Blue Bird - Earnings Call - Q2 2019
May 9, 2019
Transcript
Speaker 0
Day, and welcome to the Blue Bird Corporation Fiscal twenty nineteen Second 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 Benfield, Director of Investor Relations. Please go ahead, sir.
Speaker 1
Thank you, Carolyn. Welcome to
Speaker 2
Blue Bird's fiscal second quarter twenty nineteen earnings conference call. Our call is webcast live on bluebird.com under the Investor Relations tab. You can access the supporting slides on our website by clicking on the Presentations portion of the IR webpage. 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 in our latest earnings release and filings with the SEC.
Blue Bird disclaims any obligation to update the information in this call. This afternoon, you will hear from Blue Bird's President and CEO, Phil Horlock and CFO, Phil Tighe. Then we will take some questions. Let's get started.
Speaker 3
Phil? Okay. Thanks, Mark. Well, good afternoon, and thank you all for joining us today for our second quarter earnings call for fiscal twenty nineteen. We have some great things going on at Blue Bird, we welcome this opportunity to share with you our latest quarter results.
So let's start with an overview of those financial results on Slide four. We had a strong second quarter with adjusted EBITDA of $12,200,000 which was 2,200,000 or 22% higher than the same period last year. This is our second highest profit in the second quarter in more than a decade. As Phil Tide will show you later, we increased profitability despite significantly higher commodity prices than we had in the second quarter last year. You'll recall that the escalation in steel costs began largely in the second half of last year and will remain at those elevated levels today.
Now during this earnings call, you're going to hear a recurring theme of how we are driving our profit improvement. First, bus pricing that we took in late fiscal twenty eighteen to address the escalation in commodity costs. This is resulting in a significant increase in our average bus selling price. Second, cost reductions that we're achieving through our transformational initiatives. Both of these actions are significantly improving our results over last year and are cornerstones in our plan to increase gross profit and EBITDA margins.
And third, continued leadership on growth in alternative fuels where we earn a superior margin compared with conventional fuel. Now we improved profitability in the second quarter despite selling 170 fewer buses than last year. I think it's important to explain that the entire volume decline versus last year was due to a part shortage by one supplier. This resulted in us exiting the second quarter with 182 buses built, but we couldn't deliver them because of missing parts. Consequently, we held The U.
Inventory and are now delivering those buses this quarter as the supplier in question progresses through their recovery plan. Importantly, we didn't lose a single customer order because of this issue, but it did delay our bookings and shifted about $2,000,000 in profits from our second quarter to third quarter. Even though unit sales were down, the second quarter volume of 2,271 buses was 42% higher than the first quarter, illustrating once again the seasonal business in which we operate. Typically, our first half volume represents around 33% to 36% of the full year. We have a similar outlook for this year with strong second half volume and profits anticipated.
Now while second quarter net sales revenue of $212,000,000 was down $5,000,000 from a year ago, this decline of 2% was much less than the decline of 7% in unit sales. The low decline in sales revenue mainly reflects the favorable impact of our bus pricing action that I just referred to. In fact, our average bus selling price was $3,200 per unit higher than the second quarter last year with price increasing from $82,700 a bus to $85,900 this year. That's a strong 4% increase in unit bus price and it also benefited from the richer mix of alternative fuel powered buses that we're selling that commands a higher price. Our adjusted free cash flow for the second quarter was $14,400,000 up $13,400,000 from last year and adjusted diluted earnings per share was equal to last year at $0.15 a share.
As we look at the underlying strength of the industry and 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 of 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 the industry outlook remains at around the 35,000 unit mark in fiscal twenty nineteen. I should mention that's a near record level over the
Speaker 1
past thirty
Speaker 3
years. We did see yet another record sales mix for our alternative fuel powered school bus sales in the second quarter at a very strong 42% of our total bus sales. This mix is eight points higher than last year and leads the industry by a long way. As a reminder, in alternative fuels, we can hold 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 been achieving significant growth in alternative fuel bus sales.
As I just mentioned, we have not slowed down this year. We'll cover our alternative fuel performance in more detail a little later. And as I commented earlier, we saw the impact of both our pricing and structural cost reduction actions in the second quarter as evidenced by a strong increase in our gross profit margin of 2.3 increase 2.3 points increase over last year to 12.3%. We expect to see additional favorable benefits from both of these initiatives throughout the year. Our transformational initiatives are well underway and on track, targeted at lowering our cost structure, driving plant efficiencies and product quality, increasing capacity and bringing major products and future upgrades to the market in the coming years.
