Blue Bird Corporation (BLBD) Q3 2022 Earnings Report, Transcript and Summary

Good afternoon, and welcome to the Blue Bird Corporation Fiscal 2022 Third Quarter Earnings Conference call. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Mark Benfield, Executive Head of Investor Relations of Blue Bird. Please go ahead.

Thank you, and welcome to Blue Bird's fiscal 2022 third 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. So let's get started. Matt?

Thank you, Mark and good afternoon everyone. As you can see on the left hand side of the slide, our aggressive plan to improve our business operations is taking hold. And as we predicted on the previous earnings calls, Q3 was a defining quarter for us. We posted an adjusted EBITDA of $9 million for the quarter on revenue of $206 million with 1726 units. Our volumes are still constrained by the ability of some key suppliers to provide components. Free cash flow was negative $40 million as we increased inbound material early at the beginning of the calendar year in anticipation of increasing production volumes. However, those increased volumes did not materialize due to the supply disruptions caused by the war in Ukraine, it continue to COVID lockdowns in China. We posted good results on lower than planned volumes by aggressively controlling costs recovering economics in pricing and adjusting our operations to improve efficiencies in a challenging environment. In the quarter and since our last earnings call, our business has made substantial progress and we have launched several critical programs and initiatives. Our backlog at the end of Q3 stood at a stout 6,300 units worth nearly $700 million. That backlog is 63% alternative power, which is critical for Blue Bird because customers using our exclusive Ford/Roush gasoline and propane solutions are more loyal, given the performance of these excellent powertrains. Our EV backlog also ticked up to nearly 400 units. The Cummins Blue Bird partnership on EVs continues to be the preferred solution for electric school buses in the market. We also announced expanding our collaboration with lightening e-motors by announcing an EV repower solution for model year 2023 and newer pro-powered safety buses. This is important because school buses have a long lifecycle and many customers are coming to us and saying, we love your Ford/Roush powertrains but one option to convert them to EV at some point down the road. We expect this repower solution should be available in calendar year 2023. We also launched Blue Bird Energy Services. This was again driven by customer requests. They want a turnkey approach to electric school buses. In many instances, customers do not have the time or the desire to coordinate all the steps to successfully deploy electric buses including working with the utility companies and designing and deploying charging infrastructure. With Blue Bird Energy Services, we take the gas work out of deployment and work hand-in-hand with school districts and fleet customers to provide turnkey solutions that make deployment of EV buses quicker and easier. During the quarter, we had the opportunity to attend launch event for the Clean School Bus Program hosted by Vice President, Kamala Harris. This is an exciting time for our industry and we have been working with a large number of customers to submit applications on their behalf to secure a portion of the first $500 million of this $5 billion of funding. The applications closed in the middle of August with winners to be announced in October. We will touch on this more later in the call. Slide 7 reflects the key takeaways you will hear throughout our remarks. Unlike many industries experiencing a slowdown, demand for school buses couldn't be better. The entire industry has pent-up replacement needs and the backlog for the industry stands at 10 months and Blue Bird is no exception. We have also taken aggressive actions to reduce our operating costs through 2022 calendar year. This allows us additional time for our improvements in operations and supply chain to materialize and support increased build rates. Additionally, we have made some significant progress in overcoming inflationary pressure by partially recovering pricing on the backlog, pricing new orders at 25% above last year and implementing new policies to ensure we stay aligned with any cost increases in the future. Also we are not just waiting for the supply chain to improve, we have implemented numerous internal measures to control our own destiny. Resourcing suppliers, taking steps out of our material flow to better support production, and continuing our focus on reducing conversion costs and improving the quality of the finished product. As we already discussed, we continue our leadership in EV and are preparing for the on-slot of electric bus demand driven by the release of the infrastructure spending. With all this good news, we remain cautiously optimistic about the macro supply chain environment. However, we still have some concerns relative to the semiconductor availability that has impacted our auto manufacturers. For more details on the key takeaways we turn to Slide 8. The strength of the market demand is evident in the year-to-date order intake for the industry, which is 30% higher than the previous year and 19% higher than the pre-COVID levels of 2019. If you order bus today from any manufacturer, your wait will be about 10 months. Blue Bird has it's relative historical market share of that backlog with 6,300 units with $700 million and 63% of that being an alternative to diesel. The EV demand is robust and demand for the first round of EV funding from the Clean School Bus Program is strong. We are constantly evaluating the supply