Blue Bird Corporation (NASDAQ:BLBD) Q4 2022 Earnings Call Transcript

Blue Bird Corporation (NASDAQ:BLBD) Q4 2022 Earnings Call Transcript December 12, 2022

Operator: Good afternoon and welcome to the Blue Bird Corporation Fiscal 2022 Fourth Quarter Earnings Conference Call. Please note this event is being recorded. I would now like to turn the conference over to Mark Benfield, Head of Investor Relations. Please go ahead.

Mark Benfield: Thank you and welcome to Blue Bird’s fiscal 2022 fourth quarter earnings conference call. The audio for our call is webcast live on blue-bird.com under the Investor Relations tab. You can access the supporting slides on our website by clicking on the Presentations box on the IR landing page. Our comments today include forward-looking statements that are subject to risks that could cause actual results to be materially different. Those risks include, among others matters, we have noted on the following two slides and in our filings with the SEC. Blue Bird disclaims any obligation to update the information in this call. This afternoon, you will hear from Blue Bird’s President and CEO, Matthew Stevenson; and CFO, Razvan Radulescu. Then we will take some questions. Let’s get started. Matt?

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Matthew Stevenson: Thank you, Mark and good afternoon everyone. Razvan and I are incredibly excited to share an update on the progress of Blue Bird. No doubt fiscal year €˜22, which closed on October 1, was a challenging year due to the residual effects of COVID that impacted our business, which included exhaustive supply chain disruptions and unprecedented industrial inflation. However, I am proud to say through the hard work of the Blue Bird team, we have navigated these turbulent seas and have positioned the organization for significant success in this current fiscal year 2023. On Slide 6, you can see we did that by executing our plan in several key areas, along with the added benefit of strong market fundamentals. Overall, industry demand is robust and is driving a record backlog for Blue Bird this time of the year.

We also continue to hold a leadership position in alternative fuel and electric buses. Throughout the year, we aggressively increased forward pricing and we partially recovered pricing on the backlog to match inflationary economics. In addition to raising prices, we dramatically drove cost out of the business and not just for the short-term. We reorganized our functional areas to be more efficient and leaner and we eliminated several non-value-added operations across the business. Through strong leadership, tenacity, lean processes and a host of operational changes, we improved parts availability and increased our throughput and quality. Missing parts hat setup are down dramatically compared to previous quarters and the vast majority of our parts are now installed in station, reducing rework costs and improving quality.

This is by far and away the best position that Blue Bird has been in since I joined the company 18 months ago. The financial performance for fiscal year €˜22 shown on Slide 7 reflects several headwinds that are now mostly behind us and does not capture the current state of the business. However, some key financial metrics are showing signs that we have turned the corner. Bookings at 6,822 were up only 2%. Our revenue was up 17% to $801 million as our pricing started to take hold throughout the year. Adjusted EBIT was negative $15 million, but free cash flow was up $39 million year-over-year as throughput increased in the back half of the year and we drastically reduced inventories. Even though the financial results were not ideal, we still had several key successes as you can see on the right hand side of the slide.

As I mentioned, demand is robust. In fact, industry order intake in fiscal year €˜22 was up over 30% compared to the prior year and even up 9% versus 2019. Blue Bird is seeing this increase in demand. Our backlog is incredibly robust, with over 5,000 units worth over $600 million in revenue. Nearly 60% of that backlog is alternative power, demonstrating our continued leadership in the space. Included in that alternative power backlog is around $100 million Affirm orders for electric buses and we are only just starting to receive orders for the EPA’s Clean School Bus program. The strength in our EV business is evidenced by the fact our bookings are up 84% year-over-year and we recently crested over 850 electric school buses on the road today, including Type A, C and D.