All in all, I'm very pleased with our second quarter results. We increased our gross profit margin through pricing, cost reductions and a richer mix of alternative fuel powered buses. Our results were in line with our expectations and they support our full year guidance. Importantly, we are on path to our stated goal for an adjusted EBITDA margin of at least 10% by 2020. Let me now review our key operating achievements on Slide five.
We recorded a number of significant achievements in the second quarter and each one will make us more competitive and support our growth going forward. Our transformational initiatives to increase margins are on track driving improvements in quality, cost, efficiencies and capacity and we are seeing those results now in the second quarter and there is much more to come. Equipment is now fully installed in our all new fully automated paint shop. Testing is underway and the first bus is scheduled to be painted early next month. As we will show you later, this is an important initiative to drive efficiency improvements throughout the plant.
As I covered earlier, we increased second quarter school bus selling price by $3,200 or 4%, while winning business with a significant number of customers that are new to the Bloomberg brand. In fact, 16 of our customers in the second quarter were conquest accounts. That was on top of a 15% conquest account number in the first quarter. So we're performing very well there and picking up new customers. We continue to be the undisputed leader in alternative fuel powered school buses.
And as of the start of this week, our year to date sales and firm order backlog of these buses represented an impressive 46% mix of the total. That compares with a 34% mix at the same time last year. Further, the total number of alternative fuel buses sold in our firm order bank is up 24% from a year ago. And that's leadership and real momentum in the fastest growing segment in the school bus market. Remaining on the topic of alternative fuels, we're seeing very strong interest in our latest product, our all new zero emission electric powered school bus, which is powered by a Cummins electric drivetrain.
I told you last quarter that we have quoted over 100 units. Well, I'm pleased to tell you now that we have received more than 100 firm customer orders this fiscal year and we expect more orders to come. And finally, based on our second 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 will cover this in more detail towards the end of the call. I think it's fair to say that we continue to advance the business on multiple fronts and we are focused on profitable growth.
Let's now take a closer look at our second quarter financial results on Slide six. I touched on many of these financial results earlier and Phil Todd will run through the details later. So just to summarize the second quarter, total net sales were down about $5,000,000 from last year, more than explained by 170 fewer sales of buses caused by a supplier parts shortage issue that is being resolved and these units will be delivered in the third quarter. The 4% increase in average bus selling price however was a partial offset to the volume shortfall. Parts sales for the second quarter were up $1,700,000 from last year, representing a very strong 11% growth as we successfully introduced new products and tailored incentive programs through our dealer network.
I should add that this followed 9% growth in the first quarter, so we're off to a great start in parts this year. Despite lower volume and the impact of higher steel led commodity prices, adjusted EBITDA of $12,200,000 was $2,200,000 higher than a year ago. Turning now to Slide seven, let's take a closer look at our alternative fuel bus sales performance. Now on the first quarter earnings call, I told you that we've seen a significant surge in orders of alternative fuel powered buses as we move from the softest quarter of the year into the second quarter. Well, that's clearly translated into higher unit sales and for a substantial 15% over last year's second quarter, achieving a very strong alternative fuel bus mix of 42% of total sales.
And as I said earlier, that mix has since grown to a record 46% mix of all buses booked off are in our firm order backlog today. So it's clear we are not slowing down in this segment. No other school bus manufacturer comes close to this mix. You might find it interesting to note that just three years ago in 2016, our alternative fuel sales mix was 26%, 20 points below today and our sales have grown more than 30% from the previous from the prior year 2015. I remember being asked back then if we could see that number reaching 50% and are totally comfortable in confirming that.
So back to the second quarter, we saw 57 new customers taking delivery of their first ever alternative fuel powered Blue Bird bus. In fact, in the first half of the year, more than 100 customers purchased a Blue Bird alternative fuel bus for the first time. This is a strong endorsement of our exclusive alternative fuel buses, the Blue Bird brand and our dealer network. I previously covered the fact that we now have more than 100 electric bus orders in hand and we expect more to follow with all the customer interest we are seeing for the newest addition to our alternative fuel line up. Now looking forward, the vast majority of the VW mitigation funding is still ahead of us and should be a boost to the industry with many states earmarking specific funds for school bus purchases.
With the widest range of alternative fuel powered buses, the most modern and proven engine in the industry, which is exclusive to Blue Bird and our leadership position in low NOx emissions, we are well positioned to capitalize on the VW funding and other growth opportunities. In fact, reduction in NOx gases is the major criteria in funding through the VW settlement. To this point, our new ultra low NOx propane bus is certified at oneten of the NOx emissions output of any other manufacturer and also the EPA standard. Plus, our propane bus is widely recognized as having the lowest operating cost of any other school bus in the market. So you can have it all with Blue Bird propane.
