Blue Bird Corporation (BLBD) on Q4 2021 Results - Earnings Call Transcript
Operator: Greetings. Welcome to the Blue Bird Corporation Fiscal 2021 Fourth Quarter and Full Year Earnings Conference Call. At this time all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. Please note, this conference is being recorded. I will now turn the conference over to your host, Mark Benfield. You may begin.
Mark Benfield: Thank you. Welcome to Blue Bird's fiscal 2021 fourth quarter and full year 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 our 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, in our latest earnings release and 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, Matt Stevenson; and CFO, Razvan Radulescu. Then we will take some questions. So let's get started. Matt?
Matt Stevenson: Thank you, Mark. And it is a pleasure to speak with everyone today during my first earnings call here at Blue Bird. In July, I joined the company as President and assumed the CEO role on November 1. I am incredibly excited about the opportunity to lead such a great company with a phenomenal future in front of it. Overall demand for more environmentally friendly school buses is strong and our company's competitive position to provide those buses and serve those customers who operate them is unparallel. On Slide 6, you can see some of the major headlines of our fiscal year which ended on October 2, 2021. At the beginning of our fiscal year, a large number of schools were still closed or in a hybrid learning approach. As schools started to fully reopen in the second half of our fiscal year, it reignited the replacement of demand for buses. We saw that market demand increasing through the second half to near pre-pandemic order levels. Our nation's school bus fleet continues to age and the ongoing need to upgrade a safer, lower emissions and more modern vehicles is inevitable. However, the well-documented and public sized disruptions in the global supply chain environment made it difficult to fully realize those exciting fundamental trends. As volume in the automotive and commercial vehicle sectors ramped up, many of our suppliers had trouble keeping up with our demand. Our Tier 1 suppliers face challenges, including a shortage of labor, COVID outbreaks, a scarcity of raw materials, semiconductor shortages and other impacts from their Tier 2 and Tier 3 suppliers. In many instances, we are missing over 25 parts per bus in our production. These supplier disruptions dramatically slowed down our production and caused us to take numerous unexpected down days. It also drove decreased efficiencies and productivities in our manufacturing operations. In addition to the supply chain disruptions, we saw the inflationary pressure everyone has seen in labor, raw materials and minor or major components. While we sued -- pursued multiple strategies, that Razvan will discuss in more detail, to minimize escalating input costs and recover them in our pricing, the macro challenges still mask the strong underlying fundamentals of our business this past quarter. However, I am incredibly proud of the operations team at Blue Bird for powering through these unprecedented times and producing the number of units that we did. Our estimate is more than 2,000 additional units should have been produced and delivered in fiscal '21, if not for all the supply chain disruptions and shortages. These delays in sales dramatically impacted our revenue and profitability for the year. The good news is, our backlog is at record levels with over $400 million in revenue. Customers are patiently waiting for buses. They understand what is happening in the global economic markets and we have not seen cancellations. Again, these are delays in sales, rather than permanently lost opportunities. Slide 7 highlights a number of accomplishments for Blue Bird in fiscal year '21. And as I assess our company's prospects, I remain extremely confident and optimistic about the fundamental drivers of our business and how it aligns to the market demand for cleaner emission school buses. Our alternative powertrain sales mix is now over 50%. We have built our 20,000 propane bus and are well positioned to capture accelerating demand for EV buses and have delivered or taken orders for over 550 electric school buses this past year. As stated previously, at the end of our fiscal year, we have a record number of units in the backlog with over 40 to 100 vehicles worth over $400 million. As further evidence of our bright future, six of our major dealers are investing in all new dealerships to continue to enhance our customer service level to our end operators. Slide 8 highlights our results for Q4 and fiscal year 2021. When you consider how disruptive the supply chain was this year, especially where we saw the worst of it in our fiscal year Q4 which is historically our highest volume and most profitable quarter. The solid results we are presenting here are a testament to the tenacity of the Blue Bird team. We sold over 1,900 buses in the quarter and posted nearly $200 million of revenue, resulting in an adjusted EBITDA of $8 million. As you can imagine, the supply chain disruptions and missing parts contributed to increased inventory levels of raw material as we delayed setting up planned buses and grew a work in process to over 500 units, significantly impacting free cash flow in the quarter. The results of fiscal year 2021 are characterized by first half with soft demand and a second half for supply chain disruptions when volume recovered. However, there is clear evidence of exciting longer term trends in demand and we are going to be ideally positioned to capture our profitable share. The unprecedented situation in the world around us is only temporarily delayed, what I see as a remarkable opportunity ahead for our company and it's investors. I would now like to turn it over to Razvan to discuss our financial results in more detail.