As we have discussed in previous quarters, we have raised pricing by 25% since July of €˜21, which is aided in doubling our standard gross margins in the backlog since the start of our fiscal year. Parts sales were another bright spot for us, up 30% year-over-year. With such a strong recovery and with our business back on track, we extended our term debt through the end of calendar year 2024. Now, the EV school bus revolution is just getting warmed up. The EPA recently announced the lottery winners for the first $1 billion in funding from the Clean School Bus program, which provides $5 billion over 5 years for clean and cleaner emission school buses. Blue Bird is poised to generate over $200 million in revenue from just this first round of this fantastic program.

And this wasn’t by chance. We offer the industry the leading electric school bus through our powertrain partnership with Cummins. We have proven to customers that our electric buses are not a novelty and can perform on their regular routes. Plus the Blue Bird Energy Services launch this year we successfully assisted many end customers and dealers in applying for the lottery program. Through the other facets of Blue Bird Energy Services, we are now helping these customers plan and secure their electric infrastructure. Slide 8 shows the focus areas we laid out nearly a year ago. We center everything we do on care, delight and deliver. And in fiscal year €˜22 that included four main focus areas: our people, lean transfer transformation, expanding our total addressable market and scaling EV.

Now on Slide 9, I want to highlight the progress of each of those focus areas. When it came to our teammates, we focused on several crucial elements. We laid out a clear vision to be the clean school bus transportation leader. We hired a nearly all new leadership team to take this company to a higher level performance. We implemented numerous communication channels in our organization, everything from town halls to a mobile app to drive more engagement with our employees. That employee engagement included new opportunities for employees to provide feedback, interact more regularly with senior management and share their ideas. We have also improved the competitiveness of our wage and benefits structure to reward employees, compensate for inflation and reduce turnover.

In addition, we have improved our employee onboarding, span of control and talent review processes. The second focus area was lean transformation. We rolled out numerous initiatives across the planet focused on safety, material placement, teamwork, accountability and reducing waste. For example, we are in the process of completing a rollout of self production teams. These teams are accountable for a specific portion of the manufacturing process included dedicated leader for production, quality, materials and manufacturing engineering. These teams work to deliver the best output at the lowest cost and focus on immediate problem resolution, accountability, training and coaching. They have already made a significant impact on our business performance.

Lean methodologies have also improved the layouts of our areas of the plant to make them safer and more efficient. An example of this is our final finish area pictured in the top right, where we increased our output by over 30%. We also made progress on our plan to increase EV school bus production from 4 to 12 per day by the end of the first half of calendar year €˜23 and to 20 per day by the end of calendar year €˜23. We are renovating an existing 40,000 square foot building on our campus for final EV chassis assembly and commissioning and we expect it to be complete by the end of March. We also started down the path of expanding our total addressable market with a focus on the strip chassis market for last mile delivery vehicles. There is incredible demand for an additional OEM EV provider in the space and the prototype strip chassis we debuted in May at the ACT Expo garnered much attention.

We continue to progress on this product with the goal of having units in customers’ hands by the end of calendar year €˜23. Overall, I am very proud of the accomplishments of the Blue Bird team in a challenging external environment. Our progress in fiscal year €˜22 has set us up for an incredibly successful fiscal year 2023 even in a relatively supply chain constrained market. I will touch more on our fiscal year €˜23 outlook in a few minutes, but in the interim, I would like to hand it over to Razvan to walk through our fiscal year €˜22 financials in more detail as well as our fiscal year €˜23 guidance.

Razvan Radulescu: Thanks, Matt and good afternoon. It’s my pleasure to share with you the financial highlights from Blue Bird’s fiscal 2022 and fourth quarter results. The quarter end is based on a closed date of October 1, 2022, whereas the prior year was based on a closed date of October 2, 2021. We will file the 10-K today December 12 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. 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 fourth quarter and full year results for fiscal €˜22.