You can have the lowest operating cost and the lowest NOx emissions of any internal combustion engine in the school bus. And our growing number of customers understand this and sales are up. We're also seeing continued strong growth of our gasoline powered bus in fiscal twenty nineteen. It's readily understood by technicians and mechanics who really appreciate the emission simplicity and cold weather start capability it shares with propane. It's also at a lower price point than diesel, so it really works well for those customers where acquisition price is a real concern.
So with our year to date bookings and order backlog for alternative fuel buses up 24 from the same time last year and with propane sales leading the pack, we are raising our forecast sales for fiscal twenty nineteen to over 4,800 units. That will be yet another record sales year for Blue Bird's alternative fuel powered school buses. Let's now take a closer look at how we are driving cost reductions throughout Blue Bird and turning to Slide eight. We are showing a new slide here to provide more color and texture on how we are driving down the total costs throughout the company. Now we began it last year with results achieved primarily in the 2018.
You might recall that in our fourth quarter and full year earnings call of December, we showed a profit bridge for fiscal twenty seventeen to 2018, which included a gain of $26,500,000 for cost reduction actions, which more than offset the impact of escalating commodities led by steel costs. These actions are depicted at the top of the slide where our initial focus was on driving down purchase material costs and services through a combination of initiatives, including commercial deals with suppliers, resourcing and extensive design changes. We worked significantly with external automotive experts to ensure best practices and processes were applied and we delivered results. Now we'll continue to pursue these initiatives today and plan on further additional savings throughout the year. We're also benefiting this year from the full year impact of the savings that began the 2018.
You'll see this clearly when Phil Tye showed you the bridge for our second quarter results compared with last year. Our next phase will focus on driving down the cost of production as shown on the bottom two thirds of the slide. Our new fully automated paint facility provides the opportunity to reduce rework with increased first time run capability to reduce labor and material costs through robotic application of paint and to achieve savings and warranty expense as it did produce a better quality paint on the vehicle. The new paint facility breaks today's heat capacity bottleneck enabling higher straight time capacity. Now savings will largely be realized in fiscal twenty twenty as we undertake what we call a soft launch of the facility with limited production from June 29 as we get to grips with our new paint shop and with ramp up fully in process and onboard in October 2019.
Importantly, with the new paint facility attached to the exterior of our present assembly building, we are freeing up space within the plant to allow more efficient line rearrangements of tasks and stations and the addition of several stations for more efficient operations and improved quality control. We've deployed industrial engineering resources to optimize in station workflow in the newly arranged production line and we are confident of achieving significant efficiencies going forward. This systemic approach to driving down total costs over multiple years is key to delivering higher gross profit and EBITDA margins. We'll continue to share the results with you in our quarterly earnings calls. Let me now turn it over to Phil Tighe, who will take you through the financials and I'll
Speaker 1
be back later to cover
Speaker 3
the fiscal twenty nineteen outlook and guidance.
Speaker 1
Over to you, Phil. Thank you, Phil, and good afternoon, everyone. The next few slides are a summary of our financial performance for the 2019. I would advise that the material we're discussing today is based on the close of March 3039 for the second quarter and March 3138 for the prior year comparisons. More detailed material is available in our 10 Q, which has been filed.
We encourage you to read the 10 Q and the important disclosures
Speaker 3
of the company.
Speaker 1
Attached to this report, there is an appendix which deals with some of the reconciliations between GAAP and non GAAP measures that are mentioned in the review as well as an important disclaimer in the revenues of the month. We had no new accounting pronouncements in the second quarter of 'nineteen. Although as previously mentioned, we did adopt a number of new standards in the first quarter and they are discussed in Form 10 Q. Those pronouncements included revenue, leases, pensions, hedges, cash flow and internal risk results. There were also no changes to the risk factors from the 10 Q previously published.
So now let's look at an overview of some of the key results on Slide 10.
Speaker 3
Bill has mentioned quite a few of
Speaker 1
them around volume and revenue. So I won't take you back through all that. I'll make one brief comment on the volume just so everybody is clear. We booked 2,271 units in the second quarter. We actually produced over 2,450 units through the plant based on firm orders from customers.
Just to reemphasize, the gap between those is about 190 units, which our buses already built and waiting the supply of components of the short from one of our suppliers. When they are provided, we expect to book those units to the customers who are waiting for them, and that will occur in the third quarter. I would also mention that in the first half, sales were 3,871 units versus just about 4,000 units last year, again, the supply and production shortage impacted in the first half.
Speaker 3
Moving down to I
Speaker 1
think moving down to net loss for the second quarter. You can see that we had a small net loss of about $700,000 versus a profit of $1,800,000 last year. The net loss was really due to two things. One was higher interest cost of about $2,200,000 That was the result of a number of factors, including an additional $50,000,000 which was taken out of the term loan to pay for the tender offer that we did last year, Some higher rates, as you have seen, interest rates have grown up a little. And also, we wrote off an interest collar that we've been having, which you could consider a onetime action.