Razvan Radulescu: Thanks, Matt and good afternoon. It is my pleasure to share with you the financial highlights from Blue Bird's fiscal 2021 fourth quarter and full year results. We will file the 10-K today, December 15 after the market closes. Our 10-K includes additional material and disclosures regarding our business and financial performance. We encourage you to read the 10-K and the important disclosures that it contains. Slide 10 is a summary of full year results for fiscal 2021 and fiscal 2020. It was a tough year for Blue Bird, especially in fiscal Q4 with a difficult operating environment as a result of supply chain disruptions that have impacted many industries, especially those that use microchips and resin in their products. Further compounding the challenge, raw material prices rose during 2021, especially steel up 300% and aluminum up 150%. The cost of overseas transportation increased nearly tenfold. Blue Bird's unit sales volume of 6,700 units was significantly lower than prior year. However, as Matt described, there are about 2,000 units that could not be shipped in the third and fourth quarter as a result of part shortages. Supply issues were experienced for multiple components across a number of suppliers. While the disruptions continue, our team works tirelessly on a daily basis to find alternative sources for parts where possible and to engage with all of our impacted suppliers in order to find solutions and expedite delivery of vital parts to our factory. Despite the supply disruption, there is good news, demand for our buses is up significantly versus last year and total order received in the period were for 9,700 units. If we would have had received all of the parts on a timely basis, the sales for the year would have been more than 8,500 units, almost at the same level as fiscal 2020. In addition, Blue Bird had a backlog of over 4,200 units at fiscal year-end. 3,000 units more than the end of fiscal 2020. At this time, our supply constrained production capacity for the first half of fiscal 2022 is full and Q3 is filling up quickly. 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 $684 million was $195 million lower than prior year due to the delayed sales already mentioned. Of that, bus net revenue of $625 million which was down by $197 million versus prior year. Average bus revenue per unit increased from 92,700 to 93,600 which was largely the result of annual pricing taken in the summer of 2020. Alternative fuel vehicle sales comprised a record 50% of our sales in the year, up by 2 points due to the outstanding success of the new 7.3-liter engine in our gasoline and propane units. EV sales of 146 units were slightly down due to supply chain disruptions. However, firm orders exiting the year were at more than 250 EVs, up almost fivefold from the 52 last year. Parts revenue for the year was $59 million, representing an improvement of $2 million compared to the prior year. The improvement in part sales we saw in the third and fourth quarter is an indicator that the normal work for School District is starting to get back to pre-COVID levels, although there has been some disruption due to supplier shortages. Gross margin for the year was 10.5% or 40 basis points lower than the same period last year. The decline was driven mainly by three areas: first, incremental costs for freight and production due to supply disruptions. Second, the fixed cost absorption impact of building 2,000 less units; and third, higher raw material and input costs. I will discuss this more on the following slide. As noted on the third quarter call, we expected to see raw material and component cost increases in the fourth quarter due to steel and other commodities as well as the continuation of higher costs that are being experienced in all modes of freight. As Matt mentioned, we have implemented a total of 11% price increase to help offset these headwinds, however, this will fully materialize in the second half of fiscal 2022 as we have to work through the current backlog first. In fiscal '21, adjusted net income was $8.7 million. Adjusted EBITDA of $34.1 million was down compared with prior year, while adjusted EBITDA margin was 5%, a year-over-year decrease of 1.2 percentage points. Adjusted diluted earnings per share of $0.31 was down from the prior year. Overall, it was a tough year with the first half impacted by schools still being partially closed and with remote learning due to COVID and the second half impacted by supply chain disruptions and rapid rising in raw material prices and freight costs. Slide 11 shows the walk from fiscal year 2020 adjusted EBITDA to the fiscal year 2021 results. Starting on the left at $54.7 million, lower bus volume in the year of 2,199 units, partially offset by higher parts volume of $1.3 million, resulted in a negative $33.1 million impact. Pricing net of economics of negative $4.2 million is mainly the result of higher steel and commodity costs as well as higher cost of resins. The team, however, was able to offset approximately half of these headwinds year-over-year. Our ongoing procurement initiative continues to show positive results at $5.3 million. Efficiencies and lower operating expenses were favorable year-over-year by $11.4 million, despite the lower production volume and higher input cost of the plant. To the far right, we have shown the overall impact of supply disruptions, loss volume and efficiency. As