Blue Bird - Earnings Call - Q1 2019
February 6, 2019
Transcript
Speaker 0
Good day, and welcome to the Blue Bird Fiscal twenty nineteen First Quarter Earnings Conference Call and Webcast. Today's conference is being recorded. At this time, I would like to turn the conference over to Mark Menfield, Director of Investor Relations. Please go ahead, sir.
Speaker 1
Thank you, Vicki, and welcome
Speaker 2
to Blue Bird's fiscal twenty nineteen first quarter earnings conference call. The audio for our call is webcast live on investors.bluebird.com. You can access supporting slides by clicking on the presentation portion of our IR webpage. Our comments today include forward looking statements that are subject to risks that may cause actual results to be materially different. Those risks include, among others, matters we have noted 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 CEO, Phil Warlock, and CFO, Phil Dye. Then we'll take some questions. We'll get started. So Okay.
Well, thanks, Mark. Well, good afternoon, everyone, and thanks for joining us today for our first quarter earnings call for fiscal twenty nineteen. We welcome this opportunity to share our latest corporate results with you. So let's get started with an overview of those financial results on slide four. As we have previously explained, the school bus industry is extremely seasonal, and the first quarter is always the softest quarter of the year with unit sales typically representing no more than 15 of the full year volume.
This is also our expectation for fiscal twenty nineteen, and so I'm pleased to report that our financial results were strong, coming in slightly above last year's levels. We sold 1,600 buses in the first quarter. And while this was a 105 units below last year, it was our third highest first quarter volume in the past ten years. Importantly, the shortfall versus a year ago is more than explained by a 120 fewer sales to one customer, the government, our general services administration as they're known. This is simply timing of deliveries.
And through the course of the year, we expect the GSA to order their usual volume of buses from us. Net sales of a 155,000,000 were about 8,000,000 below last year, more than explained by the lower government sales I just discussed. It's important to note, however, that when we look at school bus sales only, which represented 96% of our first quarter volume this year, revenue per unit is up by about $2,500 per unit or 3% from last year. This reflects the pricing action we took late last year to address the rapid tariff led escalation in steel and other commodity prices. That's a great result for us in the first quarter.
At 7,200,000.0, adjusted EBITDA was about a $100,000 higher than a year ago. As full time we'll show you later, we achieved a slight profit improvement despite significantly higher steel led commodity prices and lower volume than in the first quarter last year. Now you recall we had substantially lower steel cost in the early part of our fiscal twenty eighteen, and the significant escalation began in the second half of last year, and we do remain at those elevated levels today. As I mentioned, Phil will cover more of this a little later. Our pricing action, together with the cost reduction from our transformational initiatives that started in the 2018, drove our profit improvement.
As we've mentioned in prior earnings calls, our transformational initiatives are the cornerstone of our profit growth plans, and we saw the favorable impact in the first quarter of this year. Adjusted net income and adjusted diluted earnings per share were both higher than the first quarter a year ago at $1,300,000 and 9¢ respectively. On a GAAP basis, both net income and diluted earnings per share also improved from a year ago by 6,600,000.0 and 31¢ respectively. Our adjusted free cash flow for first quarter was $57,000,000 negative, reflecting the seasonality of our business as we grew inventory through the quarter from a very low level at the 2018 in September. And we also had the impact of higher plant spending for our all new paint facility.
As is typical of our seasonal business, cash flow will turn positive as we move through the year. As we look at the underlying strength of the industry on Blue Bird's results, we remain upbeat about the business fundamentals. With a strong outlook for property values and corresponding property taxes, which are the major funding source for school buses, together with the fact that 150,000 school buses on the road today have been in service for more than fifteen years, we are confident on the industry outlook remaining around the 35,000 unit mark in 2019. In fact, that's a near record again for industry size over the past thirty years. We did see yet another first quarter record sales mix for alternative fuel powered school bus sales, up 34% of our total bus sales.
This compares with a mix of 31% last year. As a reminder, in alternative fuels, we count all of our propane, compressed natural gas, electric, and gasoline powered buses as all of these are alternatives to diesel, which has been the staple fuel for years. For the last several years, we've seen significant growth in alternative fuel bus sales. As I just mentioned, we have not slowed down this year. Now we'll cover alternative fuel performance in more detail a little later.
But we are passionate about product and being first to market vehicles and features that customers want and value. In fiscal twenty eighteen, we launched two new exclusive products, our all new zero emissions electric power type d bus and our ultra low NOx propane powered bus, which, by the way, a point zero two grams of NOx for break horsepower power is 10 times cleaner than the EPA standard and any other brand of propane powered school buses on the road. Additionally, our taxi electric powered bus will launch later this year, and I can tell you that we have a very strong pipeline of customer orders for both electric and propane buses that we're pursuing. And as I mentioned earlier, we did see the profit impact of both our pricing and structural cost reduction actions in the first quarter, and we expect to see additional favorable benefits throughout the year. Our transformation initiatives are well underway and on track, targeting the lowering our cost structure, driving plant efficiencies and product quality, increasing capacity, and bringing major parts and feature upgrades to the market in the coming months and years.