The other action that impacted us was non recurrence of a foreign currency gain that we reported in the 2018. So in large part, explained the deterioration in net income despite the that our EBITDA was positive.
Speaker 3
First half
Speaker 1
adjusted EBITDA was $19,400,000 It's not shown on the page. This was up $2,300,000 or 13% compared to the prior year.
Speaker 3
You can
Speaker 1
see that in the queue. The first half net loss of $1,900,000 was in fact $4,100,000 better than the prior year. So I think that's an indicator that we're moving
Speaker 3
in the
Speaker 1
right direction. I do think it's noteworthy that we
Speaker 3
would have come close to
Speaker 1
the same second quarter net income as last year if the supplier production shortage had not occurred and if we didn't have the onetime loss on the interest column.
Speaker 3
So while that's sort
Speaker 1
of explaining why we didn't get there, I do think it points out that had with the way we are operating today, the revenues we're getting and the margins we're getting, we would have been equal to or better than the profitability of second quarter last year. And in fact, we would have been about breakeven for the first half on an net income basis. Just moving down, I'll go to the earnings per share discussion.
Speaker 3
You can see that the earnings per share for
Speaker 1
the second quarter was about a loss of $03 or down $07 versus last year. Again, this was driven by the net income that we discussed previously. On the first half, loss per share was $07 That importantly is an improvement of about $0.02 $56 versus last year.
Speaker 3
Adjusted diluted earnings per share
Speaker 1
was equal to last year and the result for the first half on adjusted diluted was $0.19 a share or about $07 better than the prior year. Cash was $25,600,000 about $15,300,000 better than the prior year. I believe this was a good result given that the volume was lower and CapEx was up by more than $15,000,000 Cash flows from operating activities were about $6,000,000 better than prior year. Debt at $207,600,000 was up by $60,000,000 This includes the incremental debt raised in October 2019 to fund the tender offer as well as borrowing from the revolver. I do think we are on track to make our plan for cash and debt for the year.
Obviously, those were in line with where we had pleased.
Speaker 3
So if we can flip to Page 11, this is a bridge that talks from
Speaker 1
2018 to 2019. You can
Speaker 3
see the first bar is pricing.
Speaker 1
That was worth $4,200,000 to us in the second quarter. This was you'll recall, we took pricing late last year, late last fiscal year to largely offset steel and other commodity prices. And the results of that are clearly shown on this bridge. The transformational initiative cost improvements were $4,600,000 for the quarter. And that's a good result for us.
It would have been a little better had we got some more units out, but $4.6 you just the power of the work that we've been doing. And as Phil pointed out on his last slide,
Speaker 3
there is a lot more
Speaker 1
to come as we progressively introduce things like the new paint shop and the important rearrangements to the plant. So this $4,600,000 you see here is largely the first item, which is the material and other service cost reductions. So more
Speaker 3
to come.
Speaker 1
Volume and mix was a fairly minor number. The 170 buses or 180 buses that we missed were worth about $2,000,000 Partially offsetting that, we had favorable parts use. Parts has been up for both the first and the second quarter of this year. The parts team is doing a really good job, so we look forward to that continuing. And also, we had favorable mix.
Phil And mentioned the fact that alternative fuels were up. And so we think we've been doing a good job there with improving our mix. Some of you might recall from prior discussions that we used to have problems with things like customer We've tried to talk through that. And finally, we seem to have come to the year where we're making a positive mix, which is good for us. Finally, of course, there's economics and other costs.
This is largely driven by commodity costs, including steel. There are also some other cost increases in there that we're playing. But I would say that the pricing does largely offset the commodity economics.
Speaker 3
So I think all in all, it was a
Speaker 1
good quarter for us at 12.2%. We would have liked it to be 14% if we could have got all the volume out. But again, I do think it shows that we're doing we're making progress with the things that we're committed to.
Speaker 3
We'll go on briefly to Slide 12.
Speaker 1
This shows you the free cash flow. You can see the adjusted free cash flow was $14,400,000 That's about $13,400,000 better than the 2018. And the drivers were higher profits, improvements in trade working capital and other items. So I think a pretty good result in adjusted free cash flow and also free cash flow, which came in $9,500,000 for about just over $12,000,000 better than prior year. So I think as I said, I think we're on target to to achieve our cash projections.
Slide 13 is net debt leverage. Can see the debt level there of $2.00 7,000,000 course, that's largely driven by the incremental borrowings tender offer. We just looked at the cash. So we ended up with net debt of 182 Our net leverage ratio was 2.5. That's pretty comfortably under the covenant of four.