I will start with the fourth quarter results summary and I will focus on the full year results for fiscal €˜22 and guidance for fiscal €˜23 for the remaining of the presentation. It was another challenging quarter for Blue Bird with some persistent supply chain disruptions limiting our throughput and impacting our efficiency and over time with the planned and delayed inflationary cost pressures that became effective on July 1. We also had extremely high working process at the beginning of the quarter and we worked through still a large number of all backlog low margin units with older pricing. Despite all these challenges, the team has done a fantastic job and generated 2016 unit sales volume, which was 105 units or 6% higher than prior year.

Consolidated net revenue of $258 million was $66 million or 34% higher than prior year, driven primarily by higher mix of electric buses and pricing actions that are starting to take hold. The adjusted free cash flow was $30 million positive, $70 million higher than the prior year fourth quarter. This outstanding performance was driven by the reduction in inventory back to normal levels during the quarter and supports our great liquidity position at the end of fiscal €˜22. Adjusted EBITDA for the quarter was negative $16 million and it includes a non-cash inventory charge of negative $9 million, which we took at the end of the year. Excluding this charge, the adjusted EBITDA would have been negative $7 million due to supply chain driven operational inefficiencies that were incurred in working down the inventory.

Additionally, we experienced in this quarter increased material costs and still a relatively large amount of all backlog units. Looking back at the total year, fiscal €˜22 was an incredibly difficult year for Blue Bird. We started in Q1 with the supplier allocation that cut our volumes approximately in half, followed by unprecedented inflation in steel prices that almost tripled by Q2. We had fixed pricing on all backlog during the entire first half and an unsuccessful production increase in Q3 and the respective inventory accumulation. However, the current trends are encouraging, with all the operational metrics starting to improve during Q3 and continuing in Q4. As a result, we sold 6,822 buses in the year, 143 units higher than prior year, so slightly above fiscal €˜21.

Consolidated net revenue of $801 million was $117 million or 17% higher than prior year, driven by pricing actions that started to take hold, especially in the second half of fiscal €˜22. The adjusted free cash flow was negative $23 million and still $39 million higher than the prior year, driven by the reduction in inventory back to normal levels by the end of Q4. Adjusted EBITDA was negative $15 million or $49 million below prior year. This includes a year-end $9 million non-cash inventory charge. Excluding that, the adjusted EBITDA for the year would have been negative $6 million. Moving on to Slide 12. As mentioned before by Matt, our backlog at the end of the year continues to be extremely strong at over 5,000 units with the vast majority of these units at much higher price levels compared to the fiscal €˜22 build units, more on this later on.

Breaking down the $801 million in revenues into our two business segments, the bus net revenue was $724 million, up by almost $100 million versus prior year. Our average bus revenue per unit increased from $94,000 to $106,000, which was largely the result of pricing actions taken over the past 12 months as well as a higher mix of electric buses, 3.9% versus 2.2%. Supply-constrained EV sales were at a level of 269 units or 123 more than last year, an 84% increase. Parts revenue for the year was $77 million, representing an improvement of $18 million or 30% compared to the prior year. Over the past few quarters, we have seen improvement in part sales, which is an indicator that the normal workforce school district is getting back to pre-COVID levels.

Gross margin for the year was 4.6% or 590 basis points lower than last year due to the old backlog fixed pricing, increased material costs and supply-driven operational inefficiencies. In fiscal €˜22, adjusted net income was negative $36 million or $45 million lower than last year. Adjusted EBITDA of approximately negative $15 million was down compared with prior year by $49 million. Adjusted diluted earnings per share of negative $1.15, was down $1.46 from the prior year. Slide 13 shows the walk from fiscal €˜21 adjusted EBITDA to the fiscal €˜22 results. Starting on the left of $34 million, slightly higher bus volume of 143 units and increased parts margins generated a positive $8 million improvement year-over-year. The next three bars need to be analyzed together.