base and preparing for increased production volume when we see stabilization. As we sit here today, we have seen some significant improvement in the last 30 days based on changes we have made to our operation and with our suppliers. We took aggressive cost mitigation actions in the quarter to right-size the organization to the supply constrained production volume. Including reductions enforced and short-term executive pay cuts. Also we delayed projects not critical to our core growth initiatives but kept moving forward with key programs that scale EV production capacity and launched our electric commercial chassis. During all our cost saving measures, we reduced our operating cost by $7 million for the second half of the calendar year. We also worked diligently on recurring economics through pricing. We partner with our dealers to partially recover pricing on all the backlog unit, which were not at current market pricing levels based on when they order. Blue Bird has the best dealers in the school bus business, and I greatly appreciate the partnership and their collaboration with us on this unprecedented initiative. Price on new orders has also been increased by 25% since July of 2021 and 20% since October of '21. Through these efforts, we've been able to double the standard gross margins of the backlog since October of 2021. We have also implemented pricing recovery mechanisms such as PPI index based on longer term deals. Now we are beginning to see softening in the global commodity market. If that holds, it should begin to impact our cost base in the first quarter of fiscal year 2023. Our business fundamentals are strong with robust demand on optimized cost structure and margins dramatically increased since the beginning of our fiscal year. As I mentioned, we are not sitting idly by waiting for supply chain and normalize and on Slide 9, you can see we are continually improving our operations. We have made significant enhancements of the ability of parts for production through focused leadership, new processes and increased resources for operation. We also re-engineered, most of our material flow from our suppliers to go directly to our production facility to reduce time in handling costs. As we've discussed in previous earnings calls, we have also resource components from problematic suppliers in dual or even triple stores were suppliers have production constraints. We have even helped our supplier source critical components for our own production needs. Missing parts remain elevated roughly two dozen per bus throughout the quarter. However, we are starting to trend favorably. And in the last month we turn to close to a dozen per bus and in the last few weeks over 50% of our buses had all the parts the start of production. Now that is something we haven't seen a Blue Bird since the spring of 2021. And in challenging supply chain environment, we are also making progress on reducing defects per unit seeing a 50% reduction since quarter one. We're also elevating expectations or first path yield in areas of our operations, such as our paint shop and have shown dramatic improvements in our results with focus and root cause analysis. As we have discussed over many quarters, reducing production hours per bus by 30% by 2025 is a clear focus for us. We have already reduced our standard by 20 hours. This reduction has not necessarily flow through to the financials yet, given the number of offline hours are still required to complete a bus due to missing parts and production. As the supply chain improves, we continue to adjust our production schedules to optimize work wise balance for the teammates, throughput and cost. There is a tremendous amount of activity occurring on our path to developing a fully electric future. Some of the highlights are on the right hand side of this slide. As I mentioned, we announced the future EV-repower solution in collaboration with Lightning eMotors to help our customers create a bridge to a fully electric future. Customers want to purchase our cleaner emissions propane and gasoline powertrain products now, but in some states, they may need to operate a fully electric fleet later in the life cycle the buses they purchased today. We are helping our customers bridge that gap. Also we are becoming partners and larger EV school bus deployments our customers are demanding turnkey infrastructure solutions and we are here to serve them. That is why we created Blue Bird Energy Services which will help design the proper charging infrastructure for the needs of today in the future. We will work with utilities to ensure the grid can supply the customer's needs whether for power or V2G capability. We also continue to make progress on our Class 5, Class 6 electric commercial chassis and interest of the potential end-users and body companies continues to build. With a, such a strong backlog and electric school buses and being on the verge of substantial order increases due to the infrastructure funding bill. We need to increase our EV capacity beyond the current four units per day. Therefore, we are progressing on the renovation of an existing 40,000 square feet facility dedicated for final EV powertrain installation, and commissioning. We expect this facility to be online by the end of calendar year 2022. With this new facility we will increase volume to 20 units per day by the end of the calendar year 2023. Overall, we've made a lot of progress on a recovery plan this quarter. And it's starting to come through in our financial results. At the same time, we are improving our operations and continue our leadership in alternative fuels in EVs. I would now like to hand it off the Razvan to walk through our financials in more detail.

