted EBITDA guidance to $210 million and revenue to approximately $1.45 billion. Q4 adjusted EBITDA guidance was increased.
• Fiscal 2026: Preliminary guiding units to 9,500 (including 750 EV buses and ~100 propane commercial chassis), revenue $1.5 billion, and adjusted EBITDA $220 million.
• Medium-Term: Outlook to 15% margin with volumes up to 10,500 units, revenue around $1.6 billion, and adjusted EBITDA ~$240 million.
• Long-Term: Target to drive profitable growth to $1.8 billion to $2 billion in revenue, 12,000-13,500 units, and EBITDA $280 million to $320+ million.

Risks

• Tariff Uncertainty: Administration's tariff policy creates market uncertainty, impacting orders and pricing.
• Material Cost and Supplier Inflation: Pressures on cost of goods sold, though tariffs are managed to be margin-neutral.
• Health Care and Insurance Costs: Year-over-year increases affecting expenses.

Question and Answer

• Q: Seasonality and order timing related to tariffs **A: John Wyskiel and Razvan Radulescu discussed that tariff uncertainty caused districts to hold off orders, but pricing certainty extended into next year is expected to boost orders. Fundamentals like aging fleet and pent-up demand support temporary drop in orders.
• Q: Operational improvements and margin sustainability **A: Razvan Radulescu and John Wyskiel mentioned operational improvements through lean manufacturing and automation initiatives, confident margins are sustainable as gross margins are similar across powertrain types.
• Q: EV sales and state incentives **A: Razvan Radulescu and John Wyskiel talked about EV backlog, ongoing EPA programs, and state incentives in states like New York, California, Oregon, Illinois, Michigan driving EV momentum.
• Q: Pricing strategy and pushback **A: Razvan Radulescu explained tariffs are passed on as they are government-imposed, customers understand, and pushback is more about timing and uncertainty rather than price level.
• Q: Chassis and future product volumes **A: Razvan Radulescu discussed confidence in commercial chassis volumes due to strong interest from customers, with propane and EV options, and new engines of growth including Micro Bird and chassis expansion.
• Q: SG&A growth and future expectations **A: Razvan Radulescu stated SG&A growth will taper off as investments in strategic areas and engineering are ongoing, with revenue growth expected to outpace SG&A.