Pricing improvements of approximately 10% lifted our standard gross margin by $80 million. However, the material costs, including steel increased by $72 million year-over-year and supply chain disruptions and higher freight costs generated operating inefficiencies of $51 million. Bottom line, due to the old backlog and fixed pricing, we’re able to cover only two-thirds of the extra costs incurred during the year. SG&A and engineering expenses, excluding restructuring expenses, were each $4 million higher than last year due to labor cost increases versus extraordinary COVID related cuts in prior year and Blue Bird reinvesting in engineering projects to ensure our future growth in EV and chassis and to maintain our leading product competitiveness.

Additionally, our JV results from Micro Bird were close to $5 million lower versus prior year, but they have been also affected by supply chain shortages, predominantly the Microchip shortage, which is impacting the chassis allocation from Ford and GM. As of today, the chassis supply has been improving, and we expect the JV to return to profitability in fiscal year €˜23. Looking at the total year results. If you add back the operational inefficiencies driven by the supply chain of $51 million and the year-end non-cash inventory charge of $9 million, our results have been $45 million or $11 million improvement versus the prior year. Moving on to Slide 14. We have all across the board positive development year-over-year on the balance sheet.

We ended the year roughly with $10 million in cash and reduced our debt by almost $40 million. The improvement in operating cash flow and adjusted free cash flow were primarily driven by trade working capital due to our inventory reduction in the last quarter. I will discuss this more on the next slide. As a subsequent event, at the end of November, we entered into the 6th amendment to our credit facility, extending the maturity date through December 31, 2024. The 6th amendment provides for revised covenants, modifications to the revolving credit facility and the new pricing grid. The amended covenants and the extended maturity of our loan provides Blue Bird with both flexibility and stability as our business continues to recover from the COVID-19 pandemic and associated global supply chain disruptions.

On Slide 15, you’ll see the fantastic progress done by our operations team to reduce raw material inventories and work in process, returning to a normal level by the end of the quarter, as indicated in our last earnings call. As a reminder, our end of Q3 inventory levels were elevated due to the unsuccessful steel production ramp-up we kicked off before the war in Ukraine and China lockdowns happened earlier in the year. As mentioned before in the presentation, at the end of Q4, certain robust segment inventory had an approximately $8.8 million cumulative cost in excess of net realizable value that was recognized as a loss in fiscal €˜22 with no similar activity in fiscal €˜21. We are also continuing our strategic pre-buy of major components Ford engines and EV components to ensure smooth production levels in fiscal €˜23.

We are very happy to report that the positive inventory reduction trend continued through October and November in fiscal €˜23, Q1. And our liquidity sits at approximately $100 million as of December 1, with the revolver balance at zero. So our balance sheet is in great shape for fiscal €˜23. In the next few slides, we will share with you why we are very confident that the worst is behind us. Our turnaround is working, and we are on track to return Blue Bird to historical profitability during fiscal €˜23. On Slide 16, you see how after the steel spot prices shot back up $300 to $500 per ton in March and April that bubble reversed itself by July. The favorable trend continued through December 1, and this is a very good development for our future results, especially for second half of fiscal €˜23 and into fiscal €˜24.

One is to take into account that we are also entering in future logged contracts for steel prices with certain tonnages up to 12 months forward. Therefore, the favorable impact will be a stair-step function of blending lock tonnages with superior spot prices. However, this is an upside at this point for our fiscal €˜23 results, assuming that spot prices remained relatively low in the future. On Slide 17, we are showing a simplified production versus backlog age and pricing structure as an update of how we are working through the backlog with old pricing. You can see that the first half of fiscal €˜22 was comprised entirely of all backlog units. By Q3 and into Q4, we started to build some better-priced units, but still with the gap versus the current economics.