All in all, I'm very pleased with our first quarter results and particular the specific actions we took to offset both higher commodity costs and lower volume compared with last year. Our results were in line with our expectations, and they support our full year guidance. And I should mention these results are on the path to our stated goal for adjusted EBITDA margin of at least 10% by 2020. Let me now review our full year 2019 key operating achievements I should say our first quarter twenty nineteen key operating achievements on slide five. We recorded a number of significant achievements in the first quarter, and each one will make us more competitive and support our growth going forward.
We launched our transformational plans to improve margins last year, and they're on track, driving improvements in quality, cost and efficiencies, and capacity. We achieved significant structural cost saves in the 2019, and this initiative is key to delivering continued profitable growth. Construction is well underway for our all new fully automated paint shop with robotic equipment now on-site and pilot runs a validation schedule over the next few months. This is a key initiative to drive efficiency and quality improvements across our Blue Bird product line. We increased first quarter school bus revenue per unit by about $2,500 or 3% for the pricing action we took in late fiscal twenty eighteen, while at the same time winning business with a significant number of customers that are new to the Blue Bird brand.
In fact, 15% of our customers in the first quarter were conquest accounts. That's a great result. We continue to be the undisputed leader in alternative fuel powered school buses. And as of Monday this week, our year to date sales and firm order backlog of these buses represented a very strong 42% mix of the total. That compares with a 30% mix at the same time last year.
Furthermore, the total number of Turkey fuel buses sold, I mean, our firm order backlog is up 25% from a year ago. Now that's leadership and a real momentum in the fastest growing segment of the school bus market. Remaining on top of the alternative fuels, we are seeing very strong interest in our latest product, our all new zero emission electric powered type d school bus, which is powered by a Cummins electric drivetrain following an act their acquisition of California based EDI. Have now ported over a 100 units, and as you will hear from me later, many of these are now turning into firm orders. And finally, based on our first quarter performance and outlook for the balance of the year, we are reaffirming full year guidance for all the metrics on which we report.
I'll cover this in more detail towards the end of the call. It's fair to say that we continue to advance the business on multiple fronts, and we're focused on profitable growth. So let's now take a closer look at our second quarter financial results on slide six. I took so many of these financial results earlier, and Phil Todd will run through the details a little later. But just to summarize the first quarter, total net sales are down about $8,000,000 from last year, more than explained by a 120 fewer sales of buses to the GSA.
This is simply a delivery timing issue, not indicative at all of any change in full year order plans. In fact, we continue to be the preferred bus supplier to the general services administration. Cost sales for the first quarter were up $1,300,000 from last year, representing a strong 9 percent growth as we successfully introduced new products to our customer base and tailored incentive programs to our entire dealer network. It's been a really good first quarter for the parts business. Despite lower volume and the impact of higher steel led commodity prices, adjusted EBITDA of 7,200,000 was slightly higher than a year ago.
So that's into slide seven. Let's take a closer look at our alternative fuel bus sales performance. In the first quarter, we grew sales of alternative fuel powered school buses by 4% and achieved a record mix for the first quarter at 34% of total sales. But as we move from the softest volume quarter of the year, however, we've seen a significant surge in orders. As of Monday this week, we had we had 1,860 units booked or in our firm order backlog.
That reflects a very strong 25% increase over the same time last year. As I did mention earlier, alternative fuel school bus represents a 40% mix of all buses booked or in our firm order backlog today. So it's clear we are slowing down in this segment. No other school bus manufacturer comes across this mixed level of alternative fuels. In the first quarter, more than 50 new customers took delivery of their first ever alternative fuel powered Blue Bird bus.
This is a strong endorsement of our exclusive alternative fuel buses, the Bluebird Ram, and our dealer network. So far, 30 states have finalized their plans for deploying the VW settlement funds. And the good news is that 40% of their funding in the first year has been directed towards school buses. That's potentially another strong boost to the industry, and we're in a great leadership position to capitalize on these funds. We offer the widest range of alternative fuel powered buses in the most modern and proven engine in the industry.
With our exclusive long term partnership with Ford and Ramish Cleantech across various alternative fuel engines, it makes it easy for our customers to grow the alternative fuel fleet. With the same engine architecture, same transmission, and same service requirements across all three products, propane, compressed natural gas, and gasoline, it's an easy move for a school district power fleet operator. Now propane is widely recognized as having the lowest total cost of ownership in the market, and it's a green engine, especially our new ultra low NOx propane bus, which is certified at one tenth of the NOx emissions output of other manufactured buses and the EPA standard. These hydrogen oxide gases contribute to the formation of acid rain and smog, and they're a contributor to asthma in children. So the best in class level of knots is another great reason for choosing Blue propane.