So we feel good about that. We also feel good about the liquidity of $98,700,000 which I believe is about $20,000,000 better than where we were at the same time
Speaker 0
last year.
Speaker 1
And with that, I'll turn you back to Phil, who will wrap up the presentation and then we'll obviously take questions.
Speaker 3
Well, thanks, Phil. So let's now focus on the fiscal twenty nineteen outlook and on our full year guidance. Turn to Slide 15. We reached the industry running at around 34,000 to 35,000 units annually. We are at a thirty year high.
And we do anticipate another strong year in fiscal twenty nineteen with an industry again of around 35,000 units. As I mentioned earlier, strong housing prices and property taxes, the fact that 30% of school buses in operation are older than fifteen years, along with a boost of new funding ahead from the VW settlement also bought this position. Our plans for fiscal twenty nineteen and beyond as we start to think about 2020 and beyond those periods 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 significant benefit in the second quarter.
Second, the full year impact of the transformational cost reductions implemented in the 2018 and the continuation of this initiative in 2019. Again, we saw the favorable impact in the second quarter. And third, the new paint facility, which also enabled significant manufacturing rearrangements and process improvements will increase manufacturing efficiencies and improve quality, particularly as we move into fiscal twenty twenty when we get the full benefits of fully operating crane shaft. Of course, as we have been doing for several years, we will continue to pursue growth and maintain our leadership position in alternative fuels, which commands a superior margin and higher customer loyalty. Our financial targets for fiscal twenty nineteen are on the glide path towards our previously uncommunicated EBITDA margin goal of at least 10% by fiscal twenty twenty.
So let's now turn to Slide 16 to review our fiscal twenty nineteen full year guidance. Based on our fiscal first quarter twenty nineteen results and sorry, second quarter twenty nineteen results and the outlook for the remainder of the year, we are reaffirming guidance in all three reported metrics. Net sales guidance is between $190,000,000 to $1.025 As mentioned on 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 shop and make other facility and process improvements in the flight. These type of production launch losses are typical for an automotive company undertaking significant facility upgrades and our approach will be to minimize them as much as possible. I can assure you we'll be looking for every opportunity to maximize sales throughout the year and we'll provide updates as necessary.
Adjusted EBITDA guidance is between 80,000,000 to $85,000,000 a significant 10,000,000 to $15,000,000 increase over fiscal twenty eighteen as we focus on driving down costs, increasing unit revenue and improving EBITDA margin. Adjusted free cash flow guidance of between 24,000,000 to $28,000,000 Adjusted free cash flow continues to be a strong piece of our business model and typically represents more than 50% of our adjusted EBITDA. Of course, 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 paint facility. I should point out the box we're showing on the right of this slide, which shows the outlook for the second half of the year based on our full year guidance. As you can see, profitability is heavily weighted towards the second half, not surprising with all the increased volume and activity we see in the second half, which significantly improved EBITDA margin as a result.
So in wrapping up, we had a strong second quarter performance, both operationally and financially. As I mentioned at the start of the call, the recurring theme that's driving Power Electronics improvements today reflects higher bus pricing, substantial cost reductions and alternative fuels leadership. We saw the positive impacts of these benefits clearly in the second quarter compared with last year as we increased profitability despite the impact of higher steel and commodity costs and lower unit sales. These actions are driving profit and margin growth in fiscal twenty nineteen with adjusted EBITDA projected to be 14% to 21% higher than fiscal twenty eighteen. Our plans and our guidance support this and we'll continue to update you on our progress each quarter.
That concludes our formal presentation. I'll now hand you back to our moderator, Carolyn, to begin the Q and A session.
Speaker 0
Thank And we'll go first to Matt Koranda with ROTH Capital Partners.
Speaker 4
Hey guys, good evening. Thanks. Hey Matt. I'm going to start off on the implied EBITDA guide for the second half of the year. So it looks like we're still sort of counting on about $11,000,000 of year over year improvement in the back half to get to the midpoint of the full year guide.
So when I think about the waterfall chart that you guys showed in, I think it was on Slide 11 for the quarterly walk, it looks like sort of pricing and cost and transformational initiatives are sort of relatively evenly split in terms of the improvement that you've made year over year in 2Q. Is that what it's going look like in the back half of the year? Just trying to get a sense for sort of are you counting on more price or cost to get you there? And then how much more of a headwind does commodity and component increase represent for the remainder of the year in your guide?