Thanks Matt, and good afternoon. It's my pleasure to share with you the financial highlights from Blue Bird's fiscal 2022 third quarter results. The quarter-end is based on a close date of July 2, 2022 whereas the prior year was based on our July 3, 2021 close date. We will file the 10-Q today August 10, 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 11 is a summary of the third quarter results for fiscal 2022 and fiscal 2021. It was another operationally tough quarter for Blue Bird with reemerging supply chain disruptions and commodity cost pressures that have impacted many manufacturing industries. With these challenges Blue Bird unit sales volume of 1,726 units was 298 units, lower than prior year due to the constrained supply base, which was impacted by the Ukraine war and the COVID lockdowns in China. We experienced supply issues for multiple components across a number of suppliers. Through July however, we started to see improvement in the number of missing parts per bus as Matt already mentioned. Blue Bird backlog of 6,300 units at quarter-end is incredibly strong and almost 60% higher than a year ago. As of today, our production capacity, which will remain constrained for the balance of the calendar year is full through March and we are selling fiscal 2023 Q3 production slots. Our ability to complete and deliver all of these units on time will depend on supply stability of key components. Consolidated net revenue of $206 million was $9 million higher than prior year of that bus net revenue was $187 million, up by $5 million versus prior year. Our average bus revenue per unit increased from $90,000 to $108,000 which was largely the result of pricing actions taken over the past 10 months as well as the higher mix of electric buses - 3.5% versus 1.5%. Supply constraints EV sales were at the level of 60 units or 29 more than last year. Parts revenue for the quarter was $19 million, representing an improvement of $5 million compared to the prior year. Over the past few quarters, we have seen improvement in part sales, which is an indicator that the normal work for school districts is getting back to pre-COVID levels, although there has been some disruption also in our parts business due to supplier shortages. Gross margin for the quarter was 10.5% or 280 basis points lower than the same period last year and in line with our messaging on the Q2 call. We expected to see margin compression versus prior year, but significant sequential improvement from Q2 as our pricing started to take hold. Over two-thirds of the units sold in the quarter were relatively low margin backlog units that were price throughout last year. I will discuss this in detail later in the presentation. In Q3, fiscal 2022 adjusted net income was negative $3 million or $8 million lower than last year. Adjusted EBITDA of approximately $9 million was down compared with the prior year by $4 million, adjusted diluted earnings per share of negative $0.09 was down $0.28 from the prior year. Slide 12 shows the walk from fiscal 2021, Q3 adjusted EBITDA to the fiscal 2022 Q3 results. Starting on the left of $13 million lower bus volume of 298 units was offset by higher parts revenues for a neutral impact. Pricing, net of economics was slightly negative in the quarter driven by higher steel and commodity costs and margin compression as we work still through the old backlog. This is very encouraging to see as we are finally seeing that pricing caught up to economics i.e. material cost increases. Operating efficiencies however, deteriorated by $4 million from last year, driven by higher freight costs approximately $500 more per bus and supply disruptions and parts shortages generating rework in the plan. SG&A and engineering expenses excluding restructuring expenses were over $2 million lower than last year due to the significant cost control measures that were put in place. Additionally, in the other category, our JV results from Micro Bird were close to $2 million lower versus the prior year. They have also been affected by supply chain shortages predominantly the microchip shortage which is impacting the chassis allocation from Ford and GM. Moving to Slide 13, we wanted to give you a perspective of what the underlying normalized results for Q3 would have looked like, absent of the supply chain constraints. On the volume side, we plan to build and sell at least 2,000 units in the quarter, which we were not able to do due to additional shortages. Have they booked the planned units and avoiding the costs incurred to shuffle the production schedule profit would have been approximately $16 million. In an average Q3, we would have booked approximately 2.5,000 units, which would produce an incremental $5 million. So given our current cost structure in a normal volume quarter we would have made approximately $21 million of adjusted EBITDA. On Slide 14 you can clearly see that we made significant progress in virtually all aspects of the profitability compared to Q2 despite slightly lower bus volumes. Bus revenue per unit is up 10,000 and parts revenue is up as well. Adjusted EBITDA is up almost $20 million, gross margin and adjusted EBITDA margin are both up 9% points. This is a clear indication that our recovery plan and plant operational improvements are working and we are ready to deliver profitable growth once the supply chain is stabilizing more. Moving on to the balance sheet and liquidity on Slide 15, we ended the quarter with cash of $26 million, debt was the $214 million or $47 million higher than last year. Net debt of $187 million was $32 million higher than prior year. It is worth noting that we were in compliance with all