In fact, you can have it all with Blue Bird propane, lowest operating cost, and the lowest emissions of any internal combustion engine in a school bus. Always a great news for our school districts and fleet operators, but it's even better news for the children who ride our buses and their parents. I mentioned earlier we've quoted business for more than a 100 electric buses across 14 states. Well, I can tell you now that more than 50% of those quotes are turning to firm orders, but we expect considerably more to follow. Interest across the country is strong, especially the opportunity to fund from the VW settlement.
And we're also seeing other unique state funds increasing in frequency as they look to electric buses as a way of their future. We began delivering buses in the 2018, and we're excited about the prospects of fiscal twenty nineteen and beyond as we work closely with our exclusive electric drivetrain provider, Cummins. We are seeing continued strong growth of our gasoline powered bus in fiscal twenty nineteen. It's rather than the strip by technicians and mechanics who truly appreciate the emissions simplicity and coal with the stock capability that it shares with propane. It's also at a lower price point than diesel, so it really works for those customers where acquisition price is a key concern.
As we look forward to next year and beyond, with the broadest range of the cleanest, low enough school bus in the industry, eight times more alternative fuel powered vehicles on the road than all of our competitors combined, and still with less than 15% of customers having tried an alternative fuel powered bus, Blue Bird is in a very strong position. With forecast sales for fiscal twenty nineteen in excess of 4,650 units, we are putting another record sales year for Blue Bird alternative fuel powered school buses. We'll keep you updated on our progress, obviously, through the year. So I'm gonna have to go back to Phil Tide or I should say, over to Phil Tide, who will take you through the financials. I'll be back later to cover the fiscal twenty nineteen outlook and guidance.
Over to you, sir. Thank you, Phil, and good afternoon, everyone. The next few slides are a summary of our financial performance
Speaker 1
And now we'll take a look at some of the key financial results on slide number nine. Bill's already talked about the volume, which was 1,600, So you can think about the the decline in parts that are being due to the 105 lower units and due to fact that the the decline was made up of higher revenue on top d, rear engine buses. We did have higher revenue per unit on their school buses and storm engine. That was up attributable to, I I think, a one time action that occurred in the '18 where we had lower costs in in one of our variable cost lines, basically, due to If we continue on to net net income our net loss, the net loss was 1,200,000.0, a substantial improvement of 6,200,000.0 over the over the prior year. You you can think about the the main as largely due to the transformational initiatives.
We also had some lower tax, but but we also paid about a million dollars more in interest cost as a partial offset to that. And and that interest cost was largely due to higher debt that we talked about in minute. Adjusted net income was, again, better than last year at about 1.3 positive. So it was up by 1,600,000, and that was that's likely driven by We've we've talked a little about adjusted EBITDA, and and we moved up to a bridge on the next slide. So I won't spend really any time on that.
Diluted earnings per share at a loss of 5¢ was 31¢ better than the prior year, and adjusted diluted earnings per share at 5¢ positive was about 9¢ better than the client. Cash at 18,800,000.0 was down at 4,400,000.0 compared to last year. We this this result was about in line with where we thought we would end up. We we are going through the CapEx spend on the paint shop, and and first quarter had higher than normal CapEx due to that as well as there were some activities in trade working capital that that probably caused us to spend a little more cash. Our debt at February and 9.9 finished up about 60,000,000 versus the prior year.
In part, that was due to the incremental loan. We spoke of 50,000,000 in I think it was October 2018 as part of the tender offer. We also had some borrowing on on the revolver. So we will continue to probably have the next few months as we get through the higher levels of tax credit. Next step.
It would really be explained the the change in net debt is if you look at the difference in cash and debt, change in net debt can really can really be explained by stock repurchase program. We did last year that there's a warrant exercise that that 56,000,000 and then the higher CapEx. So I think I think we we understand what these issues are, and they are within our plan. So let's go to the the bridge. So bridge is on on slide number 10.
You see the the impact is bus volume and product mix was about $1,400,000. We had we had favorable news from parts worth about $300,000. So the two big columns on on the bridge, we have economics and other. So, basically, the economics is due to the fact that in the '18, we were still enjoying relatively lower steel prices. The the tariffs were still months away, and and we had some attractive prices at that time.
So so now in the '19, of course, we've got a a very different scenario, steel prices as a result of tariffs and other changes and and a and a few other commodities. And, also, as I said, we had a we had a low a low cost recorded in fiscal year seventeen in one of our variable cost lines, and and that's normalized. On the transformational initiative side, I think this is the one where we we we are really pleased. About 6 and a half million dollars come in in this area. Again, this is this is the result of the work we've been doing to reduce the cost of everything we purchase and to improve our plant efficiencies.
And on an ongoing basis, we will see more positive results coming out of that through the the the operation of paint shop and and do it over other activities. So so that that was a strong result for us to get that to get that foreseeable program and then other activities. We turn to the cash flow on slide 11 quickly. You can see we're on 56,600,000.0 negative on an adjusted free cash flow basis. We're we're really two issues there.