you can see, due to part shortages, we are not able to ship about 2,000 buses. These delayed sales were worth approximately $38.6 million, including the impact on plant efficiency and ongoing freight issues. Absent these headwinds, our profit for the year would have been about $72.7 million or approximately 8% of revenue, in line with the 2019 profits and on lower volumes. This is a result of the cost structure improvements we have been implementing in the past several years. Moving on to the balance sheet and liquidity on Slide 12; we ended the year with cash of $11.7 million, down $32.8 million from the same time last year. Debt was at $209.4 million, $35.3 million higher than last year due to a higher draw on our revolver to fund working capital requirements. Net debt of $197.7 million was $68.1 million higher versus prior year. It is worth noting that we were in compliance with all the covenants at the end of the fiscal year. There were two active financial covenants in our credit agreement for the period. First, the trailing 12-month EBITDA as defined under the credit agreement, was $30.8 million versus a minimum requirement of $27.5 million. Second, liquidity as defined under the credit agreement, was $60.4 million at year-end versus a minimum covenant of $15 million. Therefore, we remained in compliance with our credit agreement covenants. As we evaluated the risks associated with supply chain and our throughput ability to build and sell buses, we deem this prudent to seek additional flexibility on our term loan covenants. We are pleased to report that we have concluded the fourth credit amendment with our bank syndicate led by Bank of Montreal. This will provide covenant relief through the first half of fiscal year 2023 and access to additional $10 million of revolver liquidity. Additionally, we have filed a Form S-3 shelf registration for $200 million which will provide us with the flexibility to raise additional capital over the next three years, should this become necessary to further support our growth. Moving on to Slide 13; we have already covered the cash and debt on the previous slide. The significant deterioration in operating cash flow and adjusted free cash flow was primarily driven by higher working capital and secondarily by lower profits due to lower volume. Traditionally, Q4 is the strongest cash-generating quarter for the company. However, in fiscal year '21 Q4, we finished the year with record levels of work in process and almost finished goods which impacted our liquidity. On Slide 14, going into the fiscal year 2022, our margins are temporarily under pressure. We are facing increased cost for raw materials, freight, labor and generally supplier disruptions. And while we have a substantial backlog of school buses, many of them will not benefit from the pricing actions we took in July and October of 2021. These effects, combined with the current low throughput due to supply chain constraints will create low first half of fiscal '22 profitability, even by historical seasonally adjusted comparisons. We are taking actions as outlined on this slide in order to improve our costing stability over the medium term and reduce our pricing exposure going forward. Those actions will start to show results in the third quarter of '22 and become fully effective in the fourth quarter of '22 due to the time lag, especially on the pricing side given the current backlog. On the costing side, we are increasing our steel hedging program and extended to our key suppliers. We are engineering second and third source suppliers for key components in order to increase our throughput and we are resourcing components where needed. We are also selectively exploring vertical integration options via make/buy analysis. On the pricing side, we have implemented 11% price increase to recover non-cost increases. We'll monitor our win lose rate in the marketplace and adjust as needed. To reduce our exposure, we already reduced our core guarantee from 90 to 60 days. Additionally, we will watch raw material price developments and adjust our pricing as needed. However, the most important change is introducing a variable pricing structure for our dealers and customers while maintaining a higher fixed price option is desired. Let me walk you through this on the next slide. Moving on to Slide 15. The traditional school bus pricing model with guaranteed fixed pricing for up to 12 months or sometimes even longer is not working anymore in the current inflationary environment. We want to be the leaders not only in alternative powertrain offerings but also in introducing new business mechanisms that provide customer flexibility and ensure proper market dynamics and risk sharing. We are implementing a variable pricing model for all the multiyear deals and for all the high-volume orders that go beyond six months from the coating time. For high-volume orders inside six months, we will offer a higher fixed price option. The same applies for small volume orders that are expected to be built and shipped inside 12 months. For the low volume, quick turnaround quotes and orders with deals inside six months from the quote, we will keep the existing model of fixed pricing. The dealer and customer can choose which model they prefer based on the risk profile and flexibility. We are confident that the new variable pricing model will be understood and accepted by the school bus industry