covenants at the end of the quarter. There were two active financial covenants in our credit agreement for the period. First, the trailing 12 months EBITDA, as defined under the credit agreement was $8.7 million versus a minimum requirement of negative $6.8 million. Second liquidity as defined under the credit agreement was $60.2 million versus a minimum covenant for Q3 of $15 million. Therefore, we remained in compliance with our credit agreement covenants. We are in active discussions with our bank syndicate regarding the next steps for our credit agreement. Moving on to Slide 16, we have already covered the cash and debt on the previous slide. The reduction in operating cash flow and adjusted free cash flow was primarily driven by trade working capital due to our inventory build in the quarter. I will discuss this in detail on the next slide. On Slide 17, you will see on the left side, the increase in raw material and working process we experienced during Q3 to understand the development we have to go back to January and February when the supply chain, starting to improve. As a result, we decided at the time to ramp up production in Q3 significantly compared to Q2. Our lead time frozen zone for suppliers is 10 weeks out, so we placed increased order quantities at the end of Q2. Then the Ukraine war started and the China COVID lockdowns followed, and not all of our suppliers could deliver our increased scheduled, but many did. During Q3, we adjusted back down our production schedule, but a large number of the inventory was already on the ground or in transit. And many buses were already set up and as a result, we had close to 600 buses in working process by quarter end compared to a normal level of approximately 300. Regarding raw material components, it was not only elevated by the parts coming in, but also because we are increasing our strategic pre-buys of major components from Ford and Cummins. The EV buses are an increasing portion of our business and they come with a three times factor material cost, once you count the batteries in the EV powertrain kit. However, we have already seen a significant inventory reduction of $15 million by the end of July and they expect that trend to continue throughout Q4 and into Q1 of fiscal 2023. In summary, we have an incredibly strong demand, which is now supported by higher inventory levels and strategic major component pre-buys positioning us to enter strong into fiscal 2023. On slide 18, I would like to give you an update regarding how we are working through the backlog with all pricing. The area sections on the graph represent the unit volumes by month on the left axis. In Y's can see that almost half of the volume was build and sell in fiscal 2022 comes from fiscal 2021 orders. Which in today's inflationary environment are yielding low, but improving margins due to our recent backlog pricing action. In light blue we are taking up units order during Q1 of fiscal 2022 although some were quoted also during the second half of fiscal 2021. So there are still all 2021 units. On the right axis as horizontal lines, you can see the relative improvement in standard gross margin per unit with the multiple price increase is taking hold. In fact, we have doubled our standard gross margin on our backlog versus the end of fiscal 2021. Together with our dealer partners, we are also able to increase partially the prices for backlog units beginning with May production and recover about half of the missing pricing for each respective price level compared to today's level. Therefore, our average revenue per bus is improving with every quarter. Additionally, we already implemented a, variable pricing options PPI-based partly this year and we will announce another variable pricing option raw material basket-based later this year. Together with quarterly production slot allocation for second half of fiscal 2023 more to come on this during our next earnings call. On Slide 19, you see how the steel prices shot back up $300 to $500 per ton in March and April and diesel went above $5 per gallon. While we are looking prices for the 20% of steel approximately that we use in our own fabrications our suppliers are mostly on a quarterly raw material escalator which will hit our bottom line in Q4 of fiscal 2022. These impacted almost immediately our shipping cost via trucks and the general Tier 2, 3 and 4 supply chain disruptions started to unravel drove more air freight and expedited shipments. The recent COVID lockdowns in China further compounded the supply chain disruptions during Q3. The good news is that steel prices resume the downward trend through July. So this should favorably impact our Q1 of fiscal 2023. On Slide 20 looking at full year fiscal 2022 as previously discussed, we had an operationally difficult Q3 due to supply constraints. This environment is expected to continue into Q4 and reduce our throughput increase. Therefore, we are lowering our revenue expectation for the year to $750 million to $800 million. Further impacting our outlook, we are experiencing a recent temporary semiconductor shortage affecting our EV bus production in the second part of Q4. This shortage impact high margin units and inventory levels by a factor of 3X versus an average bus. Therefore, we are revising our adjusted EBITDA guidance for fiscal 2022 to a range of $5 million to $15 million. The adjusted free cash flow is expected to be better than last year, but remained negative after Q3 year-to-date on a range of negative $45 million to negative $35 million. With that I will now turn the discussion back to Matt who will walk you through our key focus areas and business outlook.