First is the higher CapEx as we continue to complete the construction and and the installation of paint shop. The second is in trade working capital. The trade working capital, I would have to say, this is this is the the time of year when we do start to see an increase in trade working capital normally. We we we tend to start to build up inventory as we we come out of we come out of the peak selling season in September of the year, and we start to build inventory getting ready for higher sales as we move out of out of first quarter into the second. So we do see some of that.
This year is exacerbated by the fact that we are doing a buildup of inventory to support a a major product change that will be coming. So we have to stockpile some pretty expensive items, and and we expect to to have that stockpile for some period. Although, I think, by the time we get through the through the year, this issue with the the higher inventory year,
Speaker 2
We got to
Speaker 1
slide 12, which is net debt leverage. I see we have total debt of 209. That includes the amount of 50,000,000 that we borrowed cash and. So we've got a 100 and a 191 of net debt. For those of you who follow us closely, you'll also note that we did increase our revolver capacity last year from 75 to a 100 to to really to provide an insurance policy against any unexpected drains on.
And we did know that we had some stockpiling that we have to do. I can guarantee you we're not gonna get anywhere near 75,000,000 in that area. So but but we we found it prudent to to to cover ourselves a little bit. It's we do now, as you see, have a net leverage ratio of 2.8, still substantially below four. That's the problem that we have with the banks.
And our liquidity has is at $9,292,000,000, which we believe is
Speaker 2
a good level for us coming out of
Speaker 1
the first quarter of of the of the fiscal year.
Speaker 2
Okay. Well, thanks, Bill. So let's now focus on the fiscal twenty nineteen outlook for the year and our full year guidance. So let's turn to slide 14. With the recent industry running at, between 34 to 35,000 units annually, we are in a thirty year high, and we do anticipate another strong year in fiscal twenty nineteen with industry again around 35,000 units.
As we look at the reasons for that, continued growth in housing prices and property taxes, customer desire to replace raging bus raging buses with 150,000 and older than fifteen years, along with the boost of new funding ahead from the VW settlement, all support our position for a very strong industry once again in 2019. Now our plans for fiscal twenty nineteen focus on gross margin and EBITDA margin improvement from three key areas. First, the impact of the cost recovery pricing that took effect in late fourth quarter of last year. This will have a full annual effect in fiscal twenty nineteen, and we saw the benefit of the of that in the first quarter. Second, the full year impact of transformational cost reductions implemented in the 2018 and the continuation of this initiative.
And once again, we saw the favorable impact in the 2019. And third, the plant facility and process improvements that we are making is still ahead of us to increase manufacturing efficiencies and improve quality. They'll begin to take hold in 2019 later in the year and also benefit us substantially moving forward. But, of course, I will be remiss if I didn't mention our class leading products because they're also a contributor. With Blue Bird firmly established as the undisputed leader in alternative fuel powered bus sales and our sight set on yet another record sale here in this segment, we are well positioned to drive profitable growth through our product strengths.
That is a key initiative that we've worked on the last several years, and I think you've all agreed, we've been pretty successful at it. So we're gonna keep moving in that space. No question. So our financial targets for fiscal twenty nineteen are only glide path towards our previously communicated EBITDA margin goal of at least 10% by fiscal twenty twenty. So now let's turn to slide 15 to review our fiscal twenty nineteen full year guidance.
Based on our strong fiscal first quarter twenty nineteen results and the outlook for the remainder of the year, we are reaffirming guidance of all three reported metrics. Net sales guidance is between $990,000,000 to a billion and 25,000,000. As mentioned in our prior earnings call, we are being prudent in planning our sales outlook, recognizing that we may have to push out some unit sales as we launch our new paint facility and make other facility and process improvements in the plant. Now these type of production losses are typical for an automotive company undertaking significant plant upgrades, and our approach will be to minimize them as much as possible. But I want to assure you, we'll be looking for every opportunity to maximize sales throughout the year.
We'll provide updates as necessary. Adjusted EBITDA guidance is between 80 to 85,000,000, a significant 10 to $15,000,000 increase over fiscal twenty eighteen as we focus on driving down crop cost, increasing unit revenue, and improving EBITDA margin. And adjusted free cash flow guidance is between 24 to $28,000,000. Now adjusted free cash flow continues to be a strong feature of our business model and typically represents more than 50% of our adjusted EBITDA. However, as you know, our fiscal twenty nineteen guidance for adjusted free cash flow is being impacted by the unique capital expenditures required to complete construction of our all new automated paint facility.