This explains a large portion of our losses during fiscal €˜22. Together with our dealer partners, we also were able to increase partially the prices for backlog units beginning with May production and recovered above half of the missing pricing for each respective price level. However, during fiscal €˜23, Q1, we still have approximately one-third of our production with very old units and some of the worst margins. We estimate this headwind to be approximately $10 million for fiscal €˜23, Q1 or 5% on approximately $200 million in revenues. Nevertheless, starting with fiscal €˜23, Q2 in January, we will have put the vast majority of the all backlog units behind us and have locked in pricing and backlog units at increasingly better margins.

In fact, our production schedule is almost full through the end of fiscal €˜23 Q3 with some production slots left for EPA EV orders. While on some models, Type D for example, we are sold out for the entire year, currently, we are filling the remaining slots open for fiscal €˜23 Q4 for Type C and EVs at very good margins. On Slide 18, looking at fiscal year €˜23, we want to share with you our forecast by quarter, which serves as a basis for our fiscal €˜23 total year guidance. We are taking a more transparent and conservative approach this year, but it will still be a somewhat uncertain year from a supply chain perspective, yet we are confident that we have course corrected all of the other business levers that we could address. Looking at fiscal €˜23, Q1, our normal year historical results are around $5 million as this quarter has a lower number of production days and sometimes seasonally labor-related higher expenses related to calendar year-end.

Taking into account the headwind of $10 million from missing pricing, we expect to end fiscal €˜23 Q1 around negative $5 million. All of our quarterly forecasts are plus/minus $2.5 million. So the range we expect is negative $7.5 million to negative $2.5 million adjusted EBITDA for this quarter. Moving to fiscal €˜23, Q2 and Q3. We have higher prices taking hold, higher revenues, small improvements from lower material costs, partially offset by increased labor costs due to cost of living adjustments. Therefore, we forecast $220 million to $240 million in revenues and $10 million in adjusted EBITDA for Q2 and $230 million to $260 million in revenues and $15 million adjusted EBITDA for Q3, each with a margin of plus/minus $2.5 million. Finally, in fiscal €˜23, Q4, with higher volume, increased EV mix, best pricing and lower material costs, we expect to generate $250 million to $280 million in revenue with adjusted EBITDA of $20 million, plus/minus $2.5 million.

Putting it all together for the total year, we expect revenues in the range of $900 million to $1 billion and adjusted EBITDA of approximately $40 million with a range of $35 million to $45 million. Moving to Slide 19. We expect in summary, a significant improvement year-over-year in all aspects, with revenues up approximately 20% of $900 million to $1 billion, adjusted EBITDA of $35 million to $45 million and positive free cash flow of $0 to $10 million. However, if you look at the second half expected results from the prior page, it shows a full year run rate of $70 million of adjusted EBITDA on revenues just above $1 billion, which is back to the recovery top level of performance and set us up for taking it to the next level in fiscal year €˜24 and beyond.

Moving on to Slide 20. We want to provide you with a refreshed look at our outlook beyond 2023. Once the supply chain further normalizes, we expect to sell approximately 9,500 units, including 1,500 unit EVs and generate $100 million or 8% adjusted EBITDA and $1.25 billion in revenues. This could be as early as fiscal year €˜24 if the business environment is stabilizing by then. Looking beyond that, in the medium-term, our EV growth and operational improvement can support volumes of 10,500 to 11,000 units, including EVs in the range of 2,500 to 3,500 units, generating revenues of $1.5 billion to $1.75 billion, with adjusted EBITDA of $150 million to $200 million or 10% to 11%. Our long-term target remains to drive profitable growth towards $2 billion in revenues, comprising of 12,000 units, of which 5,000 are EVs and generate EBITDA of $250 million or 12%.

We are incredibly excited about Blue Bird’s future. And now I will turn it over back to Matt to further expand on this.