Thank you, Razvan. On to Slide 22, we continue focusing on our foundational objectives of taking care of employees, delighting customers and dealers and delivering profitable growth. As you heard throughout the prepared remarks today, we are making progress on our core focus areas for fiscal year 2022 which include our people, lean transformation, expanding our total addressable market with our electric commercial chassis and scaling for the growth in EV. Slide 23 is a reminder of the timeline for the EPA Clean School Bus Program. The applications are due in little over a week and as I stated earlier, we've been working with a large number of customers on the application process. We expect to qualify lottery winners, we notified sometime in October. And we will see those orders in the first quarter of our fiscal year 2023. Priority districts qualify for 375,000 in funding per bus and non-priority districts qualify for 250,000. There is also money for cleaner emission school buses like propane in which we are the leader in the amounts of 15,000 or 25,000 per bus. We have deployed substantial resources internally and externally to ensure our customers are successful in participating in this program. Blue Bird is well positioned to receive many orders for clean and cleaner emission buses through this funding. In summary, the fundamentals of our industry are strong demand is robust and Blue Bird's backlog of $700 million and 6,300 units this proof of this. We have significantly increased our standard gross margins through initiatives to address pricing on the new orders and on the backlog. We also deployed mechanisms of longer-term deals to ensure cost recovery in inflationary environment. The supply chain is starting to show signs of stabilization plus we have implemented numerous measures to dramatically improve parts availability. Although, there are some constraints on the horizon for the fourth quarter that will again limit production volume and more specifically impact our throughput on EV units. We expect these constraints to lessen throughout the remainder of the calendar year. We have taken aggressive measures to cut costs and right-size the operation through this period to improve profitability. Our lean transformation initiatives are making progress in reducing production hours per bus and will bear fruit in an normalized supply chain environment. As we work to continue on expanding our total addressable market with the electric commercial chassis, we are expanding our leadership in electric school buses through increased infrastructure solutions for customers and bridge solutions to a fully electric future. We look forward to updating you on our progress. And in the meantime we stay laser focused on our priorities in our deliverables. We would now like to open up the line for questions. Thank you.