So in wrapping up, we had a strong first quarter performance both operationally and financially. On our prior earnings call, we explained how we exited fiscal twenty eighteen with significant run rate benefits from structural cost reductions and cost recovery pricing taken in late fiscal twenty eighteen. Well, we saw the impact of these benefits clearly in the first quarter compared with last year as we were able to offset the rapid rise in commodity costs led by the impact of the steel tariffs and lower unit sales. These run rate benefits will help us drive significant profit and margin growth in fiscal twenty nineteen with adjusted EBITDA higher than our targets yet to be 14 to 21%. I should repeat that, 14 to 21 higher than fiscal twenty eighteen, and our plans and our guidance support this.
We'll continue to update you on progress each quarter. Well, that concludes our formal presentation. I'm gonna now pass it back to our moderator, Vicky, to begin the q and a session.
Speaker 0
Thank We'll go first to Matt Caranda with ROTH Capital.
Speaker 3
Hey, guys. Good afternoon.
Speaker 2
Hey, Matt.
Speaker 3
So, just wanted to start off with the the paint booth start up and how things are proceeding there. I know you guys mentioned, I think, early in the year that you'd be doing some test runs and validation. Do you feel like everything is on track for completion by the high season? And what are the remaining hurdles that you need to get over before feeling comfortable with scaling that, the booth?
Speaker 2
Well, we've got some equipment to install in the in the in the booth. The booth is a pretty I understand. It's more like a a unique plant itself, it looks like when you see it. So there's still some construction work to do, but we're we're on target really for April. We have a date in mind, specific date, but pretty much towards April, job one, when we sort of start to run off those units through it.
Prior to that date, we're making sure all of this and all of these all the safety standards are met, the equipment's ready, the emission requirements are met, all the things you have to do to complete certification. But we've been looking for as we look towards the April, we'll start up with a slow ramp and progressively increase that through the year. I don't expect that through the course of this year, we'll be anywhere near every single bus running completely through the paint shop. If we do that, we'll be a complete home run, but we'll be so that will be our target as we start the next fiscal year, know, you in October that we'll be fully operational with every bus going to that paint shop. But, you our goal is to ramp it up aggressively through the year and learn how this works, make sure it's efficient.
Those are what we want. And, and I guess, you know, once you question that you're you're raised, first of all, we believe we're on track. Yeah.
Speaker 3
K. Great. Yeah. I mean, the reason I ask is because you guys mentioned there's some conservatism, I guess, factored into your top line guidance for fiscal nineteen and the large sort of the bulk of that conservatism seems based around the launch of the paint facility. So I was trying to get a sense for, I guess, you know, when you think you'll have the visibility, into how that's running so that you, you know, that that would give you confidence to sort of change the top line guidance, I guess.
So it sounds like April or later at the very least. Is that fair to fair to say?
Speaker 2
Yeah. You know, look, with I think, Matt, I think it's it's a fair like, I think we'll give you an update at the end of the second quarter. I think, obviously, we'll know by then. That will be we should be a place we'll be in we will certainly start in production. But I think the real the real value check will be the end of the third quarter.
There's a lot of four weeks or so four three months or so under our belt. We'll know where things stand and how it's going. But so think it'll be interim check next quarter, and then the the the real full year outlook check at the end of the third.
Speaker 3
Okay. And then it seemed like working capital was a bit larger of a drag on cash than I would have anticipated during the quarter. I know you guys mentioned, you know, a little bit higher inventory, quarter, that you built. Could you give a little more color on sort of the the product change that you're dealing with the for the with the inventory build? It would be helpful.
Speaker 2
Yeah. I just I just wanna mention, I'll I'll let Phil to take this, as well. But I just wanna mention, you we we we talked about the fact, you know, this is the inventory build to a quarter. And one thing we have to look at too is where you're starting from. We did we did a great job in controlling the inventory at the end of last year.
And, naturally, we finished with an inventory at the 2018 that was about $20,000,000 lower than it was at the '17. So now you're building from a lower inventory level. You know, so not necessarily building a much higher end point, but you've got a a bigger growth plan to work. So we benefited, obviously, in 2018 from that fact we we did share the inventory down, which we like to do at the end of the year, did a great job at it, but now we have this build from a lower base. Actually, it's really good news, but it doesn't look like it.
We took that when you look at these charts. But it was a really good news performance. I think on the product side, we're you know, we don't like to announce what our product plans are because if we're doing something that's significant, I wanna hit that mark at the right time. But, just suffice to say, over the next eighteen months or so, we're gonna have some significant product changes coming in, and you'll see those. And, we'll fill you in at the right time, but we are having to, build some inventory to handle that change over for us.
Speaker 3
K. Great. And then just last one, I guess, from me, in terms of the order activity, it looks like great news on the all fuels front with, you know, a significant percentage of your new orders represented by that. Basically, have you been seeing some of the, I guess, districts that were pushing decisions from back in December out into this year? Is that what's coming through and and driving the strength in all fuels, with with some of the VW settlement money that they're they're seeing?
Speaker 2
They've returned. I'd say I'd say we're starting to see it. It's it's I wouldn't say so. It's a flood of stuff coming through the VW money yet, more of a trickle, but we're certainly seeing states that are now releasing that money. And, we've done very well in those.