and having the higher fixed price option where needed will support adoption. On Slide 16, looking at fiscal year 2022, as previously discussed, we are expecting a difficult first half due to supply constraints and temporary margin pressure. We expect to see gradual relief beginning in the third quarter as supply chain constraints are resolved due to new suppliers coming on board and the 11% price increase begins to take effect. In the fourth quarter, we expect to be at higher production levels and with normalized margins as the full price increase goes into effect. At this point, we are not able to provide the exact quarterly guidance due to high uncertainty. Nevertheless, with the premises outlined before, our full year guidance is at revenues of $750 million to $850 million, with adjusted EBITDA range of $30 million to $50 million or 4% to 6% of revenues and with adjusted free cash flow of $35 million to $55 million. The significant improvement on free cash flow year-over-year is driven by the expected normalization of inventory at year-end of fiscal '22. With that, I will now turn the discussion back to Matt, who will walk you through our business priorities and long-term outlook.
Matt Stevenson: All right. Thank you, Razvan. I would now like to talk about the team we are building here at Blue Bird, our priorities and outlook for the company. I learned long ago the secret to success is surrounding yourself with outstanding talent. And on Slide 18, you can see two great additions to our Blue Bird leadership team. You had an opportunity to hear from Razvan today. When we conducted our search for the next CFO of Blue Bird, it was imperative we not only got an experienced results-driven CFO but they also needed to have a deep understanding of commercial vehicles. The ideal candidate had to have a great appreciation for a franchise dealer network and be incredibly passionate about taking care of employees. Razvan checks all those boxes and more and I'm proud to have him on our team. We also recently hired Vijay Boova, our new Senior Vice President of Lean Transformation & Quality. We were lucky to find someone who practices a servant leadership philosophy and has spent his entire career living lean transformations and implementing world-class production systems. We look forward to the great contributions Vijay will make to our team. Overall, I am confident that we are putting in place the right team to lead Blue Bird into an exciting future and to fully capture the exceptional opportunities ahead of us. Slide 19 covers our three foundational objectives. My personal leadership philosophy is rooted in serving leadership. So for me, everything starts with our teammates. The three core objectives for our company are Care, Delight and Deliver. Care means taking care of our employees with the goal of truly creating a premier place to work in our sector. My team is laser-focused on ensuring the safety of our employees, raising their engagement level and reducing the levels of attrition and absentees. Delight centers around consistently exceeding the expectations of our customers and dealers, both of which have high standards for the quality of our vehicles and the timing of our delivery. Our goals will be to surpass through our expectations and enable their success. Our customers' exceptional experience will ensure that we are able to earn a premium pricing and market share, reflecting the value and innovation we consistently deliver. The last objective Deliver, is pretty self-explanatory. We need to deliver profitable growth through our core business by selling more buses and increasing our percentage of alternative power as well as improving our operations but we also must execute on incremental growth opportunities in front of us, such as capturing the EV opportunity, expanding our aftermarket and growing our chassis business which I'll touch on in a minute. Slide 20, highlights our four main focus areas for fiscal year '22 to deliver on our foundational objectives. The first, centers around the details of taking care of our employees, reengaging the workforce post pandemic and beginning that journey on creating a premier place to work. Vijay is spearheading the second focus area, leading the way in creating a world-class lean manufacturing environment. Our leadership team is relentlessly focused on improving our cost structure, throughput, efficiency and quality. The third incremental focus area will be to harness our established capabilities in order to seize the opportunity of expanding the total addressable market for Blue Bird beyond school buses. We are receiving significant interest from a number of players in the commercial vehicle space to provide OEM engineered and certified chassis for Class 5 to 7 vehicles. And not only are people looking for an experienced chassis builder but also one with the after sales support that Blue Bird dealers can provide. As we all know, EV is a huge part of our future. We are the leaders in battery electric school buses and we will continue that leadership. Our fourth area of focus is preparing our operations to scale for the rapid rise in demand for electric school buses. The $5 billion earmarked in the bipartisan infrastructure spending bill for the upgrade of our nation's bus suite will serve to significantly accelerate existing demand for the most environmentally friendly school buses to safely transport students. Slide 