Thank you. We will now begin the question-and-answer session. [Operator Instructions] The first question today comes from Mike Shlisky with D.A. Davidson. Please go ahead.

Yes, hello, good afternoon. Thank you. I guess I wanted to maybe get a little more clarity on the guidance. You've mentioned that the pricing is getting better, presumably you have better pricing once you build out your backlog in Q4 versus Q3. Supply chain currently has gone better in the last 30 days or so. You mentioned your internal improvements are all improving. You kind of -- you've left open the door for basically flat sales and less EBITDA in the fourth quarter. So I'm curious as how likely is that to happen? How likely is the low end from this point, given what you know here around mid-quarter that would make it worse. It just seems like everything is doing better, but you're looking open the door for something negative to happen. So just a little bit more color there would be appreciated.

Hi Mike, this is Razvan. Thank you for the question. And as we look at Q4, there are several other factors at play here. So you are correct in the sense that our standard gross margin is improving every quarter as the mix of units is getting better and better. On the other hand, on the cost side, we do have several supplier-driven cost increases that are becoming effective on July 1 based on our contracts, whether they are on a three-month escalator or six months escalator. And additionally, as mentioned in the remarks before, the harm for experience in the steel prices throughout Q2 and into Q3 is becoming due in our cost also in Q4. So we have higher costs in Q4 compared to Q3. Additionally, as mentioned in the guidance section as well, we are experiencing this critical but temporary EV supply chip shortage and definitely the EV in our backlog and in our production are some of the higher-margin units. So when you combine all those factors, this is why our Q4 is not a continuing improvement compared to Q3.

Okay. Thanks. Maybe touch on some EV questions real quick as well while we're on that topic. I guess, first, I want to get a sense for maybe EV bus orders call it, the last month or two and this month and next couple of months. Has most EV orders been put on hold entirely until folks hear back from the federal government in October and you anticipate some kind of either those that won the lottery will place the order, those that didn't will just shrug their shoulders and also place the order, but they've all been holding off more recently. Is that --

Mike, this is Matt Stephenson. No, that's not the case. There's a number of orders coming through the funnel here. And so people are continuing to order buses, whether it's from the HVIP program or other funding mechanisms across the country. But we do expect that onslaught of somewhere around 1,500 buses coming out of that first tranche of the Clean School Bus Program, and those orders will fall in our first fiscal quarter of '23.

Okay. And just a follow-up there, Matt. I know that the buses can be built by 2024, the ones that are selected. But do you intend to make sure that all the ones that order through Blue Bird are all built in fiscal 2023 and time for next school year?

Yes. So one of the things we're doing, Mike, is we're allocating production slots for EV every month in working with our key partners, [Cummins and EXALT] to make sure we have component availability. And our goal would be to try to work through as many of those as possible by the end of our fiscal year '23.

Okay. I can just throw one last one in there. I guess I was curious about how the backlog was supposed to work during fiscal Q3. I would expect it to go down quite a bit, normally just given seasonality and how you build things in advance for customers of the next school year. Is that how it normally would be? And were you actually pleased with the level? I know that certain things couldn't ship or didn't ship, but are you pleased with where things turned out, given the seasonality on the backlog?

Yes. I mean the backlog we have is great, but we also have a number of customers that have been waiting for their buses, and we anticipate, as Razvan stated earlier, higher production rates that this supply chain couldn't sustain. So we would have had more buses in production if we were able to -- yes, you were correct. At this time, you should have seen the backlog peak sometime in the spring and then come down for the seasonality of the business.

From a dollar percentage, even though it was flat, the units being lower it's just -- is that basically just pricing or mix with EVs or will be both?