Speaker 1
Let me start with the last bit, Matt. This is Phil. So
Speaker 3
you recall that
Speaker 1
the commodity the real increase in steel frame in the second half of
Speaker 4
the quarter
Speaker 1
last year. So what you're seeing in the second quarter is a bit higher than we actually expect to see. Caveat to that is the raw steel cost increase came very quickly in the second half.
Speaker 3
Some of the supplier pass through
Speaker 1
of steel came a bit slower, so we still got to see some pickup from that. But I would expect that the commodity pricing will ease a bit on a year over year basis as we go through the second half. Now I would add that everybody's been reading the press, and we don't yet know what's going to come out of the discussions with the Chinese delegation in Washington this evening and tomorrow. But assuming for a minute that there is no agreements, we could see a number of items impacted by additional duties. That could impact us by maybe a couple
Speaker 3
of million
Speaker 1
dollars through the balance of the year. We're looking at ways to offset that, but these things take a little time. But we do see maybe an incremental couple of million dollars coming in from tariffs, assuming that there is no agreement reached in scenario tomorrow in Washington.
Speaker 4
Just to clarify that, Bill, the couple of million dollars swing, is that still envisioned in the lower end of the lower band of your EBITDA guidance then? Or would that be below the low end?
Speaker 1
No, that's envisioned.
Speaker 3
Hey, let me this is Phil Holder. Let me just pick up a couple of the other function raised. I mean, certainly, look, when we implemented our pricing to handle the commodities, that was really there was very little impact to that in 2018. It was right at the back end. So when you think of when you see our year over year by quarter coming through this year, you can expect to see a significant pricing benefit year over year in each quarter of 2019 versus 'eighteen.
That's going to happen. And significantly similarly so, while the bulk of our cost reductions obviously last year occurred in the second half, we'll continue to drive cost down. So there's there's a bigger full year effect of those from last year, plus we're continuing to drive aggressively cost reduction. So think you can expect to see significant pricing every quarter and also continued significant cost reductions each quarter. As Phil mentioned, when you get to the second half of the year, you're not going to see the significant bump or the substantial bump up in commodity costs that you saw in the first half of this year because we already have those baked in last year.
Makes sense.
Speaker 4
Very helpful.
Speaker 3
Very
Speaker 4
helpful, guys. And then so the 182 buses worth about $2,000,000 in gross profit, and I'm assuming that's gross profit. Guess that would suggest that the buses were worth, call it, somewhere around $16,000,000 in revenue. Have those already gone out during the quarter? And then to the extent that you're able to describe what the component was that drove the delay?
Speaker 3
Yes. Look, because of confidentiality agreements, really I can't really disclose the supply. Needless to say, we've been working with that supplier. About 50% of those buses are now out, but we're working through it. We're getting production now.
We're getting constant supply of those parts now. I can tell you we aren't missing a bus at all now. And we're also at the same time getting surplus so we can fix the buses that are still sitting there with some incomplete with some parts that need to be addressed. So the bottom line is half those have been taken care of. The rest will certainly be out in the next, I would say, two to three weeks and we're getting handled.
But going forward, we believe we've we'll start with stabilized the situation and addressed it with our supplier.
Speaker 4
Okay, good to hear. Then on the all fuels mix in the backlog at 46%, that's pretty substantially ahead of where I would have anticipated. I guess how much of that do you think you can attribute directly to the VW settlement money that's being dispersed? Know you said the bulk of that's still ahead of you. Any way to try to parse that out in any meaningful way?
Speaker 3
I'd say very little at this point. Maybe a couple of 100 units seriously, a couple of 100 units might be in there, which are propane, I would say. We've got some diesel in there too, because diesel is also clean diesel including the VW money, but is an alternative fuel mix obviously. But look, there's very little of an issue. Even the states have actually granted some funding.
They're living in such small states. People are like parceling this out. And so there's been very little out. It's really well ahead of us. So the great thing is propane sounds its own.
Honestly, I've said this before, it is the only true alternative fuel that makes sense of any grants, any support or anything. It's best value cost of ownership vehicle and it's got the clean aspect to it too. So it's I think what you've seen is a really strong endorsement of that product. I mentioned about the 57 new customers coming to the alternative fuel family. 65 of those were propane customers.
That's still growing. And that's our fastest growing alternative fuel right this year when we look at the growth in alternative fuels, so very strong.
Speaker 4
Okay, great. And then you had been quoting on 100 units, I think, last quarter, and now you have 100 in the backlog. So can you explain, I mean, seems a little high to assume a 100% win rate there, but is that just a product of the fact that you guys are the only guys in production with the electric bus, only big OEM I guess I would say. What's going on there?
Speaker 3
Well, think it was I think I said last quarter we told you there were 100 out there. Mean between last quarter and this quarter, there's been several there's been 100 more bits at least been put out there. Obviously, we think we are the we're the only major OEM in town. I mean, our two major manufacturers don't have an electric bus to offer yet. So I think it bodes well for us.