21 is an overview of our ecosystem for EV. For our continued success in EV, we must bring a full ecosystem to our dealers and customers. That includes understanding how battery electric school bus meets their needs, providing financing alternatives, infrastructure partners to provide charging and potentially even vehicle-to-grid revenue. We are also there at time of delivery, training their drivers and technicians on the products, tracking the vehicles through telematics to reduce downtime and providing the best-in-class aftermarket sales support through our Blue Bird dealers as well as helping customers recycle batteries at the end of the life cycle of the school bus. The next slide covers a couple of examples of this ecosystem and they are the partnerships we've created with Nuvve and Levo. Nuvve software is standard around every Blue Bird EV school bus and enables bus to charter communication for management of bidirectional energy flow from the batteries to the grid. What that does is it creates an opportunity for the operator to sell back energy to the grid. The software also contains smart charging to lower charging costs and also lengthens battery life. Now our partnership with Levo offers an alternative to high upfront capital investment in EV buses and infrastructure, providing districts and operating leases spread the cost over multiple years. Levo leverages Nuvve's V2G technology to drive additional revenue to generate a return on their investment and consequently lowering districts lease payments. We will continue to look for every opportunity to bring innovation and creativity to meet our customers' needs and accelerate the adoption of electric school buses. Slide 23 reinforces the positive long-term outlook for our business as production volumes continue to ramp up and supply chain disruption subside. The challenges we have faced have only made us stronger and have helped us identify the opportunity areas normally masked by higher volume. As our manufacturing ecosystem returned to more normal footing, the 11% in pricing we have put in place will increasingly flow through to the bottom line as we enter the second half of fiscal year '22. Similarly, we have been working hard on continued efficiencies through our lean transformation program and as volumes recover, the margin implications of those efforts will become more apparent. When we look a little further out, we see the tailwind of at least $5 billion earmarked for Clean Technology school bus in the recently passed Bipartisan Infrastructure bill, $2.5 billion for battery electric school buses and another $2.5 billion for clean emission school buses which include BEV, CNG and propane. We lead the market in propane buses and are confident in our growing capabilities in EV. In addition to that funding, there's another $5 billion being proposed in the Build Back Better program, focused on Class 6 and 7 vehicles for electrification. If that goes through a large portion of that will also be used for school buses. As I mentioned today, we are also in discussions to provide our OEM engineered and certified chassis to other manufacturers for their vehicles in the Class 5 through 7 segments. We are going to be well positioned when the market normalizes and the beginning of the EV funding kicks in. Slide 24 provides a long-term outlook in which we see a path to $1.7 billion to $2 billion of revenue, with 11% to 12% EBITDA margin generating $200 million to $250 million in EBITDA. Those projections do not even then take into consideration the incremental opportunity provided by expanding the total addressable market for Blue Bird through becoming an OEM chassis provider to the Class 5 through 7 market. Even at a normal year of 11,000 to 11,500 units, we see our revenue at $1.25 billion to $1.5 billion with $100 million to $150 million in EBITDA, fueled by EV volume of 1,000 to 2,000 units. In the near term, we are still working through supply chain disruptions that we believe will persist through the first half of 2022, impacting our fiscal year '22 guidance. We are conservatively providing a sales range of 7,000 to 8,000 school buses. Those volumes should generate $750 million to $850 million of revenue and an EBITDA range of $30 million to $50 million. As frustrating as a continuing supply chain disruptions are, they will be mitigated and we will emerge from this challenging period with enhanced abilities to execute through our continued focus on our people and lean transformation. The intermediate and longer term outlook for Blue Bird is very strong. We have a record backlog and a strong tailwind on EV and clean emission buses in which we are the leader. As we capture that strong secular demand opportunity within an increasingly efficient sales and manufacturing engine, we are confident the bottom line results for our investors and our companies will see new heights in the years ahead. Moving on to Slide 25; we are also very excited to welcome a new anchor investor back to Blue Bird. Coliseum Capital Management has taken a $75 million stake in Blue Bird at $16 per share. Adam Gray, the Co-Founder of Coliseum Capital Management is no stranger to Blue Bird and was a prior investor from 2015 to 2017. Adam has extensive knowledge of our business and the tremendous opportunities in front of us. We look forward to having Adam on the Board as well. We would now like to open up the line for questions.