It's a bit of both for sure. So it's an increasing level of EVs and as well as the recent pricing actions taking hold, combined with the partial backlog pricing recovery, we were able to put in place together with our dealer partners.

Super. I appreciate the color. I'll pass it along.

Thank you, Mike.

The next question comes from Eric Stine of Craig-Hallum. Please go ahead.

Hi, everyone.

Hi Eric.

Maybe I'll just stick with the infrastructure funding that's coming here in the somewhat near term. I mean, any thoughts, market intelligence, I'm sure you're in constant discussion with your dealers, and they've got feet on the ground. Propane, I would think you have a dominant share. Any thoughts on what your capture rate or you hope your capture rate is for the EV piece of it?

Yes. I mean, Eric, we're working really hard. We've deployed a number of external and internal resources to partner with our customers to submit applications. In fact, I just saw some data today that was third-party market data, that 90% of the applications out there have been for EV in totality out there. So I imagine the lion's share of the funding will go for EV, and we expect Blue Bird to get our historic share of EV at a minimum on this program.

Got it. I guess we'll stay tuned on that. Maybe just on pricing. Can you just talk about -- I mean, everyone is aware of what's going on in the market, but I would think it's still heavy lifting to some extent to go back and try to get some repricing of buses that are still in backlog, especially in light of the fact that, as you said, some of these customers have been waiting for a very extended period of time to get buses. So maybe -- just talk about that process, whether there was pushback, how much and some of the steps you had to take?

Yes, Eric, it was a lengthy process. We -- like I mentioned in the call, we have a great dealer body in the Blue Bird dealers stand. We work through our dealer counsel and really explain the unprecedented nature of inflation and commodity costs and just the industrial cost that all manufacturers have seen and took that messaging out to our customers, and we supported that. I was even on calls with end customers as well as, of course, our sales team and other internal resources. And I think inflation has been communicated so much, whether it's in the news or various channels that customers generally were pretty understanding of the unprecedented situation. I mean schools have seen everything from their capital projects, budgets been way out of sight to the school lunch programs, you name it. They're getting hit from increased costs. So it wasn't something that they were not familiar with. But like anything, as you can imagine, it just took a lot of time and extensive communication to be successful. And again, thank our dealers and walking hand-in-hand with us in this process.

Got it. And then maybe last one for me, just following up there. I mean any thoughts on ability with the customer base accepting those -- that repricing thoughts on ability to hold on to some of these price increases should some of these inflationary what's going on in the market, should those ease a bit? Do you think you can hold on to price? Or do you think that that's going to be part of the deal, having to give some of that back?

Yes. So definitely, we will monitor carefully our competitiveness into the marketplace as we look into the future, and we will have to assess how our pricing actions are comparing to the other competitors. At this point, there is still a lot of cost pressure from the supply base, whether it's inflation, still some commodities with a time lag. So I would say short term, it's unlikely that we will go down. However, we will have to monitor and see how the trends in the general materials and inflation for label are developing throughout the next fiscal year.

Got it. Thank you.

This concludes our question-and-answer session. I would like to turn the call back to Matthew Stevenson for any closing remarks.

All right. Thank you, MJ, and thank you to all of those joining us on the call today. As you heard during our prepared remarks, demand for buses remains incredibly strong with a backlog of 6,300 units or $700 million. We also have taken aggressive cost mitigation actions through the end of the calendar year 2022. On standard gross margins in the backlog, we've been able to double them since October of 2021 through our implemented pricing actions we discussed in depth. And parts availability is improving through changes we have made in our operation and increased stability in the supply base. Plus, we are continuing our leadership on electric buses, nearly 400 units in the backup log, and that is set to dramatically increase when the Clean School Bus Program winners are announced this fall. Now we look forward to updating you on our progress next quarter and appreciate your continued interest in Blue Bird. Should you have any follow-up questions, please do not hesitate to contact our Head of Investor Relations, Mark Benfield. And thanks again from all of us here at Blue Bird. Have a good afternoon

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.