This is obviously not surprisingly heavily weighted to California, where there are grants being offered. Our dealer there, A and C bus sales out of California, doing a terrific job and in marketing that for us. So yes, we're excited and we have additional units in our pipeline that we're pursuing, but we're off to a great start. We're excited about that.
Speaker 4
Excellent. I'll just do one more and then I'll stop hogging the floor here. But on the paint facility and the progress there, there were two dates that you guys mentioned and I just wanted to get some clarification. So I think June 6 was one day where you said the first bus painted and then June 29 was limited production. Just help me understand the difference between those two dates and then how do we get what needs to happen between those two to get to kind of limited production?
Speaker 3
You know what, I think I'm going to state by me. I think I'm going to say 2019 and not June 29. I think June 6 is when we literally last job one, to speak, when we launch our we paid our first production bus through it. Prior to that, we're in testing mode right now, making sure things work and it's the coating is working well. Job one is there, but I meant to say progressing up in through 2019, we will ramp up the production with a full implementation will be October 2019.
That's when we'll be fully work running the entire plant, we switched over to 100% of our new facility. Until then, we're going to run parallel. We're still painting manual and we're still got robotic. And we'll progressively increase that through the year and then eventually switch over 100% in October.
Speaker 4
Okay. I could have misheard you there too, but thanks the clarification. I'll jump back in queue guys.
Speaker 3
Thanks, Matt. You bet, Matt. Thanks.
Speaker 0
And we'll hear next from Chris Moore with CJS Securities.
Speaker 5
Hey, good afternoon guys. Yes, so with the little bit of shift of revenue into Q3, just trying to get a sense, sometimes Q3 is the strongest, sometimes Q4. On a relative basis, any reason to think that either of the quarters are going to be much different than the other?
Speaker 3
I think we're thinking a bit pretty close. Mean, you saw that upright, sometimes Q3 is strongest, sometimes Q4 is strongest. And I think they're pretty close right now in terms of our outlook.
Speaker 1
Got you.
Speaker 3
Q4 will be a little stronger. Yes. Think so it's still to remind me, Q4 might be a
Speaker 1
little bit stronger than Q3, a little bit And
Speaker 3
that's probably because see some these VW funds. I think we're seeing some of that might be coming out later in the year, which could be a certainly nice boost
Speaker 1
for Q4. So we'll keep our goal posted on that.
Speaker 5
Got it. In terms of aftermarket parts, obviously, in the first half, percentage of revenue is a little bit higher because of mix. Given those relative margins are so strong, any meaningful way to increase the aftermarket's contribution? I know that you had talked in the past that you had you're in better position with the oil fuel buses on that front. As they age a couple of years out, can that mix go up a little bit?
Speaker 3
Yes. We're we have a very, very favorable agreement with Ford and Raj CleanTech on all of the propane, the gasoline, the CNG products. They cover the five year warranty obviously, so everything is including warranty after the first five years. Many of those we started that deal in 2012 with those folks. So they are nicely rolling off.
Are rolling off that warranty now and we are seeing definitely increased revenue from that business from those business lines. Good revenue, good service revenue and maintenance revenue.
Speaker 5
Got That's helpful. One last for me. Just in terms of the free cash flow, I'm looking at the obviously, the other was a big contributor, accrued expenses, other receivables. Any further detail on that?
Speaker 1
Yes. You might recall from the prior one, Chris, that we had a lot of crude expenses and that sort of worked its way through the system. So we've seen that wash out.
Speaker 5
Got it. Okay. All right. Let me jump back in line. I appreciate it, guys.
Speaker 3
Thanks, Chris.
Speaker 0
And next we'll go to Eric Stine with Craig Hallum.
Speaker 6
Hi, everyone.
Speaker 3
Hey,
Speaker 6
So I jumped on late, juggling multiple calls. So I apologize if I touched on something that you've already talked about. But so it sounds like that 46% alt fuel number percent of the mix, just curious, conquest customers, I mean, is there any way that you can break out or how do you think about conquest customers that you have because the other OEMs at least till recently haven't had a gasoline bus, don't have an electric vehicle?
Speaker 3
Yes. First of all, don't think the conquest number right now in the numbers I'm giving you is let me try and spread that right. The conquest is interesting. Let's talk about what the definition is. Conquest means we switch a customer from a competitive bus to our bus.