Matthew Stevenson: Okay. Thank you, Razvan. On to Slide 22, as detailed in the fiscal year €˜23 guidance that Razvan walked through, we still have another quarter before we start firing on all cylinders as we navigate through some older priced units in the first quarter. Still, we are forecasting fiscal year €˜23 results that are dramatically better than fiscal year €˜22. We plan on booking at least 8,000 units, a 17% increase over fiscal year €˜22 and driving a top line of nearly $1 billion, a 19% increase year-over-year. Parts revenue will continue to be a bright spot, and we see line of sight to at least $84 million in revenue, up 10%. The EBITDA performance, we expect to be up over 350% compared to fiscal year €˜22 and to be approximately $40 million.

EV bookings will be a significant component of those results, and we plan to double our EV bookings to over 500. On the right hand side of the slide, you can see the ACT retail sales forecast for fiscal year €˜23. It continues to be supply chain constrained across the industry. And our targeted bookings will put us right where we want to be around that 30% market share. What is extremely exciting is the demand in front of us. With many other industries slowing down, school buses are a great place to be. Retail sales have been off from their average of 32,000 units per year for 3 years in a row now, and the national school bus lead is aging. The market was first constrained by COVID and school closures and has been held up more recently by the supply chain.

These buses must be replaced, and we expect substantially robust years ahead of us to address in pent-up demand. ACT is forecasting a compound annual growth rate of 10% from our fiscal year €˜23 to €˜27. The last 2 years have been challenging, but our business is back on track, and we look forward to the robust market ahead. On Slide 23, you can see another critical component of our outlook, which is the EPA’s Clean School Bus Rebate program. As we have discussed, this program allocates $5 billion over 5 years for clean and cleaner emission school buses. We applaud the EPA’s execution of this program as it went off without a hitch. It was straightforward to apply and the timeline from inception to identification of the lottery winners was extremely quick.

Applications were taken from May through August, and the winners were announced at the end of October. The demand was so strong that the EPA allocated nearly $1 billion in this first round. Almost all of this funding went to electric buses and 99% of this funding went to priority districts. Approximately 2,500 buses will be funded with an average rebate of $375,000 per bus. Customers will have until the end of April to place their orders. Blue Bird and our dealer partners put on a full-court press to help customers apply for this lottery program. Through our collective efforts, we assisted in directly securing approximately 300 buses, and we have identified loyal Blue Bird customers who apply for funding themselves who will account for at least another 200 buses.

Therefore, we expect the impact on Blue Bird to be at least $200 million in revenue based on securing 500 to 700 additional EV orders. The long-term impact of this program will be well over $1 billion in revenue to our organization. The next round of the EPA’s Clean School Bus program is expected to start in early 2023 as a competitive grant program, and we will be right there with our customers supporting their applications. Please keep in mind, though, that this is not the only program out there funding the purchase of EV school buses California, New York, New Jersey and Colorado collectively have billions allocated to this purpose. There are so many exciting things in front of Blue Bird. Let’s turn to Slide 24 to summarize the strong outlook ahead.

First is the market demand for Blue Bird school buses. With our record backlog for this time of year, we are a great countercyclical play that many companies in the industry is being affected by the slowdown in consumer spending. Plus not only are the fundamentals of our industry strong, it’s just starting to heap it up with the 10% compound annual growth rate expected over the next 5 years. Second, there is commitment from the highest level of government to electrify this country’s school bus fleet. Not only will this reduce greenhouse gases, it will help to reduce particulates that are found to be a contributor to childhood asthma. Electrifying school buses is a mission that makes sense to everyone. And Blue Bird will be a direct beneficiary of this as we have more electric school buses on the road today than anyone.

We have a proven reputation as a leader in alternative powered school buses for over a decade as evidenced by the 20,000-plus propane powered Blue Birds that are on the road today. Our partnership with Cummins on EV offers something no other electric school bus manufacturer provides, and that is a powertrain partner with over 100 years of experience and who knows the school bus industry inside and out. Razvan walked you our long-term forecast and as impressive as the outlook is, it does not even factor in our efforts to expand our total addressable market. The commercial strip chassis offering could add thousands of units per year to the long-term forecast. Also, we implemented measures to reduce costs in the short-term, and we restructured the organization to be leaner, removing non-value added processes and reducing standard production hours per bus.