I think Louisiana was one of the first ones, and we capitalized on that very well, with our propane products. So I think that's still ahead of us, actually. A lot of VW money. I think we're just now entering that that season. You know, once you get the first quarter of the soft market, just delivered all your school buses for the year.
It is slow. We all know that. Now things around the January, February time frame, that's when the orders start to really pick up and the interest comes and and the court activity increases. And I just think we've we've been successful in in marketing our product strengths and what we believe is great for the industry, which is our alternative fuel power products. So so it's it's a case, I think, of doing what we've been doing every year.
I mean, we all saw, you know, pretty good last year. Even though we're up this year, it came up very or another record level last year when there was no VW money. So I think we're just you know, again, we're out there. We work this hard. We work our strengths hard, and, the VW money is a a boost for a little bit of that.
But I think this is more like normal business right now that we've benefited from.
Speaker 3
Okay. Great. I'll I'll jump back in queue here, guys. Thanks a lot.
Speaker 2
Thanks, man.
Speaker 0
Again, press star one to ask a question. We'll go next to Eric Stine with Craig Hallum.
Speaker 4
Hi, everyone.
Speaker 2
Hi, Eric.
Speaker 5
So maybe just first, just
Speaker 4
a high level question on all fuels. You mentioned that about 15% penetration of the overall market today and, you know, up from sub 10% a couple years ago. I haven't asked you this in a while, but any updated thoughts on where you think that ultimately goes? And I mean, obviously, that's gonna play out over a number of years. But where you think that that can go with the offering that you and others have in the market?
Speaker 2
Yeah. Well, I don't about the other guys. I can talk to myself ourselves. I mean, we're obviously we ended up last year, full year at 38% mix of, alternatives to diesel is the way I look at it. I I, you know, I think I think, Eric, you talked about pretty big numbers over 50%.
I think 50% is next hurdle we'd look at, and that to me is on the horizon. I look at everything we're doing with electric power, the low NOx values of our propane products, all the all the things we're doing continuously. And diesel gets every time we get a regulatory change, diesel gets tougher and tougher and more expensive. And I think it's, I think 50% is certainly something we look at in the next few years. I'm not gonna tell you which year is in mind, but we could see we we're we're bullish about continued growth in our mix year after year.
So with the products we've got too, we feel very good about it.
Speaker 4
Right. Absolutely. Okay. And maybe just turning to, again, another, you know, market question, but, you know, I know that it's often cited about a 150,000 buses out there that are, what, fifteen years or older. And I'm just curious.
I mean, do you see any regulatory triggers out there or, you know, any any characteristics? Like, I know you just launched the the stability control system and the backup camera as being standard on your buses. I mean, there any things any things out there that you see kinda speeds that upgrade cycle? Or is this something that's it's out there? There's a hope that it's going to rectify itself, but, you know, unclear if it ever happens.
Speaker 2
You know, there is there is a lot of, what I call significant product regulatory change that we have that's been mandated yet in the in the years ahead as we look. I mean, you mentioned the two there, but we we volunteered that. Actually, those two things you mentioned, we volunteered to put those on our products. We think it's right for safety, and we've been doing it all without alternative without the those products as options for several years, and we thought it was the right time to standardize them. I think the one thing that you'll get a lot of comments and, is around seat belts.
You know, we we don't put seat belts every bus. We offer seat belts. We can put you know, we can put lap belts, three point seat belts. We got a great seat system, an all new seat introduced just about a year ago, which we can which can accommodate even converting later on in cycle to a fully seat belt bus with limited cost. I think that's the one that gets the most discussion.
But, you know, it's like anything else. When you've only got a new industry of 35,000 units, when you've got a park of 590,000 units, it's difficult to sort of accelerate things very quickly. It's difficult to retrofit to an entire park that sat there. I think that the the best thing I think about replacing the cycle is, you know, the VW money, no question. There's a there's a lot of money there.
It's all about getting those 20 year old buses off the road. I mean, because we're when I talk about older fifties, lot over 20 years of age. And those are tied to getting old emissions, the old diesel buses where you see the black flume come out of the back. We wanna get rid of those. So I think that's probably the the best catalyst, I would say.
And it it'll be spent over, I expect, the next three years, probably three to four years to utilize that money. So, so this and that's still ahead of us. So that should be a good boost, I think, to, to try and don't get rid of all those bus all those buses off the road. But regulatory wise, I don't really see anything that's gonna be a boost for the industry.
Speaker 4
Okay. That's helpful. And then last one for me, and I might have missed this in Phil's comments, but paint shop, I know it's a key piece to you getting to that 10% plus EBITDA mark for fiscal 'twenty. And I know it's going to come it'll be phased in throughout the second half. But have you ever quantified, or could you quantify, you know, maybe the margin pickup that you that you expect from the paint shop?