Someone who's recently been buying competitive and hasn't been buying our buses, he moves to us. And I gave you think we gave you a number that early. I think it was like 16% of our sales of Conquest. Then when I talked about the new customers to the alternative fuel family, Those are actually they can be our customers too. They can be to be fair, they can be Blue Bird Diesel deciding I'm
Speaker 1
going
Speaker 3
to try a Blue Bird propane or a Blue Bird gasoline or a Blue Bird C and G or Blue Bird electric. So I'm going to be and then our customers, it can also be Thomas and IC customers coming trying our products. So a bit of a mixture there. First of all, our competitors, by the way, they have a propane product. Both of them are propane.
They market it. They sell it. And obviously, we command that space. And one of our competitors have a gasoline product. And again, we do command that space and we're mindful of that.
Electric, obviously, we are in there. We are first to market. Other major manufacturers are excited about that. And I think it's good to get a foothold. I think it's placed to what we do very well.
We've been very good at pioneering new business segments along the way. And so strong for us.
Speaker 1
We feel good about it.
Speaker 6
Yes. I guess maybe tough to quantify, but clearly, I mean, you're getting new customers because of your alt fuels.
Speaker 3
Yes. The nice thing is in alt fuels though, what we have seen Eric is that I mentioned before I use the line that owner loyalty is higher. Because of our products, let's be frank, the diesel engines, we've all got the same diesel engines. It's a great diesel engine by the way. Cummins does a terrific job and we love working with Cummins.
Well, all three of us use the same diesel engine. We're different. Alternative fuels was special because we have the best product by a country mine. No one could touch it. I mean, relationship we have with Ford and Raj CleanTech, the way we work together, the way the product holds up in the market, the success we've had, the fuel economy, the performance here and just the sheer emissions level, which is well below anybody else's level of emissions.
It just shows we're different. At electric, I'm excited about being with Cummins. Right now, again, I think we're probably we are Cummins I'm sure we're Cummins' biggest electric vehicle customer, and we're excited about that to be buying drivetrains from them. So I look at from the standpoint of competition comes in, they make us stronger, they make the product really have a mainstream acceptance and we like that and we clearly got leadership in that segment.
Speaker 6
Yes. I guess follow-up to that. I mean, can you talk about the difference that it is making in the market now that Cummins and EDI are buying EDI? Just having that name in the market, is that having a positive impact on uptake or interest levels?
Speaker 3
I think it does have I think obviously everyone knows Cummins. It's a great brand name. They're a powerhouse engine manufacturer. So I think they're coming into the game. I think it gives people really good confidence.
I mean EDI is a great company, but EDI is now Cummins of California. And I think that's a big strength I think we have going forward. But I also think people look at us as this is a bluebird electric bus too. And they know we've done a great job in alternative fuels and we support them. We have a very strong deal of that.
And so it's a really nice combination, but those got to me, Cummins makes us strong.
Speaker 6
Yes, Got it. And maybe last one for me, and I hope you haven't touched on this. But the supplier, the issues there, so it sounds like, I mean, in terms of the buses that were delayed and pushed into 3Q that, that is in good shape. Just curious how you feel about that supplier given that you're getting into obviously your heaviest part of the year here and whether that's in order to handle the volumes that you need?
Speaker 3
Well, obviously when things like this happen, we work closely with that supplier. We need to say our supply chain folks and our leadership of our supply chain is heavily engaged with that supplier to ensure we understood what the inhibitors were, what the bottlenecks were that gave them that problem. I think we've worked with them on the plan for recovery. The plan right now is on track and is working. But we continue to work it.
We don't take anything for granted. But like I said they're a supplier we've worked with over the years, a new supplier to us. But we are working with them well and I feel confident going forward, Eric, that we have a viable plan together. It was a blip. It was an unfortunate incident that caused us right at the end of the quarter.
This has happened probably in back in sort of the let me think about it, February timeframe or late January, we have handled that
Speaker 1
within the quarter. You wouldn't
Speaker 3
even heard about this. So I think I really feel we're over it now that we're addressing it.
Speaker 6
Okay. I appreciate it. Thanks.
Speaker 1
You bet. Thanks,
Speaker 0
And it appears we have no further questions at this time.
Speaker 3
Hey, over again, it's Phil Hart. Thanks, Carolyn, and thanks to all of you for joining us on the call today. We do appreciate your continued interest in Blue Bird, and we really enjoy having the chance to talk to you on this quarterly earnings call. As you can see by our second quarter results and outlook for the full year, we are focused on profitable growth, we intend to deliver on our commitments. And I believe we're well positioned for future growth and also growth today, of course.
Please don't hesitate to contact our Head of Investor Relations, Mark Bairfield, should you have any follow-up questions. Thanks again from all of us at Blue Bird and have a great evening.
Speaker 0
And that will conclude today's conference call. Thank you everyone for your participation. You may now disconnect.