And the work never stops as we are constantly looking for ways to take out costs and at the same time, increase quality. As we touched on today, we have not only aligned pricing to the economic inflation in the market, but we have also revised our pricing model to be more nimble and reduce risk in an inflationary environment. All of these factors will provide us with a 10% plus adjusted EBITDA margin in a mid-term normalized operating environment. As you saw in the guidance we provided for the second half of fiscal year €˜23, we get back to historic levels of 7% adjusted EBITDA on supply-constrained volume, proving that in a normalized operating environment, double-digit adjusted EBITDA will be in our reach. As I mentioned at the beginning of this call, we were extremely excited to update you on the progress of Blue Bird, and I hope you now understand why.

Our team has worked incredibly hard to get the business back on track and prepare for a bright future. I would like to thank all of our teammates for their efforts this past year. We would now like to open up the line for questions. Thank you.

Q&A Session

Operator: Our first question is from Eric Stine with Craig-Hallum. Please go ahead.

Eric Stine: Hi Matt. Hi Razvan.

Matthew Stevenson: Hey Eric. How are you doing?

Eric Stine: Doing right. Thanks for all the details, especially per quarter, very helpful. Curious, just on the EV side, first I just want to confirm, did you say that you are pretty much sold out or your production slots are full for fiscal €˜23. So, I guess that would be first. But then secondly, I mean is your goal that you would satisfy that? You mentioned another, what, 400 units to 600 units that you may get in terms of awards as part of the EPA program? And then fiscal €˜24, that’s when you would be able to be more-timely in terms of satisfying order flow?

Matthew Stevenson: Yes. Eric, this is Matt. I will take that. So, in terms of the EV production, so we are actually reserving slots through the back half of our fiscal year for these orders that will be coming in from this Clean School Bus Act program. So, as of right now, we are reserving slots. We have about 350 EVs in the backlog right now. But as we stated in our prepared remarks, our goal is to book well more to 500 of that for the fiscal year. And then regarding the Clean School Bus program, our estimates are we will get an additional 500 to 700 orders out of the awards that are yet to come in. And the customers have until the end of April to get those orders in.

Eric Stine: Okay. And it was good to see the award that you put out last week. I mean I would think then €“ I mean do you think it’s kind of weighted back in towards April when that deadline comes, or do you think there is kind of a steady pickup between now and then?

Matthew Stevenson: I think with the holidays here coming up, it will be a little slower. We have already gotten some in, but we expect really the crutch of these to come in after the New Year.

Eric Stine: Got it. And then maybe last one for me. You just mentioned the steel prices that have come down pretty substantially. And you are almost, I guess one more quarter before you really start to feel the positive impact of the price increases. As you plan out longer term, how do you feel about being able to hold price? Obviously, your customers can see the same thing that steel prices have come down. And I know you have taken a lot of steps on the pricing side. So, maybe how you think that push and pull plays out?

Razvan Radulescu: Yes. Thanks for the question. I will take that one. This is Razvan. So, pricing is obviously a competitive aspect of our position in the market. So, we are always watching our competitiveness, and we will adjust accordingly going forward. On the other hand, as mentioned in our prepared remarks, we have taken steps to limit our exposure on the forward codes and the sales that we have. So, we are now much more flexible than in the past. As it relates to steel, there is a time lag until the time when we can benefit from these reductions because of the forward locking that we put in place. So, we will have to take into account all these three factors and then monitor our competitiveness and our order intake. But overall, we feel very positive that our margins are very strong in the backlog, and we are collecting orders today for Q4 fiscal €˜23 also at very good margins.

Eric Stine: Okay. Thank you.

Matthew Stevenson: Alright. Thank you, Eric.

Operator: The next question is from Mike Shlisky with D.A. Davidson. Please go ahead.