Operator: And at this time, we'll be conducting a question-and-answer session. And our first question comes from the line of Eric Stine with Craig Hallum. Please proceed with your question.
Eric Stine: Hi Matt, hi Razvan.
Matt Stevenson: Hey Eric, how are you?
Eric Stine: Doing well, doing well. So maybe just wanted to start with the outlook a little bit; you talked about the first half being booked. I would assume that, that is booked in the context of what you've been allocated from suppliers. And I know we're already part of the way through the first quarter here. But is that something where there is the potential for that to improve? Or when you look at it, are you basically locked in for the first half? And then second half is where -- that's where maybe the variability in the guidance might come from?
Matt Stevenson: Eric, thank you for the question. So when we look at that first half, I mean, we're seeing some modest improvement in the supply base. We're trying to temper our excitement around that to make sure it's consistent. But at the same time, be prepared if the supply chain improves, we're prepared to take up volume accordingly.
Eric Stine: Got it. So there is -- I mean, there is some but it's still probably more second half. I mean, are you able to give some thoughts? I know you can't on the first quarter but some thoughts on maybe a split between first half, second half, whether it's revenues or EBITDA?
Razvan Radulescu: So on the -- this is Razvan. On the volume side, as we mentioned previously, the volumes are relatively low, even by historical standards. And our business is seasonal with Q1 and Q2 usually being around 35% of the yearly volume. And due to the supply chain constraints, we see a similar picture this year in terms of units. So our volume for the first half will be around 30% to 35%.
Eric Stine: Okay, that's helpful. Maybe just -- you mentioned some -- that you're seeing significant interest on the chassis side. I mean, I'm just wondering if you can provide any detail there, whether it's number of people you're talking to depth of conversations, anything along those lines would be helpful?
Matt Stevenson: Yes. Eric, at this point, we're not going to comment on kind of the specific conversations. But as you know, the space, there's just a lot of interest in everyone from last mile delivery vehicles to motor homes and all through that gamut of Class 5 through 7 vehicles. And we built a great chassis with a great aftermarkets important network and people realize that.
Eric Stine: Got it. I mean is it still -- I know it's a little bit longer term. I mean, is this something that we should think about as more of a fiscal '23 contributor rather than later this year?
Matt Stevenson: Yes, correct. Fiscal '23.
Eric Stine: Okay. Maybe last one for me and then I'll jump back into queue. But just curious, what has the reception been to the variable pricing? I know it's different than what the market has done in the past. I would think that others are kind of moving in this direction. Any pushback there? Or is it pretty well understood that that's kind of the new reality given what's going on in the supply chain with materials?
Razvan Radulescu: Yes. This is Razvan. We had a very good dialogue with our dealer network in our dealer meeting a couple of weeks ago where we introduced a new concept. And also the first signs from the market are positive. I think everybody understands that in the current inflationary environment, we cannot keep the old business model. It's just not sustainable. And we try to offer a balanced approach, whereby this applies to longer term deals or high-volume deals, while still offering a shorter term fixed price option in desire. So we try to offer the flexibility. Early signs are positive but it's still a bit too early to tell how it's going to play out fully.
Eric Stine: Got it. Thanks a lot.
Matt Stevenson: Thank you, Eric.
Operator: And our next question comes from the line of Jon Lopez with Vertical Group. Please proceed with your question.