Speaker 1
I'm not sure we wanna quantify that yet, Eric. It's let's put it this way. We're investing a large amount of money in the paint shop, and we expect to get quite attractive payback on that money as short as possible time. So it's substantial.
Speaker 4
Okay. Thanks a lot.
Speaker 2
Okay. Thank you, Eric.
Speaker 0
We'll go next to Mike Bobindisto with Stifel.
Speaker 5
Thank you. Yeah. Just maybe a little bit similar to the last question. I mean, going from what you have just had for guidance for 2019, about 8% EBITDA margin going to 10% by 2020. So if you can just put us maybe items in buckets of what's order of magnitude of the largest things that you know, gonna get you 200 basis points from 19 to 20.
Speaker 2
So look. I think you
Speaker 1
can think about it this way. The the major work that we've been doing on reducing cost of all things we procure to build the bus is clearly a type of single largest piece of of movement to 10% plus. That and we're still we're still delivering that.
Speaker 2
So, you
Speaker 1
know, there's there's all that we're doing this year in that area. So and and quite frankly, we've we've done some reorganization in the company, so this is not any longer gonna be a one time thing. It's it's something that we're putting into the culture of this company in in terms of very aggressive cost focus organization. So I I think that's the single largest piece. Then in in order of priority, I think the paint shop is is is really going to drive significant efficiency and quality improvements.
And then after that, we you know, you you heard the discussions with where we think alternative fuels will go. We do think the market is gonna continue to grow through alternative fuels, and and quite frankly, we think we will make better margins on alternative fuels through the future so that that will contribute. And then the final piece really is a collection of things that we're doing within our total manufacturing area to to grow efficiencies in areas other than the paint shop. We're putting a lot in there. We've mentioned that we're doing some stockpiling for new products.
There are product initiatives coming as well, which we think is going. So so we've got a we've got a pretty good shopping bag of things that are going to deliver this two point margin improvement. But, again, a lot of it is based purely on structural cost changes within the company and then a higher mix of of alternative fuels.
Speaker 2
Bill, do you wanna help? No. That's per assessment. I think I would I think when you look at when you look at what we're doing this, we're talking a lot about structural cost change that we implemented last year. We're talking about the pricing.
So ahead of us, we have the paint shop. And as Phil mentioned, we haven't really got into this much, but we are doing a lot of other things in the plan. We're through every one of our workstations, looking at efficiencies, what we could do better, how we can be more efficient, how we can drive out waste. It's just a it is a a process we're going through, and we think that'll have a lot of benefits for us in next year and beyond. And as Phil said, this isn't just a a long time project.
You know, continuously attacking costs, attacking ways, getting about your business is something we're we're driving through the entire Blue Bird system and culture, really. It becomes a cultural thing. I think we're we're we're confident. We have a plan. We have a track, and, I think the the results have achieved so far, that we saw, you know, in the fourth quarter last year, saw some of that come on the cost side in this first quarter.
I'll show you the impact this this can have. And, I I've often asked, well, how far are you along, you know, in a because of baseball. Yeah. I'll probably say we're in about the four innings of a baseball game right now, so we got some ways to go.
Speaker 5
Got it. That's helpful. Not an official game. I think it's another the the other question I have is, you just you mentioned that there's about 15% of the the, know, the conquest accounts in the quarter. What you know, what's what's a more typical, you know, percentage?
And, I guess, the implication there is that you're you're taking some share. Just wondering if you had any updated, you know, market share targets.
Speaker 2
Yeah. Yeah. I I think probably, it's probably more like around oh, actually, you look at conquest. I mean, I I there's two ways of looking at it. One is traditional conquest with diesel and ones with alternative fuels.
I think, certainly, if you're 10% conquest, it's actually it's actually earlier in the year as early in the year as we are. Remember, this is a soft quarter. There is a lot out there. Right? We have to go and find this business.
We're getting 10% at this time of the year. That's pretty good. So being at 15, I think, we certainly we certainly like that, and we know exactly where it is. And, you know, these are folks who are new to Blue Bird. So that's our goal.
So 10% plus is good. 15, I think, is very good.
Speaker 5
Okay. And just are having any difficulty with just employee turnover or or or staffing? I mean, that's something that different from other OEMs have had trouble that.
Speaker 2
Oh, it's definitely a tighter labor market than it used to be. No no question. I think it's certainly where we are in Middle Georgia. We've seen an influx of other businesses coming here. I think it's a good work great work hectic here, and, you we have a good set of employees.
But, you know, we work that all the time. We've been here a long time in this everywhere. And we're a we're a staple company to like in Fort Valley, Georgia. So we have we have a quite a pipeline that we access when we need new employees, but it is something you gotta watch. I think you're right, Eric.
It's tightened up, but we have a we have a process by which we we go after aggressively. Many ways too. We know we know all the I've looked at everything from the salary side to the hourly employee side. All the universities we got affiliation with around here, a lot of the employees, they know us very well. Internships, they become full time hires.
But on the, hourly base, like I said, we have a we're constantly actually, we we have a process where we're we're constantly looking to test that pipeline and make sure there's availability, but it is tightening. But I think right now, we feel this feels stronger about where we are.
Speaker 5
Got it. That's all for me. Thank you.
Speaker 0
And we'll go next to Chris Moore with Hey. CJS
Speaker 6
Good afternoon, guys. Yeah. Maybe so the the ASP in q one was up $2,500. Just trying to get a feel for if you think that's just it's gonna flow through for the rest of the year. Obviously, you know, I don't know when the pricing hit in in fiscal eighteen.
I'm I'm assuming that that that a a portion of the buses were were at those higher levels in in q four. But is it is it fair to think of, you know, kinda q two and q three matching that that same type of increase on an ASP basis?
Speaker 1
Chris, this is Phil. The the pricing price really hit very late in the year, fiscal year eighteen. So not not a lot of buses. But the price increase, pure purely because of the cycle that we go through and how how prices are closed up. When when an order is placed and an order is, you know,
Speaker 2
an order
Speaker 1
is anywhere from, you know, eight to ten weeks out from when we actually sell the bus. There there wasn't a lot of room to move when we're there. So I think not too many buses got it in the it's what you're asking. It's it's the absolute expectation that we will continue to to get that revenue. You know, obviously, competitive situations change, but, given the given the way we look at the market at the moment, we we are comfortable that we will continue to generate higher revenues and and and premiums.
Crazy.
Speaker 6
Got it. Can you maybe just remind me, I think you did say it at the end of last year, the the mix between propane and and gas buses in in '18. I'm just trying to get a feel for whether you expect that to change much in in '19.
Speaker 2
5050. Yeah. Very close now. Very close to 5050. And
Speaker 6
any reason to think that'll change materially either way this year?
Speaker 2
Well, you know, I think I think one thing is, you know, the v we're talking a little bit of VW money. That that gasoline can't access the VW money. Propane can, CNG can, and electric can. So, obviously, we I and I remember talking about it a lot in fiscal eighteen that we saw delays in folks ordering propane because they knew they got the VW money coming. So they may have to have gone try a gas engine.
So I do think the VW money, coming with us, this year, being accessed, and we're seeing that now, actually. We've seen it very strongly in the first few months of this year. Shows, I think, the the the propane is is very much on the up and up. So but they're both doing well. By the way, last year, I guess it was something like about it was probably like a 46465446% gasoline, 54 propane between the two.
Speaker 6
Got it. That helps. 46 propane or or gas?
Speaker 2
Propane. Propane.
Speaker 6
Got it. Okay. Helpful. Let's just assume that that you're you have to build a few less buses than you could have sold because of the, you know, the initiatives going on. A couple of things.
Do you have any ability to kind of, you know, cherry pick in terms of buses or customers that are that are more profitable? And and two, are those sales gone, or can can you potentially carry some of those over into fiscal twenty?
Speaker 2
Let let me take a second question first. I'll take that. First of all, I think, yeah, we we we have shown an ability that we can carry them over. I mean, you might end up, if you don't keep someone awake for a little while, longer than they like to, you might have to help them get there a little bit.
Speaker 1
Right. And then take a bus
Speaker 2
at the school stop. Well, you could do it. I mean, that's about relationships, and and those are guys that really want new product. I mean, we've seen that. You know, it does happen from time to time.
I don't think we feel we can we can manage that. So I don't think when I talk about pushing sales out, we hope to capture those in the long run, and it might just go beyond school start is the way we think of it. Your first question about can you cherry pick? Obviously, we we've been on business. We've been it's a bit business we're in.
Not all prices are the same, not all specs of vehicles are the same, states are different. We have different funding abilities, different spec of the vehicles, and so on and so forth. So so we are mindful of where we, you know, where we spend our our production money, so to speak. And, yeah, we do look at that. We look at that very carefully where they wanna go and go after business more aggressive than other places.
So we we can, to a certain extent, do that, but hey. We wanna we wanna sell school buses, basically. That's the bottom line. But, we can be a little selective when we need to be.
Speaker 6
Got it. Alright. I appreciate you guys. Helpful.
Speaker 2
Thanks, Chris.
Speaker 0
At this time, we have no further questions in queue. So I'll hand the call back over to Phil Horlock with any additional or closing remarks.
Speaker 2
Well, thank you, Vicky, and thanks to all of you for joining us today on the on this call. We do appreciate your continued interest in Blue Bird. And and as I hope you can see by our first quarter results and outlook for the year, we are focused on profitable growth and intend to deliver on our commitments. And I believe we're well positioned for growth today and in the future. Now please don't hesitate to contact the head of investor relations, Mark Bensfield, should you have any follow-up questions.
Thanks again for calling us at Blue Bird. Have a great day.
Speaker 0
That does conclude today's conference. We thank you for your participation.