Jon Lopez: Hey, thanks very much. I have a couple of quickies, if I could. The first one, I just wanted to come back to the topic of inventory. I've obviously heard you guys talk about the constraints and the tightness. I don't think that's conceptually surprising but your finished goods inventory has like doubled in two quarters and that does surprise me. Why is that?
Razvan Radulescu: So coming out of the -- on the previous fiscal year, we had a large amount of work in process or what I call almost finished goods. So these are buses which are almost finished that are missing a couple of parts, for example. So in that sense, we are working through a high level of inventory, whether it's raw work in process or this type of almost finished goods. As we receive parts from the key suppliers and the strike work is down, we expect a normalization towards the end of the fiscal 2022. However, additionally, we are having to pre-buy some of the key components, some of the major components, as we expect higher growth in the second half of fiscal '22 and for 2023. As you probably imagine, we are in allocation with some major component suppliers. So therefore, it's a combination of working down the inventory but at the same time, ensuring supply stability for the major component.
Jon Lopez: I see. Okay. So sorry, just to clarify, it sounds like that finished goods line item is actually inclusive of some buses that like aren't technically finished. They're just -- they probably graduated past the WIP stage but you're still waiting on a handful of components to actually make them shippable.
Matt Stevenson: Jon, just for clarity, when it comes to finished goods, that delta that you're seeing GSA buses, they have a lengthy inspection process and we had much more through that time period than in the previous year. So that's the delta that you're seeing.
Jon Lopez: I see. Okay, that's helpful. The second, sorry, just nick-nack one. One of the things you guys add back in the non-GAAP EBITDA is product redesign charges. That went back up above $1.5 million. I think it was last that high in like late 2019. What's driving that line item back up? And is that expected to continue? Or is there some one-time stuff at work in there?
Matt Stevenson: Yes, Jon, that's mostly timing. So those are things that -- with that project, those were kind of some of the last charges that will flow through that line. As you think about 2022, you'll see very, very minor numbers there. Just some of the last work that's being completed on our new engine launch.
Jon Lopez: Got you. Got you. Okay. Sorry. The last one, I guess I'm just wondering if you could help us think through the market. So if you look at the registration data for 2021, it looks like the market was down very slightly, like, couple of percent low single-digits. Your deliveries dropped 25%. I know there's generally some variation in those numbers, like in terms of production versus deliveries. But how do we think about that conceptually a market that was sort of unchanged, your deliveries down as much as they were?
Matt Stevenson: Yes, Jon, I'll take that first. Our registration data also was in line with the industry, right? So it hasn't caught up with the way that the supplier shortages timed out in the fourth quarter, it didn't really impact the year's registrations. So you'll see that as we go into fiscal '22 with the lag that happens between bookings and registrations.
Jon Lopez: Got you, understood. Sorry. But just conceptually, does that mean -- like is the registration data then going to pull a big header in FY '22 kind of market-wide?
Razvan Radulescu: We expect that the other key competitors also are having supply chain constraints in the Q4 of fiscal '21. So therefore, we expect a decline across the board. Now to what extent each one was impacted, it's yet to be seen.
Jon Lopez: Okay, understood. Thanks very much for the thoughts.
Matt Stevenson: Thank you, Jon.
Operator: And it looks like we have reached the end of the question-and-answer session. And I'll turn the call back over to President and CEO, Matthew Stevenson for closing remarks.
Matt Stevenson: All right. Thank you, Shamali and thank you to all those joining us on the call today. We appreciate your continued interest in Blue Bird and look forward to updating you again on our progress next quarter. As you can see, the demand for school buses is strong. And with the tailwind of the $5 billion in the infrastructure bill for environmentally friendly school buses in which we are the leader, our intermediate outlook is incredibly positive. While we face the temporary supply chain issues, we are focused on improving our operations, growing our margins and driving leadership in our alternative power as well as scaling up our electric vehicle and chassis business. I'd like to give special recognition to our incredible employees for their commitment and dedication to Blue Bird this past year. Now should you have any follow-up questions, please don't hesitate to contact our Head of Profitability and Investor Relations, Mark Benfield. Thank you again from all of us at Blue Bird and have a great evening and a wonderful and safe holiday season. Thank you.
Operator: And this concludes today's conference and you may disconnect your lines at this time. Thank you for your participation.
